tailieunhanh - What future gas price mechanism for Vietnam

Gas market expansion proceeded in Vietnam through 2010 despite managed gas pricing, as most indigenous gas reserves could be produced at a relatively low cost. But, as new sources of supply are higher cost, Vietnam must transition to a new pricing mechanism or risk market stagnation and supply declines in the longer term. Vietnam is not alone in this situation, and can draw from lessons learned from other markets in Asia to determine the appropriate pricing mechanism for the market context and government policy objectives. Successful models include gradual introduction of market orientation and price increases. | PETROVIETNAM WHAT FUTURE GAS PRICE MECHANISM FOR VIETNAM Rebecca Keller IHS Email Summary Gas market expansion proceeded in Vietnam through 2010 despite managed gas pricing as most indigenous gas reserves could be produced at a relatively low cost. But as new sources of supply are higher cost Vietnam must transition to a new pricing mechanism or risk market stagnation and supply declines in the longer term. Vietnam is not alone in this situation and can draw from lessons learned from other markets in Asia to determine the appropriate pricing mechanism for the market context and government policy objectives. Successful models include gradual introduction of market orientation and price increases. Key words Gas pricing LNG. 1. Introduction Vietnam enjoyed strong gas market expansion in the mid-2000s through integrated gas-to-power and fertiliser projects which served as long-term offtakers for offshore fields. From 2000 to 2010 annual production grew by over 20 on average with sales priced at relatively low levels set by the government. Prices were negotiated on a bilateral basis for each project and approved by the government and were initially in the range of USD 1 - 4 MMBtu. From a policy perspective the government aims to keep prices at a level that is affordable for the price-sensitive power and fertiliser sectors which account for over 90 of demand. In Vietnam power generators face regulated pricing for electricity sales which constrains their ability to use higher-cost gas feedstock while they also faced fuel competition with low-cost generation from coal and hydro power. This pricing mechanism worked for market expansion initially because offshore gas projects were relatively low-cost fields to develop especially for associated gas. Vietnam was not alone in this approach many other developing countries in Asia also put in place low regulated pricing to support initial development of their domestic gas markets. But unlike Vietnam many of