Gas Roadmap

VIET NAM: ROADMAP FOR
NATURAL GAS MARKET

DEVELOPMENT
Selection No. 1211198
GAS MARKET ROADMAP REPORT
Final
Prepared by: Intelligent Energy Systems (IES) &

Energy Market Consulting
associates (EMCa)
June 2017
Disclaimer
IES and EMCa make no warranties and take no responsibility for the accuracy of the source
material used. IES and EMCa will not be liable in any way for any loss arising from the
distribution or use of this report, howsoever caused (including by negligence), except that
imposed under statute and cannot be excluded.
© Copyright Intelligent Energy Systems and Energy Market Consulting associates. No part
of this document may be used or reproduced without Intelligent Energy Systems’ or Energy
Market Consulting associates’ express permission in writing.
Intelligent Energy Systems IESREF: 6106 ii

Executive Summary
Project Objectives
Viet Nam has a long-standing energy policy orientation that emphasises the crucial role of
natural gas in providing reliable, competitive electricity. However, despite the considerable
achievements recorded by the gas sector to-date, the sector will need to become more
efficient, more competitive, and more transparent if it is to serve the longer-term interests
of Viet Nam which include ensuring energy security and addressing the issue of climate
change. The Office of the Deputy Prime Minister has recognized this and instructed the
Ministry of Industry and Trade (MOIT) to develop a roadmap for the gradual liberalization of
the gas sector. MOIT in turn has requested assistance from the World Bank in developing
the roadmap.
The report that follows was prepared by Intelligent Energy Systems Pty Ltd (IES) in
association with Energy Market Consulting associates (EMCa), who were engaged by the
World Bank to develop the detailed recommendations that make up the roadmap.
The recommended Gas Market Roadmap sets out a sequence of gas sector reform measures
covering the legal framework, planning process, institutional structure, gas market
mechanisms, and infrastructure development. The pace of the proposed reforms is designed
to be evolutionary and conservative, avoiding a “big bang” industry restructuring that could
present insurmountable implementation challenges given Viet Nam’s current policy and
institutional setting. The reform roadmap was also designed to be compatible with the on-
going reform program in the electricity sector.
Motivations for Gas Market Liberalisation

Viet Nam’s gas sector has recorded an impressive track record over the 30 years since the
first oil and gas was produced in the Bach Ho field. Gas production currently stands at
approximately 1 billion cubic feet per day and reserves are the third largest in Southeast
Asia, after Indonesia and Malaysia. Viet Nam Oil and Gas Group (PVN) is a major driver of
economic activity and contributes 20-35 percent of the state’s budget revenues.
However, threats to the long-term viability of the gas sector have emerged and have
provided the impetus for policy-makers to consider fundamental changes in the legal,
regulatory and institutional arrangements governing the sector.
 Existing gas fields are depleting and new supplies have been slow to come on stream.
Moreover, new domestic gas fields (such as Block B and Cai Voi Xanh) will be more
expensive to develop and operate than existing fields.
 PVN’s activities have expanded well beyond those of the core business of gas and oil
which has diluted their focus and raised concerns over whether they are serving the best
interests of Viet Nam as a whole.
 PVN’s balance sheet has become stretched and its ability to fund the needed investment
to increase domestic production has become limited.
Intelligent Energy Systems IESREF: 6106 iii

 Viet Nam has found it extremely difficult to attract investors into new Production
Sharing Contracts (PSC’s) because of highly-regulated domestic gas prices, high field
development costs, and industry-wide capital constraints resulting from low global oil
and gas prices.
 Based on the current production outlook, Viet Nam will begin importing significant
volumes of LNG within the next 5-10 years and will be subject to world market pricing
for this component of its overall supply portfolio.
Proposed Gas Market Roadmap

The proposed Gas Market Roadmap sets out a detailed agenda of sector reforms that
address the challenges described above and move Viet Nam’s gas sector toward higher levels
of efficiency, competitiveness and transparency. The reform measures—described in detail
in Section 12 of the report—are grouped into three categories:
 Legal and Regulatory Framework: promulgation of the Prime Minster decisions, MOIT
circulars, codes of practice, charters and regulations needed to facilitate the transition
to a liberalized market;
 Organisational Structure: establishing the necessary governance entities and
restructuring PVN’s business functions in order to establish regulatory transparency and
minimize conflicts of interest; and
 Gas Market Mechanisms: development over time of gas contracting arrangements and
pricing mechanisms that enable gas buyers and gas sellers to engage in trade such that
a progressively higher portion of Viet Nam’s gas supply is traded at market prices.
The reforms in each category are partitioned into four time periods covering the period up
to 2020 and the five-year periods 2021-2025, 2026-2030, and 2031-2035. The evolution of
reforms is also mapped against the likely timing of new gas supply and infrastructure projects
The Gas Market Roadmap is summarised in Figure 1.
Period to 2020
The initial phase of the Gas Market Roadmap focuses on establishing the necessary legal and
regulatory framework to support a competitive wholesale gas market and taking the first
steps towards organisational and institutional restructuring. Key proposed steps through to
the year 2020 are:
 Finalisation and promulgation of the Gas Market Roadmap as a Prime Minister Decision;
 Development and promulgation of a Gas Law as a Government Decree defining the
regulated and non-regulated (competitive) elements of the gas sector, licensing
requirements, access regimes, pricing principles, and other fundamental arrangements;
 Development and promulgation of a Gas Industry Charter defining the responsibilities
of the key entities within the gas sector;
 Formation of a Gas Market Steering Committee (GMSC) under MOIT with the authority
and mandate to progress the Gas Market Roadmap and monitor outcomes;
 Initiation of PVN restructuring by: i) ring-fencing of midstream gas businesses, ii)
separating non-oil and gas business from the core business structure with a view to
Intelligent Energy Systems IESREF: 6106 iv
ultimate divestment of those businesses, and iii) definition of a set of key performance
indicators for PVN’s core businesses;
 Issuance of industry-wide Technical & Safety Codes based on international standards
and separation of technical and safety regulation functions from PVN; and
 Improvements in the gas sector planning process incorporating an economic valuation
methodology based on transparent guidelines and data sources and a consistent
method for incorporating the effects of emissions, fiscal impacts, energy security, and
balance of payment issues.
Figure 1 Proposed Gas Market Roadmap
Period from 2021 to 2025

During the period 2021-2025, the broad objective is to complete the changes to Viet Nam’s
legal and regulatory framework necessary to support a competitive wholesale gas market
and to complete the restructuring of PVN. Key steps in this period include:
 Development and promulgation (in the form of a Circular) of Gas Market rules allowing
flexibility in gas supply contracting and removing regulations inhibiting gas trading;
 Implementation of an open access regime for gas pipeline connection and
transportation;
 Establishment (based on the Gas Law) of an independent gas economic, technical and
safety regulator—this could be a “GRAV” with an analogous scope and mandate to that
of ERAV in the electricity industry;
Intelligent Energy Systems IESREF: 6106 v

 Establishment of an independent organization under MOIT with responsibility for gas
sector planning;
 Continuation of PVN restructuring to include: i) separating midstream and downstream
gas business functions, particularly PVGas from the upstream oil and gas business, and
ii) transfer of the gas management and system operations functions to an independent
Gas System and Market Operator (GSMO); and
 Further enhancements to the gas planning process to: i) use economic cost-benefit
evaluations and least cost planning to determine investment priorities and ii) enhance
integration between the gas sector and the electric and industrial sectors.

With all of the preconditions for a competitive wholesale gas market in place by 2026, the
primary objective of the next five-year period is to go through the process of piloting the gas
market and commencing its full operation. Key actions in this period include:
 The GMSO commences pilot operation of the gas market based on established open
access arrangements, new gas contracts, and modified legacy gas contracts;
 Investments are made in the ICT systems and infrastructure necessary to support gas
market operations;
 The GMSC conducts a review of the pilot gas market including and assessment of the
effectiveness of the newly-created entities in taking on their assigned responsibilities;
 GRAV monitors and reports on the outcomes of the pilot including compliance with gas
market rules;
 Depending on government policies and financial considerations, the midstream and
downstream businesses of PVN could be considered for divestment;
 Incremental changes to the Gas Market Rules and Technical Codes, as required based
on experience during the pilot; and
 Further market-oriented revisions to the Gas Master Planning framework.

With the pilot gas market complete, the focus of the period 2031-2035 will be on reviewing
and refining the gas market in order to ensure that it delivers efficient outcomes for Viet
Nam’s energy industry. Key activities during this period could include:
 The GMSC could lead a final investigation into the progress of the Gas Market Roadmap
and, depending on the outcome, it could thereafter be decommissioned;
 To capture efficiency gains, consolidation of the electricity SMO and the gas GSMO could
be considered;
 The feasibility of a retail gas market could be evaluated; and
 Refinements or improvements to the legal and regulatory framework would be
assessed.
Intelligent Energy Systems IESREF: 6106 vi

Required Legal and Regulatory Framework for Viet Nam’s Gas Market
The proposed Gas Market Roadmap depends on fundamental changes to Viet Nam’s existing
legal and regulatory framework. Figure 2 summarises the current legislation and the revised
legal framework required to support a competitive wholesale gas market.
Figure 2 Required Legal and Regulatory Framework
Major Challenges
International experience suggests that a gas sector reform agenda as ambitious as the one
presented in this Gas Market Roadmap will take a long time and will encounter setbacks and
challenges. Some of the most challenging issues can be expected to emerge in the following
areas:
 The current direction from government to retain the status quo to 2025 sets a precedent
for no action until after 2025. However, given the urgency of developments in Viet
Nam’s gas sector and the fact that there are numerous no regrets improvements that
be introduced immediately, this pace is likely to be far too slow.
 Restructuring PVN, a wholly government owned entity that has its monopoly status for
all oil and gas activities in Viet Nam written into the law in its Charter. Experience
suggests that changes are likely to be resisted.
 Change in culture away from a centrally planned and managed gas industry towards one
built around unbundled regulated midstream monopolies and merchant gas supply
entities.
Intelligent Energy Systems IESREF: 6106 vii

 Ensuring developments in the electricity sector and gas sector are coordinated. The Gas
Market Roadmap and Electricity Industry Reforms Roadmap have some dependencies –
particularly in relation to allowing prices to gradually become cost reflective as Viet
Nam’s electricity industry becomes increasingly linked to global energy prices.
 Transition away from pricing and supply approaches that provide some industries with
preferential treatment, for example, the petrochemical industry.
 Introducing flexibility in existing contracts. The roadmap presented here assumes that
buyers and sellers will seek to mutually agree to changes that would introduce flexibility
in the contracts, but there is the risk that this could not deliver a desirable outcome.
 Introducing a framework for economic valuation of natural gas and the shift away from
a focus on legacy, project-specific gas pricing levels.
 Ensuring that MOIT is sufficiently well-resourced with staff capable of progressing and
oversighting the implementation of the Gas Market Roadmap.
Immediate Priorities
To gain momentum in implementing the Gas Market Roadmap, the immediate priorities to
2020 are as follows:
 Promulgate the Gas Market Roadmap as a PM Decision;
 Develop a legal framework to create certainty to the industry and potential investors.
This involves:
 setting up industry-wide Technical, Safety and Environmental Code(s);
 promulgating the Gas Law as a Government Decree;
 promulgating the Gas Industry Charter as a Government Decree superseding the
PVN Charter;
 Make immediate progress in relation to separating PVN’s business units and ring-fencing
them as a major precondition for commencing a fair and competitive gas market; and
 Introduce an enhanced and standardised economic valuation of natural gas framework
to improve the quality of decision-making.
Intelligent Energy Systems IESREF: 6106 viii

Table of Contents
Executive Summary iii
Project Objectives iii
Motivations for Gas Market Liberalisation iii
Proposed Gas Market Roadmap iv
Period from 2031 to 2035 vi
Required Legal and Regulatory Framework for Viet Nam’s Gas Market vii
Major Challenges vii
Immediate Priorities viii
1 Introduction 19
1.1 Project Objectives 19
1.2 Summary of Approach to the Study 19
1.3 Summary of Key Documents Reviewed 20
1.4 Report Purpose 21
1.5 Report Structure 22
PART A: GAS MARKET LIBERALISATION AND ROLE OF THE GAS MARKET ROADMAP 24
2 Gas Market Liberalisation in Viet Nam 25
2.1 Motivation for Gas Market Liberalisation 25
2.2 Gas Master Plan (GMP) Directives for Gas Market Development 26
3 Proposed Gas Market Roadmap 30
3.1 Role of Gas Market Roadmap 30
3.2 Comments on Government’s Directives 30
3.3 Proposed Gas Market Roadmap 30
PART B: CURRENT STATE AND DEVELOPMENT OPTIONS FOR VIET NAM’S GAS
INDUSTRY 33
4 Gas Industry Outcomes to Date 34
4.1 Historical Gas Supply and Demand 36
4.2 Implications for Gas Market Development 38
5 Gas Industry Development Options 40
5.1 Domestic Gas Reserves 40
5.2 LNG Imports 42
5.3 Other Development Options 45
5.4 Implications for Gas Market Development 45
5.5 Transitional Steps 46
PART C: GOVERNANCE AND INDUSTRY STRUCTURE 47
6 Governance and Institutional Arrangements 48
6.1 Current Governance and Institutional Structure 48
6.2 Key entities that govern Viet Nam’s gas industry 49
6.3 Governance and Institutional Challenges to Market Development in Viet Nam 51
6.4 Steps towards Functional Separation in the Gas Supply Chain 53
6.5 Future Governance and Institutional Arrangements 60
6.6 Summary and Transitional Steps 63
7 PVN’s Role in the Gas Market 65
7.1 PVN Scope and Organisation Structure 65
Intelligent Energy Systems IESREF: 6106 9

7.2 Current Role of PVN 65
7.3 PVN Role in a Liberalised Gas Market 66
7.4 Barriers to Market Development – PVN Organisation 67
7.5 Transitional Steps 68
PART D: ECONOMICS, PRICING AND PLANNING 75
8 Economic Valuation of Gas 76
8.1 The Role for Economic Valuation of Natural Gas in Viet Nam 76
8.2 Economic Valuation of Gas 76
8.3 Economic Value of Gas: A Case Study Assessment 80
8.4 Implementation of Economic Assessment of Gas Value 83
8.5 The application of economic valuation of gas in Viet Nam now and its future role in a liberalised
market 85
9 Pricing and Contractual Mechanisms 89
9.1 Current Gas Pricing Approach in Viet Nam 89
9.2 Alternative Pricing Approaches 91
9.3 Current Regulatory and Contractual Constraints 92
9.4 Issues to be addressed for Gas Market Development 95
10 Gas Industry Planning 99
10.1 Gas Master Plan 99
10.2 Revised Power Development Plan 105
10.3 Critique of the Draft GMP 107
10.4 Suggested Improvements to Gas Planning Framework 109
PART E: LEGAL AND REGULATORY FRAMEWORK TO SUPPORT VIET NAM’S GAS
MARKET 114
11 Required Legal and Regulatory Framework to Support a Gas Market in Viet Nam 115
11.1 Required Legal and Regulatory Framework 115
11.2 Gas Market Roadmap (Prime Minister Decision) 116
11.3 Gas Supply Industry (GSI) Charter (Government Decree) 116
11.4 Gas Law (Government Decree) 117
11.5 Gas Market Rules (Circular) 117
11.6 Gas Sector Planning and Economic Valuation Framework 118
11.7 Technical, Safety and Environmental Protection Codes 118
PART F: VIET NAM’S GAS MARKET ROADMAP 121
12 Proposed Gas Market Roadmap for Viet Nam 122
12.1 Approach to Gas Market Roadmap 122
12.2 Proposed Gas Market Roadmap 123
12.3 Period from 2031 to 2035 131
12.4 Gas Market Roadmap Tabulated Matrix 132
12.5 Synchronisation with Electricity Sector 139
12.6 Challenges and Priorities 140
Appendix A Key Gas Infrastructure 142
Appendix B GMP Development Options – Further Details 144

B.1 Further Details on Domestic Fields 144
B.2 LNG Imports 145
B.3 Downstream Gas Market under GMP 145
B.4 Key Offshore Gas Pipeline Developments 146
B.5 Gas Collecting and Inter-Field Pipeline Developments 149
B.6 Key Onshore Gas Pipeline Developments 150
B.7 Low Pressure Gas Pipelines 150
B.8 Gas Processing Plants (GPPs) 150
B.9 LNG Import and Regasification Terminal 151
Appendix C Economic Costing: Case Study and Assessment 152
C.1 Application of the valuation methodology to current technology and fuel costs 152
C.2 Base Case Model 152
C.3 Sensitivity to Capacity Factor 153
C.4 Model Comparison 154
C.5 Comparison of well head and LNG supplied estimates 154
C.6 Potential Model Considerations and Adjustments to Economic Gas Net-back Valuation 155
Appendix D Case Studies: Implementation Risks for Gas Sector Reforms 156
D.1 Institutional change relating to the gas sector in national energy planning 156
D.2 Gas Market Design 156
D.3 Pricing Principles for Gas 157
D.4 Changed roles for the NOC (PVN) in the Gas Sector 158
D.5 Failure to Implement the Road Map 159
Appendix E Case Studies: Gas Pricing Mechanisms in Selected Asian Countries 160
E.1 China Gas Price Approach 160
E.2 Japan Gas Price Approach 167
E.3 Malaysia Gas Price Framework 170
E.4 Thailand Gas Price Framework 174
Appendix F Case Study: Western Australia Gas Market Development 178
F.1 Background 178
F.2 Early Market Developments 178
F.3 Industry Re-organisation 179
F.4 Contractual Re-organisation 179
F.5 Second Phase Industry Re-organisation 180
F.6 Second Phase Regulatory Development 181
F.7 Second Phase Market Development 181
F.8 Third Phase Regulatory Developments 182
F.9 Third Phase Market Developments 182
F.10 Introducing Broad Specification Gas 183
F.11 Conclusion 184
Appendix G Case Study: Viet Nam Electricity Reforms Roadmap and its
Implementation 185
G.1 Background to Electricity Industry Reforms Roadmap 185
G.2 2006 Electricity Industry Reforms Roadmap 187
G.3 2006 Electricity Reforms Roadmap Implementation 188
G.4 2013 Electricity Industry Reforms Roadmap 194
G.5 2013 Electricity Reforms Roadmap Implementation 196
G.6 Implications of Electricity Industry Reforms for Gas Market Roadmap 199

List of Figures
Figure 1 Proposed Gas Market Roadmap v
Figure 2 Required Legal and Regulatory Framework vii
Figure 3 Illustration of Project Tasks 20
Figure 4 GMP Directives for Gas Market Development 27
Figure 5 Proposed Gas Market Roadmap 32
Figure 6 Offshore Gas Fields 35
Figure 7 Viet Nam’s Gas Regions 35
Figure 8 Historical Gas Supply from Each Basin, 2006-16 36
Figure 9 Historical Gas Demand by Region, 2006-16 37
Figure 10 Gas Demand Composition by End Use, 2006-16 38
Figure 11 Viet Nam’s Gas Reserves 40
Figure 12 Gas Reserves Plausible for Production in 2015-35 41
Figure 13 Locations of Planned LNG Developments (PVN) 44
Figure 14 Major Gas Pipeline Projects in the Southern Regions 45
Figure 15 Transitional Steps for PVN’s Role in the Gas Market 46
Figure 16 Current governance structure of Viet Nam’s petroleum and power supply
industry 48
Figure 17 Step A: Separation and ring-fencing of PVN existing key market functions54
Figure 18 Step B: Unbundling gas pipeline transmission and distribution providing non -
discriminatory access regime for gas transportation and connection. 56
Figure 19 Step C: Establish a balancing and secondary trading market building on the
existing balancing market to optimise & trade gas entitlements 57
Figure 20 Step D: Permit other parties to develop new transmission and distribution
pipelines and offer transportation (shipping) services 59
Figure 21 Step E: Competitive purchase of domestic gas and LNG – multiple buyers60
Figure 22 Governance and Institutional Structure for unbundling market functions of
the existing PVN organisation 62
Figure 23 Transitional Steps for Governance and Institutional Structure 64
Figure 24 Indicative Functional Structure of PVN at Step 1 69
Figure 25 Functional Structure of PVN including other functions at Step 2 70
Figure 26 Functional Structure of PVN at Step 3 71
Figure 27 Functional Structure of PVN and the Viet Nam gas secto r at Step 4 72
Figure 28 Transitional Steps for PVN’s Role in the Gas Market 74
Figure 29 Gas Demand and Supply 76
Figure 30 Net back value methodology for the gas fired generati on based on imported
coal – net back value at the gas fired power station 78
Figure 31 Representation of net economic value of gas delivered in electricity network
78

Figure 32 Net back value methodology for the gas fired generation based on imported
coal - net back value at the well head 79
Figure 33 Net back value methodology for the gas fired genera tion based on imported
coal - net back value for industrial and commercial sectors 79
Figure 34 Net back value methodology for the gas fired generation based on imported
coal - net back value for LNG 80
Figure 35 Base Case 85% CF - Total Electricity Cost for Coal and Gas Scenarios 81
Figure 36 Total Electricity Costs for Coal and Gas at Different Capacity Factors 81
Figure 37 Sensitivity of Economic Value of Gas at 85% capacity factor 82
Figure 38 Sensitivity of Economic Value of Gas at 60% capacity factor 83
Figure 39 Net back value methodology for gas fired generation based on imported coal
– new wellhead resource unconnected to competitive hub 86
Figure 40 Transitional Steps for Economic Valuation of Gas 88
Figure 41 Spot vs Contract LNG Prices (USD) for Delivery into Tokyo Bay 91
Figure 42 Contracting Arrangement 1 93
Figure 45 Transitional Steps for Pricing and Contractual Mechanisms 98
Figure 46 Sequence of Developments Proposed in GMP 100
Figure 47 P1 + P2 Gas Supply Projection for Viet Nam’s Domestic Reserves under the
GMP 101
Figure 48 P1+P2+50%.P3+P4+P5+POS Supply Projection for Viet Nam’s Domestic
Reserves under the GMP 101
Figure 49 Downstream Gas Market Development under the GMP 102
Figure 50 Gas Production and Demand Forecast including LNG Demand based on
Draft GMP Information 103
Figure 51 LNG Demand Forecast under the Draft GMP 104
Figure 52 LNG Terminal Sizes (Left: Size by Terminal Site, Right: Size by Region) 104
Figure 53 Installed Capacity (MW) of Gas Project Developments in RPDP7 106
Figure 54 Transitional Steps for Gas Industry Planning 113
Figure 55 Required Legal and Regulatory Framework 116
Figure 56 Transitional Steps for Legal and Regulatory Framework 120
Figure 57 Proposed Gas Market Roadmap 124
Figure 58 Electricity Industry Reform Roadmap (2013) 139
Figure 59 Base Case - Total Electricity Cost for Coal and Gas Scenarios 153
Figure 60 Total Electricity Costs for Coal and Gas at Different Capacity Factors 153
Figure 61 Base Case comparison to Lantau 2014 published analysis 154
Figure 62 Implied Gas well head and LNG delivered price for Base Gas, Base LNG,
Lantau 2014 155
Figure 63 Heating Value vs. Shadow Pricing $/MMbtu (illustrative purposes only) 155
Figure 64 Traditional pricing regime for domestic gas, China 161
Figure 65 Thailand’s Natural Gas Supply, 1990-2011 175

Figure 66 Australian Gas Industry Map 184
Figure 67 2006 Electricity Market Roadmap 188
Figure 68 Structure of Viet Nam’s Electricity Industry under the VCGM 190
Figure 69 Generation Capacity by Ownership (MW as at 2015) 191
Figure 70 VCGM Cost-Based Pool Market Structure 193
Figure 71 Electricity Industry Reform Roadmap (2013) 195
Figure 72 Outline of VWEM Trading Arrangements 198

List of Tables
Table 1 Regional Supply and Demand Balance for 2016, mmscm 38
Table 2 Summary of Planned New Gas Fields (Domestic Fields) 42
Table 3 Proposed LNG Import Terminals 43
Table 4 Summary of GMP Development Sequence 100
Table 5 Summary of Gas Demand and Projected Sector Growth 102
Table 6 Gas Market Roadmap Table 133
Table 7 Summary of Key Gas Infrastructure in Viet Nam 142
Table 8 Summary of Proposed Main Gas Pipelines 147
Table 9 Proposed Gas Processing Plants 150
Table 10 Base Case Input Assumptions 152
Table 11 Malaysia Wholesale Gas Pricing 171
Table 12 Malaysia End User Gas Pricing 171

Glossary
CCGT Combined Cycle Gas Turbine
CF Capacity Factor
EIA Environmental Impact Assessment
EMCa Energy Market Consulting associates
ERAV Electricity Regulatory Authority of Viet Nam
EVN Electricity of Viet Nam
FO Fuel Oil
FOB Free on Board
FSRU Floating Storage and Regasification Unit
GDC Gas Distribution Centre
GDE General Directorate of Energy
GDP Gross Domestic Product
GDSP Gas Distribution Service Provider
GHG Greenhouse Gas
GMP Gas Master Plan
GMSC Gas Market Steering Committee
GRAV (Proposed) Gas Regulatory Authority of Viet Nam
GSA Gas Supply Agreement
GSB Gas Single Buyer
GSI Gas Supply Industry
GSMO (Proposed) Gas System and Market Operator
GSPA Gas Sales and Purchase Agreement
GTSP Gas Transmission Service Provider
HP High Pressure
HR Human Resource
HSE Health, Safety and Environment
ICT Information Communication Technology
IES Intelligent Energy Systems
JV Joint Venture
JVA Joint Venture Agreement
KPI Key Performance Indicator
LNG Liquefied Natural Gas
LP Low Pressure
LPG Liquefied Petroleum Gas
MOE and NR Ministry of Environment and Natural Resources
MOIT Ministry of Industry and Trade of the Socialist Republic of Viet Nam
MP Medium Pressure
NLDC National Load Dispatch Centre

NOC National Oil Company
O&M Operations and Maintenance
P1 Proved Reserves considered to have a 90% certainty of being produced
P2 Probable Reserves considered to have a 50% certainty of being produced
P3 Possible Reserves considered to have a 10% certainty of being produced
P4 Contingent petroleum resources which are not commercially recoverable
P5 Contingent petroleum resources which are not commercially or technically
recoverable
PM Prime Minister
POS Undiscovered petroleum-initially-in-place
PSC Production Sharing Contract
PVGas PetroVietnam Gas Corporation
PV Power PetroVietnam Power Corporation
PVEP PetroVietnam Exploration Production Corporation
PVN Viet Nam Oil and Gas Group, trading as Petrovietnam
RPDP7 Revised Power Development Plan No 7
SMO System and Market Operator (in Viet Nam’s electricity industry)
SWOT Strengths, Weaknesses, Opportunities, and Threats
TOR Terms of Reference
VCGM Viet Nam Competitive Generation Market
VREM Viet Nam Retail Electricity Market
VWEM Viet Nam Wholesale Electricity Market
WB The World Bank Group

1 Introduction
1.1 Project Objectives
Intelligent Energy Systems Pty Ltd (IES) in association with Energy Market Consulting
associates (EMCa) have been engaged by the World Bank Group (WB) to undertake a
consultancy entitled, “Viet Nam: Roadmap for Natural Gas Market Development”.
The objective of the project is to assist Ministry of Industry Trade (MOIT) in formulating a
Roadmap to gradually liberalise Viet Nam’s gas sector. Specifically, the following areas
should be advised on:
 Economic costing of natural gas;
 Options for evolution of market-based pricing of natural gas, and the options for natural
gas market development post-2020;
 Synchronisation of emerging liberalized gas market with competitive power market and
with the long-term gas contract market;
 Development options for supporting infrastructure; and
 Natural gas regulatory mechanism, including specific approaches to price formation and
regulation.
This consultancy was financed by the WB.
1.2 Summary of Approach to the Study

The approach that we have proposed to take to address the TOR’s scope of work is illustrated
in Figure 3, and is based on the completion of the following tasks:
 Task 1: Inception phase;
 Task 2: Establish assessment criteria;
 Task 3: Perform the following assessments:
 Assessment of the current situation: physical and institutional;
 Development scenarios for Viet Nam’s gas and electricity sectors;
 Issues and options for governance and institutional arrangements;
 Issues and options for pricing mechanisms and gas market designs;
 Issues and options for synchronisation with electricity industry reforms;
 Issues and options for transitioning the gas sector over say a 15 to 20-year period,
in a way that would be consistent with the Electricity Industry Reform roadmap;
 Economic valuation of gas for a number for scenarios;
 Review international experience for gas sector liberalisation approaches;
 Task 4: Issues and options paper;
 Options considered for the following:
 Transition stages;

 Organisational structures;
 Pricing mechanisms;
 Assess the options against assessment criteria (conduct SWOT analysis);
 Assess the options against different scenarios for gas infrastructure development;
 Make some preliminary recommendations based on assessment;
 Task 5: Workshop No. 1 on Issues and Options;
 Task 6: Draft Report:
 Refine and adjust findings based on feedback from Task 4;
 Conduct a more detailed assessment of the recommended approach;
 Provide recommendations on roles of PVN and other agencies (EVN, ERAV etc.);
 Provide a more detailed roadmap for gas sector reforms and its synchronisation
with electricity industry reform roadmap;
 Task 7: Workshop No. 2 on Draft Report; and
 Task 8: Final Report.
Figure 3 Illustration of Project Tasks
• Focus on understanding the key issues in Hanoi

Task 1: Inception • Confirm developments in gas and electricity sectors
• Objectives of reform, constraints, importance of certain issues

Task 2: Criteria • Formulate criteria to later evaluate the roadmap options (SWOT)
• Current situation & planned developments, economic valuation of

Task 3: Assessments gas, institutional arrangements
• Set out feasible options for: governance, institutional, pricing

Task 4: Issues & Options mechanisms, gas market designs, development stages…
• Present the findings on issues and options to stakeholders

Task 5: Workshop No. 1 • Gain feedback on preliminary recommendations
Task 6: Draft Report • Draft roadmap taking into account Tasks 2-5
• Presentation on the draft roadmap

Task 7: Workshop No. 2 • Gain feedback on preliminary recommendations
• Updated draft taking into account feedback and issues raised on Task
Task 8: Final Report 6 and 7
1.3 Summary of Key Documents Reviewed

The following documentation has been reviewed:
 PVN Charter;
 Prime Minister Directive No. 296/TB-VPCP dated 27 July 2014;

 Draft Gas Master Plan (GMP);
 PM Decision No. 60/QD-TTg dated 16 January 2017 approving the Plan for Development
of the Viet Nam Gas Industry by 2025 with Vision to 2035 (GMP);
 PM Decision No 168/QD-TTg dated 7 February 2017 approving the Proposal for
Restructuring of the Electricity Industry for the Period 2016-2020 with Outlook toward
2025;
 MOIT Decision 8266/QD-BCT dated 10 August 2015 approving the Detailed Design of the
Wholesale Electricity Market of Viet Nam (VWEM);
 PM Decision No. 63/2013/QD-TTg Road Map, Conditions and Power Sector Organization
Structure for Viet Nam Power Market Stages Formation and Development;
 PM Decision No.: 28/2014/QD-TTg Regulations on Structure of Electricity Retail Tariff;
 PM Decision No. 2068/QD-TTg Approving the Development Strategy of Renewable
Energy of Viet Nam by 2030 with a Vision to 2050;
 MOIT Decisions 3023/QD-BCT, 3024/QD-BCT and 3025/QD-BCT dated 1 June 2012
establishing EVN Genco 1, EVN Genco 2 and EVN Genco 3;
 Revised Power Development Master Plan 7 (RPDP7);
 Procedure of Gas Allocation for Day Ahead Scheduling;
 Previous consultant’s reports:
 ESMAP Study: “Viet Nam Gas Sector Development Framework – Final Report”,
January 2010
 ECA, “Task 1 Report – Pricing Options and Lessons from Other Markets in Asia”, April
2013
 Viet Nam Energy Sector Assessment, Strategy and Road Map, December 2015, Asian
Development Bank;
 Viet Nam Natural Gas Profile, February 2011, EnergyQuest;
 Various reports of PVN;
 Various conference presentations on the Viet Nam energy sector;
 Various proprietary studies on Viet Nam’s gas sector;
 Various news and magazine articles and opinion pieces on the Viet Nam energy sector;
and
 A number of economic models developed to assist with the assessment of various
energy options for Viet Nam.
1.4 Report Purpose

