VN oil and gas 2014.PDF

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INDUSTRY COVERAGE
Crude oil price performance in one year
Source: Bloomberg
Natural gas price performance in one year
Source: Bloomberg
Vietnam’s primary energy consumption has grown rapidly in the last 10
years compared to other countries in Southeast Asia. The country has
highest growth in primary energy consumption among countries within
the region. Consumption increased by 27.7% in 2004, and decreased to
3.7% in 2005. Total primary energy consumption in the period of 2003-
2013 had a compound annual growth rate (CAGR) of 7 %, while GDP
growth was about 6% on average for the same period. Vietnam no
longer looks capable of producing 400,000 barrels per day like it could
earlier in the century. Meanwhile, the demand for oil and gas
increasingly continuously. Vietnam is trying to increase its crude oil
production by expanding Exploration & Production (E&P) activities
abroad at the same time, the State and PVN will have to open up
foreign investors to reaping more of the reward. According to PVN, the
country’s oil production will reach 420 thousand barrels per day (kbpd)
at its peak in 2014, reflecting a CAGR of 3.7% in 2009 to2014. Domestic
production is then estimated to decline dramatically to only 150 kbpd
by 2020.
Vietnam’s Liquefied petroleum gas (LPG) consumption is forecast to
grow stronger than suppliers; as a result refinery production cannot
meet the demand. However, thanks to new suppliers Vietnam will
significantly reduce import volumes. Demand is expected to reach 2.1
million tons (Mt) by 2020 with potential shortages in supply after 2025,
not mention to other large LPG consumers -PP and PE petrochemical
plants – which will commence operations after 2020. Vietnam will
continue to face a deficit in LPG after 2020 and imports shall remain as
the country’s primary solution.
To develop domestic petroleum supply, Vietnam is planning to put
online several refineries in the near future. As a result, the country’s
refining capacity should reach 31 Million tonnes per annum (Mtpa) in
2020, 36 Mtpa in 2021 as maximum. As a result the import of petroleum
products declines, Vietnam will experience a surplus in gasoline and
jetA1. The quota amount as well as the market share will change
dramatically. The market will belong to the manufacturers of petroleum
products. Since PetroVietnam has a stake in all of the emerging
refineries, we expect PV Oil to overtake Petrolimex and become the key
player in the market.
Oil and gas stocks are currently within the few favorable choices of
investors on the stock market. Energy stocks in Vietnam stock
exchange are currently trading at an average PE of 14.3x, average PBV
of 1.6x and ROE of 27.5 %. Prices of petroleum stocks in the past two
weeks have increased about more than 10% on average. In the medium
term, we expect these stocks to continue to rise, especially when the
crude oil and gas prices are increasing.
80
85
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95
100
105
110
115
3.0
3.5
4.0
4.5
5.0
VIETNAM OIL AND GAS INDUSTRY
January, 2014

CONTENTS
REGIONAL OVERVIEW.................................................................................................................................................................................3
Crude oil...................................................................................................................................................................................................4
Natural Gas ..............................................................................................................................................................................................5
VIETNAM CASE............................................................................................................................................................................................7
Oil and gas industry’s structure .............................................................................................................................................................7
Key Players...............................................................................................................................................................................................8
PetroVietnam ........................................................................................................................................................................................8
Petrolimex...........................................................................................................................................................................................10
Where to exploit oil and gas.................................................................................................................................................................11
Legal frameworks – Investment guide? ...............................................................................................................................................13
Upstream ............................................................................................................................................................................................13
Downstream .......................................................................................................................................................................................15
Exploration and production..................................................................................................................................................................17
PetroVietnam Exploration Production Corporation (PVEP) – The oil taker................................................................................17
PetroVietnam Oil (PV Oil)– the oil exporter..................................................................................................................................17
PV Gas –the Natural Gas taker ......................................................................................................................................................17
Crude oil - Seeing the shortage! .......................................................................................................................................................17
Crude oil price ................................................................................................................................................................................19
Natural Gas.........................................................................................................................................................................................20
Supply – saving from the North? ..................................................................................................................................................20
Natural Gas market: Multi sellers –single buyer- single reseller ................................................................................................24
Downstream – Processing and Distribution ........................................................................................................................................27
LPG ......................................................................................................................................................................................................27
Market regulation ...........................................................................................................................................................................27
Key Players .....................................................................................................................................................................................29
LPG Infrastructure - Storage: Time to stop building....................................................................................................................30
Pricing .............................................................................................................................................................................................32
LPG Market Outlook ...........................................................................................................................................................................34
Supply .............................................................................................................................................................................................34
Demand...........................................................................................................................................................................................35
LPG supply-demand forecast ........................................................................................................................................................36
Profitability of listed LPG Traders .................................................................................................................................................37
Petroleum products............................................................................................................................................................................39
Market regulation and key players................................................................................................................................................39
Key players .....................................................................................................................................................................................40
Petroleum products infrastructure................................................................................................................................................42
Retail distribution ...........................................................................................................................................................................43
Pricing .............................................................................................................................................................................................43
Gasoline distribution profitability .................................................................................................................................................45
Petroleum products supply ...............................................................................................................................................................46
Domestic supply development - booming decade ......................................................................................................................48
Demand...........................................................................................................................................................................................51
CONCLUSION.............................................................................................................................................................................................53

REGIONAL OVERVIEW
ASEAN is one of the fastest growing economic regions in the world and has rapidly
growing energy demand that is being driven by economic and demographic growth.
ASEAN is an extremely diverse and disparate region with vast differences in the scale
and patterns of energy use and energy resource endowments, both among and
within the member countries. Indonesia, the largest energy user in the region with
36% of overall demand, consumes 66% more energy than Thailand (the second-
largest user) and over 50 times more energy than Brunei Darussalam (which has the
lowest consumption). Another important indicator, access to electricity, also varies
widely: ranging from near universal access in Brunei Darussalam, Malaysia, Thailand
and Singapore to below 50% in Cambodia and Myanmar.
ASEAN countries’ energy sources
Source: International Energy Agency (IEA)
ASEAN’s primary energy requirement is projected to triple between 2005 and 2030
and contributed about 4% to the world’s total consumption in the period of 2003 to
2012. According to ASEAN Energy Outlook 2013 of IEA, the region’s energy demand
is forecast to reach 1,004 million tonnes of oil equivalent (MTOE) in 2035 from 549
MTOE in 2011, an average annual growth rate of ~3%. This is higher than the world’s
projected average growth rate of 1.8% in primary energy consumption through 2030.
The biggest consumer of primary energy in Southeast Asia is Indonesia. Indonesia
consumes 128.4 MTOE per year, while consumption in Thailand ranks number two
with an average of 93.6 MTOE. Primary energy consumption in Vietnam ranks fifth in
the region with an average of 35.2 MTOE. However, the growth in consumption is the
Vietnam has the strongest
growth in primary energy
consumption among ASEAN
countries.

biggest in Southeast Asia. Energy demand in Vietnam has exhibited strong growth in
the last decade.
Vietnam’s primary energy consumption has grown rapidly in the last 10 years
compared to other countries in Southeast Asia. As we can see in bellow figure,
growth of Vietnam’s primary energy consumption always ranks highest among
countries within the region. Consumption growth was 27.7% in 2004, and decreased
to 3.7% in 2005. Total primary energy consumption in the period of 2003 to 2012 had
a CAGR of 8.8%, while GDP growth was about 7% on average for the same period.
According to the Ministry of Industry and Trade, Vietnam’s energy consumption will
grow rapidly over the next few years and add to its status as a net oil importer. In
2012, Vietnam consumed about 52 MTOE of primary energy and in 2013, it is
estimated that Vietnam will consume about 55 MTOE, an increase of 5.5% compared
with 2012.
Growth in primary energy consumption
Source: BP Statistical Review of World Energy 2013
Crude oil
Oil production for the ASEAN nations (the lion's share of which is produced by
Indonesia and Malaysia) peaked in 2000. Indonesia's production in 2010 was more
than 40% below its peak production year while Malaysia has fallen back 27% from
its highs. Vietnam no longer looks capable of producing 400,000 barrels per day like
it could earlier in the century. Of the top four producers in the region only Thailand
is increasing production year over year and for now reached its max in 2012. The
region’s rapid growth has reversed what was a great outflow of oil to the rest of the
world to an even larger inflow as total oil demand has raised to more than 28
million barrels per day (mbpd) while total production is just 2.5 mbpd, the bulk
from Indonesia (36%), Malaysia (27%). This accounts for just over 2.9% of the
global production and is expected to decrease at a CAGR of -1.7% through 2030 to
1.9% of global production. Indonesia remains the largest producer at the end of the
4.7%
27.7%
3.7%
8.4% 8.1%
5.3%
14.6%
3.9%
5.0%
13.2%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
2003 2006 2009 2012
Indonesia Malaysia Philippines
Singapore Thailand Vietnam
ASEAN crude oil demand is
going to increase while
regional production is going
down.

projection period, followed by Malaysia and Vietnam. Myanmar, which is relatively
under-explored after years of economic isolation, may hold potential for additional
oil output.
In stark contrast to the production outlook, SE Asia demand is going to increase.
The major oil companies are all positioning themselves to source future needs.
ASEAN now represents 5.34% of global crude oil demand. The region accounted
for 12% of the global increase in demand from 2000 to 2011.World oil consumption
is likely to rise at a CAGR of between 1.0 and 1.2% through 2030. This will mean the
global oil market growing from approximately 89 mbpd to more than between 105
mbpd (CAGR of 1.0%) and 110 mbpd (CAGR of 1.2%).
ASEAN countries crude oil production as of 2012
Source: IndexMundi
Natural Gas
Southeast Asia is loaded in natural gas more than oil, with 7.5 trillion cubic metres
of proven reserves at the end of 2013, representing 3.5% of the global total.
Demand for natural gas in Southeast Asia is expected to increase from 141 billion
cubic metres (bcm) in 2011 to around 250 bcm in 2035, an increase of 77%. The
share of gas in the energy mix remains more or less flat through to 2035, at just
over 20%. Higher gas prices are the main reason that gas demand growth slows
compared with past trends. Because many of the region’s gas-producing basins
are mature and prospective ones are poorly located relative to demand centres, gas
demand throughout the region increasingly will be met by liquefied natural gas
(LNG) imports, which tend to be more expensive relative to the low (and often
subsidized) gas prices that have been commonplace.
However, ASEAN countries are currently introducing more stringent local pollution
regulations (or potentially carbon abatement measures in the longer term) which
20 kbpd
440 kbpd
348
kpbd
19.99
kbpd
158 kbpd657
kpbd
918
kbpd

could boost the prospects for natural gas, given its cleaner attributes relative to
coal.
Proved Natural Gas Reserves in ASEAN countries
Source: BP Statistical Review of World Energy 2013
Therefore, transformation sector—power generation, gas processing, refineries,
and other transformation processes—is expected to contribute the most to
incremental growth between 2010 and 2035, accounting for 55.6%, followed by
other sectors (mainly the residential and commercial sectors) at 24.3% and the
industry sector at 14.7%.
2.9 1.3 0.2 0.3 0.6
41.2
20.3
17.4
6.9
65.6
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
Indonesia Malaysia Myanmar Thailand Vietnam
Trillion cubic
metres
Proved natural gas reserves R/P ration

