February 22, 2009 / 5:05 PM / in 10 years

UPDATE 1-Vietnam opens $3 bln oil refinery

(Updates with opening, quotes)

By Nguyen Nhat Lam and John Ruwitch

DUNG QUAT, Vietnam, Feb 22 (Reuters) - Vietnam opened its maiden oil refinery on Sunday, a project that has been dogged by delays, failed joint ventures and criticism of its location, but which ends the country’s total reliance on imported fuel.

The 140,000-barrels per day (bpd) Dung Quat plant, flanked by rice paddies and situated on a sandy stretch of coast almost exactly halfway between the capital Hanoi and commercial hub Ho Chi Minh City, will eventually allow Asia’s second-biggest autofuel buyer to cut imports by a third.

A one hour and 20 minute ceremony was broadcast live on primetime state TV, underscoring the importance attached to Vietnam’s biggest economic project ever, 15 years in the making.

The refinery “is a symbol of socialism in Vietnam’s ‘doi moi’ reform era”, said Tran Ngoc Canh, CEO of Petrovietnam.

Dung Quat was conceived in 1994 so that Vietnam could put its domestically produced crude oil to use at home instead of selling it to foreign refiners, only to import fuel at high prices.

VIPs, including Prime Minister Nguyen Tan Dung, saw workers fill tankers with “made in Vietnam” petrol for the first time.

Vietnam’s leaders decided to put the plant in Quang Ngai in the hope that it would kickstart the economy of central Vietnam, the poorest region in the S-shaped Southeast Asian country.

But locating the refinery in Dung Quat — far from both the crude oil fields and the majority of the country’s downstream product users — has made for a rough ride.

In 1995, France’s Total (TOTF.PA) pulled out of a planned joint venture to build the refinery with state oil monopoly Petrovietnam over the location and in 2002 Russian state oil Zarubezhneft bailed out too, due to disagreements over the plant’s distant location and technical issues.

The central coast is typhoon-prone, too.

Still, local officials say the deepwater port will make it cheaper to import crude oil from the Middle East eventually.

Currently, the facility is only outfitted to process Vietnam’s flagship Bach Ho light sweet crude oil, whose offshore fields are expected to run dry in less than a decade.

Petrovietnam has a preliminary agreement with BP (BP.L) for supplies, and if the plant cannot be retrofitted in time, Nguyen Hoai Giang, technical deputy general director of the facility, said BP could provide oil of similar quality to the Bach Ho the plant is contractually bound to use exclusively until 2011.

The refinery is expected to be running at full capacity of 6.5 million tonnes a year by August and plans were already under way to expanded to 10 million tonnes by 2013 or 2014 — an increase of more than 50 percent, officials said.

To get there will likely require outside investment.

Petrovietnam hopes to install a $1 billion desulphurising unit by 2013 and is in talks with foreign oil companies including Royal Dutch Shell (RDSa.L), India’s Essar and South Korea’s SK Energy (096770.KS) to upgrade and sell part of the refinery.

Vietnam has other oil refineries in the pipeline. The 200,000-bpd Nghi Son refinery is expected to comes online in 2011, and Vietnam is planning a 240,000-bpd refinery in Long Son — both of which are closer to the users.

Consumption of oil products in the country of 86 million people and 25 million motorbikes stands at about 280,000 bpd and is expected to grow 10-12 percent (about 30,000 bpd) a year in the next three years, according to energy experts. (For TABLE-Vietnam’s refineries projects, click [ID:nHAN87043]) (For FACTBOX-Vietnam’s Dung Quat refinery, click [ID:nHAN227278]) (Editing by Jon Loades-Carter)

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