The previous report entitled “Issues and Options” was focused on presenting assessments
of different aspects of Viet Nam’s gas sector. The assessments covered Viet Nam’s current
gas sector situation and plans, infrastructure development options for Viet Nam, governance
and institutional arrangements, PVN Role in the Gas Market, Pricing mechanisms and gas
market development approaches and the economic value of natural gas. The report

concluded with a number of options that could be explored to transition Viet Nam towards
one where the gas market is liberalised.
This report refines the assessments of options considered for gas market development based
on comments and feedback from two industry stakeholder workshops. This has been used
to propose transitional steps for each issue which in turn forms the basis of a gas market
reforms roadmap. The gas market roadmap is essentially a strategic document for use by
the Government of Viet Nam to undergo a transition from the existing arrangements
towards arrangements that can support a liberalised gas market.
1.5 Report Structure

The report has been structured around several parts in order to logically work its way
through the issues leading up to the final recommendation, which is the Gas Market
Roadmap. In particular:
 Part A: Gas Market Liberalisation and Role of the Gas Market Roadmap:
 The purpose of part is to set out the reasons for Viet Nam undertaking a path of gas
market liberalisation and sets out the role of the Gas Market Roadmap.
 Section 2 provides a discussion of the motivation behind Viet Nam considering the
development of a gas market and the Government’s directive towards establishing
a Gas Market.
 Section 3 then sets out purpose and role that the Gas Market Roadmap should have
before presenting the report’s main recommendation – which is the Roadmap itself.
 The remainder of the report provides detailed justifications and considerations that
form the basis of the presented Roadmap.
 Part B: Current State and Development Options for Viet Nam’s Gas Industry:
 This part briefly summarises historical outcomes of Viet Nam’s gas industry and sets
out the key infrastructure development options that have been identified by the
Government.
 Section 4 provides a summary of historical outcomes to date for Viet Nam’s gas
industry; and
 Section 5 sets out gas industry infrastructure development options.
 Both sections provide a commentary on the implications for gas market
development and recommends that key developments be included as part of
Roadmap to ensure coordination between infrastructure development and an
ongoing transition towards a Gas Market.
 Part C: Governance and Industry Structure:
 This part comments on how the wider governance arrangements for Viet Nam’s gas
industry need to be transitioned in order accommodate a gas market before
considering the issue of restructuring PVN’s business to accommodate a level
playing field, thereby encouraging greater participation in Viet Nam’s gas industry.
 Section 6 assesses the existing governance and institutional arrangements before
setting out a suitable transition path for Viet Nam;

 Section 7 discusses the role of PVN within the gas market;
 Part D: Economics, Pricing and Planning:
 Section 8 provides a discussion on the economic valuation of natural gas which
could be adopted as way of making decisions more efficient in the near-term until
a fully open gas market is put into operation.
 Section 9 provides an assessment of the current gas pricing approach in Viet Nam
before setting out gas market design approaches that could be considered by Viet
Nam; and
 Section 10 provides an assessment of gas sector planning in Viet Nam and sets out
improvements that could be made and transitional steps for moving from the
existing arrangements towards arrangements that would be compatible with a gas
market.
 Part E: Legal and Regulatory Framework to Support a Gas Market in Viet Nam:
 Section 11 sets out the key legal and regulatory documents that would need to be
established as part of the transition towards a liberalised gas industry.
 Part F: Proposed Gas Market Roadmap for Viet Nam:
 Section 12 set out the final recommendations of the report which is a detailed
discussion of the proposed Gas Market Roadmap for Viet Nam.
 This part also identifies the key immediate term challenges that need to be
addressed for the Gas Market Roadmap to be successful and provides some brief
comments on the synchronisation of the Gas Market Roadmap with the Electricity
Industry Reforms Roadmap.
The following appendices are also included:
 Appendix A provides a summary of key gas pipeline infrastructure in Viet Nam for
reference;
 Appendix B summarises further details from the Gas Master Plan (GMP) in relation to
development options for Viet Nam’s gas sector;
 Appendix C provides some case studies relevant to the economic valuation of natural
gas;
 Appendix D sets out a discussion of gas market implementation risks based on numerous
international experiences;
 Appendix E provides case studies in relation to gas pricing mechanisms as implemented
in a selected number of Asian countries;
 Appendix F sets out a detailed discussion of the development of a gas market in Western
Australia; and
 Appendix G provides a detailed discussion of Viet Nam’s electricity industry reforms
experience, which we consider extremely important and which we draw upon in the
formulation of the Gas Market Roadmap.

PART A: GAS MARKET LIBERALISATION AND ROLE OF THE
GAS MARKET ROADMAP

2 Gas Market Liberalisation in Viet Nam
2.1 Motivation for Gas Market Liberalisation
Viet Nam’s oil and gas industry has historically been a priority area of development because
oil and gas production for the purpose of stimulating economic development and in terms
of making a significant contribution to the country’s fiscal balance1. After 30 years of oil and
gas development, Viet Nam is ranked about 28th among 52 countries in relation to gas and
oil potential in the world, and is ranked 3 rd in South East Asia in terms of proven gas reserves,
after Indonesia and Malaysia2.
Established in 1977, Viet Nam Oil and Gas Group (PVN) has become a major contributor of
Viet Nam’s economy, contributing some 20% to 25% of the state’s budget revenues. Wholly
owned by the government, PVN is responsible for all oil and gas resources in the country
with core activities including all operations from oil and gas exploration and production to
storage, processing, transportation, distribution and services. PVN’s business activities have
developed rapidly since its establishment and especially since first oil production in Bach Ho
field in 1986.
While Viet Nam and PVN in particular have had great success over the last 40 years, there
remain numerous challenges to the gas industry that are prompting change and in particular,
the liberalisation of Viet Nam’s gas sector.
The reasons that are prompting such thinking are:
 The existing gas fields that are in production are becoming depleted. New supplies have
been slow to come on stream with commercial, pricing, market, and regulatory issues
cited as barriers to their development.
 New domestic gas fields will be more expensive to develop and operate compared to
existing fields. PVN’s ability to develop these fields is more difficult compared to the
past which has created a greater need for encouraging participation of new developers
and operators as investors.
 Having PVN as the national gas sector champion has proven to be appropriate in the
early years of development of Viet Nam’s oil and gas sector, by helping to offset risks,
providing a means of exploring and developing new fields. However, now there are
different challenges facing Viet Nam which prompts the need for reforms. PVN’s
activities have expanded well beyond those of the core business of gas and oil which has
diluted their focus raising concerns over whether they are serving the best interests of
Viet Nam as a whole, including its consumers and industries that use gas.
 PVN’s balance sheet has become stretched and its ability to fund the needed investment
to increase domestic production is limited. Therefore, additional sources of investment
funds are needed and the role of PVN along the whole gas supply chain needs to be
reviewed to ensure that it is not hampering gas sector development and inhibiting the
1 M. R. Tsibulnikova, V. A. Pham, T. Yu Aikina, “Outlook for the Development of Oil and Gas Industry in Viet Nam", IOP
Conf. Series: Earth and Environmental Science 43 (2016) 0120 94.
2
Le Viet Trung, Tran Quoc Viet, Pham Van Chat, “An Overview of Viet Nam’s Oil and Gas Industry”, Petroleum &
Economics Management, Vol. 10, 2016, Viet Nam Petroleum Institute, available: www.vpi.pvn.vn.

growth of gas usage in industries that have a higher economic valuation of gas and usage
of gas.
 While historically Viet Nam has been able to attract Joint Venture (JV) partners and enter
into Production Sharing Contracts (PSCs), over the last 10 years’ progress has become
far more limited. The high investment costs of new fields are occurring in a gas pricing
environment that is not cost reflective and based on pricing that was appropriate for
earlier (and less costly) gas developments. Viet Nam’s low price environment combined
with tighter global constraints on capital increases the importance of putting in place a
stable and transparent gas regulatory and pricing framework. This is a necessary
condition in order to attract investors and operators and secure financing for large
infrastructure projects.
 Large and capital intensive LNG facilities are under consideration in Viet Nam. This
further highlights the importance of having transparent and stable policies in place to
attract investors and secure financing for large projects. It also places a higher
importance on ensuring that efficient investment decisions are made in terms of LNG
options. LNG technology has advanced considerably in the recent past and thus it is
important that development options be carefully evaluated. Decisions need to be made
in Viet Nam in relation to the location of LNG facilities, the use of Floating Storage and
Regasification Units (FSRUs) compared to onshore receiving facilities, and with regard
to the trade-offs between short-term LNG contracts (which can be more flexible)
compared to long-term LNG contracts. A market oriented framework for the gas
industry will enable the trade-offs between risks and rewards to be assessed and ought
to lead to more efficient decisions, to Viet Nam’s benefit.
 Gas investments and gas allocation to end users has to date not been based on sound
economic principles. This distorts pricing and inhibits future investments. As part of the
transition towards a gas market, standardisation of economic cost-benefit analysis and
the use of least cost economic planning should further encourage efficient investments.
 There is a potential “gas supply crunch” coming, with many of Viet Nam’s gas users
thinking past gas prices can continue into the future. It is critical that Viet Nam avoids
a gas crisis and a related power supply crisis, by transitioning to a more economically
rational approach to pricing gas and creating the environment where new gas can be
delivered to meet growing demand in a timely, orderly and efficient manner.
 Viet Nam’s national energy security could be enhanced by improving the way that gas is
developed, transported, stored and traded – this again highlights the importance of
having a consistent, transparent, and well-structured legal, contractual, market, and
regulatory arrangements for the gas sector.
2.2 Gas Master Plan (GMP) Directives for Gas Market Development
Against the background of the motivations for gas market liberalisation, directives of The
Prime Minister’s Decision No. 60/QD-TTg dated 16 January 2017, on approving the Plan for
Development of the Viet Nam Gas Industry by 2025 with Vision to 2035 (“GMP”) has also
identified the need for change in Viet Nam’s gas sector. The reason is that the directive
canvasses a range of issues that are directly relevant to the gas market roadmap and it is

important to ensure that the gas market roadmap is complementary and aligned with the
broader direction of the GMP legislation.
The GMP suggests a strategy for gas market development, with the key periods being from
present to 2025 and the period beyond 2025. This is shown in Figure 4.
Specific directions that this legislation sets for gas market development as follows:
 Complete the transition of the gas sector management model towards the free market
direction in the post-2020 period;
 Gradually progress to a management model where the Government only administers
the gas industry operation through legislative documents and market participants are
granted autonomy to negotiate their commercial agreements involving gas sale,
purchase, transportation and trade;
 Enhance, update the legislative documents related to the gas sector management
commensurate with current conditions of the domestic gas industry and international
conventions; and
 Establish rational gas market price policies with assurance that interests of the
Government, businesses and consumers are all duly respected.
The draft detailed contents of the GMP which were available to the Consultant have also
recommended on the development path for the Viet Nam gas market.
Figure 4 GMP Directives for Gas Market Development
Proposes gas market liberalisation at a high level:

Up to 2025: Beyond 2025:
• Retain current governance • Establish gas sector regulatory
arrangements agency to assume the
• Governing role allocated to functions in regulating gas
MOIT with additional transport, distribution and
regulations: trading activities
– gas allocation
• Reduce Government oversight
– develop strategic industrial of gas sector starting
sectors
– approve gas prices & • Establish a Gas Law
transport charges • Establish wholesale gas market
– manage licences for of some kind and a retail gas
infrastructure investment market beyond 2030
2.2.1 Prior to 2025

The GMP directives for market reform prior to 2025, are firstly to retain the current
governance arrangements of the gas sector, with the Government continuing to regulate the
market operations via PVN and PVGas. Secondly, the Government has assigned the

governing role in the sector to the MOIT. To strengthen sector governance and
management, the MOIT then needs to be availed with additional regulatory legislation,
including:
 Regulations for gas allocation to major industrial sectors to safeguard the industries
from disadvantages associated with gas market liberalisation such as sudden price
spikes or reduction in gas supply. Concurrently, this arrangement is also consistent with
the Government’s target to encourage development of strategic industrial sectors.
 Approve (but not set) the levels for gas prices and gas transportation tariffs. Through
approving these price and fee levels, the Government realises their leading role in
regulation and management of the gas market.
 Issue licences for infrastructure investment activities and monitor the safety in
operating the gas infrastructure.
2.2.2 Beyond 2025

Beyond 2025, the GMP directives for market reform are as follows:
 Establish a gas sector regulatory agency to assume the functions in regulating gas
transport, distribution and trading activities, to gradually reduce Government’s
involvement in governing the gas sector, consistent with the wholesale competitive
market model and retail market model (post 2030). The roles of the Government will
include:
 Reinforce the monitoring and regulatory functions over gas trading, transport and
distribution activities.
 Provide directions and guidance for parties participating in gas transactions and for
resolution of the disputes arisen.
 Provide rules as per which gas users are allowed to trade in the wholesale market
and which users only in the retail market.
 Develop / amend the Oil and Gas (Petroleum) Law.
 Develop / amend the Competition Law.
 The amended Petroleum Law / Gas Law and legislations underneath shall set out the
rules and procedures regulating gas production, trade, transport, distribution and uses,
and the relationships between gas / LNG market participants. These legal documents
also specify the roles and responsibilities of the state overseeing agencies (GDE and / or
any independent gas regulator when applicable) in enforcing the rules and regulations
set forth. The scope of these rules covers:
 Conditions & requirements for participation in the gas market; rights and
responsibilities of market participants.
 Management of the gas infrastructure development planning: participants in the
planning process and levels of involvement, contents of the planning and execution
procedures.

 Regulations for infrastructure project investment and construction management;
approval and issuance of investment licenses, business registrations with required
technical, commercial and environmental conditions and standards.
 Rules on setting up of the monitoring / regulatory entities to oversee related
activities, in particular gas transportation and distribution.
 Third party access to gas pipelines.
 Operational codes and procedures for gas pipelines and gas despatch.
 Gas metering regulations, safety and environmental protection rules.
 Regulations on gas products and services quality; gas pricing, transportations fees
and other charges setting rules.
 Gas purchase and gas transportation agreements.
 Gas cost allocation and accounting regimes.
 Rules enforcement and dispute resolution.

3 Proposed Gas Market Roadmap
3.1 Role of Gas Market Roadmap
The GMP directives for gas market development set the general direction for gas market
liberalisation in Viet Nam. The Gas Market Roadmap (“Roadmap”) is intended as a strategic
policy document that sets the scene for a gradual transition towards gas market
liberalisation. The Roadmap provides a more detailed sequence of transitional steps that
encompass a range of areas that are critical to gas market liberalisation. Viet Nam has
previously successfully implemented Roadmaps of this nature in other industries, most
notably the electricity sector. The Gas Market Roadmap structure and content has been
developed to follow a similar structure and to ensure synchronisation between electricity
and gas market evolution.
3.2 Comments on Government’s Directives

The directives of the Government set the scene for formulating a more detailed strategy for
transitioning Viet Nam’s gas industry towards one that is liberalised. The directive identifies
a number of important elements and features of regulations that need to be established to
enable a gas market. However, there remain many challenges, including: (1) providing
greater clarity and detail on the legal and regulatory framework, (2) providing more concrete
governance structure for the industry, (3) setting out clear and identifiable milestones for
transitioning of PVN’s business towards one that is compatible with competition, and (4)
identifying some immediate term changes to improve the efficiency of the gas sector.
Furthermore, the pace of reforms under the directive largely suggests retaining the status
quo until 2025 before contemplating the next steps. This is not rapid enough, nor does it
identify steps that could be started immediately that would prepare Viet Nam for a
liberalised gas market.
The Roadmap has been formulated to address these challenges.
3.3 Proposed Gas Market Roadmap

While detailed discussion of its reasoning, content and approach is the subject of this report,
we present the proposed Gas Market Roadmap upfront in Figure 5 to explain its structure,
general content. The foregoing content is then able to clearly indicate the components of
the Roadmap that assessments and analysis relate to.
The Roadmap has been modelled on the Electricity Industry Reforms Roadmap in Viet Nam
which was originally legislated in 2006 (see Appendix D). The Gas Roadmap and Electricity
Roadmap could be considered an example of integrated policy framework for the energy
industry. The periods of time have been set to be broadly consistent with the 2025
breakpoint of the GMP’s directives and also the developments of the GMP itself. These are:
 Up to 2020 period;
 2021-25 period;
 2026-30 period; and

 2031-35 period.
The key dimensions of areas where transitions need to be achieved (which are shown as the
rows) represent the dimensions of gas market liberalisation. They draw heavily on the
approach that has been adopted in the Electricity Reforms Roadmap, and are:
 Legal and Regulatory Framework:
 Prime Minister decisions;
 MOIT Circulars;
 Codes of practice;
 Charters; and
 Regulations.
 Organisational Structure
 Internal reorganisation;
 Functional separation;
 Ring-fencing requirements; and
 Creation of new legal entities and legal separation.
 Gas Market (Trading) Mechanisms:
 Gas contracting arrangements;
 Mechanisms to enable buyers and sellers of natural gas to engage in trade; and
 Pricing mechanisms.
 Supporting processes and Infrastructure:
 Processes required to support the operation of the gas market; and
 Planned infrastructure developments.
The legal and regulatory framework dimension largely sets out the necessary transition steps
for establishing the laws and rules for Viet Nam’s gas industry. The legal and regulatory
framework can be established well in advance of starting a gas market and in doing so, it
creates transparency and confidence to the industry participants and potential investors.
Organisational structure is very much concerned with setting up the necessary governance
entities and restructuring PVN’s business units. Gas market developments shows the
transitional steps that we suggest for developing the gas market. Finally, the infrastructure
dimension is largely an outlook of infrastructure developments to ensure synchronisation
between physical developments in the industry and development of a gas market.
A more comprehensive discussion of the Roadmap is given in section 12.


PART B: CURRENT STATE AND DEVELOPMENT OPTIONS
FOR VIET NAM’S GAS INDUSTRY

4 Gas Industry Outcomes to Date
Viet Nam is a coastal country with several hundred thousand square kilometres of
continental shelf in which seven tertiary sedimentary basins have been identified. These are
shown to the left in Figure 6. Major gas reserves have been found in four of the seven
offshore basins: Song Hong, Nam Con Son, Cuu Long and Malay - Tho Chu. The total gas
reserves have been reported at around 871 Bcm.
Large scale gas extraction has been carried from 1995 at oil and gas fields in Cuu Long and
Nam Con Son basin, and lately in Malay - Tho Chu basin. In 2014 the total offshore gas
production was approximately 9.8 Bcm, and the accumulated production was 127.64 Bcm
by the end of 2014, leaving the remaining available reserves at 743 Bcm. Overall indigenous
gas supply from Viet Nam in 2016 is estimated at 1,051 mmcfd3.
In summary the status of upstream fields that are in production is as follows:
 Cuu Long, which is an oil-prone basin, delivered 55.66 Bcm or 48% of the nationwide
accumulated gas production by 2014 but the production has been in decline;
 Nam Con Son, which likewise is a gas-prone basin, delivered 61.33 Bcm or 48% of the
nationwide accumulated gas production by 2014 that is also in decline;
 Malay - Tho Chu, an offshore area administered jointly with Malaysia which transports
natural gas to Ca Mau from Block PM3-CAA and the Cai Nuoc field, had produced 10 Bcm
or 7.84% of the nationwide accumulated gas production by 2014. This basin is yet to
reach its maximum production capacity; and
 Song Hong, where the gas extraction from small deposits has recently commenced but
the production is expected to increase over the coming years with operations Thai Binh
field (2015), Ham Rong field (2018) and Ca Voi Xanh field (2023).
Gas supply from South East Viet Nam will reduce as production from the Lan Tay field
declines over the next few years. However, with the completion of the first phase of the Nam
Con Son 2 pipeline, gas production from the Dai Hung and Thien Ung fields began in 2015.
The second phase of the Nam Con Son 2 pipeline will also see the Sao Vang field being
developed and associated gas from the Su Tu Trang field.
Figure 6 shows Viet Nam’s offshore oil and natural gas basins while Figure 7 illustrates how
Viet Nam can be considered to consist of four “gas regions”: North, Central, South East and
South West. North and Central are emerging gas regions while the South East and the South
West have been supplied with offshore gas since 1995 and 2007 respectively. There is no
interconnection between South East and South West. Further details of gas supply
infrastructure in Viet Nam has been summarised in Appendix A.
3 Viet Nam gas and LNG - 2016 long term regional outlook, Wood Mackenzie (2016).

Figure 6 Offshore Gas Fields
Figure 7 Viet Nam’s Gas Regions

4.1 Historical Gas Supply and Demand
4.1.1 Existing gas fields

As stated earlier, large scale gas extraction has been carried oil and gas fields first in Cuu
Long and Nam Con Son basins, and lately in Malay - Tho Chu basin. Gas extraction has also
recently commenced from small deposits in Song Hong basin in the North-Central region.
According to PVN statistics, there are 48 gas fields curently in production and 15 fields under
or planned for development these four major basins. Major active fields include Bach Ho
(commenced 1986) in Cuu Long basin, Lan Tay – Lan Do (2002), Rong Doi (2006), Hai Thach
– Moc Tinh (2013) in Nam Con Son basin, and PM3-CAA (2007) in Malay - Tho Chu basin.
PetroVietnam holds a large stake in Viet Nam's oil and gas reserves as partner in a number
of PSC contracts. Main international holders of Viet Nam commercial gas reserves include
Gazprom and Rosneft (Russia), Mitsui & Co and METI (Japan), KNOC (Korea), PTTEP
(Thailand) and ONGC (India).
4.1.2 Historical gas supply

Figure 8 shows historical gas supply from each basins for the period 2006 to 2016. It indicates
that the total quantity delivered from the off shore fields has increased from just under 6,000
mmscm in 2006 to around to 9,500 mmscm in 2014 and plateaued out at 9,700 mmscm
during 2015-2016. Nam Con Son has been the largest gas basin producing more than 73% of
the total gas supplied over the given period. In combination with Cuu Long Basin, the
domestic gas delivered in the South East region made up around than 90% of the total gas
supply nationwide. In the South West region, after the commencement of the PM3 block,
the annual supply increased to above 1,100 mmscm since 2012. Song Hong Basin in the North
East region started producing some lesser amounts of gas in 2015-2016.
Figure 8 Historical Gas Supply from Each Basin, 2006-16
10000
8000
6000
MMSCM
4000
2000
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Cuu Long Basin Nam Con Son Basin PM3 CAA Song Hong Basin
Source: Consultant based on PVN information

4.1.3 Historical gas demand
Figure 9 shows the gas demand by each region in the same 2006-2016 period. The total gas
demand was 9,169 mmscm in 2016 from which 7,844 mmscm was used in the South East
market and 1,181 mmscm was consumed in the South West region. It is noted that
differences between gas supply and gas demand volumes were merely the amounts of gas
that went to LPG and condensate production, and these applied only for the South East
market since the PM3-CAA gas is technically dry and no portion of it has been used to
produce liquefied gases.
Figure 9 Historical Gas Demand by Region, 2006-16
10000
8000
6000
MMSCM
4000
2000
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
South East Region South West Region North East Region
Changes in the gas demand composition by end use are illustrated in Figure 10 which shows
that the power generation sector has been the main gas user accounting for more than 80%
of the total gas demand over the 2006-2016 period. Gas consumption by fertilisers has been
stable at 11% while the other industrial gas users (currently only present in the South East
and North East regions) increased their share from 5% in 2006 to more than 9% in 2016.
Industrial gas demand in the South East mainly comes from the chemical and ceramic
sectors. According to Wood Mackenzie4, PVGas has met difficulties in finding additional
industrial demand due to the sharp fall in oil prices. However, it is expected that oil prices
recovery and gas being reasonably priced will encourage new industries to switch to using
gas. Over the next few years, PVGas hopes to grow the gas market by attracting a new
ammonia plant, ethane extraction plant and the development of the Long Son petrochemical
complex that includes a polyethylene plant. PetroVietnam holds 29% ownership of this
petrochemical complex development that is being led by the Siam Cement Group, Thailand.
4 Wood Mackenzie Viet Nam gas and LNG - 2016 long term regional outlook, July 2016

In the South East region, industrial demand is unlikely to grow until PVN develops Block
B&52. There is already insufficient supply to meet existing gas demand thus any plans to
introduce gas distribution can only take place once more supply comes online.
Figure 10 Gas Demand Composition by End Use, 2006-16
100%
80%
60%
40%
20%
0%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Power Fertilisers Industrial
4.1.4 Supply and demand snapshot 2016

Table 1 shows a snapshot of the 2016 supply and demand situation.
Table 1 Regional Supply and Demand Balance for 2016, mmscm
Demand
Region Supply
Total Power Fertilisers Industrial
South East 8,3765 7,844 6,597 548 699
South West 1,181 1,181 699 482 -
North East 144 144 - - 144
Total 9,701 9,169 7,296 1,030 843
4.2 Implications for Gas Market Development

The present state of Viet Nam’s gas industry has the following implications for gas market
development:
 Viet Nam’s gas sector currently consists of a number of isolated gas regions or markets
of small scale: South East, South West and the North/Central regions.
5
The difference between (PVGas) gas supply to shore and gas demand in the SE region was due to the amount of LPG
and condensate separated from the gas produced from the oil-prone Cuu Long basin.

 As there is no physical interconnection between the regional gas markets, there are
limits on the size of the markets and also the opportunities for existing industry
participants to trade gas.
 Current gas supply situation in Viet Nam is broadly structured around having a single
source of offshore gas supplying single sets or groups of users / or single user complex.
This single supply point to demand is a barrier for open access to infrastructure.
 While there are no physical interconnections between the isolated regional markets it
should be recognised that there is a linkage via the electricity market for power
generations.
 Production from most of the existing gas fields is declining while the implementation of
the LNG import plans has been slow. It is therefore imperative to ensure gas supply
meets the underlining demand in the mid-term and long-term.

5 Gas Industry Development Options
5.1 Domestic Gas Reserves
Figure 11 shows the gas reserves that have been identified each of the four major gas basins:
Song Hong in the North-Central region (also called North East), Cuu Long and Nam Con Son
in the South East and Malay-Tho Chu in the South West. The total gas reserves have been
reported at around 871 Bcm with the accumulated exploitation being at 127.64 Bcm by the
end of 2014, leaving the remaining available reserves at 743 Bcm. Song Hong and Ma Lay-
Tho Chu basins have the largest unutilised reserves, with more than 200 Bcm accounted for
each region.
Figure 11 Viet Nam’s Gas Reserves
300
200
Bcm
100
0
Song Hong Cuu Long Nam Con Son Malay - Tho Chu
Remained Reserves Already utilised by 2014
Source: 2016 Gas Master Plan
Figure 12 shows the amount of gas reserves that are considered practical for extraction over
the period 2015-2035; they include the reserve classes P1, P2 and 50%P3 6. The total plausible
reserves for production by 2035 is around 290 Bcm, with the Malay-Tho Chu basin expected
to contribute the largest share of 85 Bcm.
6 Reserve classes P1, P2 and P3 respectively comprise proven (at least 90% probability), probable (at least 50%
probability) and possible (at least 10% probability) gas reserves. The estimated reserves combine both developed
(remaining gas) and to-be-developed fields.

Figure 12 Gas Reserves Plausible for Production in 2015-35
100
80
60
Bcm
40
20
0
Song Hong Cuu Long Nam Con Son Malay - Tho Chu
P1+P2 50%P3
Source: 2016 Gas Master Plan
The key options for offshore domestic reserve development that are identified in the Gas
Master Plan (GMP) are set out in Table 2 along with their proposed timings from the official
GMP decision. Two offshore fields that have been prioritised for development are Ca Voi
Xanh and Block B. Both have challenges to be overcome in their development: the Ca Voi
Xanh gas field has high carbon dioxide and sulphur concentration levels requiring additional
infrastructure to reinject carbon dioxide and manage the sulphur. Similarly, Block B is a
“scattered field” and will require investment in a large number of wellheads 7 to maximise
production from the field.
The implications of these developments in relation to Viet Nam’s gas supply outlook are
discussed further in section 10.
7 Some 1000 wellheads would be required to maximise production levels.

Table 2 Summary of Planned New Gas Fields (Domestic Fields)
Region Gas fields Commencement Production Peak

of production peak (Bcm/y) period
Northern Ham Rong 2018 (to 2026) 0.07-0.08 2018-25
Region Ham Rong Nam – 1X 2020 (to 2027) 0.15 2021-23
Hong Long – Bach Long 2021 0.25 2022-
– Hac Long – P4+P5
Blocks 102 & 106 2029 0.30 2030-
Blocks 103 & 107 2030 1.20 2033-
Central Region Ca Voi Xanh 2023 6.2 2025-
Bao Vang 2023 0.6 2025-
Blocks105 & 110 2030 1.20 2034-
Blocks 111 & 113 2031 1.20 2033-
South East Su Tu Trang (Stage 2) 2019 2.5 2022-31
Region Dai Nguyet 2021 0.66 2024-30
Sao Vang 2022 0.97 2024-28
South West Block B 2020 3.84 2031-
Region
5.2 LNG Imports

Viet Nam is also exploring the development of imported LNG under a broad strategy of
offsetting the expected depletion from the current fields over the next decade. We present
the key options that have been identified for development in the GMP in Table 3. Figure 13
illustrates the locations of planned LNG developments. We make the following observations:
(1) the terminal sizes are significant and (2) a substantial amount of investment would be
required for all LNG terminals listed to be realised.
The implications of these developments in relation to Viet Nam’s gas supply outlook are
discussed further in section 10.