VIETNAM CASE
Oil and gas industry’s structure
Vietnam's oil and gas sector is dominated by the state-owned Vietnam Oil & Gas
Corporation (PetroVietnam) under control of the Ministry of Industry and Trade,
essentially both the operator and regulator in the industry. All oil and gas
production in the country is carried out by PetroVietnam’s upstream subsidiary,
PetroVietnam Exploration and Production (PVEP), or through joint ventures (JVs) or
production sharing contracts (PSCs), in which the national oil company (NOC) has
at least a 20 percent equity interest.
Vietnam Oil and Gas industry key players
Source: VBPS
PetroVietnam is also involved in Vietnam's downstream oil sector through its
subsidiary, PetroVietnam Oil Processing and Distribution Company (PV Oil). The
largest oil producing company in Vietnam is Vietsovpetro (VSP), a long-standing
joint venture between PetroVietnam and Zarubezhneft of Russia, which continues
to operate the Bach Ho, Rong, and Rong South-East oilfields. The two firms agreed
to extend the partnership for another 20 years starting in 2011.
Goverment
(Prime Minister)
MOIT
UPSTREAM MIDSTREAM DOWNSTREAM
PetroVietnam
Group
(PVN)
PVEP
VietSovpetro
PVN
PV GAS
PVN Petrolimex
Refinery
PV Gas
Join -ventures :
TNK-BP, Lukoi,
Gazprom,
ExxonMobil,
Chevron, BHP
Billiton, Korea
National Oil
Corporation (KNOC),
Total, India's ONGC,
Malaysia's Petronas,
Nippon Oil of Japan,
Talisman, Thailand's
PTTEP, Premier Oil,
SOCO International,
and Neon Energy
Other state-
owned
companies
PVD
PV Oil
Dung Quat
Refinery
Petrolimex Gas
JSC (PGC)
Other
subsidiaries
companies
Sai Gon Fuel
JSC (SFC )
Saigon Petro
JV/Private
companies
PetroVietnam
Southern Gas
(PGS)
PetroVietnam
Northern Gas
(Gas)
PV Gas D JSC
(PGD)
Directorate General
of Energy (DGE)
Militarry
MIPEC
Vietnam Marine
ZETA1
Petrolimex
Nam Viet Oil
Thanh Le
Vinapco
Petimex
Hiep PHiep
Phuc Petroleum
huc Petroleum
Anpha Petro
Ha Noi Petro
Emeco
Others JV and
JSC companies

In natural gas, PetroVietnam's main foreign partners involved in the production and
development are TNK-BP, Chevron, KNOC, Gazprom, Petronas, Thailand's PTTEP,
Talisman, ExxonMobil, Total and Neon Energy. Shell also expressed interest in
entering Vietnam's upstream and downstream natural gas markets, including
liquefied natural gas (LNG), and is in the process of signing a memorandum of
understanding with the country. PetroVietnam and Gazprom formed a strategic JV,
Vietgazprom, which is now exploring undeveloped natural gas fields in both
countries.
In the downstream sector, PVN and Petrolimex are the two biggest players
however; Petrolimex is currently involved only in transportation and distribution
while PVN also produces refined products and gas processing. In addition, there
are other companies which are active in the downstream sector. These companies
are divided in two three types: private, state owned and foreign joint ventured
companies.
Key Players
PetroVietnam
PetroVietnam Group (PVN) was established in 1975 as the only domestic petroleum
company and represents Vietnam’s government in operating and managing the oil
and gas industry of Vietnam. PVN is controlled under the Ministry of Industry and
Trade and is directed by the Prime Minister.
Petro Vietnam’s revenue (USD bn)
Source: PVN
PVN’s revenue mainly comes from crude oil, natural gas production, urea
production, power production and production of petroleum, petrochemical
products. In addition, income is also derived from petroleum trading activities
including the export of crude oil, sale of crude oil to Dung Quat refinery. The
group’s revenue contributes about 20% of the country’s GDP on average. PVN’s
upstream activities contribute about 50% of the total income of the group,
05 07 10 11 13 16 16 23 23 31 36
46%
36%
18%
13%
30%
-05%
49%
00%
34%
17%
-10%
00%
10%
20%
30%
40%
50%
60%
0
5
10
15
20
25
30
35
40
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E

meanwhile, downstream business makes up 30% and others activities contribute
the remaining 20%. In 2013, PVN reached revenue of VND 762,860 billion (USD 36.3
billion) increased by 16.8% vs 2012.
Being one of the biggest sources of revenue for the country, PVN had many
members that operate similar business. The group is a diversified conglomerate
and currently controls forty companies and enterprises:
 Seven subsidiaries under 100% control of PVN including: Petro Vietnam
Exploration & Production (PVEP), PetroVietnam Oil (PV Oil), PetroVietnam
Power (PV Power), Binh Son Refining and Petrochemical Limited (BSR)
which operates the Dung Quat refinery, Dung Quat Shipping Company and
Lai Vu Industrial Zone
 14 affiliates responsible for project management, scientific research and
training units
 14 member units in which PVN holds 50% control. These units are mainly
PVN’s former subsidiaries, being equalized and listed on the Vietnamese
stock market
 six associates with domestic and foreign investors.
PVN's organization chart
Source: PVN
PETROVIETNAM (PVN)
Directly under PVN
NASOS
Ca Mau Power Gas Fertilizer
Board Management
Nghi Sơn Petrochemical
complex Board Management
Dung Quat Refinery Board
Management
Vietnam Oil University
Long Phu - Song Hau Power
ProjectBoard Management
Thai Binh Power plant Board
management
Vung An- Quang Tract Power
plant management
Jackup buiding Management
Bien Dong POC
PVCoal
Members
100%Capital
PetroVietnam Exploration
Production (PVEP)
PetroVietnam Oil (PV Oil)
PetroVietnam Power (PV
Power)
Bình Sơn Refinery-
Petrochemical (BSR)
Dung Quat Shipping (DQS)
Petrovietnam Ca Mau
fertilizer Company (PVCFC)
Lai Vu industry zone
Above 50%Capital
PetroVietnam Drilling (PVD)
Petrovietnam Techical service JSC
(PTSC)
Petrovietnam Transportation JSC
(PVT)
PetroVietnam Financial Corporation
JSC (PVFC)
Petrovietnam Insurance JSC (PVI)
Petrovietna general Service JSC
(Petrosetco- PET)
Petrovietnam Construction JSC (PVC)
Petrovietna Fertilzier Chemical JSC
(PVFC) Co
DrillingMud Corporation (DMC)
PETEC Trading and Investmnet
Corporation (PETEC)
Petrocvietnam Petrochemical and
Fibre JSC (PVTex)
PetroVietnam Energy Technology
Corporation (PV EIC)
Phuoc An Port Construction
Investment Consultant JSC (PCIC)
Associates
Vietsopetro (VSP)
Rusvietpetro
Nghi Son refinery plant
(NSRP)
Ocean Bank
LongSơn Petrochemical
Company Ltd.Co
Dong Duong Xanh
Development Company
Science Research Institutions
Vietnam Petroleum Institute
(VPI)
PetroVietnam University
(PVU)
PetroVietnam Manpower
Training College (PVMTC)

Petrolimex
Vietnam National Petroleum Group (Petrolimex) was instituted from the
equitization and restructure of Vietnam National Petroleum Corporation by
Decision 828/QD-TTg of May 31, 2011 by the Prime Minister as a public company as
per document 2946/UBCK-PLQH of August 17, 2012 by the State Securities
Commission. Petrolimex’s main business scope is to import, export and deal in
petroleum, refining and petrochemical products, invest in other fields which
Petrolimex is operating and other sectors allowed by law. Petrolimex’s income is
estimated at about USD 10 billion on average which makes up 10% of the country’s
GDP.
Besides petroleum products, oils, greases, petrochemical products, LPG and oil
transport, Petrolimex invest in such fields as engineering, installation, mechanical
and oil equipment, insurance, banking and other commercial and services activities
in which several trademarks are classified as leading brands of Vietnam as PLC,
PGC, VIPCO, PITACO, PJICO…
Petrolimex organization
Source: Petrolimex
Petrolimex currently has about 42 member companies which are directly dealing in
oil products in 62 out of 63 provinces and cities. In addition, Petrolimex has
Petrolimex single-member company limited in Singapore, Petrolimex single-member
company limited in Laos, and recently a representative office in Cambodia. Besides
petroleum products, Petrolimex also distributes lubricants, gas and is involved in
insurance and banking businesses. In 2013, Petrolimex’s income is estimated to have
reached VND 196,330 billion (USD 9.4 billion, profit before tax is about VND 1,929
billion (USD 92 M), an increase of 97% vs VND 978 billion (USD 47 million) of 2012.
VIETNAM
PETROLIMEX
SHAREHOLDERS
MEETING
SUPERVISORY
BOARD
BOARD OF
MANAGEMENT
CEO
SECRETARIAL OFFICE
INTERNAL AUDITING
DEPARTMENT
DEPARTMENT OF PLANNING
AND INVESTMENT
COMMITTEE OF RECOGNITION
AND PROMOTION
SUBSIDIARIES
HOLDING
COMAPNIES
ASSOCIATE
COMPANIES
SPECIALIZED DEPARTMENTS
AND FINANCIAL ACCOUNTING
CENTRE
REPRESENTATIVE
OFFICE IN HO CHI
MINH CITY
REPRESENTATIVE
OFFICE IN CAMBODIA
PETROCHEMICALS (PLC
GAS (PGAS)
INSURANCE
(PJICO)
WATERWAY OIL
TRANSPORTATION
CONSTRUCTION AND
INSTALLATION
PETROLEUM
SERVICES
MILITARY
PETROCHEMICALS JSC
VIETNAM EXPRESSWAY
SERVICES JSC
OTHER ASSOCIATE
COMPANIES
PETROLIMEX GROUP
COMMERCIAL JOINT
STOCK BANK
CASTROL-BP-
PETCO LTD CO.
AVIATION FUEL JSC
VAN PHONG BONDED
PETROLEUM TERMINAL LTD CO.
SINGAPORE-BASED PETROLIMEX
ONE-MEMBER LTD CO.
42 VIETNAM-BASED PETROLEUM
ONE-MEMBER LTD CO.
INTERNATIONAL TRADING JSC
CHEMICALS LTD CO.
INFORMATION TECHNOLOGY
AND TELECOMMUNICATION JSC

