* Construction starts on 200,000 bpd Nghi Son refinery on Wednesday
* Vietnam's refining capacity to rise to 330,500 bpd by 2017
* Net product imports seen down 16 pct to 180,000 bpd by 2018 - IHS
By Ho Binh Minh
HANOI, Oct 23 (Reuters) - Vietnam will more than double its refining capacity in the next four years with construction starting on Wednesday for a second plant, as rapid economic expansion in the southeast Asian nation boosts fuel demand.
The 200,000 barrels per day (bpd) Nghi Son facility will increase the country's oil processing capacity to 330,500 bpd by 2017, but it and a smaller older plant will only be able to meet half of the nation's fuel demand by then, according to PetroVietnam, the state oil and gas group.
That will ensure Vietnam remains a steady importer of oil products, helping keep regional fuel prices supported. In addition, the refinery will also have a petrochemicals plant, which will soak up some of the output, leaving less volumes of fuels such as gasoline for sale in the local market.
"You may wonder why the reduction in product imports post Nghi Son startup looks small. One reason is that Nghi Son will produce paraxylene. As a result, its gasoline production will be quite low," said Victor Shum, vice-president of energy consultancy IHS Energy Insight.
"Another reason is product demand growth in the market."
IHS expects Vietnam's net product imports to fall only 16 percent by 2018 to 180,000 bpd, after the start up of the second plant, from 215,000 bpd in 2012.
Vietnam's economic growth is expected to accelerate to 5.4 percent this year and is targeted to quicken further in 2014, Prime Minister Nguyen Tan Dung said.
Construction of the plant, to be located about 180 kilometers (112 miles) south of Hanoi, is commencing with a groundbreaking on Wednesday. The facility is owned by Japan's Idemitsu Kosan, Mitsui Chemicals, PetroVietnam and Kuwait Petroleum International.
Vietnam used to be completely dependent on oil products imports until its sole refinery came onstream in early 2009.
For the first nine months of this year, its oil products imports had fallen 23 percent to 5.58 million tonnes from the same period a year ago due to full runs at the 130,500 bpd Dung Quat plant, government statistics showed.
Total oil products demand this year is estimated to reach up to 17 million tonnes, 60 percent of which will be met via imports, based on an Industry and Trade Ministry forecast.
The nation's dependence on imports may remain particularly heavy for products such as jet fuel despite the new refinery, one Singapore-based trader said.
The International Air Transport Association expects Vietnam to become the world's third-fastest growing market for international passengers and freight next year, and second-fastest for domestic passengers.
Diesel imports may hold steady, with the new refinery feeding the expected growth in consumption of the fuel.
"Diesel imports are likely to remain the same as the demand growth in Vietnam is in line with the supply growth, keeping the 2018 imports at same levels as in 2013," said Suresh Sivanandam, an analyst at Wood Mackenzie.
But Vietnam may turn a net exporter if it meets its ambitious plans of further boosting its refining capacity by 2020, as supply may outstrip demand.
Dung Quat is looking to expand its output to 10 million tonnes per year by 2015 and PetroVietnam is also planning on building a 10 million tonnes a year Long Son refinery in the country's southern region, targeted for completion in 2018. (Additional reporting by Jessica Jaganathan in SINGAPORE, Sylvia Westall in KUWAIT; Writing by Seng Li Peng; Editing by Manash Goswami and Muralikumar Anantharaman)