Table 3 Proposed LNG Import Terminals
LNG Import Year of

No. Location Capacity Main users
Terminal Operation
1 South East Thi Vai (Ba Ria 2020-22 1-3 MT Nhon Trach 3&4
– VT) CCGT
2 South West Hon Khoai (Ca 2022-25 (st. 1) 1 MT & Kien Giang and O
Mau) 2025- (st. 2) 2 MT Mon Power Centres,
Ca Mau GDC
3 South East Tien Giang 2022-25 4-6 MT -
4 South East Son My (Binh 2023-25 (st. 1) 1-3 MT, Son My Power
Thuan) 2027-30 (st. 2) 3 MT & Centre, Phu My GDC
2031-35 (st. 3) 3 MT
5 North Thai Binh 2026-30 0.2-0.5 -
FSRU
6 North Cat Hai (Hai 2030-35 1-3 MT Hai Phong 3 CCGT

Phong)
7 Central My Giang 2030-35 3 MT -
(Khanh Hoa)

Figure 13 Locations of Planned LNG Developments (PVN)
Source: GMP / PVN

5.3 Other Development Options
Other key development options in relation to onshore / offshore pipeline infrastructure and
gas processing plants that have been identified in the GMP for the Southeast and Southwest
regions is shown in Figure 14. Major offshore projects total capacity of 11 bcm are Bach Ho-
Phu My and Nam Con Son pipelines in South-East, and PM3-CAA - Ca Mau pipeline in South-
West). Onshore distribution networks include Phu My-My Xuan-Go Dau (15 km) and Phu My-
Ho Chi Minh City (71 km).
Figure 14 Major Gas Pipeline Projects in the Southern Regions
Source: GMP / PVN

A detailed description of key gas infrastructure developments is provided in Appendix B.
5.4 Implications for Gas Market Development

The key implication for gas market development is that whilst each of the development
options listed in this section could have consequences for the outcomes within a gas market,
the broader framework of any gas market (and liberalisation steps) must be able to cater for
any order or sequencing of these development options. Moreover, the gas market should
have flexibility to absorb the potential risk associated with possible delays in major supply
projects, especially Block B.

5.5 Transitional Steps
The development options that have been identified in the GMP may or may not proceed as
planned. Irrespective, it is important for the main stages in development of infrastructure
in the gas industry form part of the Roadmap to ensure that the necessary regulations and
policies are synchronised with developments. Furthermore, as planning frameworks evolve
towards being more market-oriented, then decisions in relation to investments and
infrastructure will have less Central oversight and be made to accommodate the evolution
of a gas market. Figure 15 illustrates the outlook for infrastructure development in the
Roadmap, with infrastructure development path being shaded. It is important to note the
tight coupling that development options have with the evolution of methods for economics
and planning, which are discussed in detail in section 8 and 10.
Figure 15 Transitional Steps for PVN’s Role in the Gas Market

PART C: GOVERNANCE AND INDUSTRY STRUCTURE

6 Governance and Institutional Arrangements
6.1 Current Governance and Institutional Structure
Figure 16 shows the current governance structure of Viet Nam’s petroleum industry. This is
compared with the electricity industry in Viet Nam, which is transitioning to a liberalised
market. On the top line, we show the upstream and downstream gas supply chain. On the
left side, we have identified the key functional areas of a liberalised gas market.
PVN organisational roles and functions are stipulated by government decree and PVN
charter. PVN activities are wide ranging and span all aspects of exploration, production
transportation, regulation, purchasing, distribution and sales. PVN has other subsidiary
organisations8 from banking to related businesses including the investment in production
and trading of electricity and fertilizers.
In Figure 16 a separation of government policy formulation and gas market operation is
shown. However, the separation of other functional areas including regulation, operation
and network infrastructure necessary for a liberalised market have not yet been progressed
in PVN.
Figure 16 Current governance structure of Viet Nam’s petroleum and power

supply 9 industry
827 business units and 32 subsidiary companies.

9
ERAV – Electricity Regulatory Authority of Viet Nam; EPTC - Electric Power Trading Company; NLDC – National Load
Dispatch Centre; NPTC – National Power Transmission Corporation; EVN – Viet Nam Electricity

6.2 Key entities that govern Viet Nam’s gas industry
6.2.1 Overview
The following are key entities that govern the Viet Nam’s gas industry:
 The Prime Minister’s Office (PMO) has direct oversight of the oil and gas industry, and
the electricity industry. For oil and gas this includes promulgation of the legal framework
and the final decision-making on policy, regulation and long-term planning.
 Ministry of Industry and Trade (MOIT) is responsible for overseeing all aspects of Viet
Nam's energy sector including electricity, new and renewable energy, coal, and the oil
and gas industry. It has specific responsibility for formulating and submitting to the
Government draft laws, decrees and policies; preparing and submitting to the
Government, or the Prime Minister for approval overall development strategies and
master plans; promulgating circulars, decisions, directives and other documents on state
management and regulation for the listed sectors and fields. MOIT under PVN Charter
Article 24 “is the direct superior of PVN Board Directors”.
 General Directorate of Energy (GDE) was established in September 2011 to carry out
the function of advising and assisting the MOIT to execute the tasks of state
management over the energy sector. GDE is responsible for drafting laws and decrees,
preparing and evaluating development strategies and national master plans. GDE is
responsible for national energy planning and energy policy, but is not involved in the
day-to-day management of Viet Nam’s energy industry. In relation to energy planning,
GDE/MOIT prepares separate national development plans (also called master plans) for
the power, coal, gas and petroleum sectors.
6.2.2 PetroVietnam
PetroVietnam (PVN) is the state-owned and state-controlled Viet Nam Oil and Gas
Corporation. At present, PVN’s organisation, roles and functions are stipulated by
Government’s Decree No. 149/2013/ND-CP dated 31 October 2013. PVN activities span all
aspects of the oil and gas industry, including oil and gas exploration, production, storage,
processing, transportation, distribution and other related services. Under PVN Charter
Article 9, the State delegates PVN “to carry out petroleum exploitation and exploration
activities on the total Viet Nam continental and signing oil and gas contracts with
organizations and individuals that conduct Viet Nam oil and gas activities in accordance with
the provisions of the petroleum law and other provisions of law”. PVN, under the direct
control of the PMO, maintains regulatory control over end-use oil and gas prices and most
other aspects of the oil and gas sector. Different aspects of PVN are managed through
various wholly or partly owned subsidiaries.
PVN Charter Article 4 - 2a & 2b states that core business is wide-ranging and includes
“Petroleum research, exploration, production, transportation, processing, storage and
distribution of oil and gas products at home and abroad; trading and distribution of oil and
gas products, petrochemical materials; and related businesses such as investment,
production and trading of electricity and fertilizers.”

Some of the key PVN wholly-owned subsidiaries include:
 PetroVietnam Exploration and Production Corporation (PVEP) - is responsible for
upstream gas and oil exploration and production activities in Viet Nam and the
management of PSCs.
 PetroVietnam Gas Corporation (PVGas) - manages the midstream and retail gas
activities in Viet Nam, and is the sole entity that links gas from the upstream gas supplies
to the end-users of gas. PVGas has sole rights to distribution network 10 development.
PVN has regulatory control over all facets of gas transportation (via PVGas) and
downstream oil and gas marketing.
 PetroVietnam Power Corporation (PV Power) - was established in 2007, and manages
power projects for PVN. While the focus of projects was initially gas-fired power
generation plants, the company has started the process of diversifying their power plant
portfolio to include hydro, coal and wind projects.
PVN Charter Article 81 indicates that PVN reorganization is decided by the Prime Minister
when necessary after it is requested from the Ministry of Industry and Trade and the process
follows the order and procedure of law. The Draft GMP (2016)11, prior to 2025,
“recommends to retain the current governance arrangements of the gas sector.
Government’s targets of managing, controlling the gas market are being achieved
completely. The Government is effectively regulating the market operations via PVN and
PVGas.”
Post 2025, the Master Plan targets “the establishment of the gas regulatory agency to
assume the functions in regulating gas transport, distribution and trading activities, to
gradually reduce Government’s involvement in governing the gas sector, consistent with the
wholesale competitive market model and retail market model (post 2030)”.
6.2.3 Other state-owned enterprises in Viet Nam’s energy sector 12

The following are some other important state-owned enterprises:
 Electricity of Viet Nam (EVN) - was established in 1994 as the state-owned integrated
power utility. EVN controls transmission/distribution and over 80% of generation
capacity.
 Vinacomin - founded in 1994, is Viet Nam’s state-owned coal miner accounting for 91%
of the country’s total coal output. It is also involved in the power market in Viet Nam,
with plans to increase its coal-fired power generation portfolio.
 Petrolimex or Viet Nam National Petroleum Group, an industry group in Viet Nam, is
an oil and gas producing company in competition with PVN. In addition to operations in
petroleum and natural gas, the company has significant subsidiaries active in insurance,
transport and trading.
10 Wood Mackenzie Viet Nam gas and LNG - 2016 long term regional outlook, July 2016 page 7
11
Gas Master Plan Chapter 9 Section IV.2
12 Wood Mackenzie Viet Nam gas and LNG - 2016 long term regional outlook, July 2016 page 7

6.3 Governance and Institutional Challenges to Market Development in Viet
Nam
6.3.1 Industry governance

A liberalised market is built on an industry governance structure that unbundles policy,
regulation and system management and market operations and separates the contestable
elements of the market from the natural monopoly of networks, pipelines and critical
infrastructure.
Functional separation and restructuring is a precondition for progressing a liberalised
market. Functional separation provides business transparency. Provided it is properly
executed, it avoids perceived conflicts and biases in market operation and regulation and
thereby reduces risk to future investors who need to be able to rely on the fair and
transparent workings of the market.
The electricity sector has taken the first important steps to restructuring EVN in preparation
for market liberalisation and the required functional separation for PVN is similar.
PetroVietnam remains constituted as a State-Owned Enterprise with a charter to develop
Viet Nam’s oil and gas resources and infrastructure across the whole supply chain. A large
and complex corporation, PetroVietnam has many functions and responsibilities with the
potential for conflicting objectives, strategy and operational priorities. It has subsidiary
businesses with mixed responsibilities including regulating the industry, buying and selling
gas, transporting gas, delivering infrastructure and advising the Ministry of Industry and
Trade and the Prime Minister’s Office on matters of energy policy.
The draft GMP (2016) recommends retaining the current governance arrangements of the
gas sector beyond 2025. A PVN charter that continues to preserve PVN’s monopoly over all
elements of gas supply chain and includes subsidiaries and interests inconsistent with its
core functions and priorities would be is likely to be an impediment to meaningful
progression to a liberalised gas market.
These issues are of importance to progression of the gas reform roadmap. PVN’s diverse
interests create potential for bias and a lack of independence if PVN is to have a mandate to
provide non-discriminatory open access and market operator roles in a future liberalised gas
market. The required changes to the role and structure of PVN are described in Section 5
and changes to the gas planning framework are described in Section 7.
6.3.2 Regulatory & legal framework requirements

The regulatory and legal framework within which the energy market operates is fundamental
to the successful delivery of energy market reform. The regulatory and legal framework
allocates decision making responsibilities to parties and provides the tools and mechanisms
to implement them.
The current regulatory or legal framework in place in Viet Nam would not support the
development of a gas market. PVN has regulatory control over all facets of the petroleum
industry in Viet Nam, including upstream oil and gas, gas transportation (via PVGas) and

downstream oil & gas marketing. PVN and PVGas self-regulate without independent
oversight. Internal procedures are managed by PVN/PVGas on a project by project basis.
Prime Minister’s Directions on gas prices and gas allocations apply to specific situations,
without general industry application.
The current challenges for the regulatory and legal framework for reform are threefold13:
 “To separate market development from broader energy policy setting:
 Legal and regulatory arrangements need to be established with the force of Law;
 Market development and reform requires resources and expertise committed to
timely implementation.
 To separate rule making and market development advice, rule enforcement and
compliance:
 Transparent and independent gas regulation with appropriate powers and
functions.
 To bring greater clarity and transparency to the roles and objectives of the governance
institutions, and to the decision-making processes:”
 unbundle policy, regulation and system management and market operations; and
 separate the contestable elements of the market from the natural monopoly of
networks, pipelines and critical infrastructure
The regulatory and legal framework will need to take account the interrelationship between
gas and the power market in Viet Nam, the policy challenges facing the government and
regional market issues relevant to Viet Nam.
Regulatory rules and market design will necessarily adapt 14 and change, however the legal
and regulatory framework should remain consistent, transparent and robust in the face of
these challenges, inviting confidence and trust in market processes and delivering
competitive neutrality of resources, technology and regulation15.
The gas regulatory and legal framework can provide the vehicle to honour legacy contracts
and current contracts being negotiated and the opportunity, if progressed, to trade and re-
negotiate contracts to liberate unutilised capacity and deliver a more efficient allocative
economic value.
In line with Viet Nam’s transition to a liberalised power market, the regulatory and legal
framework of a domestic gas and LNG market will need to separate high level policy direction
from rule making and independent advice. A body responsible for economic regulation and
13 Framework reflects Australian Energy Market Commission (AEMC) response to Independent Review into Future
Security of the National Electricity Market (Preliminary Report December 2016, Dr Alan Finkel AO, Chief Scientist), page
8.
14 The regulatory framework will be established by Law. However, market rules and technical regulation must be able
to adapt and respond to a changing landscape. Changes would follow regulatory review processes and consultation and
would be implemented by ministry circular.
15 This is all about establishing rules that neither favour nor prevent particular technologies fro m being used. Regulation
does not seek to pick winners. “Ensuring the regulatory framework facilitates competitive and efficient energy markets
in a time of technological change” Australian Energy Week 2016, AEMC - 21 June 2016, Australia

rule enforcement equivalent to ERAV will need to be considered at the earliest opportunity
and ahead of the GMP proposed implementation program for a sector governance model 16.
Changes to the regulatory and legal framework to meet the requirements above, are
discussed later in section 11.
6.3.3 Technical & safety governance

Currently each project proponent is required to develop its own technical and safety
compliance systems, with no effective guidelines from the Government of Viet Nam on
minimum standards which must be met. Basic codes, based on international standards, can
provide greater investment confidence and trust, particularly at the early stages of project
development.
While it is acknowledged that each project will have specific requirements due to locational
factors or design elements, a performance-based standard, such as the Safety Case regime
widely adopted in the international oil and gas industry, with specified minimum standards,
would be a worthwhile model to consider.
Reforms to the technical and safety regulatory regime will assist in delivering efficiency
improvements in the gas sector. This requires the technical and safety codes presently
internalised in PVN to be established as industry wide regulations, applicable without
discrimination and available to all participants. The transparency of continuing
improvements in the non-market aspects of regulation, operational rules, technical codes
and the re-organisation of PVN will deliver efficiency benefits regardless of progressing gas
market liberalisation.
The importance and the role of market rules applied through technical and safety codes is:
 the uniform application to PVN;
 the signal and transparency it provides to new market entrants; and
 the foundation of confidence and trust it brings to market participants, new entrants
and investors.
6.4 Steps towards Functional Separation in the Gas Supply Chain

Presently all key market functions in relation to the management of gas resources and the
development of a domestic gas and LNG market in Viet Nam are embodied within PVN.
Functional separation is a pre-condition for progressing a liberalised gas market. The steps
and roadmap to a liberalised gas market are detailed below:
 Step A – Separation and ring-fencing of PVN key market functions from other business
activities;
 Step B – Unbundling gas transportation; and
 Step C – Create a gas balancing and secondary trading market.
16 See GMP Chapter 9 IV.2. State sector governance model - post 2025

These steps should then create a regime in which investors can develop pipelines and other
infrastructure to bring gas to market, and multiple upstream gas suppliers can sell gas to
multiple purchasers. In other words, a gas market will have been created, as follows:17
 Step D – Development of further pipelines by third parties in addition to PVN; and
 Step E – Competitive purchase of domestic gas and LNG – i.e. multiple buyers.
6.4.1 Step A – Separation and ring-fencing PVN key market functions for other
business activities.
The first step is the functional separation and ring-fencing of PVN roles of Single Buyer
(purchasing gas from producers and selling gas to users); Gas Transportation; and Gas
Management and System Operation (GMSO) from PVN’s other functions and business
activities. Having ring-fenced these functions their operations may be unbundled, leading to
full separation into stand-alone entities as per the following steps B to D.
Figure 17 identifies in red these key functions that must be separated and ring-fenced in
preparation for a gas and LNG market. It follows a similar separation in EVN for the electricity
market.
Figure 17 Step A: Separation and ring-fencing of PVN existing key market functions
17
Investor-owned and operated pipelines and multiple buyers and sellers of gas are both indicators of a working market.
However, it should be noted that step D is not a necessary precursor to step E.

6.4.2 Step B – Unbundled gas transportation and open access regime to pipelines
and infrastructure
PVN through PVGas operates all three offshore gas pipelines in southern Viet Nam. However,
the ownership of Nam Con Son offshore pipeline is shared between Rosneft and Perenco 18.
PetroVietnam Low Pressure Gas Distribution, a subsidiary of PVGas, distributes gas supplies
to industries via the onshore pipelines. PVGas is the sole entity that links gas from the
upstream gas supplies to the end-users of gas. PVGas has the sole rights to distribution
pipeline development.
Gas transmission and distribution contract charges are approved by Government on a
project basis. PVN gas purchases are supported by gas transport service contracts between
PVN and PVGas which cover the gas collection, transport and operation services provided by
PVGas on behalf of PVN.19
As shown in red in Figure 18, unbundling transport is a key step to establishing a non-
discriminatory open access regime to gas and LNG pipeline transportation (separate from all
purchases and sale of gas). For each pipeline, a transparent and non-discriminatory regime
would be required to be published for connection and for the cost of transportation services.
This also requires technical & safety codes presently internalised in PVN to be established as
industry wide regulation applicable to all gas market participants.
A non-discriminatory access and pricing regime for domestic gas and LNG pipeline
transmission and distribution is absent in the current market. Unbundling PVGas would
require transfer of legacy gas purchase contracts for the Nam Con Son basin to PVN, to
become the entity providing gas infrastructure (transportation and distribution) 20 as distinct
from gas supply.
18 10Z 0073 Wood Mackenzie Viet Nam gas and LNG 2016 long term regional outlook.
19
21 0125 - VN gas industry models, Gas Trading Mechanisms, DGSA contracting arrangement - page 2.
20 21 0125 - VN gas industry models, Proposed Models for GAS Industry Developm ent in Viet Nam - page 3.

Figure 18 Step B: Unbundling gas pipeline transmission and distribution providing
non-discriminatory access regime for gas transportation and connection.
6.4.3 Step C – Create a gas balancing and secondary trading market

Current contracts preclude any secondary trading. PVGas’s existing dispatch and balancing
market operations could provide the mechanism for wholesale market participants to
renominate and optimise gas requirements. This would require that flexibility to be available
in contracts. If incremental volumes of domestic gas and LNG were made available at a
regional reference price, wholesale participants could purchase and trade around existing
contract entitlements balancing their daily needs. Subject to flexibility of current contract
provisions and future sales agreements a secondary market may release pipeline capacity,
provide access to un-utilised gas entitlements and optimise gas volumes purchased and sold
in the market.
Take or Pay provisions of current contracts may not optimise the current requirements of
gas. The maximum demand quantities and committed volumes of gas may be underutilized
and in aggregate result in sub-optimal utilization of transport and production infrastructure.
Periods of imbalances in demand and supply, such as due to plant curtailment and
maintenance, present market opportunities for alternative and more flexible supplies of LNG
and domestic gas, physical and financial gas trading and the re-sale of gas entitlements.

Having structurally ring-fenced purchasing, transport and operation, the first steps to a gas
market as shown in red in Figure 19 can proceed. Balancing is a centrally controlled process
undertaken and continuously monitored by the Gas Management and System Operator
(GMSO) every day. A balancing and secondary trading market will permit wholesale market
participants to review their gas needs and re-nominate their requirements. This can involve
the purchase of additional gas volumes or provide opportunities to sell existing gas
entitlements. The sale would release and monetise the value of unutilised gas entitlements
making this gas available to other participants.
PVN as single buyer would continue to purchase incremental production and trade volumes
in the secondary market as shown in red in Figure 19. The gas market would be an extension
of the GMSO role. When PVN is relieved of its single buyer role (as shown in Step E - Figure
21), participation of multiple buyers and gas producers will have been enabled, thus creating
a ‘gas market’.
Market information and trading platforms that would support a balancing and gas secondary
trading market include:
 Market bulletin boards to register and exchange trades;
 Gas regional hub providing regional reference prices and trading platforms; and
 On market and off-market gas swaps facilitated by third parties.
Figure 19 Step C: Establish a balancing and secondary trading market building on

the existing balancing market to optimise & trade gas entitlements

6.4.4 Step D – Development of pipelines by third parties in addition to PVN
As shown in red in Figure 20, a non-discriminatory access regime will allow private sector
investment in gas transport infrastructure to proceed. Third parties may be permitted (from
a nominated time) to develop new pipelines for connection to new gas resources, LNG
infrastructure and power generation developments. The opportunities for pipeline
interconnection between resources may increase bringing competition in the bundled
package of domestic gas supply and/or LNG together with associated pipelines.
Not all pipelines necessarily serve or connect multiple users and buyers. There remains a
role for both covered (regulated) pipelines and uncovered (independent or private
unregulated) access arrangements not suitable for open access. Different approaches may
apply to pipeline developments as Viet Nam LNG and domestic gas development shifts from
point to point resource (infrastructure) development to targeted network interconnection
and gas market law and associated rules would need to include this distinction and
associated criteria.
Economic regulation provisions would apply only to ‘covered’ pipelines. Various tiers of
regulation may apply, based on competition and significance criteria. Full regulation would
require a pipeline provider to periodically submit an access arrangement to the regulator.
Under light regulation, the pipeline provider may determine its own tariffs, but would be
required to publish relevant access prices and other terms and conditions and to offer them
to all parties on a non-discriminatory basis.
Some pipelines (particularly including offshore pipelines) may remain ‘uncovered’, meaning
that for various reasons they are unsuitable for open access and remain not subject to
economic regulation. Gas pipelines associated with project specific development in
disconnected regional areas may remain ‘uncovered’. However, all pipelines would be
expected to comply with technical and safety regulations.

Figure 20 Step D: Permit other parties to develop new transmission and
distribution pipelines and offer transportation (shipping) services
6.4.5 Step E – Competitive purchase of domestic gas and LNG – multiple buyers
Currently purchases and sales of all gas are controlled by PVN in its role as the single buyer.
The majority of gas supply agreements are bilateral negotiations with direct supply
agreements between PVN and power producers and between PVN and other commercial
users including the fertiliser industry. PVGas has the role of managing and operating the gas
pipeline system and gas processing facilities. Contracts between PVN and PVGas cover the
gas collection, transport and operation services provided by PVGas on behalf of PVN. Some
legacy gas purchase contracts have been signed between PVGas and producers (Nam Con
Son basin), under PVN approved gas prices.
In all the previous steps (see Figure 17 to Figure 20), PVN can continue as the “Single Buyer”
responsible for upstream gas and oil exploration and production activities in Viet Nam and
the contracting management of PSCs.
Having progressed a regulatory access regime and gas market framework, the entry of third
parties to purchase and sell gas is enabled, and PVN can be relieved of its single buyer role.
This is shown in red in Step E - Figure 21. LNG importation should present an early
opportunity for the entry of multiple buyers, increasing market liquidity and competition
with the incumbent PVN Buyer.

Access to and competition between multiple gas resources and LNG suppliers will advance
by increased interconnection through pipelines and electricity transmission, and the
progress in LNG and gas resource developments.
Using LNG imports as a basis for starting to liberalise gas prices has been implemented
worldwide, in particular in the Chinese gas market china, the pricing model of which is
discussed in section Appendix E as part of our review of international examples.
Figure 21 Step E: Competitive purchase of domestic gas and LNG – multiple

buyers
6.5 Future Governance and Institutional Arrangements
6.5.1 Regulatory and legal framework

The following actions are recommended to progress a legal and regulatory framework:
 Market reforms must be supported by Gas Law and a decree on industry restructuring;

 Clearly separate high-level policy direction from rule making and independent policy
advice;
 Establish an independent gas economic regulator similar to the power industry’s ERAV
with the appropriate powers and functions;
 Formulate a high-level, overarching (principles-based) framework to guide operations
e.g. market rules, access arrangements, technical standards and safety codes;
 Establish a legal and regulatory framework for a domestic gas and LNG market (rather
than a set of processes implemented internally by PVN/PVGas);
 Provide an integrated approach to Gas Master Plan synchronised with related Master
Plans (Power and Environment) and government policy initiatives.
In progressing a regulatory and legal framework, low hanging opportunities will provide the
initial steps to a liberalised market. These include the introduction of a balancing and
secondary trading market for gas and non-discriminatory access regime for gas
transportation and connection. A focus on market segments or niche regional opportunities
(for example, where multiple buyers and multiple sellers are concentrated in a particular
region, or at a major electricity or gas transmission node) will provide the beach head for
competition and market based pricing. Strategically located terminals for LNG may provide
flexible competitive sources of gas competing with domestic gas and imported coal.
6.5.2 Modified industry structure

Functional separation of relevant industry roles is a precondition for progressing a liberalised
market. This includes functional separation of some industry roles currently in PVN, as is
further discussed in section 7. This is guided by the following principles and related actions:
 Separate market development from broader energy policy setting:
 Responsibility for gas market development should remain with MOIT. A Market
Steering Committee reportable to MOIT could provide the dedicated resources and
expertise for progressing market reforms and legislation program; and
 Market reforms to be supported by Gas Law and a decree on industry restructure.
 Separate rule making, economic regulation, rule enforcement and compliance:
 Establish an independent gas economic, technical and safety regulator(s) similar to
the power industry’s ERAV with responsibility and appropriate powers for industry
monitoring, compliance and enforcement.
 Bring greater clarity and transparency of market roles across the supply chain:
 Functional separation and ring-fencing PVN’s key purchasing, transport and gas
management and system operation functions;
 Establishing a non-discriminatory access and pricing regime to existing pipeline and
gas transport infrastructure; and
 Introduce transparent and measurable KPIs and benchmarking measures.
This may initially be progressed within the present PVN organisational structure, ensuring
existing gas contracts are honoured and resource developments remain under government
control. The functional components of governance and proposed unbundled industry

structure would then follow as shown in Figure 22. The names are indicative and intended
only to describe that functional area.
Figure 22 Governance and Institutional Structure for unbundling market functions

of the existing PVN organisation 21
6.5.3 Technical and safety codes and associated regulation

The following actions are recommended:
 Minimise the number of agencies focused on safety & associated compliance;
 Establish a single and independent Office for monitoring, compliance and enforcement;
 Develop codes (preferably based on international standards) to guide project specific
H&S procedures;
 Implement an independent and transparent consultation process for code technical and
safety review and modification.
 Implement market rule and code changes by government circular.
Improvements in the non-market aspects of regulation, operational rules, technical codes
and the re-organisation of PVN will deliver benefits regardless of progressing gas market
liberalisation.
21
ERAV – Electricity Regulatory Authority of Viet Nam; EPTC - Electric Power Trading Company; NLDC – National Load
Dispatch Centre; NPTC – National Power Transmission Corporation; EVN – Viet Nam Electricity

6.6 Summary and Transitional Steps
6.6.1 Summary
To enable a gas market, key industry governance roles that are currently undertaken by PVN
should be migrated out of PVN into other agencies. These include:
 Gas sector policy;
 Economic regulation of gas pricing and access; and
 Technical and safety regulation.
The gas market management / operator role and the transmission and distribution pipeline
owner/operator roles also need to be proscribed and need to be independent of PVN’s role
in purchase and development of gas.
A gas market regulatory framework, economic regulatory framework and technical and
safety codes and regulations need to be developed, to be administered by the agencies as
above.
6.6.2 Transitional steps

The recommended transitional steps for implementing the governance and institutional
arrangement in preparation for a gas market comprise the following steps:
Step 1 - to 2020
Legal Framework
 Progress Gas Law and Government Decree on Industry Structure
 Establish a Gas Industry Charter
 Develop industry wide Technical & Safety Codes (preferably based on international
standards) to provide industry and project specific standards and procedural
guidance.
Organisational Restructure
 Establish a Gas Market Steering Committee (under MOIT)
 PVN functional separation and ring-fencing of GMSO, HP gas transmission, MP/LP
distribution, marketing and sales.
 Minimise the number of agencies focused on safety & associated technical
compliance
 Implement transparent and measurable KPIs and benchmarking measures
Step 2 – 2021 to 2025:
Legal Framework
 Establish an independent gas economic, technical and safety regulator(s) similar to
the power industry’s ERAV with responsibility and appropriate powers for industry
monitoring, compliance and enforcement.
 Implement independent and transparent consultation process for code technical
and safety review and modification.