Where to exploit oil and gas
According to BP Statistical Review 2013, Vietnam’s oil reserves make up 0.3% of
the worldwide total, increasing by an annual average rate of 8.5% from 2000 to
2012. The country’s oil reserve to production ratio (RPR) holds the highest level
among ASEAN countries and in the Asia Pacific region. In comparison with
neighboring countries such as Thailand, Malaysia and Indonesia, Vietnam has the
biggest proven crude oil as of 2012 (4.4 billion barrels). However, Vietnam’s natural
gas proven reserves lag behind Indonesia and Malaysia reaching 0.6 trillion bcm.
Vietnam’s oil and gas potential is located mainly in seven basins: Cuu Long, Con
Son, Red River, Malay Tho Chu, PhuKhanh basin, Hoang Sa and Truong Sa. Five of
these are in operation and two are under exploration and reserve investigation (the
Hoang Sa and Truong Sa basins). The oil basins of Vietnam are mainly
sedimentary, and possess complex characteristics. In particular, the two latter
offshore basins in the East Sea lie in the deepest water requiring heavy investment.
The Cuu Long basin was the first to be exploited in Vietnam, and is considered as
having the largest oil reserves. However, it has been exploited for 23 years and is
now showing signs of decreases in output. Malay Tho Chu has more gas potential,
while Red River basin’s potential is not considerable.
 The Cuu Long basin: Stretching over an area of 60,000 km2, from the
Mekong River to the East Sea, this basin had very high oil and gas potential
that has been almost completely developed and exploited. Most fields in
the basin consist of crude oil and condensate gas except for the Su Tu
Trang and Emerald fields that contain gas and condensate gas.
 The Nam Con Son basin: This basin is located southeast of the Cuu Long
basin covering an area of about 160,000 km2. Most fields in the Nam Con
Son basin are gas-condensate fields (with the exception of the Dai Hung
and Moc Tinh oil fields). The principal component is methane gas, with low
CO2 and sulfur content. The basin currently has seven fields in production,
Lan Tay and Dai Hung, Chim Sao, Thien Ung along with others namely Lan
Do, Rong Doi/Rong Doi Tay. In addition, there are some promising fields in
the evaluation stage such as Thanh Long, Hai Au.
 The Malay-Tho Chu basin: Located in the southwest of Vietnam’s
continental shelf, in the Gulf of Thailand, this basin saw oil and gas
exploration begun in the early 1990s. The basin, covering an area of about
40 km2, has potential reserves of between 300 to 400 million cubic metres
(Mm3) oil equivalents. Gas findings with high levels of methane and CO2
have been predominant findings in this basin. Currently, only block PM3-
CAA in the overlap pending area of Vietnam and Malaysia has been
Vietnam’s oil reserves make up
0.3% of the worldwide total,
increasing by an annual
average rate of 8.5% from 2000
to 2012
Cuu Long and Nam Con Son
basins contribute about 87% of
Vietnam’s total crude oil
production

developed, beginning in 2003, supplying its first gas to Ca Mau in April
2007.
 The Red River basin: The Red River basin is located in an area close to
Hanoi passing through the Gulf of Tonkin and the central continental shelf.
At present, only the Tien Hai C gas field is close to achieving production.
This field has a recoverable reserves of 0.6 billion m3, and is expected to
have a production rate of eight to 10 Mm3 per year.
 The Phu Khanh, Tu Chinh and Vung May basins: The Phu Khanh, Tu Chinh
and Vung May basins are located in the deep water area of the southern
part of the East Sea and are estimated to have large reserves of about
1,450 MTOE. Only minimal exploration has been carried out in this area
thus far.
 The Parcel and Spratly basins: The Parcel islands' basin, located near the
center of the East Sea and surrounded by Vietnamese sea territory (off Da
Nang) and the Philippine islands (Lucon island), has a total area of
approximately 50,000 km2. The Spratly islands are located to the Northeast
of the East China Sea. The total surveyed area is approximately 190,000
km2, including groups of island sand coral reefs in an elliptic shape. The
Parcel islands' basin is a potential source of gas with in-place reserves
estimated to be 340 billion m3, and potential recovery of 198 billion m3. The
Spratly Islands basin is estimated to have a substantial reserve of oil, but
geological expedition and exploration activities progress at a slow pace due
to the geopolitical complications of the area.
Vietnam Oil and Gas areas
Source: PVN
Ho Chi
Minh City
Da
Nang
Hanoi
Hoang Sa basin
TruongSa basin group
Nam Con Son
basin Majoroil producingarea
Majorgasproducingarea
Majorgasproducing area
The country has seven types of
crude oil and all are essentially
light sweet type
Natural Gas in Vietnam
currently is extracted from 20
fields in three basins

The country has seven types of crude oil which are produced from different oil
fields: White Tiger, Dragon, Dai Hung, Rang Dong, BungaKekwa/CaiNuoc and Black
Lion. Generally, all seven types of oil are of good quality and sell at higher prices
compared with Brent standard in the world market. Vietnam’s crude oil is
essentially light sweet, with a density of 380 to 402 API (The American Petroleum
Institute gravity )and low sulfur content (0.03 to 0.09%), which fetches a premium in
the global market. However, Vietnamese crude oil recently produced has contained
high levels of mercury, which has decreased its value.
Natural Gas in Vietnam currently is extracted from 20 fields in three basins such as
Cuu Long, Nam Con Son and Malay Tho Chu. According to numbers of 2012,
Vietnam has an estimated 12.6 trillion cubic feet (Tcf) of total proven natural gas
reserves and potentially has 23.1 Tcf of gas reserves, which are mainly contained
within the Cuu Long, Nam Con Son, Malay – Tho Chu and Song Hong basin. There
is an estimated gas potential of 10.5 Tcf in the as yet developed Song Hong Basin.
The high CO2 content of the gas stream has increased development cost
projections and delayed extraction The Block B O Mon gas field of the Malay-Tho
Chu basin is expected to come online in late 2015 with a gas supply capacity of 250
Bcf/year to compensate for depleting gas supplies from the Bach Ho gas field.
In addition, Vietnam is estimated to have coal-bed methane (CBM) potential of
approximately 14.1 Tcf. Australia-based Dart Energy conducted technical studies
appraising drilling at the Hanoi Trough block, which was believed to contain CBM
deposits beyond 1,000m underground. Dart Energy eventually relinquished the
block when it found the extraction of CBM at such depths to be uneconomical.
Other areas with high CBM potential include: Song Hong Basin – located in
northern Vietnam’s largest river in the Haiphong area, with gas content of CBM
deposits spread over a 3,500 km2 area estimated at six to 10 TCF, Quang Yen Basin
– located in northeast Vietnam with an area of approximately 5,000 km2. The basin
is estimated contain 5 billion tons of anthracite.
Legal frameworks – Investment guide?
Upstream
Vietnam's oil and gas sector is dominated by PVN under the MOIT as essentially
both the operator and regulator in the industry. Foreign companies typically
negotiate directly with PVEP for upstream licenses of major fields in Vietnam, and
all awards must receive approval from the Oil and Gas Department of the Prime
Minister. Vietnam’s legal framework for upstream are listed as following:
Regulations:
 Vietnamese petroleum law and its guidance
 Investment law
Chevron is withdrawing its
capital from the Block B O Mon
gas field project.

 Circular 32 providing specific guidance on tax applicable to the oil and gas
industry
 Decision No. 459/QD-TTg
Key taxes:
Upstream:
 Value added tax (VAT)
 Corporate income tax (CIT)
 Foreign contractor withholding tax
 Natural resources tax/royalties
 Export duty
 Import duty
 Environmental fee
 Windfall tax
 Capital assignment profit tax
 Personal income tax
Petroleum is considered to be a main resource of the nation. The exploitation tax
on it is therefore of great importance and strictly collected by the state. Several
taxes, including VAT, royalty, CIT, crude oil export tax and windfall tax, impact
investment decisions in the upstream oil sector in Vietnam. Conventional projects
and projects with priority (projects that need heavy capital investment, require
complex technology and represent a high risk) are treated separately for tax issues.
The table below shows the VAT levied on oil projects depending on different type
of products.
VAT on crude oil production
Crude oil-for export Exempt
Crude oil-for domestic use 10.0%
Natural gas-for export 0.0%
Natural gas-for domestic use 10.0%
Source: PricewaterhouseCoopers (PwC)
In addition, a royalty tax is applied at a rate negotiated and stipulated in each
contract and calculated based on the production for the entire block. It is payable
on a provisional basis, in cash or in oil equivalents on a quarterly basis.
Natural sources tax
Output Conventional projects Projects with priority
Up to 20 kbpd 7.0% 10.0%
20-50 kbpd 9.0% 12.0%
50-75 kbpd 11.0% 14.0%
75-100 kbpd 13.0% 19.0%
100-150 kbpd 18.0% 24.0%
More than 150 kbpd 23.0% 29.0%
Source: VPI
Taxes on the export of crude oil
have increased from 4% to 10%
since 2011.

Generally, Vietnam has higher tax rates compared to other countries in the region
with income tax on realized profits in the range of 32% to 50%. Table 5 compares
natural resource taxes for Vietnam, China, Malaysia and Indonesia.
Comparison of tax policies in some regional countries
Tax Vietnam China Malaysia Indonesia
Royalty tax rate 7-29% 0-1.25% 0.1 15-20%
Corporate income tax rate 32%-50% 0.33 0.4 35.0%
Crude oil export tax rate 10.0% NA 0.2 NA
Source: PVI
Vietnam also has a windfall tax on contractors’ profits when the crude oil price
goes up. This additional tax is applied when the crude oil selling price in a quarter
is 20% higher than the average price of the year. The rate of the additional tax is
progressively calculated based on the crude oil price. The breakdown of how the
windfall profits tax is applied is shown as bellow.
Tax breakdown of windfall profits
Type of project
Difference between selling price and
basic price
Additional
tax
Regular oil and gas
projects
20%-50% 50%
>50% 60%
Favorable oil and gas
projects
>20% 30%
Source: PVI,
Downstream
To invest in the downstream sector in Vietnam, investors must adhere to
Vietnamese investment law. As this is a specially-encouraged sector, there are
several policies to promote investment. Investing in a refinery or petrochemical
project will enjoy a lower rate of CIT of 10% instead of the normal 25% for the first
15 years of operation. The incentive policies also include a full tax exemption for
the first four years of production from the point of first profits being realized. After
that period, the tax rises to 5% for next nine years and then to the normal 25%
thereafter. In addition, investors will be exempt from import taxes on equipment
that is required for the project but is unavailable in Vietnam. For example,
investment in the Dung Quat refinery has a special incentive scheme in accordance
with Correspondence 13/UDDT dated February 15, 2006 from the Dung Quat
Economic Zone Management Board, with details as follows:
 Exempted from land rent, land utilization fees, land utilizing taxes for the
entire life of the project
 Granted a 10% CIT rate within 15 years from the commencement of
commercial operation of the facility, with 0% for the first four years, 5% for
years five through 14, 10% for the years 15 and 16, and 25% after the 16th
year.
Vietnam has higher tax rates
compared to other countries in
the region.
Refinery and petrochemical is a
specially-encouraged sector for
investment

 Entitled to a 50% income tax reduction for high income people— designed
to attract the most highly skilled management and staff.
 Exempted from import taxes on some raw materials, supplies, components
and unfinished products during the first five years of commercial operation.
 Exempted from import taxes levied on supplies and equipment during the
construction period.
 Exempted from import taxes levied on equipment, machinery and special
transportation that contributed to the establishment of the company’s fixed
assets as well as worker transportation vehicles.
Each refinery will have different incentive and subsidies depending on the
investment size and agreements with the government. For example, the incentive
for the Nghi Son and Dung Quat refineries: The wholesale petroleum product price
(spot) is to be calculated in the same way as the CIF price for the first 10 years of
commercial operation, and the import tax rate is to be 7% for refined products, 3%
for petrochemical products, and 5% for LPG. Meanwhile incentive for others
refinery projects would be different. In the event that the country’s import tax rate
is adjusted to be lower than the rates quoted above, the government will subsidize
the difference in prices.
These policies are quite profitable for the refineries, since the products are made in
Vietnam but the selling price is the same as the import price. The domestic
refineries will benefit even in the event of no import taxes. However such
subsidization schemes are economically unsustainable, raising end-user prices
while also draining the state treasury. These specific subsidies are being
considered for cancellation. Regarding petroleum products distribution, foreign
investors are not allowed to invest in this sector with the exception of LPG and
lubricant distribution. Foreign investors are allowed to invest in local distributors
(excluding import/export rights) up to a level of 49%. This regulation is expected to
change after 2015 such that foreign investors in the refining sector will also be
allowed to invest in petroleum distribution.
In conclusion, Vietnam’s investments policies, with high corporate income taxes in
the upstream oil sector, are less attractive, compared to other countries in the
region. Although investments in refineries enjoy incentive policies, the investment
process is complicated and hinders potential investors in Vietnam. And after more
than two decades of strangling growth and profitability in this sector PetroVietnam
is now seeking a large amount of foreign investment and prioritizing investment in
E&P projects (especially deep-water projects) and refineries/petrochemical projects.
Vietnam can easily find itself continuing to struggle raising capital under the
current investment/incentive structure as capital will flow to where it is treated best.
Selling price for Dung Quat
efinery’s products are
calculated as imported price
Vietnam’s investments policies,
with high corporate income
taxes in the upstream oil
sector, are less attractive,
compared to other countries in
the region

Exploration and production
PetroVietnam Exploration Production Corporation (PVEP) – The oil taker
PVEP was established on May 4, 2007 by merging PetroVietnam Exploration &
Production Company with PetroVietnam Investment & Development Company and
belongs 100% to PVN. The goal of the establishment of PVEP is to unify the
business and production activities of exploring and exploiting oil and gas in
Vietnam as well as abroad. In Vietnam, PVEP conducts its operations in the Red
River, Mekong River, Con Son South, Malay Tho Chu and Truong Sa sedimentary
basins. The company has about 2,000 employees and its total assets are USD 6
billion. The organizational structure of PVEP includes 15 divisions, 10 executive
companies, 10 general executive companies, two joint operating companies, two
branches and seven representative offices in other countries. PVEP’s revenue in
2012 was USD3 billion while net profit was USD1.6 billion.
PetroVietnam Oil (PV Oil)– the oil exporter
PV Oil started in June 2008 with the unification of PetroVietnam Trading
Corporation (Petechim) and PetroVietnam Oil Processing and Distribution Company
Limited (PDC). PV Oil emerged with the responsibility of developing the
downstream oil sector in Vietnam and being responsible for importing and trading
petroleum products. In addition, PV Oil is the only company allowed to export
crude oil produced in Vietnam. PV Oil is also responsible for ensuring sufficient
crude oil feedstock for PetroVietnam’s refinery and consumption of the refined
products.
PV Gas –the Natural Gas taker
PetroVietnam Gas Corporation (PV GAS) established in 1990 and has activities
which include collecting, transporting, processing, storing, distributing and trading
gas products nationwide. PV Gas is the only company that represents PVN in
natural gas buying from wells and reselling and distribution to consumers. PV Gas
is listed on the Ho Chi Minh Stock Exchange under the ticker GAS and is one of the
largest companies by market capitalization. PVN holds about 97% of PV Gas. PV
Gas’s charter capital is about VND18,950 billion (USD911 million).PV Gas’s income
mainly comes from natural gas and LPG selling. These two segments contribute
about 90% of PV Gas’s total revenue. The company’s annual income is about VND
80,000 billion (USD 3.8 billion) on average.
Crude oil - Seeing the shortage!
Over the last decade, crude oil production in Vietnam has reached a total of 205.8
Mt with annual output in recent years held between approximately 320 and 350

kbpd (thousand barrels per day). As of the end of 2012, crude oil production of
Vietnam ranked fourth in Southeast Asia with 345 kbpd after Indonesia, which has
the biggest production at 918 kbpd, Malaysia at 657 kbpd and Thailand at 440 kbpd.
Vietnam’s crude production reached its peak in 2004 and has been declining since
then. A lot of this is due to the increasingly uneconomic terms offered to
international oil firms by PVN and the state. As mentioned above, the
intermingling of tax policy and contract structuring has dampened enthusiasm for
oil and gas deposits that are not of the highest potential profit margin. Most, if not
all, of those highest profit deposits have been exploited.
Vietnam’s crude oil production over years (kbpd)
Source: PVN
At present, Vietnam is trying to increase its crude oil production by expanding E&P
activities abroad at the same time, the State and PVN will have to open up foreign
investors to reaping more of the reward. According to PVN, the country’s oil
production will reach 420 kbpd at its peak in 2014, reflecting a CAGR of 3.7% in
2009 to 2014. Domestic production is then estimated to decline dramatically to
only 150 kbpd by 2020.
Vietnam now is pushing its refining development to meet domestic strongly
growing demand. Obliviously, this strategy will lead to a rapid increase in crude oil
demand meanwhile the domestic production strongly depletes. In explanation, the
Bach Ho field is expected to deplete by 2015, at which time Vietnam would increase
oil demand to 424 kbpd. According to our calculation, Vietnam’s crude oil demand
during period of 2013 to 2025 will have a CARG of 6% y.o.y, reaching 424 kbpd in
2015, and 810 kbpd in 2025.
365 430 395 359 339 317 348 321 328 348 351
2.4%
17.9%
-8.3% -9.0%
-5.7% -6.4%
9.8%
-7.9%
2.1%
6.2%
0.9%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
0
50
100
150
200
250
300
350
400
450
500
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E
Kbpd Total Crude Oil Production (kbpd) Growth
The country’s oil production
will reach 420 kbpd at its
peak in 2014, reflecting a
CAGR of 3.7% in 2009
to2014. Production is
estimated to decline
dramatically to only 150 kbpd
by 2020.
Refining development will
lead to a rapid increase in
crude oil demand.
t
h
e
c
o

Vietnam’s crude oil production and demand estimation (kbpd)
Sources: PVN, VPBS Research
After 2014, the gap between production and demand will get larger as the country
no longer can secure its oil demand due to the market limitations over the past
decade. Imports will have to feed the refineries that are in process or the planning
stages.
By 2020, Vietnam expects a number of refinery and petrochemical plants will
commence operations, leading to demand for crude oil for refineries of 810 kbpd,
more than double Vietnam’s current production and higher than projected demand.
Vietnam will shift from a net exporter to net importer of oil. Looking ahead to 2018,
with the big gap between production and demand, Vietnam is eager to increase its
oil production by seeking new offshore developments domestically as well as
internationally now.
Crude oil price
Price of Vietnam crude oil is based on the worldwide price. Sales of Vietnamese
crude are handled by a monthly auction organized by PetroVietnam Oil (PV Oil),
enabling the highest bidder to purchase domestically produced crude. Vietnam
exports almost all of its crude oil production, selling it mostly to Japan, Australia,
China and Malaysia. Crude oil export has been in decline since 2010 when
Vietnam’s first refinery, Dung Quat, began operation. The refinery with a nameplate
capacity of 6.5 Mtpa (130 kbpd) mainly uses crude from the declining Bach Ho field,
which accounts for 40% of the country’s crude oil production. The oil price for Dung
Quat refinery is calculated as import crude.
331
420
350
300
230 210 190
150 130
100 100 100 100
383
406 424
455
488
523
561
600
637
677
719
763
810
0
100
200
300
400
500
600
700
800
900
2013E 2014F 2015F 2016F 2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F
Crude oil
production

Natural Gas
Supply – saving from the North?
Natural gas exploitation in the tanks is transported to treatment plants and
consumers according to the following pipeline systems: Natural gas is transported
from the tanks to the treatment plants and consumers as in the following pipeline
system:
 The Phu My-White Tiger pipeline system has a length of 220 km and a
diameter of 16''. This pipeline transports gas from the Rang Dong White
Tiger field in the Cuu Long basin to onshore customers. Phase one of the
pipeline systems was completed in 1995 and phase 2 in 2002 with a total
investment of USD400 million. The pipeline system has a capacity of 2
billion m3 per year and transmits gas to power producers in Ba Ria, Phu My
and Dinh Co gas processing plant and to the Phu My Fertilizer plant;
 The Nam Con Son pipeline system transmits gas from Lan Tay, Double
Dragon and Double Dragon West field to the power plants in Phu My. It has
a capacity of 7 billion m3 per year. Phase one was completed in 2002 and
phase 2 in 2008. This pipeline system stretches over 400 km and has a
diameter of 26'' with an investment of USD565 million.
 The PM3-CAA pipeline system transports gas from PM3 to the Ca Mau
Power-Fertilizer complex located in Ca Mau city. It has a capacity of 2 billion
m3 per year, investment was USD300 million and a length of 330 km was
completed in 2007;
 The Golden Lion Air-Rang Dong gas transmission project transports gas
from the Black Lion/Gold Lion and from the White Lion to Rang Dong.
In addition, there are two pipelines system which are estimated to come online
in the near future. The total capacity of these pipelines will be 1.8 bcm per day.
PV Gas is the major gas distribution arm of PetroVietnam. PetroVietnam and its JV
partners directly negotiate domestic gas rates with power generators and industrial
users on a project-by-project basis. Natural gas prices are kept generally low
compared to international market rates mainly because wholesale electricity prices
remain low. Transportation costs vary by gas pipeline and are approved by the
Ministry of Industry and Trade. As Vietnam's gas market evolves and LNG enters
the market, gas prices may lift to more market-based rates. Natural gas production
in Vietnam is about 9 bcm per year on average (over the last five years). The
country’s production reached a CARG of 9.6% in the 10-year period from 2003 to
2012.
Natural gas resources in
Vietnam are mainly located in
the South.

Natural gas pipelines
Source: PVN
Vietnam natural gas production is estimated to quickly decrease in the next 10
years due to the Bach Ho field in the Cuu Long Basin depletion and the Nam Con
Son basin’s production decrease to 0.2 bcm in 2035. In particular, Vietnam’s natural
gas production in 2013 reached to be 9.75 bcm, increasing by 4.8% compared with
2012 and reaching the maximum level of 15 bcm in 2018. After that the production
will drop quickly. By2035 the country’s total natural production will remain about 7
bcm.
Vietnam’s natural gas production
Source: PV Gas
The natural gas is a product that can’t be reserved. The production will be
consumed as soon as it comes out. About 85% of the natural gas demand in
Vietnam comes from power generation, 10% for fertilizer production and the rest is
provided via low pressure gas form or LPG to industrial consumers. However, the
current gas supply can only meet 60% of the country’s power demand, 30% of the
3.7
6.3
6.9
7.5
6.9
7.5
8.0
9.4
8.2
9.3
9.8
71.4% 70.2%
8.8% 9.1%
-8.8%
9.3% 6.8%
17.4%
-12.8%
13.4%
4.8%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
0.00
2.00
4.00
6.00
8.00
10.00
12.00
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013f
Bcm Natural Gas Production GrowthVietnam’s natural gas
production is estimated to
quickly decrease in the next 10
years due to the Bach Ho field
in the Cuu Long Basin
depletion and the Nam Con
Son basin’s production
decrease.