 Market rule and code changes implemented by government circular.
 Implement an open access regime for gas pipeline connection and transport.
In Figure 23, as shaded, these transitional steps and timetable for implementing the legal
framework and organisation restructure are integrated into the Gas Liberalisation Roadmap.
The roadmap would ensure the gas industry structure (including open access regime for gas
pipeline connection and transport) was in place for a domestic gas and LNG market to
proceed. Resource and infrastructure development of LNG and domestic gas supplies would
be undertaken in a manner that is consistent with the market restructure and master plans
for gas and electricity market liberalisation – for example, by separating gas supply
arrangements from gas transportation, making such developments subject to dispatch by an
independent market operator, and subject to general technical, quality and safety codes
rather than bespoke terms and conditions.
Figure 23 Transitional Steps for Governance and Institutional Structure

7 PVN’s Role in the Gas Market
7.1 PVN Scope and Organisation Structure
PetroVietnam operates five core businesses:
 Gas exploration and exploitation;
 Gas trading;
 Oil exploration and exploitation;
 Electricity generation; and
 Services.
The organisation charts published on PVN’s website 22 list 27 business units and 32 subsidiary
companies. Each subsidiary company then has many subsidiaries, resulting in a corporate
group which is complex in structure and diverse in both its operations and businesses.
The business units and subsidiaries report to the Board of Management which then reports
to the Board of Directors.
PVGas is a joint stock company listed on the Ho Chi Minh City Stock Exchange with PVN
holding over 50% of the registered capital; it has 15 operational divisions, owns 10
companies outright and holds interests in a further 8 subsidiary companies 23. Many of the
operational divisions, such as Health, Safety and Environment, Human Resources, Legal,
Accounting and Audit, Finance, Research and Development and Information Technology
replicate functions in the parent organisation, PVN.
The operations of the business units, owned companies and subsidiaries of PVN and PVGas
are extensive. They span the full breadth of the oil and gas business, including many
businesses which are services normally provided by independent contractors to major oil
and gas companies, and equipment and materials supply and manufacture. Subsidiaries
include financial services, fertiliser manufacture, shipbuilding and power generation.
7.2 Current Role of PVN

While PetroVietnam is constituted as a State-Owned Enterprise with a charter to develop
Viet Nam’s oil and gas resources, it also functions as the national oil company; it operates
many subsidiary businesses; and it advises the Ministry of Industry and Trade and the Prime
Minister’s Office on matters of energy policy.
PVN’s main functions24 can be summarised as follows:
 Conduct activities and enter into contracts with other parties in the oil & gas sector, in
accordance with the Petroleum Law;
 Manage, oversee operations in oil / gas investigation, exploration, exploitation and
processing via contracting arrangements with other parties;
22 www.petrovietnam.vn
23
www.pvgas.vn
24 Gas Industry Development Models (provided by GDE)

 Directly carry out production and commercial activities; and
 PVN has an overarching role in regulation of the gas value chain and gas industry
investment, including:
 overseeing the operation of the sector on behalf of the state / government;
 being the upstream producer in gas exploration, production and sale (PVEP);
 being the gas purchaser and distributor (PVGas); and
 being a gas user for those power plants and fertilizer works owned by PVN.
These main functions and PVN’s Charter allow PVN to be involved in the broad range of
industry sectors in which it operates.
PVN’s size, diversity, current structure and roles are incompatible with the operation of a
competitive gas market as PVN operates in every area of the industry, with no apparent
segregation of roles. However, there are opportunities to re-structure PVN’s business into
ring-fenced business units that would be compatible with a gas market, with each business
unit focussed on specific areas of activity, to increase efficiency, and to grow the overall
value of PVN to the national economy.
PVN is one of the most significant enterprises operating in the economy of Viet Nam,
accounting for approximately 20% of national GDP. Accordingly, PVN’s role goes beyond the
oil and gas industry and therefore any changes to the gas industry must consider the impact
on PVN and how that impact might flow through to the national economy. A possible
approach is set out below, but it is recommended that an organisational development
consultant be engaged to develop and support the implementation of a business-specific
plan, including separation of accounting, legal, ICT, human resources and other corporate
functions.
7.3 PVN Role in a Liberalised Gas Market

PVN can continue to have a pivotal role in any gas market in Viet Nam. However, a more
suitable platform for competition involving the introduction of new players would require
some form of re-organisation of the company so that complementary functions are grouped
together. Consistent with the market-compatible industry governance structure proposed
in section 6, a re-organisation of existing PVN roles could be as follows with those roles not
directly related to PVN’s core businesses being devolved to MOIT or other agencies, or
established as stand-alone corporations:
 Gas exploration and exploitation;
 Mid-stream infrastructure development and operations;
 System (and market) operations;
 Gas trading;
 Support services, including HSE, HR, finance, accounting, ICT;
 Technical and safety regulation;
 Economic regulation;
 Policy advice to Government; and

 Non-oil and gas businesses.
Under this model, the regulatory and policy functions could be transferred to GDE, with the
technical and commercial functions remaining within PVN. Appropriate ring fencing
between the various functions within PVN would be required to ensure that operational
decisions are taken in the best interests of the operation of the market and not solely for
any business unit of PVN, and to provide an environment in which third parties will be
encouraged to participate without concern that PVN’s market power would make the market
less than competitive.
Notwithstanding PVN’s current roles and functions set out by the Government, the
consultants suggest the longer-term role of PVN will always start with its over-arching role
as Viet Nam’s National Oil Company (NOC). As NOC, PVN’s primary role should be to develop
Viet Nam’s oil and gas resources through PSC’s, JV’s or, ultimately, in its own right. Issues in
relation to the role of PVN for consideration include:
 It must be involved in exploration, development and production (including processing)
which starts with negotiation of the PSC’s or JVA’s;
 It must exit price setting, safety / technical regulation and approvals processes as well
as advice to the government;
 It could be involved in LNG and/or pipeline gas imports from adjoining countries (to
ensure adequate oil and gas capacity is available for Viet Nam’s domestic market);
 It could be involved in the development, ownership and operation of transmission
pipelines (if gas is to be sold at the City Gate or inlet to industrial facilities / power
plants);
 If Viet Nam becomes an exporter of oil and/or gas, then the international sales of equity
volumes could be the responsibility of PVN;
 Similarly, when Viet Nam seeks to invest in overseas oil and gas developments, PVN
would be the vehicle for those activities; and
 It could, over time, exit all downstream activities including gas distribution, gas retail
and power generation.
7.4 Barriers to Market Development – PVN Organisation

Neither the structures of PVN’s business units and subsidiaries nor their reporting lines and
accountabilities are clear to parties outside of PVN. The current organisation structure of
PVN (including its subsidiaries) is that of a vertically integrated monopoly oil and gas
company, operating in every sector of the industry. Relevantly for the development of a gas
market in Viet Nam, the roles of gas developer and producer; gas transporter; gas seller; gas
buyer; service provider, including financier, to each of these businesses; technical and safety
regulator; and government policy advisor exist within a single organisation.
Many of these combinations of roles, such as that of gas seller and gas buyer; or gas buyer
(or seller) and gas transporter, have competing interests in a competitive market. Where
decisions about the commercial relationships between these competing roles are made by a
single body, experience suggests that these decisions invariably lead to inefficiency, higher
cost, restricted supply, and sub-optimal allocation of resources, with the most vocal or
influential business units receiving preferential treatment over less favoured units, often
with little commercial justification.
The perception, and usually the reality, of vertically integrated monopolies is that they often
shift value between business units to the disadvantage of potential competitors or new
entrants considering entering the market. This is particularly the case with very large,
complex organisations with non-transparent decision processes. Accordingly, the operation
of a large vertically integrated monopoly in a market is likely to deter new entrants from
entering in any meaningful way because they do not believe that they can receive fair access
to supply or information which is at the core of a market.
7.5 Transitional Steps

Any functional re-organisation would occur over a number of years in a series of steps, with
each step bedded down before the next step is taken. As noted above, the details should be
developed by an organisational development consultant with expertise in separation of a
services in large organisations.
Access to data is the key to the successful operation of a market. At the earliest possible
stage in the re-organisation of PVN, operational data should be made available by the system
operator on an open access bulletin board to allow new market entrants to determine how
and when to enter the market. An example of such a bulletin board is that operated by the
Australian Energy Market Operator which can be accessed online25.
A recommended first step would be separation of the core oil and gas businesses from the
ancillary businesses such as financial services (PVcomBank, PVI, Ocean Bank, PVFI, etc) and
gas customers (PV Power), DQS (ship building), PVCFC, PVFCCo (both fertilisers), Nghi Son
Refinery and Petrochemicals Co, Long Son Petrochemicals Company Ltd, etc), with reporting
for each business line to the Board of Directors separate from any oil and gas business
reporting.
The functional structure of PVN26 at Step 1 would be as illustrated in Figure 24.
25
See: www.gasbb.com.au and www.aemo.com.au
26 Based on PVN Organisation structure published on www.pvn.com.vn\company profile

Figure 24 Indicative Functional Structure of PVN at Step 1
The next Step 2, Figure 25 would be for technical and safety regulation – the “Inspection”
function above – and economic/market regulation (including price regulation) to be
separated from any operational business unit and transferred to MOIT, GDE or a similar
agency independent of PVN. These functions should oversee the operations of every
operator in the oil and gas industry, including PVN.

Figure 25 Functional Structure of PVN including other functions at Step 2
At Step 3, the services provided by engineering and technical business units and subsidiaries
should be reviewed along with the engineering and technical services available within the
central business units and restructured to ensure that all services are being delivered
efficiently. The Construction, Engineering and Technical Service Providers, and any
associated functions carried out in the Oil & Gas or Corporate Services and Ancillary Services
businesses could be moved into a separate business unit focussed on providing services to
the core businesses on arm’s-length commercial terms. The mid-stream gas business
functions would be ring-fenced from the upstream business operations.
The commercial business units – primarily gas procurement and sales would be clients of
these service providers. The function of the engineering and technical business units would
be to ensure that sufficient gas is available to meet the business plan and contractual

obligations set out by the commercial units. Both the technical and commercial business
units would be clients of the support services units (human resources, health, safety and
environment, finance, accounting and audit, information technology etc.).
Depending on government policies and financial considerations, the downstream businesses
could be considered for divestment.
The functional structure at Step 3 would be as illustrated in Figure 26.
Figure 26 Functional Structure of PVN at Step 3
At Step 4, the mid-stream gas business functions including particularly PVGas, now separated
from the upstream oil and gas businesses and service providers, can be functionally
organised into separate businesses or a single business unit with three ring-fenced business
sub-units as shown in Figure 27:
 Gas processing;
 Gas pipelines; and
 Gas procurement and sales.
Gas system operations should be transferred to an independent agency, with a review to
consider whether there is any benefit in combining gas operations with power system
operations in EVN NLDC or a similar agency.

Having determined the appropriate structure for technical operations, PVGas could be
established as a service unit with accountability for system reliability from both a technical
perspective (i.e. equipment availability) and a commercial perspective (i.e. meeting
contractual obligations).
Figure 27 Functional Structure of PVN and the Viet Nam gas sector at Step 4
Finally, when a market is established, a ring-fenced trading business unit could be

established to buy and sell gas in the market. This unit could be structured with separate
upstream and downstream businesses, or an integrated gas portfolio management approach
could be adopted, depending on the final market structure adopted. The downstream

functions, in particular, must be fully separated from operational control by any commercial
or technical business unit of PVN to ensure that it has no greater market power than any
other market participant.
7.6.1 Summary
PVN reorganisation is required to bring clarity and transparency of its operational roles
across the gas supply chain. The structure unbundles policy, regulation and system
management and market operations and separates the contestable elements of the market
from the natural monopoly of networks, pipelines and critical infrastructure. Each business
unit is focussed on specific areas of activity with transparent and measurable KPIs.

The recommended transitional steps for implementing the reorganisation of PVN in
preparation for a gas market comprise the following steps:
Step 1 – to 2020
 Non-oil and gas businesses separated from all oil and gas activity
 Technical regulation, market regulation and policy advice to GDE separated from any
operational business unit.
 Construction, Engineering and Technical Service Providers and associated functions
moved into a separate business unit.
Step 2 – 2021 to 2025
 Mid-stream and down-stream gas business functions including particularly PVGas,
separated from the upstream oil and gas businesses and service providers.
 Establish an independent gas economic, technical and safety regulator.
 Gas system management and operations transferred to an independent agency.
Step 3 – post 2025
 Gas industry structure in place for gas market.
 Depending on government policies and financial considerations, the downstream
businesses could be considered for divestment.
In Figure 28, as shaded, these transitional steps and timetable for the restructure of PVN are
integrated into the Gas Liberalisation Roadmap.

Figure 28 Transitional Steps for PVN’s Role in the Gas Market

PART D: ECONOMICS, PRICING AND PLANNING

8 Economic Valuation of Gas
8.1 The Role for Economic Valuation of Natural Gas in Viet Nam
In advance of a gas market existing in Viet Nam, a properly-applied economic gas valuation
methodology will assist with determining the economic opportunity for gas exploration and
development and opportunities for more economically efficient use of existing gas supplies.
It can be used to assess the merits of importing LNG and the economically efficient place of
gas (versus other fuels) in the future supply of energy to Viet Nam.
8.2 Economic Valuation of Gas
8.2.1 Principles for economic gas valuation

The economic value of gas can be illustrated by reference to the following basic
supply/demand framework in Figure 29.
Figure 29 Gas Demand and Supply

a) Supply cost: The delivered
cost of gas, reflecting the
capital and operating costs
of production, transmission,
storage and distribution.
The supply cost increases

with quantity as
progressively costlier gas
resources are required. The
curve would likely ‘flatten
out’ at the level of world LNG
prices.
b) Demand value: The market

replacement net back value,
where gas is valued based on
the cost of alternative
sources of energy.
The high initial value is driven by the value of gas to end-users. The curve would tend to
flatten out at the price at which high-volume substitutes for gas are available. Imported
coal is an example.
Supply cost estimates require sufficient understanding of the supply chain costs – covering
gas exploration, production and development costs, gas processing costs together with
pipeline transportation costs, comprising capital and operating costs. A range of existing and
potential gas supply sources exists. The economic cost of these sources includes currently

undeveloped domestic gas production sources and the cost of LNG imports 27. Together,
these create a forward-looking projected gas cost stack which in turn defines the gas supply
curve.
Low-cost gas supplies appear to have been developed first, as would be expected, and so
current gas supplies are relatively low cost. Future gas supplies will inevitably be at higher
economic costs and both domestic gas development costs and long-term LNG import costs
inevitably have a range of uncertainty.
Importantly, the economic value of existing gas can and should be derived from the same
forward-looking economic factors as the value of new gas supplies; that is, it is as shown by
the ‘equilibrium’ price point in a basic supply/demand economic framework. This
perspective may lead to a reassessment of existing gas uses.
The demand-based netback approach reveals the value of gas in different sectors of the
economy, with the gas value being based on the first-choice alternative fuel available. The
biggest gas user in Viet Nam is power generation and Viet Nam’s Power Development Plan
is for continuing high growth in power demand. Power projects provide the scale and
investment security that is needed to underpin the development of Viet Nam’s domestic gas
resources and any LNG terminal facilities and major pipelines. From Viet Nam’s energy plans,
industrial and commercial gas consumption will not provide this scale and security.
While Viet Nam’s power plans include further development of renewables, current plans are
that Viet Nam will need to supplement its domestic coal reserves with coal imports to meet
projections for future power generation development. As an internationally traded
commodity, it is reasonable to assume that significant and sufficient quantities of coal are
available to supply Viet Nam’s energy needs, to the extent that this is economic and in line
with environmental or other relevant policies. Therefore, the economic value of gas can
reasonably be defined by its ability to displace the planned significant increases in Viet Nam’s
coal requirements.
8.2.2 Applying an economic net-back gas valuation methodology

With power generation being the dominant use of gas in Viet Nam, and coal the baseline fuel
source, the economic value of gas can be defined as the value which makes a unit of
electricity generated by a gas-fired power plant economic against a unit of electricity
generated by a coal-fired power plant. A reasonable first-pass estimate of the economic
value of gas for the power sector is therefore calculated to be a net-backed value, derived
from the cost of delivering a unit of power from coal-fired generation less the cost of
delivering gas-fired generation as shown in Figure 30.
27
These can be assumed to be based on forward international prices together with terminal and onshore pipeline
capital and operating costs

Figure 30 Net back value methodology for the gas fired generation based on
imported coal – net back value at the gas fired power station
This net-back calculation in its simplest form28 is demonstrated in Figure 31. The gas value
is the coal capital cost amortisation plus the coal operating and maintenance cost plus the
international coal fuel costs, less the cost of gas operating and maintenance and capital
expenditure amortisation. It represents the gas value required at the bus bar 29 for an
equivalent coal base load power project.
Figure 31 Representation of net economic value of gas delivered in electricity

network
28Without taking into locational factors of the gas resource and alternative coal supplies and exogenous factors.
29The common network point (node) at which power is made available from the power plant including delivered cost
and all direct and indirect costs of generation. Without adjustment, this assu mes the transmission loss factor and
incremental development cost of the transmission network to the connection node is equal for the coal and gas
projects. In real-life application for specific projects, each of these factors would need to be included in an optimised
Network & Resource Valuation Model for the power sector.

8.2.3 Assessment of a wellhead value
The assessment provides an unadjusted equivalent heating value-based economic value of
gas at the power plant. The value of gas to the producer at the well head, as shown in Figure
32 would be net of (i.e. less) upstream transmission cost from the well head to the power
plant.
imported coal - net back value at the well head
8.2.4 Application to industrial and commercial sectors

If gas is economically competitive in a bulk (or wholesale) energy market like power
generation, then this is likely to underwrite competitive supply to the industrial and
commercial gas distribution markets. The economically efficient cost of gas to industrial and
commercial gas consumers as shown in Figure 33 would be the well head value plus
transmission and distribution costs to those industrial and commercial users.
imported coal - net back value for industrial and commercial sectors

8.2.5 Application to LNG
The economically efficient value of gas to LNG importers as shown in Figure 34 would be a
FOB delivered price equivalent to the delivered economic value of gas at the power plant
net of all (i.e. less) the upstream gas transmission and LNG terminal costs.
imported coal - net back value for LNG
8.3 Economic Value of Gas: A Case Study Assessment
8.3.1 Background scenario assumptions

A demonstration assessment of the net-back gas cost methodology for both LNG and
domestic gas reserves is provided in Appendix D. In this Section, the results of this analysis
are summarised.
A cost model was utilised for coal ($US60/ton & $US100/ton) and gas ($US7/MMBtu and
$US10/MMBtu) fuel supply and technology scenarios. International reference data was used
for this analysis. A full resource assessment model would include adjustment for locality
specific and proprietary technology, construction and O&M cost data applicable to a Viet
Nam development.
To the extent that relevant government policies apply, it should also reflect differentiating
factors such as carbon costs (whether explicitly priced or shadow priced), security loadings,
and any fiscal loadings. These are not included in the ‘example’ assessment below, but are
discussed in Section 8.4.3.
8.3.2 Base case model

An estimate of the total electricity cost for each gas and coal scenario was obtained using the
base case assumptions in our economic model. For an 85% capacity factor scenario the
amortised capital cost, fixed and variable operation and maintenance (O&M) costs, fuel and
total costs are compared in Figure 35.

Figure 35 Base Case 85% CF - Total Electricity Cost for Coal and Gas Scenarios
8.3.3 Sensitivity to capacity factor

For a full range of capacity factor scenarios, the total cost of electricity supply is compared for
the base case coal and gas developments in Figure 36.
Figure 36 Total Electricity Costs for Coal and Gas at Different Capacity Factors

8.3.4 Indicative gas value ranges
Figure 37 and Figure 38 examine the price sensitivity to gas value of electricity required for
$60/ton and $100/ton coal developments at an 85% and 60% capacity factor.
 At 85% CF: Breakeven cost of gas is $7.04 at $60/t coal and $9.07 at $100/t coal
 At 60% CF: Breakeven cost of gas is $8.84 at $60/t coal and $10.87 at $100/t coal
In summary, for these scenarios, the economic value of gas would be around $7-$11/MMBtu
delivered at the power station gate without any externalities or policy-based adjustments. The
value of gas to the producer at the well head is this value net of (i.e. less) upstream
transmission cost from the well head to the power plant. The value of gas to LNG importers
would be an FOB delivered price equivalent to the delivered value of gas at the power plant
net of (i.e. less) the upstream gas transmission and LNG terminal costs.
Figure 37 Sensitivity of Economic Value of Gas at 85% capacity factor

Figure 38 Sensitivity of Economic Value of Gas at 60% capacity factor
8.4 Implementation of Economic Assessment of Gas Value
8.4.1 Economic valuation methodology

In the absence of market pricing, resource development assessment and project planning
will be reliant on an economic valuation methodology that is reliable, transparent and
consistently applied. Confidence and trust in the valuation framework will require the
following measures to be implemented:
 Approved valuation methodology – The valuation methodology and its role in resource
development assessment, project planning and resource allocation decisions should be
recognised and approved by the relevant policy entity and applied consistently in the
Gas Master Plan.
 Transparent published framework – The economic gas costing framework and
methodology should be a published reference document with a guideline and case study
presentation.
 Reference sources of cost data and information – As part of resource and energy
market planning, reference sources of cost data and planning information should be
periodically reviewed and published. The cost data and information should be available
in formats for input for network and planning model evaluation.
 Checklist of investment criteria – Investment criteria necessary to be addressed for
project assessment and approval should be identified in the form of a checklist.
Milestones, decision gates and timing may be part of this criteria assessment.

8.4.2 Endogenous factors in economic gas costing
The economic costing of gas is performing the function that a market might otherwise
perform. In so doing, it must apply without bias the policies affecting all fuel, technology,
environmental and geographic choices. This will have regard to:
 Locational factors – The optimum location of a gas power plant and a coal power plant
is not likely to be same. An optimised network and an economic valuation model, would
compare one or more regional power developments to deliver an economic valuation
of gas at a transmission regional node for competing resource and power development
options.
 Plant types – It is reasonable that gas, LNG and coal are all required to meet equivalent
environmental standards and plant performance. Capex requirements should, to the
extent possible, address all technical and performance requirements. There can be
considerable differences in the value of different types of plant (peak/mid/base) at
different locations, given transmission thermal constraint implications and system
security / reserve margin considerations.
 All incremental development and production costs – All incremental costs and supply
options netted back to a regional node must be addressed (including specific pipeline,
transmission and coal infrastructure requirements). The gas and alternative fuel
reference plant assessments should include all incremental costs including at-the-gate
and terminal delivery, fuel management and storage.
 Project timing, economic life of plant, residual value and economies of scale –
Modelling techniques are required to ensure project assumptions do not distort
analysis. While economic gas values may be assessed and for convenience compared on
a $/MMBtu basis, full economic value modelling is required to confirm assessments on
a net present value basis.
8.4.3 Exogenous factors to economic costing of gas

A minimum “lower bound” economic value of gas is the unadjusted heating value of gas
assessed for a specific project development and resource plan. An upper bound value of gas
will consider externalities related to wider policy considerations and targeted fiscal
reallocation specific to the needs and circumstances of Viet Nam.
The following exogenous factors may need to be considered in determining the upper bound
economic value of gas30:
 Emission and emergent technology policies – We understand that Viet Nam currently
does not have a formal carbon pricing policy. The development of gas resources may have
different emission performance. Shadow pricing can be used to compare environmental
performance and ensure that economic planning is also consistent with Viet Nam’s
Greenhouse Gas (GHG) policies. As a guideline, a carbon shadow cost31 of $US15.0/tonne
30For illustrative purposes, the World Bank 2010 approach to such an adjustment is provided in Appendix C.
31
ACIL Report to AEMO, Emission Factors Assumptions Update 10 May 2016 – gas 51.53kgCO2-e/GJ; and coal
90.23kgCO2-e/GJ.

has the effect of increasing the economic value of gas (relative to coal) by around
$US0.9/MMBtu.
 Fiscal Adjustments – While strictly a ‘transfer cost’, rather than an economic cost, fiscal
implications of different options should form part of a well-rounded economic
assessment. Fiscal revenue benefits apply for domestic gas development in relationship
to government ownership in developments, royalties, income tax and PSC terms. These
may permit a higher economic value of gas at the cost of transferring or re-distributing
this economic value. Selective adjustment to the government take on developments may
target bringing the resource within the economic threshold. Such adjustments require
specific policy consideration of the impacts before adjustments are applied.
 Balance of trade adjustments – Current Viet Nam energy projections require significant
importation of coal. Such imposts should provide balance of trade benefits for the
development of domestic gas.
 Project Security and risk – Whether or not applied as a cost adjustment, relative security
benefits should come into an economic assessment. The financing of coal projects or
addressing project risks may impose a higher cost of capital. These are subject to
international banking practices and country specific environmental policies. Security
requirements on the storage of gas, coal and LNG may also differ.
 Competition benefits – The introduction of a new fuel source such as LNG that is
internationally traded in significant quantities, improves the level of competition for the
supply of energy to Viet Nam. The additional negotiating leverage it provides is likely to
lead to lower costs for other energy sources.
8.5 The application of economic valuation of gas in Viet Nam now and its future
role in a liberalised market
Economic valuation of gas is required until there is a gas market in place. A gas market would
eventually replace the need for economic costing of gas. However, market pricing of gas
when progressed in Viet Nam may be limited to regional reference nodes accessible to
multiple producers and where users are located. Until more domestic gas resources and LNG
infrastructure are developed, and competition is increased through wider pipeline
interconnection, the economic valuation of gas will continue to have a role for resource
development and project planning, input to regional gas pricing, and wider policy
assessment. This includes guidance and assessment on:
 long-term domestic gas development and LNG supply strategy and infrastructure
development;
 long-term generation planning and development strategy;
 allocation and costing of gas between sectors;
 measure and value of preferential supply to petrochemicals;
 electricity and gas tariff design;
 development and design of climate policy;
 cost and value of fuel diversification and security of supply; and
 potential changes to upstream gas fiscal terms.
New gas is inevitably more expensive to develop than existing gas. Without access to
additional low priced legacy gas there is a need to move beyond the current cost-plus
approach for progressing developments on a project-by-project basis.
The economic valuation of gas will underpin comparison and prioritisation of gas resource
developments and network development (both gas and electricity). In the absence of market
pricing, it will provide a reference point for assessing power project developments, an input
to gas pricing policy for gas users and a benchmark for evaluating and comparing the
application and impact of energy policy initiatives and energy market designs.
As a competitive market develops in Viet Nam, as shown in Figure 39, the valuation
methodology will continue to be used to assess and value the benefit of new resource
development, network interconnection, infrastructure development and supply to users not
connected to competitive gas networks and hub.
Figure 39 Net back value methodology for gas fired generation based on imported
coal – new wellhead resource unconnected to competitive hub
The economic valuation of gas will bring Viet Nam’s planning and use of gas closer to the
outcomes of a fully-fledged gas market. It is an input and baseline to policy analysis. It
provides a bridge to open access and to a future market with wholesale competition and will
lead to better efficiency and decision-making than using historical prices.
8.6.1 Summary
Gas planning and gas allocation currently reflects legacy decisions which are not always
consistent with the economics of the Viet Nam gas sector. Applying an economic valuation
framework will improve Viet Nam’s gas planning and allocation decisions. This will lead to
economic and consistent decisions on a range of matters of vital importance to Viet Nam’s
energy future, including fuel sourcing to meet rapidly growing electricity demand, use of gas
in feedstocks such as fertiliser, development of domestic gas fields, import of LNG and the
development of pipelines and other gas infrastructure.
An economic gas valuation framework needs to be developed taking proper account of
endogenous costs and with prescribed mechanisms to take account of exogenous factors
such as carbon, energy security, fiscal effects and competition effects. The methodology
needs to be owned and administered by a body that has the need and the capability to
ensure that it is correctly and consistently applied in gas sector decision-making.
The need for a centralised economic valuation framework will fall away as the gas market
develops and becomes workably competitive.
8.6.2 Transition steps

The recommended transitional steps for implementing the economic valuation of gas in
preparation and prior to a competitive gas market comprise the following steps
Step 1 – To 2020
Develop and approve economic valuation methodology:
 Transparent published framework and guidelines.
 Reference sources of cost data and information.
 Checklist of investment criteria including milestones, decision gates and timing.
Apply to integrated economic resource and project planning and resource allocation:
 Technology, environmental and geographic neutrality, taking into
consideration: location, plant types, incremental costs, project timing,
economic life and scale, among other issues.
 Exogenous factors addressed, including: emissions and emergent technology
policies, fiscal adjustments, project security and risk, balance of trade impacts
and the benefits of competition.
Step 2 – To 2020 and until competitive gas market exists
Apply economic gas valuation methodology into gas development planning:
 Compare and prioritise domestic gas resource and LNG development delivery.
 Assess options for gas pipeline and transmission network development.
 Input to gas valuation policy for generation projects, industrial, fertiliser and
other gas users.
 Benchmarking and sand-pit assessment of energy policy initiatives and energy
market design.
In Figure 40, as shaded, the economic costing of gas is integrated into the Gas
Liberalisation Roadmap as an important input to planning and as a precursor to
development of a gas market. The economic valuation of gas will continue to provide a
resource development, project and policy evaluation framework until domestic gas
resources and LNG infrastructure are developed, and competition is increased through
wider pipeline and electricity interconnection.

Figure 40 Transitional Steps for Economic Valuation of Gas

9 Pricing and Contractual Mechanisms
9.1 Current Gas Pricing Approach in Viet Nam
9.1.1 Overview
Wholesale gas in Viet Nam is currently priced on the basis of project-by-project, bi-lateral
negotiations between project proponents and PVN. There are some Prime Minister’s
Decisions setting gas prices and allocations for particular end uses or locations, but the
derivation of those prices appears to have been the result of bi-lateral negotiations, involving
end users as well as project proponents and PVN. In some cases, such as MOIT Directive No
6488, which specifies how gas is allocated between the fertiliser plant and power station at
Phu My, the current regulations work against efficient outcomes that would be expected
through the operation of a gas market32.
Price negotiations for new projects are heavily influenced by historical very low gas prices
which were possible because the development costs of those fields, particularly Nam Con
Son, were very low by international standards. However, there is little apparent recognition
that the higher development and production costs due to gas being discovered in deeper or
non-contiguous reservoirs, being further offshore or being higher in impurities, inevitably
results in higher prices for future developments.
Existing gas pricing appears also to be driven by a historical policy priority to achieve low
electricity and fertiliser prices.
9.1.2 Gas take-or-pay gas prices

The prices for gas up to take-or-pay quantities for power plants in the South East region are
set by negotiation between PVN/PVGas and the power plant owners.
9.1.3 Quantities beyond take-or-pay and for fertiliser plants

For gas delivered to power stations in the South West, quantities exceeding take-or-pay
taken by power stations in the South East and South West, and for gas delivered to the Phu
My fertiliser plant, a pricing formula is set out in the Office of the Government Directive
2175/VPCP-KTTH:
Gas price for user = Market gas price plus transportation and distribution charges.
where:
 The market gas price is the wellhead gas price calculated at 46% of the average
Fuel Oil price of the Singapore market according to Platt’s index (MFO).
 Transportation and distribution charges are approved by the authorised agency,
dependent on individual regions / pipelines.
32 MOIT Directive No 6488 specifies that nominated quantities of gas are delivered to Phu My fertiliser plant (PVCFC)
first with the remainder of available supply being supplied to Phu My power plants. On occasions, this has led to PVCFC
taking its contractual commitments despite PVCFC holding large stockpiles of fertiliser when some gas could have
diverted to the Phu My power stations to optimise the power system.

9.1.4 Gas prices for industrial users
PVN sets annual gas pricing schemes based on the pricing of alternative fuels (FO, LPG) and
market acceptance.
9.1.5 Gas prices for new developments and LNG

Based on discussions with participants in the Viet Nam gas industry, it appears that the
pricing for gas from proposed gas developments continues to be driven by negotiation
between PVN/PVGas (as the single buyer) and PVEP and its joint venture partners (as the gas
producer).
The evaluation of new gas projects against alternatives appears to use historic gas prices as
a benchmark rather than the costs of current alternative fuel options – coal, imported LNG,
fuel oil or distillate33. There appears to be no consideration of externalities such as
pollution/greenhouse costs, taxation or the impact on balance of payments of indigenous
versus imported fuels in the evaluation of gas projects and the determination of the
“economic price” for gas34.
The expectation of the buyer that historical gas prices should be a benchmark has delayed
development of both Block B and Cau Voi Xanh (Blue Whale), despite each having well
identified technical challenges which result in much higher production costs than previous
gas developments. Cau Voi Xanh was finally sanctioned in early 2017.
As a relatively small market, Viet Nam will be a price taker for LNG commodity in the
international market. Accordingly, negotiations can only focus on the costs for development
and operation of the re-gasification infrastructure. A project-specific approach, using
historical prices as a benchmark is unlikely to be conducive to successful negotiations for
proposed LNG imports.
Japan’s Ministry of Economy, Trade and Industry has been publishing average spot LNG
prices, delivered into Japan, for each month since March 2014 35. Figure 41 shows how the
LNG price has moved from a high of around USD18 per MMBtu in April 2014 to a low around
USD4 in April 2015, followed by a 6-month period of relative stability around USD8 and then
some volatility for the last 12 months. The spot LNG price has been higher than historical
gas prices in Viet Nam for this entire period and for much of the period has been at multiples
of the prices which Viet Nam has been enjoying. Using these prices as a benchmark, the cost
of the LNG commodity, before adding in the cost for the re-gasification infrastructure, will
exceed current prices in Viet Nam.
33 We discuss this matter further in Section 8

34
Again, this is discussed further in Section 8
35 www.meti.go.jp/english/statistics/sho/slng

Figure 41 Spot vs Contract LNG Prices (USD) for Delivery into Tokyo Bay
LNG Contract vs Arrival Price - Tokyo

$20
$18
$16
$14
USD / mmbtu
$12
$10
$8
$6
$4
$2
$0
Contract Price (USD/MMBtu) Arrival Price (USD/MMBtu)
A new approach to pricing gas, which is not based on historical benchmarks, will be required
if Viet Nam is to commence imports of LNG in the foreseeable future and to enable
development of new gas fields. It could appear to be attractive to introduce a market-based
pricing mechanism for LNG and use it as the first step in market liberalisation. However,
there are several factors which will require detailed study to determine if this approach is
practical. The required level of assessment is beyond the scope of this report, but should be
a key element of an implementation project for introduction of a gas market. The key issues
to be addressed are:
 Timing, per the Gas Master Plan, of the introduction of LNG (2020/2021) and the
liberalised gas market (post 2025);
 LNG would need to be integrated into the existing gas market as another supply source
and not treated as a separate stand-alone energy supply option;
 Pricing of international LNG versus existing indigenous gas sources, without any reform,
and the consequent impact on demand for LNG; and
 Potential customer demand for gas at international LNG pricing and the price elasticity
of that demand.
9.2 Alternative Pricing Approaches

Studies conducted by the World Bank, Asian Development Bank and Viet Nam Government
Agencies in recent years have identified a range of gas pricing methodologies including:
 Pricing against alternative fuels;
 Cost of service of gas production;
 Gas pooling;
 Capacity of the market (particularly power generators) to pay;

 Gas on gas competition;
 Import opportunity pricing; and
 Export opportunity pricing.
It is not the intention of this project to re-visit each of these approaches, but rather to draw
on them to develop a roadmap for the development of a gas market which supports the
economic development of Viet Nam.
The factors to be considered when evaluating alternative gas pricing methodologies for Viet
Nam are as follows:
 At the supply side, the gas price needs to provide the appropriate financial incentives to
gas developers to invest in exploration, development and production activities. This
should lead to optimal investments in the upstream sector and should ensure that only
those gas fields that are economically competitive in Viet Nam’s main gas consuming
sectors, are developed; and
 At the demand side, it needs to provide the right signals to investors to choose gas as
the economic, lower-cost fuel when supply increments become available. This should
lead to optimal investment in the consuming sectors, i.e. gas should only be used in
those gas-consuming projects in which it is competitive with its alternative. An example,
which we describe in Section 8, is coal as an alternative fuel to gas in the power
generation sector. Other examples would include continued use of gas as a feedstock
for fertiliser production versus other uses for the gas, and alternative sources for
fertiliser.
Different customers may continue to pay different contractual prices for gas. However, in a
functioning gas market with transparent information published by the market operator,
customers, suppliers and any other party with contractual entitlements to gas will have the
opportunity to trade according to ‘market prices’. And gas planning, gas development, gas
import and gas usage decisions will be more efficient once current and potential suppliers
and users each face the same ‘market prices’.
9.3 Current Regulatory and Contractual Constraints

The existing gas supply agreements appear to be ambiguous on the rights of gas buyers to
on-sell gas to third parties in that the contracts, apparently, neither expressly allow nor
prohibit on-selling. For the Phu My complex, a Prime Minister’s decision specifies the
allocation of gas between the power station and the fertiliser plant, with no apparent scope
for trading between those facilities. This Decision is used to interpret other arrangements
to prohibit the on-sale of gas and results in inefficient allocation of gas on a daily basis. The
consultants understand that, as a result of these contractual interpretations, power stations
are curtailed on occasions while fertiliser plants receive their full allocation of gas in spite of
there being a surplus of fertiliser in stockpiles.
The current arrangements and the expectations of low gas prices for power generation
created by those arrangements tend to discourage investment in gas exploration and
development and therefore work against some high level objectives for the sector such as
growth and diversification of fuel sources for power generation.