fertilizer demand and 60% of the LPG demand. According to the country’s forecast,
these demands would sharply increase which in return means a further increase in
the natural gas demand.
Natural Gas consumption
Source: PV Gas, VBPS
The projected total natural gas demand for 2013 is estimated to have reached 9.46
bcm, an increase of 11% compared with 2012. Natural gas consumption is forecast
based mostly on demand from power generation, fertilizer production. Currently,
Vietnam has two fertilizer producers, Phu My and Ca Mau plant. Each plant
consumes an amount of 0.5 bcm to produce a total output of 1.5 Mt of urea.
Estimation of natural gas consumption (bcm per year)
Source: PV Gas
The urea production is pretty stable meaning fertilizer plants will consume about
1.1 bcm per annum, making up 6% on average of the total demand. Other
consumers than fertilizer production such as low pressure gas to industrial, CNG
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013f
GrowthBCM Consumption for power (bcm)
Non-Power consumption (bcm)
Using gas for power ultilization
9.85
11.11
12.37 12.79 12.79 12.79 12.79 12.79 12.79 12.79 12.79 12.79
1.32
1.88 2.13 2.34 2.47 2.58 2.69 2.79 2.91 3.01 3.10 3.20
1.05 1.05 1.05 1.05 1.05 1.05 1.05 1.05 1.05 1.05 1.05 1.05
-
2.00
4.00
6.00
8.00
10.00
12.00
14.00
2014F 2015F 2016F 2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F
Demand for Power
Demand for Industrial (including CNG)
Demand for Fertilizer
About 85% of the natural gas
demand in Vietnam comes
from power generation, 10%
for fertilizer production and the
rest is provided via low
pressure gas form or LPG to
industrial consumers
Demand for natural gas is
forecast to continue increasing
in the next 10 years

and LPG production contributes an amount of 1.7-3 bcm, accounts for 7 to 16% in
the total demand. In terms of demand for power estimation, based on the Viet Nam
Power Master Plan VII (PDP VII), the country installed power generation would
reach to 97,424 MW in 2025 which will lead to the gas demand of 17.1 bcm in 2025,
an increase of 90% compared with that of 2012. All in all, Vietnam’s natural gas
demand will have a CAGR of 4.5% during period from 2014 to 2025 meanwhile the
production -2%.
In summary, gas supply shortfalls will increase as the gap widens between gas
supply and demand. The shortage will sharply rise from the time when the Cuu
Long basin goes out of production. By 2015, Vietnam will lack 1.23 bcm of natural
gas, five years later the shortage will be 5.9 bcm. New gas fields will have to come
online in time to make up for depleting gas fields. Despite the new field
developments domestic gas production capacity is expected to fall rapidly from
2017 further widening the gap between domestic supply and demand. LNG imports
will be necessary to close this gap.
Balance supply-demand (bcm)
Source: PV Gas, VPBS estimation
Vietnam now declares that it has found more natural gas, which is located in the
Central of the country. This natural gas resource is to be larger than that of Nam
Con Son basin. However, this gas contains a high amount of CO2 and there is no
confirmed size of this resource. In consequence, Vietnam will have to import
natural gas; PV Gas is planning to import the first LNG cargo by 2015 for Thi Vai
fast track and Son My in Binh Thuan from 2018. The import of LNG is expected to
diversify primary energy sources used for power production, ensure the national
energy security. However, the will be an impact on the domestic natural gas market
from the LNG import. A new level of gas prices will be established.
(10.00)
(5.00)
-
5.00
10.00
15.00
20.00
2014F 2015F 2016F 2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F
Shortage
Total Suplly
Total Demand

Natural Gas market: Multi sellers –single buyer- single reseller
Vietnam’s approach to gas pricing generally involves separate negotiations for
each project. The exception to this approach is gas coming from the PM3 CAA
fields where gas is calculated as a ratio to the price of Medium Fuel Oil (“MFO”)
which is derived from an earlier negotiation for the sale of a proportion of that gas
for power generation in Malaysia. So far the methodologies for pricing gas in
Vietnam (fuel oil-related pricing for PM3 CAA and cost-plus pricing for Nam Con
Son and Cuu Long) are not linked to the dynamics of the power generation market.
These gas pricing methodologies are focused only on the gas supply component of
the gas value chain.
PV Gas is the only company that is charged with selling and distributing natural gas
in Vietnam. The natural gas selling prices to end consumers in Vietnam are
determined based on following principals:
 Gas supplied to power & fertilizer production is regulated by the
Government.
 The gas price for industrial customers is based on costs of alternative fuels.
 Domestic gas price versus international gas price:
Vietnam gas market
Source: PVN, VBPS
The gas selling price in Vietnam includes a transmission and distribution tariff, VAT
and profit margin norm. Transmission and distribution tariffs (“T&D”) are generally
regulated by MOIT and determined by PVN. Gas prices for existing gas fields
currently range from USD 3.5 to USD 7 per mmbtu. Vietnam’s gas price can be
considered as the lowest in the region with the exception of Malaysia, which has a
state subsidy on the domestic gas market. Existing gas pricing appears to be by a
Methodologies for pricing gas
in Vietnam are not linked to the
dynamics of the power
generation market. These gas
pricing methodologies are
focused only on the gas supply
component of the gas value
chain.

perceived need to achieve low electricity prices and to confer subsidies on gas
consumption in the fertilizer sector.
Low gas prices for power generation tend to discourage investment in gas
exploration and development and therefore work against some high level
objectives for the sector such as rapid growth and diversification of fuel sources for
power generation. PVN certainly wants to raise domestic prices to be equivalent
with the world prices. In 2010 PVN implemented certain measures to increase
prices from 2012: (1) To raise gas prices to the electricity sector, (2) Increase gas
prices to the sector of electricity/urea production facilities of its subsidiaries. (3)
Prices for other consumers such as power generation and industrial productions
are scheduled to increase by 2% per year. As a result, the natural gas price in
Vietnam is set as below tables.
Cuu Long gas price schedule
Cuu Long Gas 2013 2014 2015 2016 2017 2018 2019 2020
For power production 5.16 5.36 5.58 5.72 5.86 6.01 6.16 6.31
For Fertilizer production 6.56 6.69 6.83 7.98 8.54 9.14 9.78 10.50
For Industrial consumers 6.63 7.29 8.02 8.22 8.43 8.64 8.85 9.07
Nam Con Son gas price is scheduled as below table and slippage 2% per year.
Nam Con Son (Block 06.1 and 11.2) gas price
schedule
Block 06.1 and 11.2 2013 2014 2015 2016 2017 2018 2019 2020
under consumption of
3.8 bcm
3.6 3.7 3.7 3.8 3.9 4.0 4.0 4.1
above 3.8 bcm 5.2 5.4 5.6 5.7 5.9 6.0 6.1 6.2
Tariff 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2
Collection fee 1.1 1.1 1.2 1.2 1.2 1.2 1.3 1.3
Nam Con Son (Hai Thach MocTinh) gas price
schedule
2013 2014 2015 2016 2017 2018 2019 2020
Selling price 5.36 5.46 5.57 5.68 5.80 5.90 6.02 6.13
Collection fee 1.12 1.14 1.16 1.18 1.21 1.23 1.26 1.28
PM3 gas price is calculated to equal 46% of the FO price which is listed in the
Singapore market (according to Platts) plus a collected tariff which is estimated at
USD 1.17 per mBTU. As of 2012, the PM3 gas price is USD7.
PM3 gas price schedule
PM3 Gas 2013 2014 2015 2016 2017 2018 2019 2020
Selling price 7.7 8.0 8.2 8.41 8.62 8.83 9.05 9.28
For Ca Mau 4.98 5.19 5.3 5.46 5.6 5.74 6.61 6.6
Collection Fee 1.17 1.17 1.17 1.17 1.17 1.17 1.17 1.17
Based on the road map for natural gas prices, businesses of following sector would
have impact:
 DPM is using Cuu Long gas for its production. On average, Phu My plant
consumes about 0.5 bcm of gas, equivalent to 20.76 mmbtu. The gas price
Natural gas price in Vietnam is
set following a road map till
2020.

for the Phu My plant is scheduled as in the table below. The schedule is
based on a comparison of gas prices to Ca Mau and Phu My in order to
ensure that Phu My fertilizer will have a profit margin of 15% and to support
gas prices for Ca Mau, the second fertilizer production of PVN. The gas
price to Phu My is projected at USD 6.43 per mmbtu, increasing by 2% till
2015 and to 7.98% in 2016. From to 2017 to 2021 the gas price will increase
by 7% per year. As a result, Phu My fertilizer plant will have a ROE of 13% to
15% during the period of 2011 to2015. After 2015 till the end life of the
plant, the ROE is estimated to reach 15%.
 Ca Mau fertilizer, the main consumer of PM3, the gas price is way too high
for the project. Therefore, PVN has proposed to the government a schedule
price for Ca Mau which is a 35% decrease in gas prices for the period of
2012 to 2018, decrease 27% after 2018 to ensure that the ROE of Ca Mau will
stay at 14% per year. The difference between PM3’s original price and price
to Ca Mau will be subsidized from profit of price increases to Phy My
fertilizer.
 Other consumers such as CNG and LPG will have to buy gas at prices
scheduled for industrial consumers. These consumers are also going to
suffer the most under the market prices move up to new levels for LNG to
fill the gap between supply and demand. Power and fertilizer will partly be
under government subsidies. As a result, investments in the power and
fertilizer sectors are considered beneficial in Vietnam. Listed companies
which are in the sectors are good picks for stock price appreciation.
Tick
er Name
Outstandin
g shares
Price
at1/22/1
4
Market cap
(VND billion)
EPS
(VND) P/E
BVPS
(VND) P/B ROE
GAS PetroVietnam Gas JSC
1,895,000,00
0
77,000 145,915 6,700 11.49 17,580 4.38 43.69%
PVD PetroVietnam Drilling & Well services Corp. 300,281,878 73,500 22,071 7,410 9.92 32,380 2.27 20.43%
PGD
PetroVietNam Low Pressure Gas
Distribution JSC
42,900,000 45,000 1,931 5,060 8.89 24,800 1.81 21.36%
DPM
PetroVietnam Fertilizer and Chemicals
Corp.
377,554,320 47,300 17,858 6,550 7.22 26,390 1.79 26.75%
PVS PetroVietnam Technical Services Corp. 446,703,141 29,700 13,267 3,040 9.77 17,090 1.74 19.41%
CNG CNG Vietnam JSC 27,000,000 34,800 940 4,980 6.99 16,430 2.12 30.06%
Source: VPBS

Downstream – Processing and Distribution
LPG
Market regulation
The LPG market is under the control of multiple ministries, such as the Ministry of
Trade and Industry, Ministry of Technology and Science, Ministry of Finance,
Ministry of Transportation, and Ministry of Construction, which oversees LPG
quality, storage, facilities and pricing. Other ministries, such as the Ministry of
Police, Ministry of Environment, Ministry of Labor and Social Affairs oversee the
safety of LPG production and provide support to LPG producers. LPG traders have
to get approval from all the ministries before being allowed to operate in the
market. The LPG market is regulated under decree number 107/ND-CP, dated
August 22, 2009.
Vietnam LPG market chain
Source: VBPS
Traders participating in the LPG market are divided in four categories: LPG traders,
Level 1 LPG distributors, general agents and LPG stores. LPG traders are only able
to participate in import-export, production, transportation and distribution
channels. Level 1 LPG distributors are able to distribute and transport but can’t
import, export or produce. Ultimately, general agents, agencies and store only
distribute LPG to consumers.
ManagementLPGtrading
Storages under
5,000 m3
LPG production
Safety LPG
production
Ministry of Transportation People's Committte
Ministry of Technologyand
Science
Ministry of Finance
Ministry of Police
Ministry of Environment
Ministry of laborand social
affairs
Ministry of Construction
Ministry of TradeControls storages
above 5,000 m3
ApprovesLPG quality
Supervises LPG price,
manages depreciation time
of LPG cylinders
Supervisesand approve s
LPG transportation
Controls LPG's
infrastructure construction
SupervisesLPG
producers
Producers/Importers
LPG subsidiary
trading companies
LPG contracted
trading companies
Independent
agents
Subsidiary
agents
Contracted
agents
Independent
agents
Customers
Shortchannel
Shortchannel
Long channel Long channel
Long channel Long channel
Shortchannel
Vietnam has 53 LPG trading
companies, 23 of which are
permitted to import and export
LPG, more than 130 general
agents and 11,500 gas
agencies.

At present, there are 53 gas trading companies in the Vietnamese LPG market, 23 of
which are permitted to import and export LPG with the remaining engaged in
distribution. Vietnam has more than 130 general agents and 11,500 gas agencies in
total with Hanoi and Ho Chi Minh City accounting for nearly 50%. LPG is produced
domestically or imported by traders, distributed by them directly or via level 1
traders to general agents/agencies/stores, and from stores to end-users. Among
them, only producers and traders are allowed to import or export LPG.
Gas traders in Vietnam include 100% state-owned companies, joint stock
companies, JV companies, private companies and 100% foreign capital companies.
Together, joint venture and state owned companies have a market share of more
than 50%.This has decreased over the past five years due to new private and joint
stock companies with high growth rates of 25 to 30% per year entering the market
in a period when joint ventures and state-owned companies were barely moving
forward. It can be concluded that private companies with flexible and economic
policies have lessened the considerable impact of state and joint venture
companies.
LPG traders
Name Brand name
Type of
business Import
Wholesale Retail
100% State-owned
Saigon Petro
Saigon Petro
Gas
Yes Yes Yes
Ha Noi Petro Yes Yes
Emeco Emeco Gas Yes Yes No
JS Company
PV Gas South
PetroVietnam
Gas
Yes Yes Yes
PV Gas North
PetroVietnam
Gas
Yes Yes Yes
PetroVietnam Gas
PetroVietnam
Gas
Yes Yes Yes
Petrolimex SG Petrolimex Yes Yes Yes
Petrolimex CT Petrolimex Yes No
PetrolimexĐN Petrolimex Yes Yes Yes
Vinagas VINAGAS Yes No
Saigon gas Saigon Gas Yes Yes Yes
Vimexco Vimexco Yes Yes Yes
Anpha SG GiaDinh Gas Yes Yes Yes
PTS (Petrolimex) Yes No
JV and 100% Foreign Capital
Shell Gas Hai Phong (Siam Gas took
over)
Shell Gas Yes Yes Yes
Thang Long Gas Yes Yes Yes
Total Gas Total Gas Yes Yes
Gas traders in Vietnam include
100% state-owned companies,
JS companies, JV companies,
private companies and 100%
foreign capital companies

Dai Hai Gas DHP Gas Yes
Petronas PETRONAS Yes Yes Yes
Elf-Total- Sai gon-Vina Elf Gaz Yes Yes Yes
VT Gas VT Gas Yes Yes Yes
Total Can Tho Total Yes Yes
Shell Gas (Siam Gas took over) Shell Gas Yes Yes No
V-Gas V-Gas Yes Yes Yes
Elf GazĐN Elf Gaz Yes Yes Yes
BP Petco BP Yes No
Private Ltd Co
A Gas A Gas No
Tran Hong Quan SA Gas No
Thai Binh Duong TB Gas Yes Yes
Cong Nghiep Yes
GiaDinh Gas GiaDinh Gas Yes
Hong Moc H Gas Yes No
KhanhHoa Gas Khagasco No
Tan Hung Long No
Tan NhaVinh No
VinhPhat No
Shinpetro Yes Yes Yes
PhatVinh PVI Gas Yes No
TP gas TP Gas Yes No
Thai Lan gas Thai Lan Gas Yes No
Mai Khe Gas MK Gas Yes No
Dang Phuoc DP Gas Yes No
Thu Duc Gas Thu Duc Gas Yes No
Vinh Long Yes No
DakGas DAK Gas Yes No
Gas Dai Duong Ocean Gas Yes No
For Gas For Gas Yes No
Phutagasco Phutagasco Yes No
KhanhThien No
RachKien AT Gas Yes No
Dong Bac (Hong Moc took over) DB Gas Yes No
Petrimex Petrimex Yes Yes
Thanh Tai TTA
Source: PGS, VPBS
Key Players
Key players in the retail market are mostly state-owned companies, including Gas
Petrolimex JSC, Sai Gon Petro, Petro Vietnam Gas (via PetroVietnam Southern Gas
and PetroVietnam Northern Gas) and Elf-total-Saigon Vina, a French company
which is the only company that is fully owned by foreigners. These players are all
allowed to import LPG and are the main distributors. Their strengths, including
bigger storage capacities and larger distribution systems, allow them to control the
local retail price. Together, they hold about 50% of the total retail market share.

LPG retail market share
Source: VTGas, PGS, VPBS
PetroVietnam Gas is the biggest LPG distributor in Vietnam thanks to its two owned
companies: PetroVietnam Southern Gas and PetroVietnam Northern Gas. From
2011 to 2012, as a result of its M&A activities designed to expand its distribution
system, PV Gas South (PGS) became the biggest player in the southern market. In
fact, PV Gas South and PV Gas North are the two strongest companies in terms of
supply owing to their mother company PV Gas, which belongs to PVN, is the only
LPG producer in Vietnam. However, due to the difference in consumption between
North, South and Central Vietnam, PV Gas South holds the larger market share
than PV Gas North. Elf Gas ranked second with a market share of 12.4% and Gas
Petrolimex ranked fourth with a market share of 8.6%. Based on the companies’
business plans and performance in 2013, the market share break down should
change, although PV Gas should still keep the leading position with 17 to 18%
market share. Other players such as Elf Gas and Saigon Petro will remain stable in
the market.
LPG Infrastructure - Storage: Time to stop building
Storage plays a very important role in LPG trading business. Vietnam currently
does not have enough capacity but more than enough is currently under
construction. Before 2009, Vietnam has 27 LPG storage sites with a total capacity of
83 ktons. The capacity of the largest storage terminal of the was only 3,000 tons,
which belong to Petrolimex Gas JSC. Consequently, Vietnamese LPG traders were
only able to acquire average/small sized LPG vessels on a spot basis due to small
capacity of storage. This was a big issue for LPG traders since with small inventory
rotations traders cannot store a large amount during times of falling prices
resulting in unstable retail LPG prices in the country.
As of 2013, Vietnam’s LPG storage system raised at 50 storage facilities with an
average capacity of approximately 4,000 tons. The biggest storage which has a
capacity of 60,000 tons under cold storage form belongs to PV Gas. The total LPG
storage capacity of Vietnam is about 129.2Kt, with the north accounting for 13.8%,
PV Gas
16.9%
Elft -Total -
Saigon-Vina
12.6%
Petrolimex
Gas
8.7%
Saigon Petro
6.1%
Petronas
4.7%
Anpha Petro
4.5%
VT Gas
4.0%
H-Gas
2.8%
Petimex Gas
2.4%
DHP Gas
2.0%
Shinpetrol
Gas
2.0%
CN Gas
1.7%
Others
31.6%PV Gas holds the biggest
market share., Elf Total Sai Gon
Vina is second and Petrolimex
Gas ranks third.
Vietnam’s LPG storage system
remains at 50 storage facilities
with an average capacity of
approximately 4,000 tons.

the central accounting for 6.8% and the south accounting for 79.4%.Currently, LPG
storage units are generally operated under conditions of high pressure and normal
temperature. The thirty four LPG storage units belong to twenty four LPG
companies. PV Gas owns the most storage with a capacity of about 70.6 Kt,
followed by PGS with a capacity of 8.7 Kt and PVG with a capacity of 5.9 Kt.
In addition to the above storages, a storage facility at Long An is being built with a
capacity of 84 Kt. The facility was expected to begin operation in 2013 with an initial
capacity of 40 Kt, while phase two is expected to be completed in 2014 with a total
investment of USD 244 million. However, the project is currently on hold due to
lack of capital. After the aforementioned storage facilities come online as
scheduled, it would not be advisable to make big investments in LPG storage since
the capacity will be sufficient to satisfy domestic consumption. The additional
capacity may also enable LPG traders to sign long term contracts with the provision
to export LPG to neighboring countries in the event of a surplus.
LPG storage systems in Vietnam
Source: VPBS, LPG companies
Vietnam imports LPG through big terminals in Hai Phong, Da Nang, Quang Ngai,
and other private ports that belong to LPG traders. These private ports have small
capacities, only serving companies with import demand. LPG imports are mainly
via ports in the south, an area with unusually strong demand compared to other
regions of the country.
51
Tran Hong Quan
Gas Co.
1.2
PVGas
60Under construction
Operation
Unit:1,000 ton
Total Gas Hai Phong
0.96
NORTH
17.8 Kt
Gas Petrolimex
4
Anpha Petrol
1.8
Shell Gas
1
PVGas North
4.1
Thang Long Gas
0.6
Minh Quang
Hai Phong
3
Dai Hai
1
SOUTH
102.7 Kt
Thi Vai LPG storage
PV Gas
8.6
Saigon Petrol
3
Petronas
2
Petrolimex+BP
2
Elf Gas
1.7
Elf Gas
2.2
Hong Moc Co.
1.2CN Gas
1.2
Anpha Petrol
1.5
Gas Petrolimex
0.55
PVGas South
4
PVGas South
1.14
Elf
gas
0.45
MT Gas.
1.2
PVGas South-
VinaBenny
84
Gia Dinh Gas
0.7
SopetGas
3
VT Gas.
0.8
Vimexco
1.2
CENTRAL
8.7 Kt
Elf Gas Da Nang
0.7
Gas Petrolimex
0.5
CN Gas
0.7
PVGas South
1.5
PVGas North
1.8
Phu Yen
petrol
0.8
Gas Mien Trung
0.7
PV Gas
2
PVGas 60
The total LPG storage capacity
of Vietnam is about 129.2Kt,
with the north accounting for
13.8%, the central accounting
for 6.8% and the south
accounting for 79.4%.
Based on our research,
investment in 1,000 tons of
storage would require VND60
to70 billion or USD3 to3.5
million. All storage in Vietnam
will have to meet the TCVN
6486-1999 or TCVN 7441-2004
standards.