The contracting approach reflects the current industry structure:
 Upstream:
 Gas exploration and production activities are carried out through contractual
arrangements between PVN / PVEP and foreign investors.
 Midstream:
 Gas pipelines have been built under two schemes: 100% self-investment by
PVN/PVGas or BCC (joint venture between PVN/PVGas and foreign investors). By
end of 2013, Nam Con Son was the only pipeline system that was invested through
the BCC format with PVGas contributing 51% of the total asset value.
 In regard to the commercial framework, PVN is the sole buyer of gas from the well
owners (excluding some contracts signed between PVGas and well owners before
10 September 2012). Gas purchased by PVN is consequently sold to PVGas and / or
direct gas users. PVGas also has the role of managing and operating the gas pipeline
system and gas processing facility. PVN gas purchase and sale contracts are normally
back to back agreements (for power producers and fertilisers). The current
commercial frameworks are36:
 Contract arrangement 1: Illustrated in Figure 42;
 Contract arrangement 2: Contracts between PVN and PVGas are to cover gas
collection and transportation services and / or other contractual auxiliary
services to be done by PVGas on behalf of PVN.; which is illustrated in Figure
43; or
 Contract arrangement 3: This scheme applies for those contracts previously
signed between PVGas and well owners. PVN, nevertheless, still approves the
gas price for each user under GSA. The arrangement is illustrated in Figure 44;
 Downstream:
 PVN/PVGas sell gas to downstream users in a prioritising order of: power producers,
fertilisers, PVN prioritised projects using gas and other users (low pressure gas
distributors, CNG suppliers, etc).
Figure 42 Contracting Arrangement 1
36 Viet Nam Gas Industry Models provided by GDE

The consultants understand that the development of Cau Voi Xanh has been approved on
the basis of an integrated project with the field operator, ExxonMobil, being responsible for
the full supply chain from the gas field to the power station.
The current contracts and regulations do not provide for some of the key terms and
conditions required to improve transparency, and ultimately liquidity, particularly where
significant take or pay commitments are imposed on the buyer. Some of the features of
contracts which can provide customers with the ability to manage their obligations include:
 Access to storage, either in the producing field (banking) or LNG import terminal, in the
pipeline network or in dedicated storage facilities;
 Rights to trade gas to third parties on terms relevant to the trade and independent of
the initial sale terms, including pricing; and
 Open access to mid-stream and down-stream facilities. Government has a critical role
in implementing a regulatory regime to facilitate open access to gas pipeline
infrastructure, and potentially gas processing facilities. This access is critical to the rights
of gas buyers to utilise their rights to store and trade their surplus gas and to encourage
the development of smaller resources.

9.4 Issues to be addressed for Gas Market Development
9.4.1 Transparency and information

PVN collects significant volumes of operational data which could be useful for the
development of a gas market. However, that data is currently closely held within PVN.
A market requires information to be available to participants in order to function. An
independent market operator is best placed to provide the information, generally through a
bulletin board accessible only to registered market participants. The market operator must
have access to all operational data and most commercial data (except pricing) to operate the
market and can publish that data in aggregated form to protect the commercial interests of
market participants. The market participants can then identify opportunities to trade
between themselves.
The establishment of a bulletin board to publish market data will require the system
operation functions of PVN to be ring-fenced from commercial functions, or to be
transferred to an independent market and system operator.
The introduction of LNG imports to Viet Nam will provide a further benchmark on gas prices,
as the LNG price will be determined by international factors and not local conditions or
policies.
9.4.2 Gas market analysis

A market analysis of potential gas users, beyond the current user classes, should be a priority
to determine the possible size of the gas market, and the price expectations (and elasticity)
of those customers. While this type of detailed analysis is beyond the scope of this
assignment, it is suggested that the energy consuming industries along the route of the Nam
Con Son pipeline system through Vung Tau and the adjacent regions would be an appropriate
place to start such a study. Such a customer study would inform the amendments required
to directives and contracts to broaden the potential customer base, with some customers
likely to be ready to switch from coal or oil to gas in the near term.
9.4.3 Existing contracts

Negotiations should be commenced with existing gas sellers and buyers to introduce
flexibility into current contracts to allow gas trading between buyers and for buyers to store
gas and to access “spot” gas from sellers. Flexibility will not reduce overall gas demand, but
will open opportunities for incremental gas sales as buyers will be better able to access
additional gas for short term requirements. These negotiations should be viewed as an
opportunity, and not a threat, by both sellers and buyers. However, there is a risk that any
party could try to open contractual terms which are working, but which the party finds
inconvenient, leading to potentially protracted and adversarial negotiations.
9.4.4 Pricing to facilitate efficient operations

The gas supply system is operated on the basis of satisfying day-ahead nominations, with no
intra-day signals of surpluses or deficits for any gas customer. The system control centre

appears to set the system to deliver nominations for the day and only intervenes in the event
of a significant incident impacting on operations. Co-ordination between the gas system
operators and the electricity National Load Dispatch Centre is effective in setting daily
requirements and in responding to incidents.
This mode of operation does not provide any pricing signals to the market of incremental
demand or available incremental supply which could be satisfied by short term
arrangements between buyers or between buyers and suppliers. A process which does not
constrain buyers to nominating their precise requirements, but also allows for trading
between buyers and short-term relocation of delivery points would provide some
information which would support the development of a market.
9.4.5 Open access tariff requirements for a liberalised gas market

A transition to a liberalised market will result in disaggregation of the current end-to-end
supply arrangements, as described in section 6, with specific entities operating the relevant
disaggregated components of the current gas sector 37. Regulators can then require
operators to submit their costs for approval in tariffs. Through the approval process, the
regulators must have access to resources, including expert consultants, to challenge the
operators’ claims and to disallow costs which are unreasonable when compared to industry
benchmarks or for which there is inadequate justification.
While not all pipeline tariffs need to be subject to regulatory approval, all must be at least
subject to regulatory oversight, with regulatory tariffs providing some benchmarks on
reasonable costs. The regulator or customers must have the right to apply for a pipeline to
be subject to regulation if they believe that the pipeline operator is not offering access on
fair terms.
As with the multiple options for gas pricing, there are numerous options for setting pipeline
tariffs. The most common tariff approaches include a capacity charge, which is paid every
day to reserve the buyer’s right to use its contracted capacity and which is generally
structured to recover the fixed costs of providing the pipeline, and a throughput charge
which is based on the actual gas delivered on a day and which recovers the pipeline’s variable
costs. The three most common approaches to setting each of these elements are:
 “Postage stamp” tariffs, whereby every user pays the same charge, are usually applied
on pipelines where most of the demand is located at the end of the pipeline, such that
it would not have been built for loads part way along the pipeline;
 Distance based tariffs are used where load is spread along the pipeline; and
 Zonal tariffs are used where there are a number of significant load centres along the
pipeline. They are particularly useful where users at different locations require different
facilities, such as compression, for their demand to be met, or where the size of the
pipeline reduces over its length as demand is satisfied. The pipeline is effectively
segregated into zones defined by compressor stations and/or changes in pipe size.
37
As is discussed in sections 4 and 5, these could be different corporate entities, or they could be ring -fenced entities
within PVN.

Distance based or zonal tariffs can also be mandated by the Government or regulators to
incentivise investment in gas consuming industry in particular locations.
Template contracts for the principal mid-stream and down-stream services likely to be
required to support the market – gas transportation, connection to pipelines, gas trading,
gas storage – should be developed along with the third party access regime for infrastructure
to provide some clarity for new entrants.
9.4.6 Market interconnection

Some limited commercial interconnection can be achieved through secondary market
trading through the electricity and/or fertiliser markets. Such trading could be introduced
once the gas market is functioning, without physical interconnection of pipeline systems. A
properly functioning electricity market will introduce competition between gas sources to
produce power into the common electricity market, regardless of the gas sources not being
directly interconnected. The competitive power market will provide both long-term signals
for gas field and gas import and other infrastructure development, and also short-term price
signals for hour-by-hour dispatch,
Ultimately, physical interconnection between the South East and South West pipeline
systems would, if economic, provide all buyers and sellers in each region access to their
counterparts in the other region. This would increase options for trading, especially when
LNG is introduced into the South East and is integrated into the pipeline network. The
practicality of building interconnecting pipelines is beyond the scope of this report, however
at least feasibility studies for pipeline interconnection should be undertaken as part of the
market transition.
9.5.1 Summary
A transition to a liberalised market will result in disaggregation of the current end-to-end
supply arrangements. At the supply side, the gas price needs to provide incentives to gas
developers to invest in exploration, development and production activities. At the demand
side, it needs to provide the signals to investors to choose gas as the economic, lower-cost
fuel when supply increments become available.
A gas market will be based on more flexible gas pricing and contract mechanisms, and the
progression of industry structure, market information, rules and regulations to support the
financial market exchange of gas volumes and the optimisation of transport and gas market
operations.

The recommended transition of gas pricing and contract mechanisms in preparation for a
gas market comprise the following steps:

Step 1 - to 2020
 Economic gas valuation in planning as precursor to a gas market.
Step 2- 2021 to 2025
 Establish an independent gas economic and technical regulation
 Gas market rules and open access tariff regime promulgated
 The establishment of a bulletin board to publish market data
 Remove restrictions and permit flexibility in gas contracts
 Gas management and system operations transferred to an independent agency
 Gas industry structure in place for gas market
 Introduction and trial of gas trading
In Figure 45, as shaded, these transitional steps and timetable for the restructure of PVN are
integrated into the Gas Liberalisation Roadmap.
Figure 45 Transitional Steps for Pricing and Contractual Mechanisms

10 Gas Industry Planning
10.1 Gas Master Plan
The Gas Master Plan (GMP) was prepared and submitted to MOIT by PVN in 2016 and was
prepared under Prime Minister Directive No. 296/TB-VPCP dated 27 July 2014. The Gas
Master Plan (GMP) was approved by the Prime Minister on 16 January 2017 (Decision 60/QD-
TTg) “General plan for Viet Nam’s gas industry to 2025 with vision to 2035”.
The purpose of the GMP is to provide an overarching sequence of developments for Viet
Nam’s gas sector from the present to year 2025, with an outlook to 2035. It is to be
consistent with the industry’s current situation, global outlook for natural gas and to provide
a basis for implementation of investment programs in regards to gas production, supply and
gas sector governance.
10.1.1 Stated initiatives for the GMP

The main initiatives of the GMP are:
 Maximize domestic gas production from existing fields;
 Exploit supplies from offshore fields such as Ca Voi Xanh, Bao Vang and fields from Song
Hong basin;
 Augment gas supply in the South East region to counteract declining production
volumes;
 Plan and implement LNG imports;
 Consolidate gas transportation and distribution facilities in existing regions to support
planned developments;
 Enhance coordination between PVN and EVN for more streamlined gas supply – demand
market; and
 Develop an appropriate gas pricing policy with a consistent gas price roadmap to meet
interests of the state, gas sector businesses and users.
The GMP sets out numerous infrastructure development options to support these directives,
including the development of domestic reserves, importing LNG, development of onshore
and offshore gas transport infrastructure and the development of gas processing plants.
10.1.2 GMP’s sequencing of developments

The broad sequencing of the development options identified in the GMP is summarised in
Figure 46 and Table 4. Broadly, the plans for Viet Nam’s gas industry are based on the
development of offshore fields from 2020, before putting in place appropriate onshore
infrastructure to support those developments – in particular, to consolidate gas supplies in
existing regions and augment them with supplies from the Central region. From 2021, Viet
Nam also plans to supplement domestic gas with LNG imports. Further details of the
development options identified in the GMP are listed in Appendix B.

Figure 46 Sequence of Developments Proposed in GMP
2017-20 2021-25 2026-35
Ca Voi Xanh
No major Further
Block B
additional increases in
supplies First LNG LNG import
(South East)
Table 4 Summary of GMP Development Sequence
Period Key Developments

2016-  Gas supply in the South East: stable at 8-9 Bcm/year, meeting existing demand
20 for natural gas in Viet Nam
 Total domestic supply: 10-11 Bcm/year
2021-  South East region fully developed with total supply of 9.1-9.7 Bcm/year by 2024
25  Ca Voi Xanh first gas in 2023, peaking at 6.2 Bcm / year from 2025 onward
 Block B first gas in 2020
 Total domestic supply: 13-19 Bcm / year
 First LNG import for the South East in 2020-2021. More imports will be followed
for other regions, with total volume reaching 4 Bcm in 2025
2026-  Block B peaking at 3.84 Bcm/year in 2031

35  Total domestic supply: 17-21 Bcm/year
 LNG import increasing up to 10 Bcm/year
10.1.3 Domestic reserves supply outlook under the GMP

The specific sequence of offshore gas field developments in the GMP leads to the supply
outlook for domestic fields as illustrated in Figure 47 for P1 and P2 reserves and in Figure 48
for P1+P2+50%.P3+P4+P5+POS. South East region supplies the Phu My complex, Ba Ria and
the Nhon Trach CCGTs – there is clearly a steady decline in production from 2020 to 2035.
The South West region has supplies increasing with Block B gas having first gas in 2020, which
is a very optimistic projection of first gas. The South West gas reserves will supply gas to the
Ca Mau Complex and the O Mon complex and potentially other CCGT development from
2020 with production levels projected to relatively constant from 2022 to 2027 before a
general decline in production levels starts.

Figure 47 P1 + P2 Gas Supply Projection for Viet Nam’s Domestic Reserves under
the GMP
20
18 Ca Voi Xanh (2023)

Block B (2020)
16
14
North-Central
12
South West
BCm
10
4
South East
2
South East Gas South West Gas North-Centre Gas
Source: Draft GMP
Figure 48 P1+P2+50%.P3+P4+P5+POS Supply Projection for Viet Nam’s Domestic

Reserves under the GMP
30
25
20
BCM/year
15
10
0
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
P1+P2+50%P3 P4+P5+POS P1+P2
Source: Draft GMP

10.1.4 Downstream gas market development
Table 5 summarises gas demand and projected sector growth as per the Draft GMP. Planning
projections suggest an increased share of fertiliser related demand and continued growth in
the power and industrial sectors. Pricing policy has been recognised as being critical to fuel
supply competition and cost recovery for power sector development and to provide access
to the competitive supply of gas for the industrial and fertiliser sectors.
Table 5 Summary of Gas Demand and Projected Sector Growth
Gas Allocation (%) Gas Demand (bcm/yr) Change (bcm /

2015 2035 2015 2035 yr)
Power 83.0% 72.3% 8.63 15.18 6.55
Fertiliser 11.0% 21.2% 1.14 4.45 3.31
Industrial 6.0% 6.5% 0.62 1.37 0.74
Total 100.0% 100.0% 10.39 21.00 10.60
Source: Draft GMP
Figure 49 Downstream Gas Market Development under the GMP
2015: 10.4 Bcm 2035: 23 – 31 Bcm
Change in
consumption mix
Source: Draft GMP
10.1.5 Overall supply and demand balance under the GMP

Figure 50 presents the overall supply and demand forecast as set out in the GMP. Note that
this is the composite of the supply projections of the previous sections and demand forecasts
and is essentially the year-by-year gas balance. This illustrates the sequence of
developments with domestic reserves being developed ahead of LNG developments to
“backfill” expected depletion of supply from domestic reserves.

Figure 50 Gas Production and Demand Forecast including LNG Demand based on Draft
GMP Information
30
25 Domestic Supplies
(P1 + P2 + 50% P3)
20
BCM/year
15
10
5 LNG Demand backfills declining

domestic gas supply
0
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
Base Demand Potential Demand LNG Demand P1+P2+50%P3
Source: Draft GMP
10.1.6 LNG supply and demand

As illustrated in Figure 48, P1 and P2 production levels from domestic reserves are projected
to peak in the mid 2020’s and then decline while production from lower probability reserves
is considered to increase. Broadly, the role that the GMP sees for LNG is as a medium and
longer-term measure to offset the expected decline in domestic supplies, and in particular
for meeting demand for gas based power generation. Figure 51 shows the LNG demand
forecast presented in the daft GMP with a small amount of LNG demand starting in 2019,
and then progressively ramping up, largely just to offset the decline in production of
domestic reserves and in particular as backfill to already established demands 38.
Six LNG importing terminals are proposed and were listed earlier in Table 3. The
corresponding profiles of LNG import capacity as per the Draft GMP on an MTPA basis is
illustrated in Figure 52. The diagram shows the LNG terminal sizes by location (site) on the
left hand side and by region on the right hand side. The total MTPA by 2035 under the GMP
is in the range from 12 to 18 MTPA over the period 2021-25 and from 19 MTPA to 27 MTPA
by 2035. Developments in the period 2021-25 are focused on the South East and South West
gas regions, while developments beyond 2026 are smaller and concentrated on Central,
North and South East. The proposed LNG terminal developments collectively translate into
a substantial level of infrastructure investment.
38
Note that the government’s final GMP decision identified additional LNG terminal developments, the sizes of which
are reflected in the next figure (Figure 52).

Figure 51 LNG Demand Forecast under the Draft GMP 39
16
14
12
10
BCM/yr
South East Area Northern Area South West Area Son My- Binh Thuan Area
Source: Draft GMP
Figure 52 LNG Terminal Sizes (Left: Size by Terminal Site, Right: Size by Region)
20 20
18 18
16 16
Terminal Capacity (MPTA)
Terminal Capacity (MPTA)
14 14
12 12
10 10
8 8
6 6
4
4
2
2
0
0
2021-25 2021-25 2026-35 2026-35
2021-25 2021-25 2026-35 2026-35
(min) (max) (min) (max)
(min) (max) (min) (max)
Thi Vai Hon Khoai (St.1) Hon Khoai (St.2)
Southeast Southwest Central North
Tien Giang Son My (St.1) Son My (St.2)
Son My (St.3) Cat Hai Myh Giang
Source: GMP Decision
39 Note that Son My development is unlikely to proceed, so it is shaded in the chart.

10.2 Revised Power Development Plan
10.2.1 Main features of RPDP7

In March 2016, the Revised Power Development Plan (RPDP7) was approved for the 2016-
2030 period. In the revised plan, gas generation is targeted to increase from 43 TWh at
present to 44 TWh in 2020 and 96 TWh in 2030. Total capacity of gas-fired power plants is
targeted to increase from the current 7 GW to 9 GW and 19 GW by 2020 and 2030,
respectively. These targets were very similar to the original PDP7.
In South East Viet Nam, the delivery of the 1.2 GW Duyen Hai and 1.2 GW Vinh Tan 2 coal-
fired power plants in 2015 and 2014, respectively, have taken away market share from gas
plants. At the same time, new coal-fired power plant projects are being developed including
projects in Long Phu and Song Hau and further expansions in Duyen Hai and Vinh Tan by
2020. The utilisation of existing gas-fired power plants will drop below 50% over the next
four years with all these new coal plants coming online over the next few years.
Under the RPDP7, the Son My LNG terminal in the Binh Thuan province is proposed to
supplement gas for power plants in Phu My and Nhon Trach when domestic gas production
in the eastern areas decline. However, note that since the RPDP7 was promulgated, the Son
My LNG terminal development has been cancelled, an example of a supply risk. This has
been offset somewhat by the significant discovery of gas in Central Viet Nam and progress
in relation to the commercialisation of the Ca Voi Xanh field.
In the South West region, gas supply to the Ca Mau power plant will be shared with the
existing Ca Mau fertiliser plant. New production from the Tho Chu field and the Nam Du field
is anticipated for capacity expansion of the Ca Mau power plant. The O Mon power plants
located further inland will have to continue to operate using diesel until the Block B&52
development and pipeline is completed.
ExxonMobil and PVN have been discussing a gas and power project in Central Viet Nam. This
could see a 2,000 MW gas-fired power plant being built to use gas from the Cai Voi Xanh
(Blue Whale) field. On 13 January 2017 ExxonMobil, PVN and its subsidiary PetroVietnam
Exploration Production Corporation (PVEP) signed a project framework heads of agreement
and a gas sales heads of agreement for the Ca Voi Xanh integrated gas development. Under
the signed agreement, the two parties commit to achieving first gas for power generation by
late 2023. Given the size of the reserve, power capacity could be significantly expanded in
subsequent phases.
10.2.2 Gas project developments under RPDP7

Figure 53 shows the gas power projects from the RPDP7 in terms of installed capacity of gas-
based power generation projects by region (South East, South West and Central).

Figure 53 Installed Capacity (MW) of Gas Project Developments in RPDP7
25,000
CCGT developments in Central region
CCGT developments in South dependent on Ca Voi Xanh offshore field
20,000 East dependent on modest
supply increase from
sattelite fields to 2020 and
Capacity (MW)
15,000 LNG from 2024
CCGT developments
in southwest depend
10,000
on offshore Block B
5,000
0
2016
2028
2014
2015
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2029
2030
North-Centre South-East South-West
Source: Based on Revised Power Development Plan 7 and GMP
Based on both the GMP and RPDP7 the overall development plan for gas in the power sector
is summarized as follows:
 South East region developments:
 Phu My complex, Ba Ria and Nhon Trach currently in operation and supplied by
pipeline natural gas from the Nam Con Son and Cuu Long basins;
 GMP shows these fields are becoming depleted with gas production reducing to
nearly zero by 2035;
 An LNG terminal is proposed to be in operation from 2025 and this “backfills” gas
projects in the South East Region that are filled by depleting reserves. In particular:
Phu My complex, Ba Ria and Nhon Trach switch from domestic gas to LNG from 2024
and 2025 onward. This would lead to the development of Son My I and Son My II
CCGTs with installed capacities of these projects eventually reaching 2250 MW each
 South West region developments:
 Currently Ca Mau’s gas supplies are from PM3;
 South West gas production is increased with the development of Block B from 2020;
 The O Mon complex is developed. This is as follows:
 2020: 750 MW of CCGT (O Mon #3);

 2021: 750 MW of CCGT (O Mon # 4), and conversion of 660 MW O Mon #1 to
CCGT; and
 Kien Giang project proceeds as follows:
 2021: 750 MW of CCGT; and
 2022: 750 MW of CCGT.
 From 2026, there is a further 750 MW of CCGT (O Mon #2) which is scheduled to
run on imported LNG.
 Central Region Developments:
 Ca Voi Xanh / Song Hong basin development is expected to be in production by 2023
 This will have the following developments: 2023-26: 5 x 750 MW of CCGTs in Central
region: Mien Trung CCGT (2250 MW) and Dung Quat CCGT (1500 MW) planned
 North Region Gas Development:
 The following CCGTs will be run on LNG:
 Hai Phong # 3-1, 600 MW from 2025; and
 Hai Phong # 3-2, 600 MW from 2026.
A key observation is that a substantial amount of installed capacity in the RPDP7 is
dependent on both domestic offshore gas field developments in the medium term and then
later on LNG imports. This highlights the fact that gas and electricity developments are not
only coupled in terms of planning but care also in terms of the pricing implications – gas
pricing policy may affect electricity pricing.
It is worth noting the below differences between the RPDP7, draft GMP report and the PM
decision approving the final GMP.
 Hai Phong 3 CCGT (2 x 600 MW): The RPDP7 listed this project as a coal-fired power plant
developed by Vinacomin in 2025-26, whereas the draft GMP indicated that it could be
converted to using LNG. The latest PM approving GMP decision however has delayed
the implementation of Hai Phong LNG terminal until after 2030. Therefore, the status of
the Hai Phong 3 project could remain unchanged compared to what was set out in the
RPDP7.
 Nhon Trach 3 & 4 CCGT (2 x 800 MW): These projects were not identified in the RPDP7
but have been included in the draft GMP on a basic of PVN’s special request to the PM
(in February 2016), in line with the development progress of the Thi Vai LNG terminal.
10.3 Critique of the Draft GMP

In Viet Nam, the GMP plays an important role in terms of prioritising and sequencing the
required investments in the gas industry. Under Viet Nam’s legal framework, it is also a
necessary step in the process of enabling investment to occur. The conclusions of the Draft
GMP and its recommendations appear to be reasonable and logical at a high level. They are
also appropriate for a policy document. However, there are a number of observations and
opportunities for improvement.

Firstly, there is an aggressive outlook for reserves and other developments. In particular,
Block B having first gas by 2020 appears to be very optimistic, Ca Voi Xanh by 2023 may be
feasible although based on historical lead times to development, could be quite challenging.
There is also a very optimistic outlook in relation to LNG terminal developments.
Secondly, a detailed implementation chapter is not provided so implementation specifics are
missing yet very important, for example, there is limited information on the development of
onshore infrastructure. The sequencing laid out in the GMP for activating new gas supply
sources does not appear to have an accompanying rationale. For example, there are
opportunities to use least cost economics and/or draw clearer linkages to energy security so
that the rationale for the sequencing of developments becomes clearer. The tradeoffs
between different LNG options (onshore compared to FSRU developments for example) does
not appear to have been carefully assessed either.
Thirdly, the GMP appears to have taken a supply and gross demand driven approach as
follows:
 It starts with the available reserves and resources plus aggregate energy demand which
has been “allocated to” gas.
 Demand-side willingness to pay for supply developments is not really examined. For
example: establishing demand & supply price curves. Assessments (perhaps informed
by surveys) of demand side’s ability or willingness to pay for gas and what prices could
be delivered by the different supply options are not considered.
 There is an opportunity to more carefully formulate supply curves and demand curves
and adopt a least cost economic planning approach.
 The composition of demand is assumed as a continuation of the status quo with power
demand and fertilizer plans consisting around 94% of demand and the remainder
industry. Demand is also assumed to be “flat” beyond 2025, which seems unrealistic.
Fourthly, while there is reference to new pipelines, it is not clear what the priority of
interconnection is, nor its timing. This is an issue that is quite important for gas market
development as these developments would dictate the size and scope of the market.
Fifthly, the GMP includes a section on LNG. Key comments on this:
 The development of LNG and incremental production from existing gas resources will be
critical to address power sector development and to provide access and competitive
supply of gas for forecast power, industrial and fertilizer sector growth. As existing fields
decline, production may not keep pace with demand, and supply shortfalls could be
experienced. The implication of a near-term shortfall in supply would be a more urgent
requirement to accelerate the development of new gas sources.
 The section on LNG is standalone whereas LNG should be considered as another source
of natural gas which can be used to replace, backfill or supplement existing gas supplies
and proposed new projects.
 There is no analysis into the value and trade-offs between LNG as a flexible resource
compared to less flexible arrangements (for example, having long-term take or pay
contracts associated with offshore fields) is assessed. The costs and benefits of LNG

should be evaluated in the same manner as any other gas project proposal. If LNG is the
best short term solution, new thinking about LNG infrastructure solutions will be
required to ensure the most appropriate facilities are installed to service Viet Nam’s
short and long term needs.
 There is a focus on onshore LNG receiving facilities – canvassing a wider range of LNG
technologies and evaluating their fitness against Viet Nam’s requirements would appear
to be warranted.
 Over time, as LNG imports expand, Viet Nam’s gas sector will be increasingly linked to
global gas markets. Gas trade within Viet Nam has the potential for gradual
liberalization as space is created for more buyers and sellers and as competitive
wholesale electricity markets are introduced later this decade.
A number of final comments on the GMP are:
 The costings used for infrastructure are at the high end of international benchmarks,
which is reasonable given that many of the costs are influenced more by global inputs
than local labour costs.
 The relationship between the GMP and PDP is unclear and embeds risks that warrant
careful analysis. For example, the RPDP7 numerous power developments are highly
dependent on gas supplies in the GMP. Thus gas development risks have flow-on effects
to the electricity industry that are not necessarily being recognized in the RPDP7. Clearly
there are opportunities to tighten the integration between electricity and gas sector
planning.
 Alternative scenarios have not been actively explored – it would be more useful if a
number of scenarios were tested and analyzed and used to make informed choices
about the general strategy that is formulated. For example:
 analysis of the implications of different demand-side developments;
 evaluation / assessments of interconnectivity between regional gas markets;
 stress testing the implications and exposure to delays in developments across both
gas and electricity industries; and
 assessing the implications of different cost / price scenarios.
10.4 Suggested Improvements to Gas Planning Framework

There are two key areas of improvement that we suggest for Viet Nam’s gas planning
framework. These cover the following areas:
 General improvements; and
 Refinements to planning in support of a Gas Market.
10.4.1 General improvements

One of the key motivations for introducing a gas market is to improve decision making to be
more efficient. While the gas industry is largely centrally planned, a no regrets way of doing
this in the early stages to use least cost planning and economics to guide decisions. The

general improvements are those that can be made to generally improve decision-making
prior to having a gas market in operation. The following recommended changes address
many of the shortcomings identified in the previous section:
 Improve assessments of demand-side market willingness to pay and opportunities for
gas supplies.
 Use economic (least-cost planning) analysis as the basis of investment decisions in the
GMP. A discussion of this was provided in section 8. Economics can be used to evaluate
the pros and cons of different development choices and identifying their priorities,
including but not limited to:
 investment requirements associated with different options;
 evaluation of interconnections between regional gas markets and/or other onshore
interconnection options (e.g. connections to major industrial centres – as informed
by assessments of potential demand-side opportunities); and/or
 assessing costs and implications of different LNG options, sequencing, choices of
terminal capacities, and types of LNG facilities (onshore terminals vs. FSRU).
 Undertake stress testing of exposures to key risks to the delivery of gas infrastructure
and where relevant formulation of risk mitigation measures, for example: fuel price risk,
delays in developments, technology costs, emissions, measures to overcome etc. These
could be assessed within a broader energy security policy framework.
 Establish a more integrated approach to planning generally, so that the consequences
of gas infrastructure and gas development options can be understood more broadly
across relevant sectors, gas, electricity, coal, industrial developments (fertilizer plants,
manufacturing, industrial parks etc.), climate and more integration between supply and
demand sides of the gas industry. This will also better facilitate trade-offs between
sectors, identification of opportunities for substitution, and enable a more informed
assessment of risks to the delivery of energy services to the economy.
 Evaluate the implications of different scenarios on energy pricing – for example, prices
delivered to various market segments (power, industry, large consumers, medium size
consumers etc.) and flow-on effects – gas pricing’s implications for electricity prices for
example. Again, this type of analysis would enable risks and trade-offs between
different sequences of gas industry investment to be better understood, enabling any
development sequences or strategies for the gas industry to be better informed.
10.4.2 Gas industry planning when there is a gas market

Investment in mid-stream infrastructure in the form of interconnecting pipelines, gas
processing facilities and LNG receiving terminals will be required to permit trading of gas
between current and prospective buyers. A third party access regime for such infrastructure
will be required to oversee terms and conditions, including tariffs, for access to
infrastructure. Therefore, gas industry planning will continue to be an important part of
energy planning in Viet Nam in the transition towards a liberalised market and beyond.
The approach for gas industry planning however needs to be refined so that the implications
for competitive and non-competitive elements of investment decisions are assessed. In

relation to the non-competitive (or regulated) part of the industry, any investments need to
be assessed with respective to the benefit that they will bring the market. For example, mid-
stream infrastructure opportunities should not only be evaluated with respect to economic
cost-benefit assessments but also with respect to the implications for a gas market: for
example, the implications for competition, market size and market efficiency. Gas planning
within a liberalised gas market should also identify and highlight where opportunities for
investment or participation exist for either existing or new market participants.
Specific adjustments to gas sector planning to accommodate a gas market include:
 To avoid the perception of bias or conflicts of interest gas industry planning should be
carried out by an independent body (MOIT or GDE for example engage the services of
an independent organisation). There may need to be provisions or obligations imposed
on existing participants to provide data and information necessary to ensure that the
required modelling / assessments can be carried out.
 Gas planning needs to evaluate the market benefits of different investment options,
which requires an assessment of:
 market competition and efficiency (the extent to which investments increase the
numbers of buyers and sellers and enhances allocative efficiency);
 reduction in the costs of transactions;
 reductions in barriers for new entry and/or creation of opportunities for greater
participation;
 improve and enhance access and use of gas reserves;
 enhance ability for risks to be managed: risks to participants and new entrants; and
 identification of potential opportunities for new participants / existing participants
or the extent to which their consumers would have increased options of gas
suppliers and contract counterparties.
 Improved transparency in relation to: (1) assessments of previous gas market outcomes,
(2) assessment of supply and demand fundamentals, (3) explanation and data on the
key results of planning, will also lead to higher levels of investor confidence and will
enhance their ability to make well-informed decisions.
10.4.3 Implication of changes

To effect the changes discussed in section 10.4.1 and 10.4.2, the legal framework for gas
industry planning as defined by Prime Minister Directive No. 296/TB-VPCP, would likely need
to be refined to encompass the above.
10.5.1 Summary
There are opportunities for enhancing gas industry planning in Viet Nam in two areas. The
first is a set of general enhancements that aim to improve the efficiency of decision-making
by introducing economics and undertaking more comprehensive assessments of risks. The
second set of enhancements are to transition planning to be more market oriented. The

former set of enhancements are of a “no regrets” nature and should be introduced
irrespective of a market transition.

The recommended transitional steps for gas sector planning are as follows:
Step 1 – to 2020
 Retain the status quo: PVN undertakes planning on behalf of the gas industry.
 Supply and demand projections approach continues.
Step 2 – 2021 to 2025
 Independent organisation becomes responsible for gas planning.
 General enhancements to gas industry planning are introduced.
 Use of economic cost-benefit evaluations and least cost planning to determine
efficient investments.
 Enhance integration between gas, electricity, industry, and other sectors.
 Improve transparency with publication of detailed findings.
 Reorient Gas Industry planning to be “market-oriented”.
 Evaluate market benefits for different investment options.
 Identify and publish opportunities for investments in Viet Nam’s gas industry.
 Improve transparency with publication of detailed information on assessments of
market opportunities and information on Viet Nam’s gas sector.
Figure 54 shows the Roadmap with the components relevant to gas industry planning
shaded. Note that these changes will require enhancements to Prime Minister Directive No.
296.

Figure 54 Transitional Steps for Gas Industry Planning

PART E: LEGAL AND REGULATORY FRAMEWORK TO
SUPPORT VIET NAM’S GAS MARKET

11 Required Legal and Regulatory Framework to Support a
Gas Market in Viet Nam
11.1 Required Legal and Regulatory Framework
As described in sections 4 and 5, the legal and regulatory framework for Viet Nam’s gas
industry is largely defined by the following documents:
 PVN Charter which defines PVN’s role and responsibilities;
 Prime Minister Directive No. 296/TB-VPCP dated 27 July 2014 – which defines gas
industry planning;
 PM Decision No. 60/QD-TTg dated 16 January 2017 approving the Plan for Development
of the Viet Nam Gas Industry by 2025 with Vision to 2035 (GMP); and
 Numerous internal business procedures within PVN that govern their operations.
These largely are concerned with defining the operation of PVN and Viet Nam’s gas market
in its present form and are not adequate to support a Gas Market in Viet Nam. As part of
the transition towards a liberalised gas market, it will be necessary to establish a legal and
regulatory framework that formalises a number of elements of the gas industry to enable
greater participation, define the key roles and responsibilities of the entities to govern the
gas industry and to establish rules for the gas market.
It is important to ensure that the legal and regulatory framework caters to both the unique
aspects of Viet Nam while also being an example of international best practices. The latter
is because the transparency, stability and standardisation of the legal and regulatory
framework lays the foundation for foreign participation in Viet Nam’s gas industry and the
associated significant investments that will be required.
Figure 55 illustrates the key features of the current legal and regulatory framework and a
proposed model for legislation by 2030. Much of the new legislation can be based on existing
legislation with revisions to support a market or by formalising internal business procedures
of PVN into regulations that apply to the industry in general.
The Gas Market Roadmap and Gas Market Rules would be the main aspects of the legal and
regulatory framework that are entirely new. It should be noted that this structure is largely
compatible with the arrangements in place for Viet Nam’s electricity industry (and as
developed under the Electricity Reforms Roadmap) therefore this creates a future
opportunity of consolidating the gas and electricity industries of Viet Nam at the future, if
that was ever desired.

Figure 55 Required Legal and Regulatory Framework
11.2 Gas Market Roadmap (Prime Minister Decision)

As a Prime Minister Decision, the Gas Market Roadmap defines the stages and sequence of
steps necessary to transition Viet Nam’s present gas industry arrangements towards a
liberalised gas market. It should also make clear any preconditions that would be necessary
for transitioning from one step of the Roadmap to the next. The primary objective of this
project has been to define the Roadmap and we provide detailed coverage of its content as
the conclusion of this report in section 12.
11.3 Gas Supply Industry (GSI) Charter (Government Decree)

The rationale for the GSI is to essentially codify the transformation of PVN’s organisation
into a form that is required to support the operation of a Gas Market. It must be legislated
at an equivalent level to the PVN Charter, and in fact, would supersede the PVN Charter. The
GSI Charter would additionally define the governance structure for the entire gas industry.
We suggest that the GSI Charter be implemented as a Prime Minister (PM) Decision.
The GSI Charter should provide reflect the transitional steps for PVN’s restructuring that we
have set out in Section 7. The reason for keeping this separate from the Gas Law is because
it is concerned with taking the current structure of PVN and transforming it to into entities
that will later take on roles that would be defined in the Gas Law and Gas Market Rules.
Therefore the Gas Law and Gas Market Rules would be availed of the need to address what
eventually becomes a legacy issue.

The content of the GSI Charter would therefore be to define the key entities for Viet Nam’s
Gas sector, based on the structure we have set out in section 6, including:
 Role of MOIT / GDE in relation to gas industry:
 Gas sector policy;
 Gas Market rulemaking and changes;
 Gas Regulatory Authority of Viet Nam (GRAV);
 PVN Gas Single Buyer (GSB);
 Gas System and Market Operator (GSMO);
 PVN Gas Transmission Service Provider (GTSP);
 PVN Gas Distribution Service Provider (GDSP); and
 End users / Gas Customers.
It would then contain a section that sets out transitional steps for the PVN which could be
based on the proposed steps set out in section 7.5.
11.4 Gas Law (Government Decree)

Gas Law content would include:
 Separation and delineation of market development from the wide energy policy context;
 Management of the gas infrastructure development planning: participants in the
planning process and levels of involvement, contents of the planning and execution
procedures.
 Regulations for infrastructure project investment and construction management;
approval and issuance of investment licenses, business registrations with required
technical, commercial and environmental conditions and standards.
 Rules on setting up of the monitoring / regulatory entities to oversee related activities,
in particular gas transportation and distribution.
 Third party access to gas pipelines.
 Provisions for introduction / development of a gas market; and
 Principles for the treatment of legacy gas contracts.
11.5 Gas Market Rules (Circular)

The Gas Market Rules would define the following:
 Regulations on gas products and services quality; gas pricing, transportations fees and
other charges setting rules.
 Gas purchase and gas transportation agreements.
 Gas cost allocation and accounting regimes.
 Rules enforcement and dispute resolution.
 Conditions & requirements for participation in the gas market; rights and responsibilities
of market participants.

 Operational codes and procedures for gas pipelines and gas dispatch.
 Gas metering regulations as they pertain to gas market transactions.
It should be noted that the Gas Market Rules needs to be able to be changed more frequently
as compared to the Gas Law or the GSI Charter, hence we have recommended Circular level
legislation. This would enable the Gas Market Rules to be updated over time and in
accordance with a well-defined market rules change process that could be managed by GRAV
(say) with approvals for changes given by MOIT, following stakeholder consultation. The key
point is that the Rules will inevitably need refinement over time, while the Gas Law and the
GSI Charter should not require frequent changes or revisions.
11.6 Gas Sector Planning and Economic Valuation Framework

The gas sector planning is largely already in place, but as we noted in sections 10 and 8 it
needs to be adapted to a Gas Market environment. The following adjustments / refinements
to the existing GMP framework are proposed to be made in two steps as defined below.
11.6.1 Step 1: Enhancements to gas industry planning framework

 Make greater use of economic cost-benefit evaluations and/or least cost planning to
assess alternative investment options and to formulate the sequence investments;
 Tighter integration across supply and demand in gas and across closely related sectors;
 Evaluation of risks and formation of mitigation measures via scenarios and stress testing
analysis, as informed by energy security directives;
 Evaluation of the implications on energy pricing;
 Improve transparency with publication of detailed evaluations and data on the gas
industry. Establish and approve a standardised economic cost net-back methodology;
and
 Establish and approve a standardised economic cost net-back methodology to simplify
and standardise economic valuation of natural gas.
11.6.2 Step 2: Market oriented gas industry planning fram ework

 Planning undertaken by an independent organisation;
 Evaluate market benefits of different investment options; and
 Improve transparency with publication of detailed evaluations, assessments of market
opportunities and data on the gas industry.
11.7 Technical, Safety and Environmental Protection Codes

These include equipment standards, metering standards, safety standards and
environmental protection standards. The technical, safety and environmental protection
codes must be externalised from PVN internal procedures because they need to apply to all
entities that operate within Viet Nam’s gas sector. Technical conformance must also be
carefully and transparently monitored by the GRAV. We suggest this also be legislated as a
Circular, because it will likely need to evolve over time, and will need to undergo a change

process that allows it to be updated more frequently compared to a Government Decree or
PM Decision.
11.8.1 Summary
Key legal documents that need to be developed in order to support a Gas Market in Viet Nam
are as follows:
 Gas Market Roadmap, as a PM decision;
 Gas Sector Planning laws, updated to reflect required enhancements as a PM Decision;
 Gas Supply Industry (GSI) Charter, as a Government Decree;
 Gas Law, as a Government Decree;
 Technical and Safety Code of Practice, as a Circular (or set of Circulars); and
 Gas Market Rules, as a Circular.

Most of the key legislation required for a Gas Market can be drafted and promulgated ahead
of major industry changes. The sooner this can occur the better, because it will provide
stakeholders within the industry and potential investors in the future with certainty in terms
of how Viet Nam’s gas industry will be transformed over time. Hence we recommend to
establish as much legislation as possible in the period to 2020.
The following transitional steps are recommended for Viet Nam’s Gas Industry legal and
regulatory framework:
Step 1 – to 2020
 Gas Market Roadmap.
 Technical, Safety and Environmental Protection Codes.
 Gas Law.
 Gas Supply Industry Charter.
Step 2 – 2021 to 2025
 General enhancements to the Gas Industry Planning.
 Gas Market Rules.
 Changes to Gas Industry Planning Legislation to be market-oriented.
Note that this means that by 2025, all of the key legislation would be in place to support a
Gas Market. Figure 56 sets out the transitional steps for the legal and regulatory framework
necessary for Viet Nam to have a Gas Market in place. The relevant components of the
Roadmap are shaded.

Figure 56 Transitional Steps for Legal and Regulatory Framework

PART F: VIET NAM’S GAS MARKET ROADMAP

12 Proposed Gas Market Roadmap for Viet Nam
12.1 Approach to Gas Market Roadmap
Viet Nam’s oil and gas industry has historically been a priority area of development because
for the purpose of stimulating economic development and because the industry makes a
significant contribution to the country’s fiscal balance 40. Viet Nam Oil and Gas Group (PVN)
has established itself as a major contributor to Viet Nam’s economy. While this has been a
highly successful approach in the early stages of Viet Nam’s gas industry, as described in
section 2.1, the recent outcomes and performance of Viet Nam’s gas industry has prompted
the Government to issue a directive that seeks to improve the efficiency of the industry by
taking steps towards liberalising the industry.
The Government Directive (section 2.2) sets the scene for the Gas Market Roadmap (“the
Roadmap”), which is intended as a strategic legal document that forms the basis of a step-
by-step transition of Viet Nam’s gas industry towards one that support a Gas Market. The
Roadmap needs to be a concrete action plan for Gas Market evolution in Viet Nam with
clearly identifiable steps and preconditions for transitioning from one step to the next. It
should be largely consistent with the direction of the Directive but set out the necessary and
detailed steps for transforming Viet Nam’s gas industry.
This report has identified and analysed the issues and barriers to creating a liberalised gas
market, with the account for Viet Nam’s unique conditions and reference to experiences of
international markets. The report has also carefully considered and proposed transitional
steps that forms the basis of the Roadmap. In particular, we have analysed the current state
and development options for Viet Nam’s gas industry, performed a detailed review of the
governance and industry structure, assessed economics, pricing and planning in Viet Nam’s
gas sector and finally performed a high level assessment of the necessary legal and
regulatory framework that would be required in Viet Nam to support a gas market.
In order to ensure that the proposed Roadmap is appropriate for Viet Nam, we also reviewed
in detail the approach that Viet Nam has taken under the Electricity Industry Reforms
Roadmap, a detailed discussion of which is in Appendix G. Key lessons from Viet Nam’s
electricity industry roadmap form the basis of the principles we have used in the formulation
of Viet Nam’s Gas Market Roadmap:
 Clear statements of the transition steps that are necessary and defining these in a way
that will avoid any sudden or radical changes. The steps must define the actions,
preconditions, and desired outcomes.
 Identify suitable periods of time when reviews of progress should be conducted ahead
of progressing further or making some refinements / adjustments to future steps.
 Define the timeframe of the steps to provide certainty to industry stakeholders and
potential future investors of the wider direction of the industry.
40
M. R. Tsibulnikova, V. A. Pham, T. Yu Aikina, “Outlook for the Development of Oil and Gas Industry in Viet Nam", IOP
Conf. Series: Earth and Environmental Science 43 (2016) 012094.

 Define the legal and regulatory documents that need to be developed and the
associated timing.
 Define the changes in relation to governance and industry structure.
 Draw linkages between legislation and the development of physical infrastructure.
 The outcome of the market evolution will be building on and measured by the extent to
which the issues outstanding to the sector are being addressed.
Another key criterion that we have used in the formulation of the Gas Market Roadmap is to
ensure that is synchronised with the electricity industry reforms roadmap, a topic we discuss
further in section 12.5.
12.1.1 Gas Market Roadmap structure

The Gas Market Roadmap has been structured in the following way, and draws upon similar
other roadmap decisions in the country:
Periods of time are set as follows:
 Up to 2020 Period;
 2021-25 Period;
 2026-30 Period; and
 2031-35 Period.
The key dimensions of areas where transitions need to be achieved:
 Legal and Regulatory Framework:
 Gas Sector Organisational Structure;
 Gas Trading (Market) Mechanisms; and
 Supporting processes and Infrastructure.
We described these dimensions earlier in section 3.
12.2 Proposed Gas Market Roadmap

Figure 57 sets out the proposed Gas Market Roadmap. It has been constructed in a way that
is similar to other Roadmap legislation in Viet Nam and which has been staged in a way that
is consistent with directives in the Gas Master Plan decision promulgated in 2017. It carefully
transitions the Gas Industry of Viet Nam in a way that is similar to the Electricity Industry
Reforms Roadmap of 2013, and in doing so creates an opportunity for some consolidation of
gas and electricity sector governance in the longer term, if that was desired.
As with other Roadmap decisions in Viet Nam, we describe its content time period by time
period in the following subsections. In this way, the content presented here could form the
basis of content for the Prime Minister’s decision on the Gas Market Roadmap.

12.2.1 Period to 2020

The necessary legal and regulatory framework to support a Gas Market should be established
as soon as possible to provide certainty to the industry. These can proceed as the first steps
towards organisational and industry re-structuring are taken. Furthermore, a number of no-
regrets improvements are recommended to be done in this stage in order to improve
decision-making as it relates to economics and planning. It is also proposed to put in place
functional Key Performance Indicators (KPIs) on PVN’s business units as part of functional
separation to ensure the role of newly formed business units is clearly defined.
Legal and regulatory framework to 2020

Proposed legal and regulatory framework changes:
 Finalisation and promulgation of the Gas Market Roadmap as a Prime Minister Decision.
 Develop industry wide Technical & Safety Codes (preferably based on international
standards) to provide industry and project specific standards and procedural guidance.
 Development and promulgation of the Gas Law as a Government Decree. It would
define the regulated and non-regulated (competitive) elements of the gas sector,
licensing requirements, access regimes, pricing principles and approaches for different
industry segments including any overarching arrangements fundamental to the gas
industry.

 Development and promulgation of the Gas Industry Charter. This would define the key
entities and their responsibilities in Viet Nam’s Gas Industry and is a precondition for
starting the Gas Market.
 General enhancements gas industry planning framework put into place to come into
effect from 2021, including:
 Use of economic cost-benefit evaluations and least cost planning to determine
 Improvements to leverage standardised economic valuation of natural gas
framework.
 Enhance integration and coordination between gas, electricity, industry, and other
sectors.
 Improve transparency with publication of detailed findings.
Organisational structure to 2020

The following are the key recommendations during the initial stages of Gas Market
Roadmap:
Form a Gas Market Steering Committee (GMSC) under MOIT:
The GMSC would have the authority and mandate to progress the Gas Market
Roadmap. The GMSC would be responsible for reporting on Gas Market Roadmap
progress, conducting studies, monitoring outcomes and assessing progress. Where
relevant the GMSC would make recommendations to refine or revise the Gas Market
Roadmap. Specific responsibilities for the GMSC include:
 Development of the Gas Law and a Gas Industry Charter;
 Design of Gas Market / Trading Mechanisms; and
 Development of the Gas Market Rules.
The GMSC would likely be structured to ensure that there was representation of staff
who cover: legal and regulatory expertise, gas industry planning, technical operation
of the gas industry, gas pricing, gas contracting and economics.
Undertake the first steps of an organisational restructure of PVN:
Restructuring of PVN should commence with the separation of non-oil and gas
businesses, such as banks, being moved out of the core business structure into
separate reporting lines to the Board of Directors, with a view to ultimate divestment
of those businesses. The key activities in relation to PVN restructure to 2020 that
we recommend are:
 Separation of non-oil and gas business from all oil and gas activities;
 Technical regulation, market regulation and policy advice to GDE separated from
any operational business unit. Note that the number of agencies focused on
safety and associated technical compliance should be minimised.
 Construction, engineering and technical service providers and associated
functions moved into a separate business unit.

 PVN functional separation and ring-fencing of GMSO, HP gas transmission,
MP/LP distribution and marketing and sales commences.
 Introduce transparent and measurable KPIs and benchmarking measures.
The following aspects of Viet Nam’s gas industry structure do not change over this period:
 MOIT / GDE continues to be responsible for gas industry planning and policy direction;
 PVN continues to internally regulate gas industry operations and compliance with
technical and safety codes;
 Gas system operations remain as they are within PVN;
 EVN NLDC operates the VCGM and as per their mandate. The VWEM will commence
operation with NLDC becoming the System and Market Operator (SMO).
Gas market developments to 2020

During the period to 2020 stage we recommend steps be taken to standardise and improve
the methodology for economic valuation. This is in order to improve decision-making and
intended as a precursor to phasing in a Gas Market. It is also intended to improve decisions
related to gas infrastructure planning.
The following two steps are proposed:
Step 1:
Develop and approve economic valuation methodology:
 Transparent published framework and guidelines.
 Reference sources of cost data and information.
 Checklist of investment criteria including milestones, decision gates and timing.
Apply to integrated economic resource and project planning and resource
allocation:
 Technology, environmental and geographic neutrality, including: location, plant
types, incremental costs, project timing, economic life and scale etc.
 Exogenous factors addressed, including: emission and emergent technology
policies, fiscal adjustments, project security and risk, balance of trade impacts
and competition benefits.
Step 2 (to 2020, or until competitive gas market is in operation):
Apply economic gas valuation methodology into gas development planning:
 Compare and prioritise domestic gas resource and LNG development delivery.
 Assess options for gas pipeline and transmission network development.
 Input to gas valuation policy for generation projects, industrial, fertiliser and
other gas users.
 Benchmarking and sand-pit assessment of energy policy initiatives and energy
market design.
Note that no changes would be made to any commercial arrangements during this stage.

Infrastructure developments to 2020
There are no major infrastructure developments in this period.
12.2.2 Period from 2021 to 2025

The period from 2021 to 2025 should commence with a review of the progress that has been
made in the period to 2020, to ensure that the following preconditions have been satisfied:
 Gas Law and Gas Industry Charter have been promulgated as Government Decrees.
 Technical and safety codes are in place as one or more industry-wide Circular(s).
 GMSC in place to oversight Gas Market development in accordance with the Roadmap.
 Progress made in relation to PVN restructuring.
 Economic valuation framework in place and being used to guide decision-making in the
gas industry.
Assuming that these preconditions are satisfied, then further progress for Gas Market
development can be pursued, otherwise measures to ensure all preconditions are satisfied
should be taken before progressing.
The broad objective of this period is to complete a number of changes to Viet Nam’s legal
and regulatory framework necessary to support a Gas Market, and for PVN’s restructuring
to reach its conclusion. In this way, Viet Nam’s gas industry by 2025, should satisfy all key
preconditions for starting a Gas Market.
Legal and regulatory framework from 2021 to 2025

During this period the Gas Market Rules will be developed and promulgated, regulations to
allow flexibility in existing gas supply contracts would be introduced and existing regulations
which inhibit gas trading would be amended or repealed. These regulations would not
amend contracts, but would provide the basis for the parties to those contracts to negotiate
mutually beneficial amendments.
Specific actions we recommend for Viet Nam’s legal and regulatory framework during the
period from 2021 to 2025 are:
 Implement independent and transparent consultation process for technical and safety
code and later Gas Market Rules review and modification.
 Gas Market Rules would be developed and promulgated as a Circular.
 Implementation of an open access regime for gas pipeline connection and transport.
 General enhancements to the Gas Industry Planning come into effect and the following
changes would be developed and promulgated to come into effect from when the Gas
Market commences commercial operation (2026):
 General enhancements to gas industry planning are introduced.
 Use of economic cost-benefit evaluations and least cost planning to determine
 Enhance integration between gas, electricity, industry, and other sectors.

 Improve transparency with publication of detailed findings.
Organisational structure from 2021 to 2025

During this period the GMSC continues to oversight and progress the Gas Market Roadmap.
The following are the key recommended changes to gas industry governance during this
period:
 Under the Gas Law, establish an independent gas economic, technical and safety
regulator(s) similar to the power industry’s ERAV with responsibility and appropriate
powers for industry monitoring, compliance and enforcement. The entity could be
called Gas Regulatory Authority of Viet Nam (GRAV).
 An independent organisation under MOIT becomes responsible for gas planning. This
entity should have the autonomy and budget to hire an independent consultant to
conduct the Gas Master Plan (GMP).
During this period, following a review of progress in relation to the initial steps of
restructuring PVN over the period to 2020, further progress should be progressed in relation
to restructuring PVN as follows, and ideally completed no later than 2023:
 Mid-stream and down-stream gas business functions including particularly PVGas,
separated from the upstream oil and gas businesses and service providers.
 Establish an independent gas economic, technical and safety regulator.
 Gas management and system operations transferred to an independent agency.
Gas market developments from 2021 to 2025

During the period from 2021 to 2025, the GMSC (with input from MOIT and GDE) should:
 Step 1 (by 2022):
 Complete an evaluation of Gas Market Design options and promulgate Gas Market
Detailed design regulation41.
 Develop the draft Gas Market Rules and undertake stakeholder consultation on
draft versions of Gas Market Rules.
 Remove restrictions and permit flexibility in gas contracts where counterparties
have mutually agreed to this.
 All new gas contracts entered into to have a higher degree of flexibility to enable
gas volumes to be traded if desired.
 Step 2 (by 2025):
 Finalise and promulgate Gas Market Rules and an open access tariff regime.
 Assign the responsibility for operating the Gas Market (in a Pilot and Full operation
mode) to the GMSO as the independent gas market and system operator. The
commencement of Gas Market is suggested for 2026.
 Establishment of a bulletin board to publish market data.
41 Consistent with the approach that was taken for the Viet Nam Wholesale Electricity Market (VWEM).

Infrastructure developments from 2021 to 2025
During this period, under the GMP of 2017:
 Block B and Ca Voi Xanh are planned to come into production; and
 Viet Nam will commence first LNG imports; and
 The necessary investments in ICT infrastructure to enable the Gas Market to operate
according to the Gas Market Design and Gas Market Rules have been made.
 Publication of key industry data in a timely manner to gas market participants and/or to
potential investors.
In the electricity industry, the System and Market Operator (SMO) is planned to undergo a
number of steps towards becoming independent from EVN.
12.2.3 Period from 2026 to 2030

The primary objective of this period of the Gas Market Roadmap is to go through the process
of piloting the gas market and commencing its full operation.
The following preconditions should be satisfied prior to commencing the changes we
recommend for this period:
 Independent gas economic, technical and safety regulator (GRAV) established, staffed
and in place;
 An Independent planning organisation under MOIT established and in place for
oversighting gas industry planning;
 Gas Market Rules and open access arrangements have been promulgated and are in
place;
 GMSO operating as a fully independent entity and responsible for gas market and
system operations; and
 PVN restructuring has reached its conclusion and PVN’s separate entities are ready to
take their assigned roles in the Gas Market.
Legal and regulatory framework from 2026 to 2030

By 2026, all of the key legislation necessary to support an open and transparent Gas Market
should be in place. The changes to the legal and regulatory framework envisaged during this
period are:
 Incremental changes to the Gas Market Rules and Technical Codes, as required based
on experience in the commencement of a Pilot and Full Gas Market
 Revisions to the Gas Master Planning framework to be market-oriented should come
into effect from 2026.
Organisational structure from 2026 to 20230

By 2026, the governance and organisational structure of Viet Nam’s gas industry necessary
to support the operation of a Gas Market should be in place.

It is suggested that the following be undertaken during this period:
 GMSC conducts annual reviews of the outcomes of the Gas Market with a view to
assessing the extent to which the Gas Market operates efficiently and in accordance
with the wider objectives of Viet Nam’s gas industry.
businesses of PVN could be considered for divestment.
 GMSC also conducts a review of the effectiveness of the recently formed entities in
taking on their responsibilities under the Gas Market.
 GRAV monitors and routinely reports on Gas Market Rules compliance and also monitors
and on the outcomes of the gas market to GMSC.
Gas market developments from 2026 to 2030

The overriding objective of the premarket development track in this period is to trial (or
Pilot) Gas Market operations ahead of full commercial operation starting. Piloting the Gas
Market provides the opportunity to make any refinements and identify and mitigate any
risks ahead of the Gas Market commencing full commercial operation. Risks for example,
may relate to ICT system issues that need to be resolved or issues arising from the
incompleteness of Gas Market Rules.
 Step 1 (Prior to the end of 2026):
 GMSO commences Pilot (or Trial) operations of the Gas Market and is responsible
for operating the required Gas Market processes and publishing the relevant
information.
 Following a period of 6 months, GMSC and GRAV would be jointly responsible for
completing a detailed review of the Pilot Gas Market ahead of starting full
commercial options. As part of the review any refinements to the Gas Market Rules
should be identified and implemented.
 Step 2 (by 2027):
 GMSO commences full commercial operation of the Gas Market and is responsible
for operating the required Gas Market processes and publishing the relevant
information.
 Key features of the Gas market would be:
 Open access arrangements in place;
 New gas contracts would have volumes traded via the Gas Market; and
 Legacy gas contracts where parties have agreed can have volumes traded via
the Gas Market.