Pricing
Import price
LPG prices in Vietnam are derived from global LPG prices with adjustments for
import taxes and transportation fees. Any adjustment in global LPG prices
significantly affects retail LPG prices due to limited domestic supply. As a result,
LPG import taxes have been highly unstable. The government has adjusted the rate
from 20% to 10% and even to 0% in order to match the movement of LPG prices in
the global market. The current import tax rate for LPG is 5%, adjusted from 0% in
March 2012.
Global LPG prices are generally benchmarked to the LPG price (propane and
butane price) announced monthly by Saudi Aramco. LPG prices are then fixed
based on its composition of propane and butane. The typical composition of LPG is
as follows: 30% propane/70% butane, 70% propane/30% butane and 50%
propane/50% butane. The first and third mixtures are the most common in
Vietnam.
Saudi Aramco’s LPG price is calculated using the following formula:
CP = (%C3)*CPC3+ (%C4)*CPC4, where
 CPC3/CPC4 is the price of one ton of propane/one ton of butane, provided
by Saudi Aramco’s publication every month.
 %C3/C4 is percent of mass of propane/butane.
The price of imported LPG is calculated using the formula:
P = (CP+Pre)*(1+%TNK)*(1+%GTGT),
Where
 P: Import price
 CP : Global price published monthly by Saudi Aramco
 Pre: Premium of Vietnam
 %TNK: import tax which is currently 5%
 %GTGT: value-added tax (VAT) on commodities by Government regulations
which is currently 10%
Pre is fixed by LPG transportation companies based on transportation technology
including:
 Transportation of LPG in high pressure and normal temperature conditions
 Transportation of LPG in conditions of normal pressure and low
temperature conditions
The first case is more common for Vietnamese LPG traders as they have limited
storage capacity. Vietnamese LPG traders can receive only small vessels that
transport LPG under high pressure and normal temperature conditions and also
cost a higher premium (Usually the premium of a small vessel accounted for 20%
of the CP price.) than the normal pressure / low temperature conditions present on

large vessels (more than 50,000 DWT). In this case, propane and butane are
transported separately and is mixed upon delivery. Vietnamese LPG traders who
own large storages capacities are in a position to control the market since their cost
will be lower by at least USD 40 to 50 per ton in transportation fees.
CP LPG price in the last years
Source: LPG Australia, VPBS collected
Domestic supplier’s price
The domestic producers’ (Dinh Co and Dung Quat) price is determined by
competitive bidding every three months and is based on the following formula:
Pdomestic = CP+Pre, where Pre is the premium which depends on location and
amount of the delivery.
Normally, bidding on premium is done by local traders and the premium paid is
dependent on prevailing market conditions relative to location and the size of the
delivery. The domestic price is calculated in a manner similar to the international
price even though bidding is done based on the curve for LPG futures.
Retail price:
Prt= Pdomestic+ expenses (management fees, cylinder depreciation and
other fees) + VAT + distribution fee
The above graph shows LPG movement in Vietnam vs. global prices. We can see
Vietnam’s retail LPG price strongly depends on global prices. When the global price
is up, the retail price in Vietnam goes up immediately regardless of supply-demand
balance. The worldwide LPG price is forecast to increase this year due to changes
in the weather boosting heating demand.
0
200
400
600
800
1,000
1,200
1,400
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2012's CP price (USD/ton)
2012's Vietnam retail price (kVND/cylinder 12kg)
2013's CP price (USD/ton)
2013's Vietnam retail price (kVND/cylinder 12kg)

LPG Market Outlook
Supply
LPG is supplied by two state-owned domestic producers (Dinh Co plant and Dung
Quat refinery) with the remaining demand met through imports. Dinh Co Plant,
operated by PV Gas, is located in the south and uses natural gas from Bach Ho field
(Cuu Long basin) and Nam Con Son basin to produce LPG. Dinh Co plant provides
about 20 to 25% of the country’s total demand. It produces two types of LPG: a 50%
propane and 50% butane mix and a 30% propane and 70% butane mix which are
the most popular mixes used in Vietnam.
The other domestic LPG producer is the Dung Quat Refinery operated by Binh Son
JSC which is expected to produce about 290k tons of LPG per year. The Dung Quat
refinery processes domestic crude oil from the Bach Ho field and Dai Hung fields as
well as imports from the Middle East to produce LPG. The LPG produced by the
Dung Quat refinery contains high amounts of olefins because of the characteristics
of its inputs. The LPG is distributed to the domestic market by Binh Son Company
via its affiliate companies PetroVietnam Southern Gas (PGS) and PetroVietnam
Northern Gas (PVG).
LPG Domestic suppliers
Source: PVN, VPBS
Currently, as a result of decreasing gas production from the Bach Ho field, the Dinh
Co Plant is unable to run at full capacity. To replace the decreasing supplies from
Bach Ho, Dinh Co has begun using more natural gas from the relatively more
expensive Nam Con Son basin. Dinh Co supplies the south and south central
regions of the country while Dung Quat distributes LPG mainly to the north and
north central regions. Roughly half of the LPG produced by the Dung Quat refinery
is distributed to PetroVietnam Northern Gas (PVG); a quarter to PetroVietnam
Southern Gas (PGS) and the remaining 25% is allocated to local traders through a
competitive bidding process. High transportation fees prevent companies in the
50%
25%
25%
Dung Quat
50%50%
Dinh Co
PVG
PGS
Bidding
VietNam has two LPG
processing plants. Dung Quat
and Dinh Co.
Roughly half of the LPG
produced by the Dung Quat
refinery is distributed to
PetroVietnam Northern Gas
(PVG); a quarter to
PetroVietnam Southern Gas
(PGS) and the remaining 25% is
allocated to local traders
through a competitive bidding
process.

north like PVG from distributing the LPG produced by Dinh Co, which is located in
the south. Hence, 50% of DinhCo’s production is distributed to PGS, and the
remaining 50% is allocated to local traders through a competitive bidding process.
Due to a lack of domestic production, Vietnam imports large amounts of LPG,
mainly from China, Singapore, Malaysia and the Middle East with imports recently
accounting for about 50 to 55% of demand. China is the biggest LPG exporter to
Vietnam thanks to the advantage of its proximity to Vietnam and the fact that most
distribution is to the north of Vietnam. Besides Asian countries, Vietnam also
imports LPG from the Middle East. The export market to Vietnam has been
relatively stable over the last two years with 55% of imports from China. Due to
limited supplies from other Asian countries, Vietnam has increased LPG imports
from the Middle East mainly to the south of Vietnam. The amounts of LPG imports
to each area vary based on demand and port capacities. In general, 63.7% of the
country’s imports arrive via the South, 35.2% via the North and the remaining 1.1%
via Central Vietnam.
Demand
In the 10 years between 1994 and 2003, Vietnamese LPG consumption grew at a
CAGR of 50%. Since then growth in LPG consumption has naturally slowed with a
CAGR of 6.1% between 2004 and 2013. It is estimated that Vietnam’s consumption
of LPG will strongly decrease thanks to development in households and
commercial sector. However, growth in consumption is facing an issue if the LPG
price keeps increasing. In 2012, Vietnam consumed about 1.28 Mt of LPG, slightly
decreased from 2011. In 2013 the demand reached 1.3 Mt, increasing by 0.9%.
Vietnam uses LPG mainly as domestic cooking fuel, in commercial services such as
restaurants and cafés, and in the industrial sector. LPG is mostly consumed by the
large urban areas of Ho Chi Minh City, Hanoi and Da Nang. Only small amounts are
consumed outside of large urban areas. The LPG market can be divided into three
main regions - north, south and central. Being the most developed region, the
south consumes about 70% to 80% of the total demand. However, stronger
economic growth in other regions of the country is likely to bring about changes in
consumption levels in different regions. Currently, the south consumes about 66%
of total LPG demand, the north 30% and central Vietnam 4%.
Consumption of LPG can be broken down into three sectors: industrial, residential
and commercial/transportation. As it is still a developing country, in fact still
considered to be a frontier market by investing standards, Vietnam doesn’t use
much LPG in transportation with the sector only accounting for 3% of total demand.
The industrial sector is the largest one, accounting for 65% of demand, while 32% is
used by the residential and commercial sectors. Such a consumption structure is

considered backward, particularly because LPG is considered as an important input
material for the petrochemical industry.
Vietnamese LPG supply-demand (Kt)
Source: PV Gas, VPBS
LPG supply-demand forecast
As we mentioned above, apart from the current LPG producers such as Dung Quat
and Dinh Co, there will likely be other LPG suppliers along with refineries.
According to the Vietnam Petroleum Institute (VPI), Nghi Son Petrochemical
Complex will produce 380 KTPA of LPG equivalents to 29% of Vietnam’s current
consumption, at its full capacity. The Dung Quat refinery will continue to produce a
stable quantity of LPG at~350 KTPA from 2014 to 2020. Long Son Petrochemical
complex is estimated to produce 285 Ktpa starting after 2020.
Domestic LPG supply in the near future
Source: PVI, VPBS
363 366 348 345 281 277 258 238 264
173 212
102
303
350
339
410
658
751 786 811
900 888
1,080 1,116
1,324 1,289 1,300
0
200
400
600
800
1,000
1,200
1,400
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Ktons
Dung Quat Dinh Co Total Demand
1
2
4
3
5
Nghi Son 380 KTPA - 2016
Dung Quat290 KTPA -2009
Vung Ro 160 KTPA -2020
Van Phong 480 KTPA -2020
Long Son 290 KTPA -2020

Those plants together with Dinh Co will have a total capacity of about 700 Kt from
2014-2015 to supply to the market. From 2018, the country’s total LPG output
capacity will increase by 24.6% to 960 Kt and reach 900 Mt in 2020, equivalent to
95% of the country’s total demand.
In terms of demand, we estimate that the average growth in the period of 2014 to
2020 will be 6% to 7% year-over-year. Our estimate is based mainly on Vietnam’s
growth forecast and we have not taken into account the potential demand from any
new petrochemical projects which would consume a large amount of LPG.
Currently, Vietnam only has the Dung Quat polypropylene (PP) plant which
produces about 150 KTPA. However, this plant uses gas oil cracking technology
and does not consume LPG. Other PP and polyethylene (PE) plants such as the
PP/PE plant in the Long Son Petrochemical Complex, PP plant in Nghi Son refinery
and methyltert-butyl ether (MBTE) plants may go into operation after 2020.
However, due to the uncertainties surrounding these projects, we have not taken
them into account when preparing our demand forecasts.
Vietnam’s LPG supply-demand outlook (Kt)
Source: VPBS estimated
Vietnam’s LPG consumption is forecast to grow stronger than its supply. As a
result, refinery production cannot meet the demand. However, thanks to new
suppliers Vietnam will significantly reduce import volumes. Demand is expected to
reach 2.1 Mt by 2020 with potential shortages in supply after 2025, not mention to
other large LPG consumers -PP and PE petrochemical plants – which will
commence operations after 2020. Vietnam will continue to face a deficit in LPG
after 2020 and imports shall remain as the country’s primary solution.
Profitability of listed LPG Traders
Based on financial analysis of listed LPG traders in Vietnam stock market, we see
net profit margins in LPG businesses staying low, in a range of 1 to 3%. Even, for
622 770 960 960 960 960 903
-749 -685 -594 -700 -812 -933 -1,118
1,371 1,455 1,554 1,660 1,772 1,893 2,021
-1,500
-1,000
-500
0
500
1,000
1,500
2,000
2,500
2014 2015 2016 2017 2018 2019 2020
Shortage Production Demand