During this period, in accordance with the GMP of 2017:
 Continued development of infrastructure to support LNG imports in Viet Nam;
 Domestic offshore reserves production levels start to decline;

 Yet to find offshore / domestic reserves of gas may be identified and planned for
development (under the economic and planning framework that has been established
in the period to 2025); and
 The opportunity of tighter physical interconnectivity between gas regions should be
explored in light of a market-oriented GMP, specifically with respect to the extent to
which it would deliver benefits to the Gas Market.
Also during this period, the ICT systems for Gas Market operations should be set up and put
in place. As a minimum, the ICT systems should support the following:
 Publication of key industry data in a timely manner to gas market participants and/or to
potential investors; and
 Provide for the implementation of the Gas Market Rules (where the Gas Market design
is yet to be defined).
12.3 Period from 2031 to 2035

As illustrated in Figure 57, beyond 2031, the Roadmap envisages having the following in
place:
 The necessary legal and regulatory framework to support a Gas Market;
 The necessary government and industry structure in place for a Gas Market;
 There is an entity established (GRAV) that has the role of regulating the Gas Industry;
 The Gas Market itself has commenced full operation and is managed by GMSO as an
independent entity that has no role in buying or selling gas; and
 There are open access arrangements in place.
With these steps having been completed, the main focus of the period from 2031 to 2035 is
one of review and refinement to the Gas Market as part of an ongoing effort to ensure that
the Gas Market delivers efficient outcomes for Viet Nam’s energy industry.
Legal and regulatory framework beyond 2030

By 2031, GMSC could lead a final investigation and review of the Gas Market Roadmap
progress. It should assess the successes and lessons learned in the implementation and
identify any final areas of work that would be required to fulfil the requirements of the Gas
Market Roadmap. Any refinements or improvements to the legal and regulatory framework
would now be assessed with reference to ensuring the Gas Market can deliver efficient
operational and investment outcomes. At this point, it would also make sense to evaluate
the need for a Gas Retail market, as envisaged by the Government in the GMP of 2017.
Organisational structure beyond 2030

The main features of organisational structure envisaged by 2030 are:
 GMSC’s role could end once it has been concluded the Gas Market Roadmap has been
successfully implemented.
businesses of PVN could be considered for divestment.
 The industry structure should now support greater participation of new entities in Viet
Nam’s gas sector on both the supply and demand sides of the industry.
 GRAV’s role of continuing to monitor compliance to technical codes and the market rules
and will need to be mindful of reviewing and assessing the level of competition in the
Gas Market.
 It would make sense to assess the feasibility because there would likely be efficiency
gains to be captured, of consolidating the SMO (of the Viet Nam electricity market) and
GSMO into a single organisation responsible for system and market operations of both
gas and electricity markets.
Gas Market Developments from 2031 to 2035

As stated, during this phase, review of progress and outcomes of the Gas Market to date is
warranted along with the assessment of whether any refinements and/or adjustments are
required to enhance its operation. Consideration of the feasibility and need for a retail gas
market could be contemplated at this stage.

The GMP of 2017 envisages further LNG imports to largely backfill the expected decline in
production from offshore gas fields. The possibility of greater physical interconnectivity
between gas regions (which would likely work in the favour of gas market development)
remains an opportunity to be explored just as any yet to find offshore gas reserves being
brought into production is.
12.4 Gas Market Roadmap Tabulated Matrix

To complete the diagrammatic representation of the Gas Market Roadmap, we have
tabulated a more detailed version of the key developments that we recommend in Table 6.
This provides further detail to complement the Roadmap diagram of Figure 57.

Table 6 Gas Market Roadmap Table
Period
Dimension Aspect Period to 2020 2021 to 2025 2026 to 2030 Beyond 2031
Legal & Legal &  Gas Law as a  Gas Market rules and Refinements to Gas Market Refinements to Gas Market
Regulatory Regulatory Government Decree  Gas Market Rules & Rules and Technical & Rules and Technical &
Framework Documents  Gas Industry Charter Technical & Safety Code Safety Codes as required Safety Codes as required
 Develop industry wide change process based on experience in based on experience in
Technical & Safety  Implement an open operating the Gas Market operating the Gas Market
Codes (based on access regime for gas
international standards) pipeline connection and
transport
Planning  Retain the status quo:  Independent  Reorient Gas Industry

Framework PVN undertakes organisation becomes planning to be “market-
planning on behalf of responsible for gas oriented”.
the gas industry. planning.  Evaluate market benefits
 Supply and demand  General enhancements for different investment
projections approach to gas industry planning options.
continues. are introduced.  Identify and publish
 Use of economic cost- opportunities for
benefit evaluations and investments in Viet
least cost planning to Nam’s gas industry.
determine efficient  Improve transparency
investments. with publication of
 Enhance integration detailed information on
between gas, electricity, assessments of market

Period
industry, and other opportunities and
sectors. information on Viet
 Improve transparency Nam’s gas sector.
with publication of
detailed findings.
Organisational Governance Establish a Gas Market  Establish an independent Opportunity to explore
Structure Structure Steering Committee gas economic, technical combining the electricity
(under MOIT) and safety regulator(s) System and Market
similar to the power Operator (SMO) with the
industry’s ERAV with GSMO.
responsibility and
appropriate powers for
industry monitoring,
compliance and
enforcement.
 Implement independent
and transparent
consultation process for
code technical and safety
review and modification.
PVN  Non-oil and gas  Mid-stream and down- Depending on government Depending on government
Restructuring businesses separated stream gas business policies and financial policies and financial
from all oil and gas functions including considerations, the considerations, the
activity particularly PVGas, downstream businesses downstream businesses
separated from the

Period
 Technical regulation, upstream oil and gas could be considered for could be considered for
market regulation and businesses and service divestment. divestment.
policy advice to GDE providers.
separated from any  Establish an independent
operational business gas economic, technical
unit. and safety regulator.
 Construction,  Gas management and
Engineering and system operations
Technical Service transferred to an
Providers and associated independent agency.
functions moved into a
separate business unit.
 PVN functional
separation and ring-
fencing of GMSO, HP gas
transmission, MP/LP
distribution, marketing
and sales.
 Implement transparent
and measurable KPIs
and benchmarking
measures
Gas Market Economic Economic valuation of
Development Valuation of natural gas framework
Natural Gas

Period
introduced as a precursor
to a Gas Market.
Step 1:
 Develop an approve
economic valuation
methodology
 Apply to integrated
economic resource
and project planning
and resource
allocation
Step 2:
 Apply economic gas
valuation
methodology into gas
development
planning
Pricing and No changes to existing gas  Establish independent  Step 1: Introduction and Assess / review Gas market
contractual contracts or gas trading gas economic and trial of gas trading outcomes and contemplate
mechanisms mechanisms technical regulator  Step 2: Full commercial the feasibility and need for
(GRAV) operation of Gas Market a retail gas market
 Gas market rules and
open access tariff regime
promulgated

Period
 The establishment of a
bulletin board to publish
market data
 Remove restrictions and
permit flexibility in gas
contracts
 Gas system and market
operations transferred to
an independent agency
Infrastructure Major  No significant  During this period, under
Infrastructure developments the GMP of 2017:
Developments  Block B and Ca Voi Xanh
are planned to come into
production; and
 Viet Nam will commence
first LNG imports
Supporting  The necessary  Further LNG  Further LNG
developments investments in ICT developments developments
for Gas infrastructure to enable  Production from existing  Production existing fields
Market the Gas Market to fields start to decline as of 2017 continues to
operate according to the  New yet to find sources decline
Gas Market Design and of domestic gas may be  New yet to find sources
Gas Market Rules have brought into production of domestic gas may be
been made brought into production

Period
 Routine publication of
key information on gas
market operations for
industry
 In the electricity industry,
the System and Market
Operator (SMO) is
planned to undergo a
number of steps towards
becoming independent
from EVN.

12.5 Synchronisation with Electricity Sector
The present Electricity Industry Reforms Roadmap for implementation of the competitive
power market was based on a review and revision of an earlier Roadmap promulgated in
2006. The current Roadmap is set out in the PM’s Decision No. 63-2013-QD-TTg was
promulgated in 2013. As illustrated in Figure 71, the current Electricity Roadmap is a 20 year
implementation plan for gradually transforming Viet Nam’s electricity industry into one that
allows for competitive wholesale and retail electricity markets. This defines a time line for
transitioning between three major stages of reform:
 Viet Nam Competitive Generation Market (VCGM), which commenced full commercial
operation in July 2012;
 Viet Nam Wholesale Electricity Market (VWEM), and
 Viet Nam Retail Electricity Market (VREM).
Each stage commences with a pilot period, with a number of constraints defined, which is
subsequently followed by a “full operation” period. A detailed discussion of Viet Nam’s
electricity industry reforms experience is provided in Appendix G.
Figure 58 Electricity Industry Reform Roadmap (2013)
(VWEM) (VREM)
Source: ERAV
The generation sector of Viet Nam’s electricity industry is a major consumer of natural gas
in the country therefore coordination between reforms in electricity and gas is important,
particularly in relation to electricity pricing and gas pricing frameworks. The Electricity
Industry Reforms Roadmap has put Viet Nam on a course of gradually becoming more
interlinked with international energy pricing, a consequence of reaching the limits of
domestic resources and lower cost resources that can be deployed power generation.
Starting from 2019, Viet Nam Wholesale Electricity Market (VWEM) with a later stage being
VREM. This places pressure on the electricity industry to have wholesale and retail electricity
prices that are more reflective of international prices. By the time that a Gas Market
commencing pilot and then full commercial operation at the start of the 2026-30 period is
complete, the VWEM will have been in full operation least 5 years and should be delivering
cost reflective price outcomes.

12.6 Challenges and Priorities
12.6.1 Major challenges

The Gas Market Roadmap that we have presented is not without its challenges. As discussed
in section 12.2, there are numerous actions that need to be resolved within a short period
of time in order to ensure that the transition steps defined in the Roadmap can be completed
in a timely manner. The following are key challenges that will need to be overcome:
 Direction of the government to retain the status quo to 2025 sets a precedent for no
action until after 2025. However, given the urgency of developments in Viet Nam’s gas
sector and the fact that there are many no regrets improvements, we view this pace to
be too slow.
 Restructuring PVN, a wholly government owned entity that has its monopoly status for
all oil and gas activities in Viet Nam written into the law in its Charter. Experience
suggests that changes are likely to be resisted.
 Change in culture away from a centrally planned and managed gas industry towards one
that has unbundled midstream monopolies into a regulated transport function and
merchant gas supply function.
 Ensuring developments in the electricity sector and gas sector are coordinated. The Gas
Market Roadmap and Electricity Industry Reforms Roadmap have some dependencies –
particularly in relation to allowing prices to gradually become cost reflective as Viet
Nam’s electricity industry becomes increasingly linked to global energy prices.
 Transition away from pricing and supply approaches that provide some industries with
preferential treatment, for example, the petrochemical industry.
 Introducing flexibility in existing contracts. We have suggested that buyers and sellers
seek to mutually agree to changes that would introduce flexibility in the contracts, but
there is the risk that this could not deliver a desirable outcome.
 Introducing a framework for economic valuation of natural gas and the shift away from
a focus on gas pricing levels.
 Ensuring that MOIT is sufficient well-resourced with staff capable of progressing and
oversighting the implementation of the Gas Market Roadmap.
The transition towards a liberalised gas industry in Viet Nam faces a number of risks that will
need to be carefully mitigated. Part of the reason for suggesting the GMSC to oversee the
implementation of the Gas Roadmap for it to operate as vehicle to identify and mitigate risks.
Further discussion of risks and possible mitigation measures, including international
experience, are given in Appendix D.
12.6.2 Immediate priorities to 2020

The immediate priorities to 2020 are as follows:
 Gas Market Roadmap promulgated as PM Decision is critical;
 MOIT to develop legal framework to create certainty to the industry and potential
investors. This involves:

 setting up industry-wide Technical, Safety and Environmental Code(s);
 Promulgating the Gas Law as a Government Decree;
 Promulgating the Gas Industry Charter as a Government Decree (and to supersede
the PVN Charter);
 Making immediate progress in relation to separation of PVN’s business units and ring-
fencing them as a major precondition for commencing a Gas Market; and
 Introducing an enhanced and standardised economic valuation of natural gas
framework to improve the quality of decision-making.

Appendix A Key Gas Infrastructure
Table 7 Summary of Key Gas Infrastructure in Viet Nam
Infrastructure Description
Cuu Long Commenced operation in 1995, the Banh Ho – Dinh Co – Phu My gas
basin transmission system collects and supplies natural gas from the Cuu Long
pipelines basin’s gas fields such as Bach Ho, Rang Dong-Phuong Dong, Ca Ngu
system Vang, Su Tu Den and others. This pipeline system is owned by PVN and
operated by the subsidiary PVGas. The initial capacity was around 1.5
Bcm/y, which had then been extended to 2.0 Bcm/y in 2001 and 2.2
Bcm/y in 2006. Natural gas from the Cuu Long basin is supplied to the
Phu My Fertiliser Plant and some other industrial users; the remaining is
used for EVN gas fired power stations in the Phu My complex including
Phu My 2.1, Phu My 2.1 Extension, Phu My 4 and Ba Ria Power Plant.
The total pipes length (before the Phu My GDC) is nearly 300 km,
although the actual gas transport flow has been reduced to 4 Mmcmd
(~1.42 Bcm/y) due to declining productions from Bach Ho field.
Nam Con Son The Nam Con Son-Dinh Co-Phu My (NCS1) pipelines system is Viet
basin Nam’s largest modern integrated gas-to-power project delivering gas
pipelines from the NCS basin’s offshore fields of Lan Tay, Lan Do, Rong Doi and
system others, to the Phu My GDC via a 460 km subsea pipeline. The power
(NCS1) stations supplied with gas are: EVN owned plants Phu My 1, Phu My 2-1,
Phu My 2.1 Extension, Phu My 4 and Ba Ria; BOT plants Phu My 2.2 and
Phu My 3; and PV Power plants Nhon Trach 1 and Nhon Trach 2 (via Phu
My-Nhon Trach-Hiep Phuoc onshore pipeline). The project started
operation in late 2002 as a consortium comprising PVN (51%), BP
(32.67%) and ConocoPhilips (16.33%). BP operated the pipeline from its
establishment in 2003 until 2008, when it was transferred to PVN.
The main pipe has a maximum transmission capacity of 21 Mmcmd and
currently loaded at stable levels of around 19 Mmcmd.
Nam Con Son The NCS2 pipelines project was approved in 2011 and and would be
2 pipelines constructed in two stages. Stage 1 was completed in May 2016 involving
system the construction of 151 km pipelines for collecting gas from Dai Hung
(NCS2) and Thien Ung fields in the NCS basin and transporting the gas to the
Bach Ho compressing station (BK4A) for connection with the Bach Ho -
Dinh Co pipeline. Stage 2 would involve extending the NCS2 pipeline
directly to the Phu My GDC.
Phu My-Nhon The Phu My-Nhon Trach-Hiep Phuoc pipeline is an (onshore) pipeline
Trach-Hiep system to supply gas from the Phu My GDC to Hiep Phuoc and Nhon
Phuoc Trach power stations and consumers in the Ho Chi Minh City area. It
onshore became operational in April 2008, has 71 km in length and a capacity of
pipeline 2 Bcm/y (stage 1), expanded to 3.8 Bcm/y in stage 2.

Infrastructure Description
PM3-Ca Mau Commissioned in 2007, the PM3-CAA Mau pipeline supplies gas from
pipeline PM3-CAA and Cai Nuoc fields (current), and blocks 46, 50 & 51 (in
future) to the Ca Mau power – fertiliser complex that includes the 1500
MW Ca Mau power stations 1 & 2 and Ca Mau fertiliser plant. The
pipeline was completed under the PM3 Commercial Arrangement Area
(CAA), funded completely by PVN with PVGas being the operator. The
gas transmission system comprises 298 km offshore pipelines and 27 km
onshore pipelines for connecting with the Ca Mau GDC; its current
transmission capacity is around 2.2 Bcm/y.
Ham Rong – Stage 1 of this project commenced operations in August 2015. It
Thai Binh comprises 24 km pipelines, collecting natural gas extracted from the
pipelines current Thai Binh and Ham Rong fields, and other potential fields in the
system Northern region. The current transmission capacity is 1.465 Mmcmd,
which is expected to be increase in Stage 2 from 2019.

Appendix B GMP Development Options – Further
Details
This appendix provides more detailed information on gas development options identified in
the Draft Gas Master Plan (GMP).
B.1 Further Details on Domestic Fields

B.1.1 Northern Region
The gas fields being planned for production have complex geological conditions and / or are
small marginal fields, with low gas quality (high concentration of CO 2, H2S and heavy metals).
Under the base case scenario, in the 2016-2025 period production from Thai Binh and Ham
Rong fields would be stable at 0.20 – 0.28 bcm / year for supply to small, dispersedly located
industrial users. Under the optimistic scenario, from 2020 onward, production from Ham
Rong Nam – 1X, Hong Long – Bach Long – Hac Long fields is forecasted to peak at 0.31 bcm
/ year, and from 2029 blocks 102&106 and 103&107 are projected to come into operation,
adding a maximum of 1.5 bcm per year (from 2033). However, these forecast are subject to
uncertainty and would require continued reviews.
B.1.2 Central Region
Gas supply in this region mostly comes from the Ca Voi Xanh field at block 117-119. This field
will deliver gas to in-land from 2023 expectedly, at a maximum level of 6.2 bcm / year (net
hydrocarbon). This will then facilitate the establishment and development of the gas market
and downstream gas distribution network in the region. In addition, additional supply is
expected from the Bao Vang field at approximately 0.6 bcm / year from after 2023 and from
potential fields in lots 105-110 & 111-113 (commenced in 2030-31) at a maximum total
production of 2.4 bcm/ year in 2033.
B.1.3 South East Region
During 2016-2018, natural gas supply in the region is expected to remain stable at 8-9 bcm /
year, which is adequate for meeting the forecasted market demand. The newly constructed
Nam Con Son (NCS) 2 – Phase 1 project will deliver additional gas to maintain the
transportation capacity of the Bach Ho – Dinh Co pipeline at a 2 bcm / year level while the
existing NCS1 system is expected to operate at a capacity of 7 bcm / year.
From after 2019 the Su Tu Trang field is projected to be fully developed producing 2.5 bcm /
year. In combination with added supply from the new Sao Vang, Dai Nguyet fields, this would
make the total amount of natural gas delivered to shore reach 9.1-9.7 bcm / year toward
2014 under the base case scenario, or 9.8-12.8 bcm / year under the optimistic scenario. Gas
collection and transport infrastructure projects planned for this period includes
construction of the NCS2-Phase 2 pipeline and the second gas processing plant (GPP).
From 2025 onward, gas supply is forecasted to decline gradually, from 8.16 bcm in 2025 to
1.33 bcm in 2035 under the base case scenario. The GMP has recommended commencing
production of the potential fields in the region, to help maintain yearly delivery at 13.16 bcm
until 2027, and a reduced level of 8.93 bcm by 2035. In addition, it is also planned that new

gas fields in the Phu Khanh and Tu Chinh – Vung May basins will be connected with the Cuu
Long and NCS pipelines system to deliver this supplementary gas for meeting the demand of
the South East market.
B.1.4 South West region
Supply from PM3 block, Cai Nuoc field and block 46 are projected to maintain stable levels
between 1.75 - 2.28 bcm per year during 2015-2020, but decline by 2031. In the meantime,
PVGas has planned to increase the current production capacity to 2.35-2.40 bcm / year (8%
CO2) from June 2016 to ensure the demand of the Ca Mau gas-power-fertiliser complex is
adequately met.
When in operation from 2020, gas deposits from blocks B, 48/95, 52/97 would provide stable
supply at around 3.84 bcm / year (CO2 net) or 5,06 bcm / year (CO2 gross). The average
proportion of inert gases is around 21% in a 20 years’ period for gas users in Ca Mau, gas
fired power plants in Kien Giang, O Mon Thermal Power Centre and other industrial users in
Kien Giang and Can Tho.
B.2 LNG Imports

The GMP has scheduled first LNG imports to commence during 2019-2021, with
approximately 0.59 MT / year of LNG delivered into the South East market to supplement
the drop in production in this region. This will be followed by commencing LNG imports for
the other three regions including South West (at Hon Khoai - Ca Mau) in 2022, Centre South
(at Son My - Binh Thuan) in 2023 and North (at Hai Phong) in 2025. LNG yearly imported
volumes are projected to increase from 1.06 MT in 2022 to 5.25 MT in 2025.
It has also been planned to further increase LNG imports in the following period, from 7.46
MT in 2026 to 11.05 MT in 2030 and 13.89 MT in 2035. According to the GMP, power
producers in Son My and the South East regions are the main LNG users, consuming 10.52
MT in 2035, which accounts for 75.7% of the total import volume.
Potential LNG exporters under consideration include Middle East countries, Russia, Australia
and China, in part for meeting the Northern region’s demand.
B.3 Downstream Gas Market under GMP

In 2015, Viet Nam’s gas consumption market size reached 10.4 bcm, 83% of which was
accounted for the power generation sector, 11% consumed by the fertilisers and 6% - other
industrial users. According to the GMP, in the 2016-2025 period and beyond until 2035, the
market size is expected to grow significantly, to 21 bcm / year under the base case scenario
and 26 bcm / year under the optimistic scenario. There would be changes in the consumption
mix by sector with the power industry’s share declining to around 72.3% while fertilisers and
chemical users’ proportion increasing to 21.2% and other industrial gas consumption
remaining stable at 6.5%.
The GMP has identified future development features for each regional retail gas market in
Viet Nam as follows:

 ern Region: The market demand is expectedly served by the gas supply from the Bac
Song Hong basin, notably the Thai Binh and Hong Long – Hac Long – Bach Long gas fields.
The region’s market consumption has been estimated to be around 0.25 bcm and 0.5
bcm by 2025 under the base case scenario and the optimistic scenario accordingly.
Beyond 2025, additional supply will be required for the Hai Phong 3 power plant,
consuming around 1.24 bcm / year. This demand would be met with imported LNG, at
8.89 MT approximately.
 Central Region: Demand will be served with gas supply from the Nam Song Hong and
Phu Khanh basins, notably the planned Ca Voi Xanh and Bao Vang fields. Main gas users
include two gas fired power plants consuming around 3.72 bcm / year (Dung Quat BOT
and Mien Trung CCGT 1 & 2 capacity 750 MW each), the refinery industry requiring 1.21
bcm / year (net HC) and other industrial gas users intaking 0.27 bcm per year. It has been
also proposed that if the planned refinery project becomes unfeasible and does not go
ahead, the redundant supply will be taken by a new Mien Trung CCGT 3 power plant
capacity 750 MW; never the less, if gas production reaches 900 mmscd, it will be
sufficient to serve the demand of both the proposed refining plant and the CCGT power
plant.
 South East Region: This region’s gas market is correspondingly served from the Cuu
Long, Nam Con Son and in future Tu Chinh – Vung May basins. Main users remain the
CCGT power plants requiring 6.62 bcm of gas each year, expected from 2024 onward,
the power plants in the Bar Ria – Phu My region will switch to using imported LNG. Other
users are fertilisers, chemical and industrial plants (including existing and new
consumers)
 South West Region: This market is served by gas from the Ma Lai – Tho Chu basin. Gas
intakers include the existing users in the Ca Mau region and new consumers in Can Tho
and Kien Giang. It is estimated that the CCGT power plants (existing and new) will require
around 5.36 bcm / year; fertilisers and other users would be consuming 0.69 bcm per
year in average.
B.4 Key Offshore Gas Pipeline Developments

B.4.1 Summary of gas pipeline development options
The GMP has proposed construction of offshore main (backbone) pipeline projects in each
region and that has been phased in two periods, from 2016 to 2025 and from 2026 to 2035.
A summary is given in Table 8 and we discuss the details of each of these periods in the
subsections that follow.

Table 8 Summary of Proposed Main Gas Pipelines
Year of Capacity Length

Location Main Pipeline
Commissioning (m3/y) (km)
Northern Region
Onshore Ham Rong to Thai Binh (stage 2) 2018-2020 0,5 53
Blocks 102/106 & 103/107 to Tien
2030-2035 2 80-100
Hai LFS
Off-shore Tien Hai LFS to Thai Binh regions 2032 1.5 - 2 6
Northern LNG Terminal to
2025-2030 2 15-20
Northern CCGT
Central Region
Onshore Ca Voi Xanh to Quang Nam /
2023 9-11 85-95
Quang Ngai
Bao Vang to Quang Tri 2023 2-3 120
Off-shore LFS (for CVX gas) to GTP/GPP 2023 9-11 5-10
GTP to Quảng Nam / Quang Ngai
2023 4 25
CCGT Complex
GPP to Dung Quat thermal power
2023 2-3 25-35
plant
Quang Tri GDC to Quang Tri CCGT
2033 1.5 10
#1, #2
South East Region
Onshore Nam Con Son 2 (stage 2): KP 207
2019 7 117
to LFS
Compressor station at Sao Vang –
2021-2022 3.5
Dai Nguyet
Phu Khanh Basin to Binh Thuan /
2030-2035 3 250
Ba Ria - Vung Tau
Tu Chinh – Vung Mai Basin to NCS 2030-2035 2 150
Long Hai LFS to GPP2 2019 7 9
GPP2 to Phu My GDC 2019 7 30
Off-shore
GPP2 to Long Son Refinery (for 2019 0.3 MT 23
Ethane)
South West Region
Onshore Block B to O Mon 2020 6.4 292
Block B to PM3 – Ca Mau (KP209) 2020 2.4 37

Year of Capacity Length
Location Main Pipeline
Commissioning (m3/y) (km)
Off-shore Pipeline connecting LFS and Kien
2020 6.4 30
Giang GDS
Kien Giang GDS to O Mon GDC 2020 6.4 72
B.4.2 2016-25 period
 Northern Region: The phase 2 of the Thai Binh - Ham Rong pipelines system will be
implemented to commence collecting gas from the Ham Rong field in 2018-2010, with
maximum capacity of 0.5 bcm / year. The pipelines built from floating production,
storage and offloading (FPSO) Ham Rong fields will be connected to the Thai Binh – Tien
Hai pipeline.
 Central Region: A high pressure pipeline will be constructed for transporting gas from
the Ca Voi Xanh field to Quang Nam / Quang Ngai shores, capacity of 9-11 bcm / year
and in operation from 2023. Construction is also planned for another pipeline to
transport gas from the Bao Vang field to Quang Tri, capacity 2-3 bcm / year, with the
project phase 1 beginning the operation form 2023 delivering 0.6-1 bcm / year.
 South East Region: Construction of a new compressor station has been planned in the
Bach Ho region to take the supply of gaslift from the Cuu Long basin with proposed
capacity of 1.2 bcm / year (equivalent to 3.4 mmscmd, stage 1 will install one unit at
capacity 1.7 mmscmd for the supply from Tho Trang, Vom Bac and MSP fields, and phase
2 will add another unit with the same capacity to intake the gas from SV/DN). The 117
km NCS2 pipeline - phase 2 connecting KP207 to shore has been scheduled for operation
from 2019.
 South West region: The construction of the block B – O Mon pipeline at capacity 6.4 bcm
/ year is planned to complete by 2020 to collect gas from blocks B&48/95, 52/97 fields.
B.4.3 2026-35 period
 Northern Region: The GMP has recommended to conduct studies for construction of
pipelines to transport gas from other potential fields located in blocks 102/106 &
103/107 to Tien Hai, with capacity around 2bcm / year, for operation after 2030.
 Central Region: Studies have been recommended for implementation of phase 2 to
collect gas from potential fields located in blocks 105-110 and 111-113, connected into
the Bao Vang – Quang Tri pipeline, for operation after 2030.
 South East Region: Studies have been recommended for construction of: i) main
pipelines for collecting gas supplied from blocks 129 – 132, Tu Chinh – Vung May basin
and connected with the NCS2 pipeline; ii) main pipelines for collecting gas supplied from
blocks 133-136, Tu Chinh – Vung Mai basin and connected with the NCS1 pipeline; iii)
pipelines connecting Phu Khanh basin with Binh Thuan / Ba Ria Vung Tau; and iv)
importing pipelines connecting the TRANS ASIAN pipelines with NCS1/NCS2 pipelines.

B.5 Gas Collecting and Inter-Field Pipeline Developments
The GMP has also proposed developments of pipeline projects for connecting new gas fields
in production with the main backbone transportation pipelines. These projects are
summarised as follows.
B.5.1 2016-25 period
 South East Region:
 Cuu Long Basin: Pipeline networks will be developed for collecting and delivering
natural gas and associated gas from Kinh Ngu Trang, Kinh Ngu Trang Nam, Song Ngu,
Lead A (block 09-2/9) gas fields to the Rang Dong Compressor Station. Another
construction is planned for the pipeline connecting the Su Tu Trang field with the
NCS2-phase 2 main pipeline with capacity 3 bcm / year.
 Nam Con Son Basin: Construction is planned for a pipeline to collect and deliver
associated gas from Ca Rong Do field to Lan Tay (NCS1 pipeline extension) for
operation from 2019, and a pipeline for gas collection from Dai Nguyet and Sao Vang
fields, to be connected with NCS1 and NCS2 pipelines from 2021/2022.
 South West Region: Projects planned in the Ma Lai – Tho Chu basin include construction
of the pipelines interconnecting Hoa Mai, Dam Doi and Khanh My fields, development
of the pipelines to connect the Nam Du, U Minh/Minh Hai and Khanh My fields with BOD
WHP / BOA CPP, to deliver gas to shore via the PM3 – Ca Mau pipeline from 2020. In
addition, another pipeline connecting the Ac Quy/Kim Long – Ca Voi fields with the block
B pipeline would also be built by from 2020.
B.5.2 2026-35 period
 Northern Region: The GMP has recommended more studies into potential gas deposits
and construction of pipelines for gas collection from potential fields such as Hong Long,
Hac Long, Bach Long, Dia Long etc., within blocks 102/106 & 103/107, and pipelines to
collect gas from other potential fields in these blocks but located further away from the
mentioned fields. These pipelines are to be connected with the Ham Rong - Thai Binh
main pipelines after 2032.
 Central Region: Studies are recommended on construction of pipelines for collecting gas
from gas fields located in blocks 105-110 and 111-113, to be connected to the Bao Vang
– Quang Tri main pipe after 2030; pipelines for gas collection from potential fields in
block 115-119 and connecting with the Ca Voi Xanh main pipe after 2035.
 South East Region: Construction is suggested for i) pipelines collecting gas from Doi Nau,
Ha Ma Xam fields to deliver to the Rong / Doi Moi compressor station and then to Bach
Ho – Dinh Co main pipeline, ii) pipelines connecting the Rong Vi Dai, 12C, Thien Nga, Ca
Kiem Den, block 06-1, 05-2 & 05-3, 11-2 gas fields with the NCS1 pipeline, and iii)
pipelines collecting gas from Than Nong, lots 04-1, 04-2, 04-3, 05-1 into the NCS2
pipeline.
 South West Region: Studies are suggested into construction of the gas importing pipeline
to import gas from Asian to PM3 – Ca Mau in 2030, to provide additional supply for
addressing gas shortages otherwise expected in the region.
B.6 Key Onshore Gas Pipeline Developments
B.6.1 2016-25 period
The GMP has identified the following major onshore pipeline projects for construction from
2016 to 2025.
 Central Region: Constructing the pipeline to deliver LFS to the GTP/GPP capacity 9-11
bcm / year and the pipeline from the GTP/GPP to the CCGT power plants complex in
Quang Nam/Quang Ngai, capacity 6 bcm / year, for operation from 2023.
 South East Region: Constructing the pipeline to deliver LFS to the GPP2 capacity 7 bcm
/ year and the pipeline from the GPP2 to the Phu My Gas Distribution Centre (GDC),
capacity 6.5 bcm / year, and construction of the pipeline for Ethane transportation from
the Ethane separation factory to Long Son Refinery, capacity 300,000 tonnes / year in
2019.
 South West Region: Constructing the pipeline between Kien Giang and O Mon, capacity
3.4 bcm / year, operating from 2020 to provide gas for the O Mon Thermal Power
Centre; the pipeline supplying gas from Kien Giang GDC to Kien Giang Power Centre,
capacity 2 bcm / year, in operation from 2020.
B.7 Low Pressure Gas Pipelines

The GMP has not proposed detailed projects with respect to low pressure gas pipelines but
recommended on development and enhancement of the distributing gas networks to ensure
adequate gas supply for all industrial, residential and commercial end users.
B.8 Gas Processing Plants (GPPs)

B.8.1 Summary of gas processing plants
A summary of proposed gas processing plants is provided in Table 9. We provide further
details in the subsection that follows.
Table 9 Proposed Gas Processing Plants
Location GPP Year of Commissioning Capacity (m3/y)

Central Quang Tri GPP 2018-2020 2-3
South East Dinh Co GPP (GPP2) 2019 7
Ethane separation plant
2019 2
(integrated with GPP2)
South West Ca Mau GPP 2016 2.2
Kien Giang GPP 2020-2015 6.4
B.8.2 2016-25 period
 Central Region: Studies are suggested into the construction of a GTP/GPP capacity 9-11
bcm / year to intake the gas supply from Ca Voi Xanh in 2023.