VT-Gas, a non-listed company, we learnt that its net profit margin in 2012 was only
2%. This figure is low compared with other sectors such as power, rubber, food, IT,
etc. Currently LPG stocks are trading at P/E of 5.76x on average vs. 12.7x for the
market.
LPG costs account for 80 to 90% of total sales, depending on whether LPG is
sourced from imports or domestic production. The remaining expenses such as
management fees and cylinder depreciation account for 5 to 6% of total sales.
Profits earned by LPG traders are strongly influenced by the source of LPG and
inventory rotation. Therefore, LPG traders with larger storage capacities are likely
to be the strongest players in the market.
Financial ratios of listed LPG traders
Averag
e PGS PVG MTG ASP PGC
Valuation ratios
P/E 12.3 6.4 12.7 19.1 16.1 7.3
EV to EBIT 8.2 3.9 12.4 8.2 10.6 5.6
EV to EBITDA 5.6 2.2 8.2 6.0 7.3 4.3
Price to Sales 0.1 0.2 0.1 0.1 0.1 0.2
Price to Book 0.9 1.5 1.0 0.4 0.6 1.0
Profitability
Gross margin 11.8% 22.5% 7.6% 5.1% 8.7% 15.1%
EBITDA margin 4.0% 9.3% 1.8% 2.2% 2.2% 4.2%
Operating margin 2.4% 4.7% 1.0% 2.3% 1.2% 3.0%
Net profit margin 1.6% 2.9% 0.6% 0.8% 1.3% 2.3%
ROA 3.3% 6.8% 2.2% 0.9% 1.1% 5.6%
ROE 10.5% 25.0% 7.6% 2.0% 3.7% 14.3%
Leverage
EBIT/Interest rate 3.54 8.97 1.75 0.68 0.53 5.79
EBITDA / (Interest rate +
Investment)
2.47 4.52 na 1.52 na 1.36
Debt/Investment Capital 0.38 0.33 0.42 0.30 0.49 0.36
Debt/Equity 0.65 0.50 0.73 0.43 1.03 0.58
Liquidation
Asset turnover 2.3 2.1 2.7 2.3 2.3 2.0
Trade debtors 28.3 9.9 47.7 20.4 28.7 35.1
Account payable 36.9 5.4 61.7 41.2 35.2 41.1
Inventories 18.6 38.2 10.6 17.2 6.9 20.3
Current ration 1.0 1.0 1.0 0.8 0.8 1.2
Quick ratio 0.7 0.9 0.8 0.4 0.6 0.9
Growth
Revenue 31.8% 1.0% -13.7% 178.1% -10.1% 3.7%
Profit 19.3% 104.7% 10.5% -12.9% -49.8% 43.9%
Asset 16.3% 65.3% -3.1% 18.3% -4.8% 5.8%
Equity 4.1% 15.1% -0.8% -0.5% -2.3% 9.0%
Source: Bloomberg, VPBS

Petroleum products
Market regulation and key players
Vietnam’s gasoline market, as well the market for other products such fuel oil,
kerosene, diesel and jetA1, is under control of the state in terms of distribution
through a chain of petroleum product import/wholesale companies. As a result of
the World Trade Organization negotiations, petroleum products are still listed as
excluded items; foreign-owned companies are not allowed to trade or distribute
them. Only Vietnamese companies are allowed to import, export and distribute
petroleum products. The U.S. - Vietnam bilateral trade agreement brought more
favorable conditions to Vietnam as part of its commitment to an open petroleum
market. The wholesale market opened in 2007, but as experienced in other
countries, the process of opening the retail market to foreign investors takes
between five and ten years. Since Vietnam has reached an agreement to put its
petroleum products trading on an exception list, opening up of the retail market is
inevitable.
Gasoline sector structure
Source: VPBS
The government, represented by the Ministry of Industry and Trade and the
Ministry of Finance, controls Vietnam’s petroleum market. The Ministry of Finance
manages the import tax rate and petroleum product prices while the Ministry of
Industry and Trade controls the yearly quota (the maximum amount of petroleum
products that can be imported) to ensure supply to the domestic market.
Petrolimex, a state owned group, is the biggest petroleum importer and distributor

that holds more than 50% of the import quota. The Dung Quat refinery is the only
refinery and manufactures about 6.5 Mtpa of petroleum products.
Government controls the market by decree 84/2009/ND-CP. The decree defines
price controls and facilities for import, wholesale and retail companies including
ports, terminals and distribution systems. The decree clearly specifies that all
Vietnam-based enterprises regardless of form of business that engage in petroleum
processing and production are entitled to join the gasoline distribution market of
Vietnam if complying with the above decree. With the issuance of this decree the
government has partly opened the petroleum distribution market but imposed
strict administrative measures on the trading of these products via its regulations
on business operational criteria and the state’s monopoly in the petroleum import-
export business. The decree effectively removed government subsidies and
allowed import and wholesale companies to define their wholesale prices and
adjust their retail prices according to global prices. Thus this decree represents a
move towards a market mechanism from a subsidized mechanism.
Key players
Petroleum products are distributed to the consumer by 14 enterprises, including
Petrolimex and the Dung Quat refinery, via their general agents, trading companies
and service stations. The wholesale enterprises have to organize the import of
petroleum products in a timely manner according to the allocated quota and
category or to their submitted production plan. In addition these enterprises have
to ensure that their products meet all required standards of quality and quantity as
well as a stabilized distribution network to satisfy market needs for petroleum
products. They have to ensure that their reserves of petroleum products satisfy the
amount needed for 30 commercial days. These 14 companies are authorized to
import petroleum products:
List of petroleum importers 2013
No. Company No. Company
1 Petrolimex JSC 8 Thanh Le
2 Petec JSC 9 ZA1 Petrolimex
3 Saigon Petro 10 Vinapco
4 PVO 11 Nam Viet Oil JSC
5 Petimex 12 Mipec
6 Military 13 HiepPhuoc
7 Hang Hai 14 Hai Ha Amphibious
Source: MOIT, VPBS
The list of importers can be changed every year depending on each enterprise’s
business performance, and whether they achieved the import quota of the previous
year. It is useful to note that not all the enterprises listed above distribute
petroleum products to the retail market. Vietnam Air Petrol Co. (VINAPCO) is the
distributor of air petrol for all foreign and domestic airline companies that are
operating in Vietnam’s civil airfields. Hiep Phuoc exclusively imports fuel oil for

power generation, the military imports petroleum products only for specific military
uses, and Vietnam marine (Hang Hai) imports petroleum products for Vietnam’s
marine industry. The remaining import enterprises distribute petroleum products
all over the country, giving them control over retail prices of petroleum products.
Petrolimex is the biggest petroleum products importer and distributor with a
market share of more than 50%. It provides an average of 9 Mt of petroleum
products to the market every year, mostly from imports. PV Oil and Saigon Petro
trail Petrolimex ranking second, third respectively.
Petroleum product import is based on the country’s petroleum products demand,
which is estimated by the Ministry of Industry and Trade. In the past, this quota
represented the country’s actual petroleum products demand since all
consumption was served through imports. The commissioning of the Dung Quat
refinery as added another factor to be considered in the quota decision making
process. The quota also takes into account the business plans of petroleum product
import and wholesale companies. Every year, importers have to submit the amount
of petroleum products they will be able to distribute in domestic markets to the
Ministry of Industry and Trade. Such figures must be linked to the potential
domestic demand. The petroleum products import quota is different every year but
the biggest quota always belongs to Petrolimex which is generally allocated more
than 50%.
Petroleum products import quota in 2013
Source: MOIT
The import quota in 2013 was 9 Mt, of which 4 .43 Mt was gasoline, 3.9 Mt was
diesel, the rest was fuel oil, jet fuel and kerosene. The quota was distributed to
thirteen enterprises as can be seen in figure above. The quota also serves as an
indication of the market share of each enterprise. The bigger the market share a
company has, the larger the quota the company gets.
Petrolimex
58.9%
PVO
11.4%
Saigon Petro
6.1%
Thanh Le
5.2%
Petimex
5.9%
Vinapco
4.8%
Military
1.7%
Mipec
1.8%
Viet Nam Marine
0.0%
Hiep Phuoc
1.1%
Nam Viet Oil
0.8%
ZA1 Petrolimex
0.1%
Hai Ha
2.3%

Petroleum products infrastructure
Wholesale distribution
Petroleum products are distributed throughout the country via vessels, trucks,
pipelines and trains. Vietnam has only one pipeline system, the B12, which is under
the control of Petrolimex. The B12 pipeline was built with the help of Union of
Soviet Socialist Republics. The 600km pipeline is connected to a 337,200 m3
storage system in Quang Ninh city which flows to six cities: Quang Ninh, Hai
Phong, Hai Duong, Hung Yen, Bac Ninh and Hanoi. The pipeline annually
transports petroleum to depots such as Thuong Ly (Hai Phong city), Duc Giang (Ha
Noi) and K135 (Hung Yen).
Petroleum ports in Vietnam are located in Hai Phong, Quang Ninh, Nghe An, Da
Nang, Binh Dinh, Vung Ro, Ho Chi Minh city, Dong Nai and Vung Tau. Vietnamese
petroleum ports can accommodate vessels of maximum 60,000 DWT. The figure
below shows the capacity of petroleum ports in each region.
Existing reception ports for oil tanks
Source: VPBS collected
The most outstanding ones would be Petec CaiMep petroleum port which allow a
vessel of 60,000 DWT and will increase to 80,000 DWT in 2013. The CaiMep
petroleum port is located in the deep seaport system in Cai Mep, the biggest port
area in the South. In the system, only two petroleum ports are capable of
accommodating vessels up to 120,000DWT. The Petec Cai Mep petroleum port
60,000-80,000 DWT, and Cai Mep port of Vung Tau Petro JSC will be able to receive
a vessel of 120,000 DWT. The two ports will help petroleum importers be proactive
Hanoi
25,900-60,000 DWT
5,2000—30,000 DWT
2,500-3,300 DWT
4,900-40,000 DWT
5,1000-6,4000 DWT 80,000-120,000 DWT
Da Nang
HCM city

in seeking for petroleum sources cheaper than current sources in the region,
reduce lightering cost and lightering loss as big vessels can call at the ports
directly.
Retail distribution
Vietnam has more than 12,000 petrol stations, of which 30% belong to the State
and 70% belong to private. The service stations in Vietnam tend to simply be filling
stations without any non-oil businesses attached to them such as restaurants, cafes
and motels. Ho Chi Minh City has about 580 gasoline stations - 4.8% of the
country’s total - while in Hanoi there are 474 gasoline stations - 4% of the total.
Investing in a gasoline station in Vietnam is a very complicated and time-
consuming process that takes up to one year since approvals have to obtained
from the State. Apart from complicated administrative formalities, there are three
different levels of gasoline station and each one requires a different area of land
per government regulations. Level 1 gasoline service stations require an area of
5,600 m2 and must include a motel and parking lot. Level 2 gasoline stations
require a minimum area of 3,000 m2while level 3 gasoline stations require a
minimum area of 900 m2. Vietnam is planning to increase the number of gasoline
stations to 18,000 by 2020. Ho Chi Minh City will have 853 gasoline stations (an
increase of 273 stations) and Hanoi will have about 796 stations (an increase of 322
stations). A gasoline station distributes around 70,000 to 140,000 litres per month
depending on its size and level. About USD100,000 is needed to invest in a small
level 3 gasoline station with an output capacity of 70,000 litres per month-excluding
investment in land. Private gasoline stations earn profits through commissions
from the importer.
Pricing
The retail price in Vietnam is generally below the international market price using
government subsidy to support trading business. From 2009, the government
ceased subsidizing petrol prices and left the pricing to a more market-oriented
approach which, with the new policies, is based on global prices. The price of
gasoline it is now managed in terms of the global price for oil rather than being
completely arbitrary. The policy states as follows:
Raising Prices
 When the global price increases by less than 7%, the local companies can
increase domestic prices in a correlative level
 In case of an increase of 7% to 12%, the companies can add 60% of the
increase to domestic prices and the remaining 40% will be subsidized by
the government

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