 South East Region: Construction has been planned for the GPP2 in Dinh Co, capacity 3.5
bcm per year, the Ethane separation factory to process the gas delivered on the NCS2
pipeline, and the LNG/CNG factory jointly invested by PVN and Gazprom.
 South West Region: Construction is underway for the Ca Mau GPP located in Khanh An
Industrial Park near the Ca Mau GDC, capacity 2.2 bcm / year, expected operation from
2017 for processing gas supplied from the PM3-CAA field. In addition, the GMP has also
recommended on a feasibility study and expected construction of a GPP in Kien Giang,
capacity 6.4 bcm / year, to intake gas supplied from block B for Ethane, LPG and
Condensate separation.
B.9 LNG Import and Regasification Terminal

B.9.1 2016-25 period
In line with the plan for LNG imports, construction of the first LNG import terminal in Thi Vai
(South East region), capacity 1 MT / year has been scheduled for completion in 2019-2020,
followed by Hon Khoai LNG terminal with capacity 1 MT / year for phase 1 (2022), Son My
terminal (in Binh Thuan) capacity 3 MT / year for phase 1 (2023) and Cat Hai terminal capacity
1 MT / year (2025).
B.9.2 2026-35 period
It is foreseen in the GMP that the capacity of Son My LNG Terminal would be expanded by 5
MT / year: 3 MT / year during 2027-2030 and 2 MT / year during 2031-2035. Cat Hai and Hon
Khoai terminals will also be considered for expansion by an additional capacity of 1-3 MT/
year after 2035. Depending on actual demand, a new My Giang terminal (in Khanh Hoa) with
capacity 3 MT / year could also be constructed.

Appendix C Economic Costing: Case Study and
Assessment
C.1 Application of the valuation methodology to current technology and fuel
costs
A cost model was utilised for coal ($US60/ton & $US100/ton) and gas ($US7/MMBtu and
$US10/MMBtu) fuel supply and technology scenarios. International reference data 42 was
used for this analysis. The base case input assumptions are shown in Table 10.
Table 10 Base Case Input Assumptions
Base Gas Base Gas Base Coal Base Coal

@$7.00 @$10.00 @$60/t @$100/t
Fuel Price $/ton 60 100
Fuel Price $/MMBtu 7 10 2.5 4.2
Discount Rate % 11% 11% 11% 11%
Term Years 15 15 15 15
Capacity Factor % 85% 85% 85% 85%
Heat Rate Btu/kWh 6743 6743 8124 8124
Efficiency % 51% 51% 42% 42%
Unit Capex $/kW 819 819 2160 2160
Fixed O&M $/kW/yr 7.5 7.5 37.9 37.9
Variable O&M $/MWh 5.3 5.3 3.0 3.0
CO2 Emissions kg/GJ 57 57 91 91
The unit capex cost reflects supercritical pulverised coal technology. This is mature
technology and a reasonable policy response to meet carbon emission targets. Generation
technology assets have long asset lives, exceeding 25 years. However, the economic return
on capital for this analysis is assessed conservatively over a shorter 15-year period.
C.2 Base Case Model

An estimate of the total electricity cost for each gas and coal scenario was obtained using the
base case assumptions in our economic model. For an 85% capacity factor scenario the
amortised capital cost, fixed and variable operation and maintenance (O&M) costs, fuel and
total costs are compared in Figure 59.
42 05 0126 https://www.aemo.com.au/-/media/Files/PDF/Fuel_and_Technology_Cost_Review_Report_ACIL_Allen.pdf

Figure 59 Base Case - Total Electricity Cost for Coal and Gas Scenarios
C.3 Sensitivity to Capacity Factor

For a full range of capacity factor scenarios, the total cost of electricity supply is compared for
the base case coal and gas developments in Figure 60.
Figure 60 Total Electricity Costs for Coal and Gas at Different Capacity Factors

C.4 Model Comparison
The Base case model is compared to Lantau 201443 published analysis in Figure 61. The
principal differences are the differences compared to Lantau’s O&M assumptions, and
Lantau’s capital cost and efficiency assumptions for sub-critical coal technology compared with
super-critical coal technology in our Base case model.
While the components differ, the aggregate difference in outcomes is relatively small and it is
unlikely that the differences would lead to substantially different resource allocation
preferences.
Figure 61 Base Case comparison to Lantau 2014 published analysis
C.5 Comparison of well head and LNG supplied estimates

A gas well head and LNG delivered price were estimated for the Base case and Lantau models
from the results. These are shown in Figure 62. While these comparisons do not represent
comprehensive resource assessments, they are indicative of an unadjusted lower bound
economic value of gas.
43 00 0006 Comparative Economic Analysis of Coal & Gas in Viet Nam - Lantau 2014

Figure 62 Implied Gas well head and LNG delivered price for Base Gas, Base LNG,
Lantau 201444
Comparisons Base Coal Base Gas Base LNG Lantau Lantau Lantau
Coal Gas LNG
Coal Cost $/ton 90 90
Capacity Charge $/MWh 40.3 15.3 15.3 32 15 15
O&M $/MWh 8.1 6.3 6.3 7 4 4
Fuel Cost $/MWh 30.9 33
Total $/MWh 79.3 Less 21.6 21.6 73 Less 19 19
Implied Net Economic Gas Value $/MWh 57.7 57.7 54 54
Implied Net Economic Gas Value $/MMBtu 8.6 8.6 8.0 8.0
Less: terminal 1.6 1.6
Less: shipping 0.4 0.4
Less: transport30 1.7 1.7
Implied Well Head Value $/MMBtu 6.9 6.6 6.3 6.0
C.6 Potential Model Considerations and Adjustments to Economic Gas Net -back
Valuation
The analysis provided is not a comprehensive resource development model for specific gas and
power station developments. As noted in Section 8.3, the limitations of the model include
factors that require adjustment to the model itself or relate to other policy and fiscal economic
adjustments that the Viet Nam government may consider in developing gas resource pricing.
The minimum “lower bound” economic value of gas is the unadjusted heating value of gas as
assessed. An upper bound value of gas may include adjustments for pricing policy
considerations and targeted re-fiscal re-allocation. For illustrative purposes Figure 63 below
provides the World Bank 2010 approach to such an adjustment.
Figure 63 Heating Value vs. Shadow Pricing $/MMbtu (illustrative purposes only 45)
44
Lantau 2014 did not assess a value for LNG. Lantau LNG is implied from Lantau 2014 Gas assessment.
45 00 008 Viet Nam Gas Sector Development Framework ESMAP January 2010 see page 63

Appendix D Case Studies: Implementation Risks for
Gas Sector Reforms
This appendix provides a summary of the risks to Roadmap implementation drawn from the
World Bank ESMAP study titled ‘Vietnam Gas Sector Development Framework” in 2010.
D.1 Institutional change relating to the gas sector in nat ional energy planning
Risk: The existing, probably seriously under-resourced institutional structure has trouble in
adapting and makes some mistakes. Modern regulation of gas natural monopolies is a new
field of activity for the GoV and there as well, mistakes will be made.
Response: There is some lead-time available before major policy changes need to be
finalized. This time must be used to properly resource this activity, to train staff (sometimes
abroad) and to exercise them in their new roles. The cost of properly resourcing this activity
is small in relation to the efficiencies and other macro benefits that gas sector reform can
yield. Nevertheless, policy and operational mistakes may occur. Timely mid-course
corrections can be made if the Ministry’s policy unit’s monitoring is effective and its
subsequent advice is properly directed. As to regulation of natural monopolies in the gas
sector, there is much international experience to draw on and if ERAV is expanded and
mandated, that aspect of gas regulation will be in good hands given the experience which,
by then, ERAV will have accumulated in dealing with electric power natural monopolies.
International example: In the early 1990’s, with World Bank encouragement, Argentina
largely privatized and liberalized its electricity and gas sectors. In regard to gas, the state
monopoly T&D company was split up and privatized, modern regulation of network natural
monopolies was introduced, producer-seller competition was facilitated and a functioning
wholesale gas market was successfully created. These changes were accomplished in a
country with a very long history of state intervention in the energy sector (the state oil
monopoly YPF was created before the First World War), by a bureaucracy that had no
previous experience in creating the conditions in which market behaviours could initiate and
flourish and with a governmental and legal tradition that previously had no place for the
modern concept of transparent regulation of natural monopolies.
D.2 Gas Market Design

Risk: As a result of consolidations (producers selling assets to each other) or of the
unexpected concentration of new supply in a few hands there is a weakening in seller
competition and doubts arise as to whether there is still a condition of workable
competition. Critics will then argue that this eliminates a basic underpinning of the wholesale
competitive gas market.
Response: (1) It is generally accepted that even “weak competition” yields better resource
allocation results than “good regulation” as it might be practiced by an National Oil Company
(NOC) or by the new Regulator; (2) Replacing weak competition by reverting to the interim
NOC led framework will do nothing to increase competition; (3) The bulk of the gas is going
to be sold into power generation for the foreseeable future and in that use there will always

be competing fuel sources, which will strongly constrain any market power of the gas sellers
in relation to new generating capacity.
International example: The European Union (EU) has been seeking since 1998 to establish
competitive gas markets in its jurisdiction (excluding the United Kingdom where a strongly
competitive, liquid market already existed). With the cooperation of the EU, the IEA has just
published a major study Development of Competitive Gas Trading in Continental Europe—
How to achieve workable competition in European gas markets?
(http://www.iea.org/textbase/papers/2008/gas_trading.pdf).
From this report two things are clear. First, that even after 10 years’ effort, in many parts of
the EU, workable competition has not been established. Second, that despite
disappointments the goal is still being pursued because of the overall interest in increasing
economic efficiency and ultimately lowering costs to final consumers. Two factors which
have made the achievement of workable competition more difficult have been the tendency
to consolidation among European utilities and the dominance in some parts of the EU of
single supply sources such as Russia. Despite the great differences compared to Viet Nam in
the history, size and supply-sourcing of the EU gas market, there are lessons here:
sometimes, industry reacts to liberalization in ways that reduce competition (by
consolidation); that the creation of workable competition is not easy; but that the rewards
are considered to be so important that the goal is still worth pursuing. It is in this context
that the EU is now proposing further measures to encourage competition.
One finding of the report relevant for Viet Nam is that “…real reform progress has been
observed in markets with strong and independent regulatory authority.” (IEA report, page 7)
One objective is stated as follows: “In the present market context, significant shortfalls in
investment throughout the value chain of the industry can be observed globally. The
regulatory framework implemented in the European gas markets should be designed as
“investment friendly”, to allow costly and long term investments needed by the markets to
be realized.” (IEA report, page 89.)
D.3 Pricing Principles for Gas

Risk: The application of value pricing results in gas supply contracts with new generators
containing prices which are much above the prices in the existing contracts (in the range of
$2.1-3.22/MMBTU) and instead of escalating at a predetermined rate of below inflation (e.g.
2% for Nam Con Son) they will escalate with the price of competing fuels.
Response: It is not knowable what might eventuate from value pricing. The analysis is a
complex one. Besides, there is the possibility, alluded to in the Report, of putting floors and
ceilings on the fuel value prices. But fundamentally, competitive market pricing is what the
NSED calls for and this is what value pricing will produce. Note that the rest of the economy—
the very important oil fuels component for example--is fully related to international prices
and price escalation. Prices of imported coal and imported LNG will also be at international
levels and fluctuate with them. There is no good reason to insulate the gas-using consumer
from these tendencies, on the contrary that would be harmful to sound inter-fuel
competition.

International example: The under-pricing of gas is a major policy issue in a developing Asian
country where gas is a critically important energy source and there are major supply
uncertainties. An international consultant has recently addressed the problem in the
following terms:
 “In other words – current gas prices in --- are well below the opportunity cost of gas. In
strict economic terms, gas should be priced relative to its opportunity cost – clearly this
is not the case in --- as yet. Gas price relative to opportunity cost will enhance the
upstream activities.”
 “Pricing of gas is a sensitive issue in all developing countries across the world…. The
government may take a view that subsidized gas and energy prices play an important
role in contributing to strategic sectors…. While these views are valid considering the
socioeconomic impact that gas plays in the economy, prices that do not reflect costs
result in a financially non-viable gas value chain in --- and artificially inflated gas
demand.”
 “The need for domestic price reform is urgent given our long term analysis of the ---
demand and supply scenario. Our analysis shows that --- faces a significant shortfall in
gas supply in meeting the needs of its domestic market under all three cases of demand.
Existing 2P gas reserves are only sufficient for the next seven years.”
It is not suggested that the situation in Viet Nam is as dire as the one being addressed in this
consultant’s report. However, the consultant’s analysis is fundamentally applicable also for
Viet Nam: gas pricing is a sensitive issue, but opportunity cost pricing is necessary in order
to enhance supply.
D.4 Changed roles for the NOC (PVN) in the Gas Sector
Risk: The valuable role that the NOC has played in securing the Vietnamese public interest
in the petroleum sector will be lost and the country will suffer.
Response: the NOC will continue as a very large enterprise active in many fields at home and
abroad. Experience shows that where an NOC has had a monopoly position which is
subsequently removed, competition results in more efficient operations. The NOC has built
up huge experience and should be able to thrive in a competitive market. Not having to
perform public interest related functions will free up the management to concentrate more
fully on profitable functions to the benefit of its shareholder, the government and people of
Viet Nam.
International example: The outstanding examples of NOCs that have been completely
relieved of their sector-management, regulatory and social responsibilities and obligations
and have become world-class energy businesses are of course the three Chinese NOCs—
Sinopec, China National Offshore Oil Company and, the leader of the group, CNPC. The
transformation that CNPC and its peers have achieved is remarkable and has projected it
into the top tier of the international companies, in fact CNPC is reported in August 2009 to
be the world’s largest company in terms of stock market valuation. A glance through the
2007 Annual Report confirms this:
http://www.cnpc.com.cn/Resource/eng/img/07AnnualReport/2007PDF.pdf

The Chinese examples should create even greater confidence in the future of PetroViet Nam.
There is no reason at all that PetroVietnam should not be able to follow the same course of
transformation, although necessarily on a different scale.
D.5 Failure to Implement the Road Map

Risk: The most important elements of the road map are its recommendations for market
design and for value pricing. But they did not originate with this Report and they are not
unique to it. Thus: they are inherent in the NSED, they are highly relevant to the ongoing
work on power market reform and they will no doubt be addressed in the NGMP. The present
Report simply works out and applies key elements of the NSED to gas market design and
pricing. Given that the absence of these elements is recognized as a serious “gap” in policy,
given also the statements about competitive energy markets and energy price determination
in the NSED, gas sector stakeholders of all kinds await implementation actions that should
flow from the NSED. They likely expect actions of a type that are already under way in the
power sector. Failure to now move on the road map would retard the development of the
gas sector and of a competitive power market, discourage investments in the links of the gas
chain and consequently have negative consequences for achievement of GoV policies such
as modernization, industrialization, increased FDI and energy security.
Response: This potential problem is real and needs to be recognized and acted upon
especially in the present times of global recession. The global energy industry may now be
capital-limited rather than opportunity-limited. Investors will be seeking business
environments where the “rules of the game” are clear and where pricing and fiscal regimes
are internationally competitive. The road map, if acted upon, would help to create that kind
of an environment for natural gas development in Viet Nam.
International examples: A good example of the positive effects of laying down sound policies
in advance is the way in which the USA announced its policies for LNG imports in anticipation
of the new wave of applications for LNG import terminals and then left policy
implementation entirely to the regulator. This case has already been cited under heading 6.2
D on page 94. In regard to international competitiveness, South East Asian neighbours such
as Malaysia and Thailand appear to offer predetermined policy conditions that include
attractive pricing for new gas development. They appear to be well positioned to meet their
growing gas requirements, in the case of Thailand by including imports in the supply mix.
Timely policy action is particularly important in regard to gas supply: if R/P ratios decline to
the point where supply is jeopardized, it is difficult to find policy measures that can quickly
reverse the situation.

Appendix E Case Studies: Gas Pricing Mechanisms in
Selected Asian Countries
This appendix provides a review of international experience for gas pricing approaches and
has been drawn on the international experience in report “Vietnam: Issues in LNG and
Natural Gas Pricing - Pricing options and lessons from other markets in Asia” conducted by
ECA in 2014 for the World bank and MOIT.
E.1 China Gas Price Approach

E.1.1 Gas pricing
Overview
Until recently, China’s pricing regime (particularly for domestically produced gas) was based
on a ‘cost-plus’ methodology with prices set for the different elements along the gas value
chain and differentiated by end user according to the government’s priorities and gas
utilisation policy. The framework is depicted diagrammatically in Figure 64. As shown, this
pricing regime essentially comprises three elements: a wellhead or ex-plant price, a pipeline
transportation tariff and an end-user tariff. As discussed above, the first two elements are
under the control of the central government through NDRC, and end-user tariffs are set
locally.

Figure 64 Traditional pricing regime for domestic gas, China
In general terms, the ex-plant price consists of the wellhead cost (for the given well or basin)
inclusive of purification fees and financing costs and taxes, plus a producer margin. Different
ex-plant prices (for any given field) are set for the various end users. Transportation tariffs
are determined based primarily on the pipeline construction and operation costs plus a
margin, and are varied according to the transportation distance from the source to the city
gate or customer and, in some cases, also by end use. The summation of these two
components constitutes the end-use price for large customers (fertilisers, bulk industry and
power producers) and the city gate price. Provincial governments determine end-user tariffs
for smaller users after taking into account the distribution cost and also local socioeconomic
factors such as affordability and alternative fuel prices.
Despite its complexity, this pricing regime was sustainable while China remained self-
sufficient in natural gas. However, with the introduction of natural gas imports and the
growing import dependency of the country, the pricing regime has come under challenge.
This is due to increasing procurement costs resulting from more expensive imported pipeline
gas from Turkmenistan, LNG under new and more expensive contracts (given the higher oil
price environment) and also costly LNG spot purchases. There is therefore a growing
divergence between the prices of domestically produced and imported gas (domestic prices
are currently considered to be about half of import prices) and with imports becoming a
larger part of the overall supply mix, the weighted average cost of gas is expected to continue

increasing. These challenges are compounded further by the lack of an explicit mechanism
for passing through additional costs to end-users.
In response to these pressures, NDRC has piloted pricing reform in two provinces
(Guangdong and Guangxi) with the intention that this eventually be rolled out nationwide.
Specifically, a ‘netback’ gas pricing policy has been introduced that links the benchmark gas
price, which is set at the Shanghai city gate, to the import price of oil substitutes for gas. The
city-gate price for each province is determined by deducting the transmission tariff from the
benchmark price. This reform, which was confirmed again in 2012 with the release of the
new gas utilisation policy, signals a departure from controls on upstream pricing and a shift
to more market-based approaches.
The following sub-sections provide more detail about the current pricing regime and the
recently instituted reforms.
Upstream pricing
Ex-plant prices
Domestic ex-plant prices for onshore production are set for each gas field by NDRC with
different prices by end-user – fertiliser, industrial, residential and power sectors. The price
is determined primarily on the basis of the field production costs, inclusive of taxation and
financing costs, plus a gas processing fee and a producer margin, which in many cases entails
an internal rate of return (IRR) of 12% although it varies across fields. Customer affordability
is also a key determinant of gas price regulation and the residential and fertiliser sectors
have been favoured ahead of industry and power generation. The prices ‘set’ by NDRC
essentially represent a reference price and there is a 10% allowance for upward adjustments
following negotiations between producers and buyers.
In the case of offshore production, prices are not regulated by NDRC; rather, they are
negotiated between CNOOC and its foreign PSC partners. Typically, gas sales agreements are
long-term contracts consisting of a base price and adjustment formulae based on a basket
of crude oil prices and other factors, together with provisions for periodic revisions.
Ex-plant prices were relatively low until the late 1990s because associated gas was dominant
in production but in the 2000s prices have increased significantly and in several phases. In
2010, CNPC earned 3.99 US $/mmbtu, Sinopec earned 4.90 US$/mmbtu and CNOOC 4.96
US$/mmbtu. These wellhead prices represent an 80%-100% increase relative to 2005 levels.
Import prices
Pipeline import contracts (for existing Turkmen gas and impending supplies from Myanmar)
are negotiated on a bilateral basis by CNPC and its counterparts. These contracts are oil-
linked and generally higher than domestically produced gas. For example, the border price
for Turkmen gas stood at 9.1 US$/mmbtu in October 2011 (at 100 US$/barrel). If CNPC were
required to sell at prevailing city gate prices determined on the basis of less expensive
domestically produced gas (and after taking into account transportation costs), it would
incur significant losses. For this reason, the central government has granted a VAT rebate to

state-mandated gas imports in cases where import prices exceed domestic wholesale gas
prices for the ten-year period 2011-2020.46
LNG import prices are oil-linked and determined by bilateral commercial negotiations
between importers (primarily CNOOC) and suppliers. Although China’s early LNG contracts
in 2005/2006 with Australia and Indonesia were negotiated at very low levels (at around 4
US$/mmbtu), contracts signed between 2009 and 2011 have been much higher so that over
that time the average LNG import price has almost doubled to 8.5 US$/mmbtu.
Wholesale pricing
For domestically produced gas, the wholesale price is given by the ex-plant price to which
the transportation tariff is added. Transportation tariffs are set by the central government
(NDRC) on a case-by-case basis and are determined by the pipeline construction and
operation costs plus a 12% IRR (or 15% for projects involving foreign investment) with a
variation by distance and end user. As a result, the tariff depends on the consuming region
and the length and diameter of the pipelines.
In the case of LNG, the resale price is not directly regulated. Importers are required to
negotiate the sale of re-gasified LNG at the wholesale level i.e. with distribution companies
or directly to large industry and power companies. Nevertheless, the overall contractual
terms require NDRC approval prior to importers obtaining the necessary permits for
importing LNG and operating the regasification terminals. Moreover, prices for the city gas
consumers require the approval of the local pricing bureaux. In some cases, LNG importers
have been obliged to sell at the regulated city-gate price but in others are granted more
freedom to sell at market rates.
End user tariffs

Large consumers
End-user prices for ‘direct supply’ customers (large industrial users, power plants and
fertiliser producers) are essentially the ex-plant price plus the transportation tariff. As
mentioned above, these vary both by user and distance and there is therefore large variation
in end-user prices across the country. Within any given region, the gas price for fertiliser
producers is significantly lower than that for the other customer categories.
City gas consumers
As described above, city gate prices are determined according to a complex matrix of ex-
plant prices for each gas field and consuming sector, and pipeline transportation tariffs for
each city (which in turn often differ by user). Based on these city gate prices, the provincial
and local pricing bureaux regulate retail prices, again with sectoral variations. The approach
is generally cost-plus, with retail prices consisting of the city-gate prices plus local
distribution network charges, which in turn comprise cost plus margin. However, in setting
final prices, provincial and local governments take into account a number of factors including
the type of end user, ability to pay, the competiveness of gas against alternative fuels and
the structure of gas demand in the area. Adjustments in city gate prices are normally passed
46 The current VAT rate for gas is 13%.

through quickly to commercial and industrial end users. Price changes for the residential
sector usually have a longer review time as a public hearing is generally required.
As a result of China’s pricing regime, there is significant variation in end-user prices across
the country. Generally, the coastal and central regions have higher prices for all three end-
use sectors (residential, commercial, industry) than the western (gas producing) regions. The
disparity in end use prices reflects the varying costs of production and infrastructure
supplying the different markets, but also local government priorities and customer
affordability.
The new pricing reforms

In December 2011, the NDRC published for the first time a detailed gas pricing mechanism
and selected Guangdong and Guangxi as the first two provinces to introduce the pilot pricing
regime. At the end of 2012, the NDRC further confirmed and reinforced this new pricing
policy stating its intention to “expedite the establishment of a price linkage between the
natural gas price and the prices of alternative fuels” and to “establish and improve the price
linkage from upstream to downstream”.
Under the new policy, the Shanghai city-gate has been chosen as the national price
benchmark given its role as a centre for different supply sources and pipeline distribution. A
price-setting formula has been set of the following form:
𝐻𝑔𝑎𝑠 𝐻𝑔𝑎𝑠
𝑃𝑔𝑎𝑠 = 𝐾 × (𝛼 × 𝑃𝑓𝑢𝑒𝑙 𝑜𝑖𝑙 × + 𝛽 × 𝑃𝐿𝑃𝐺 × ) × (1 + 𝑅)
𝐻𝑓𝑢𝑒𝑙 𝑜𝑖𝑙 𝐻𝐿𝑃𝐺
Where:
Pgas is the natural gas city-gate price in RMB/cubic metre
K is a discount rate, set at 0.9
α and β are the weighted percentage of fuel oil and LPG, 60% and 40% respectively
Pfuel oil and PLPG are the import prices for the respective products during the period in RMB/kg
Hfuel oil, HLPG and Hgas are the heat content of fuel oil, LPG and natural gas set as 10,000Mcal/kg,
12,000 Mcal/kg and 8,000 Mcal/kg, respectively
R is the natural gas VAT rate, currently at 13%.

As is evident from the formula, the National City gate benchmark price has been linked to
the alternative fuel prices of fuel oil and LPG, with weights of 60% and 40%, respectively. A
10% discount against the weighted average price is temporarily applied to ensure the
competitiveness of gas. The city-gate price for each province is determined by deducting the
transmission tariff from this benchmark price, while sellers and buyers can negotiate within
the limits of the regulated provincial city-gate prices.
There are a number of uncertainties or concerns associated with this new pricing
mechanism, including the appropriateness of the benchmark location and the alternative
fuels included in the formula (for example, the major competitor to gas in the electricity and
industrial sectors is coal, rather than oil). Also, local governments retain the authority to set

end user prices on the basis of local affordability and other social and economic indicators.
While NDRC has indicated that local governments can allow cost pass-through of the new
prices, it is unclear to what extent and how this will happen in practice.
Despite these concerns, the new pricing regime (if implemented) will replace the existing
fragmented cost plus wellhead price and a transportation tariff that varies by gas source and
route, with a unified city-gate price for each province. The pricing reform will also expose
city gate prices to more (albeit limited) market forces and allow for netback pricing at the
wellhead.
E.1.2 Gas allocation mechanism
China’s first natural gas utilisation policy was issued by the NDRC in 2007 but has now been
replaced by a new policy that became effective in December 2012.
The 2007 policy had classified gas users in China into four categories – “preferred,”
“permitted,” “restricted” and “prohibited”. Users within the first two categories could enjoy
certain priority treatment in project approvals and gas pricing, as well as preferential
assurance of gas supply, while users in the last two categories could encounter restrictions
in those aspects. The preferred users under the 2007 policy were urban residential
customers, public service facilities, natural gas vehicles, and distributed combined heat and
power generation. This reflected the central government’s aim of ensuring gas availability
for urban communities at a time when gas supply was still relatively limited.
The 2012 policy has increased the types of users included under the “preferred” category to
12 sub-categories, in keeping with the increase in gas supply. Moreover, natural gas-fired
power projects have now moved up into the “permitted” category (they were previously
restricted or prohibited). Under the new policy, gas-fired power projects are permitted to be
built anywhere in China except that the construction of base load gas-fired power projects
is still prohibited in 13 large coal-producing areas.
E.1.3 Recovering the costs of gas
Electricity sector
China operates under a single buyer model. Generation is sold to six regional state-owned
grid companies under long-term contracts that are set and approved by the central
government. In turn, the grid companies sell power to end users under local government-
approved retail tariffs.
Chinese electricity dispatch is organised by providing a similar amount of hours per year to
each plant regardless of its efficiency or fuel consumption costs. Prices paid to power
generators are set on a technology-wide basis in each province. For example, within a given
province, all new CCGT plants would be paid the same price, which in turn is different from
the price paid to other technologies, such as coal-fired generation or hydropower.47 Each
technology price is based on the current estimated provincial-specific construction and
operating costs.
47 This is similar to standard offer pricing employed in many countries in the case of renewable energy technology.

Automatic adjustments to electricity prices are only permitted for coal-fired generators
when the price of coal moves by more than 5% within a period of six months. No such
automatic adjustment mechanism appears to apply to other fuels, such as natural gas,
although the NDRC may adjust prices periodically to reflect changes in fuel prices.
Nevertheless, even in the case of coal, since 2004 electricity prices have been adjusted only
three times despite the 5% threshold being exceeded more than 10 times.
Fertiliser sector
The fertiliser industry in China is undergoing significant change as it moves to market based
arrangements, but continues to receive preferential treatment as it is considered integral to
assuring the country’s food security. The sector receives a number of input subsidies, the
most important of which are the preferential prices for natural gas (where fertiliser
producers receive the lowest tariff among all gas users) and electricity. Consequently,
recovering the cost of gas in this sector has not been a significant issue to date. In fact, the
low price of gas has created some perverse outcomes in that several producers have
exported products from cheap gas, despite government intentions to allocate in favour of
domestic farmers and agricultural production.
Other sectors
The other major gas consuming sector is industry (chemicals production and manufacturers
requiring clean and efficient industrial processing, such as glass, ceramics and electronics).
Although gas prices for industrial use are generally the highest and are used to cross-
subsidise the residential and fertiliser sectors, natural gas continues to be competitive
against most alternative fuels (e.g. LPG, fuel oil and coal gas), with the exception of coal. For
example, the average natural gas tariff for industry in 36 major Chinese cities in 2011 was 13
US$/mmbtu. This implied around a 50% discount to LPG and a 60% discount to diesel at the
time. Hence, industry has generally had the capacity to absorb increasing gas prices.
E.1.4 Recovering infrastructure costs
Unbundling of infrastructure
There is no regime for regulated access to pipeline networks or to LNG import facilities in
China. Any such access is based on bilateral negotiations and agreement. As no company
other than the three NOCs has sourced imports for the Chinese market, it seems even this
possibility is practically blocked.
Terminal infrastructure charges

As discussed earlier, LNG importers are required to negotiate the sale of re-gasified LNG
(inclusive of terminal charges) with distribution companies or directly to large industry and
power companies. Although these prices are not formally regulated, overall contractual
terms require NDRC approval prior to importers obtaining the necessary permits for
importing LNG and operating LNG terminals, while local pricing bureaux also further
scrutinise prices for city gas consumers.

Pipeline infrastructure charges
The basis for setting pipeline charges has been discussed earlier. To repeat, transportation
tariffs are set by individual pipeline and are determined by construction and operating costs
plus an IRR normally equal to 12% with a variation by distance and end user. In addition,
accelerated depreciation periods of approximately 10 years are used, which, given the
normal technical lifetime of gas pipelines (40 to 60 years), potentially leads to higher pipeline
tariffs than otherwise would be the case.
E.2 Japan Gas Price Approach

E.2.1 Gas pricing
Upstream pricing
The early Japanese LNG import contracts in the 1970s have set the ‘benchmark’ for pricing
of LNG in Asia and the linkage to crude oil. Although there have been variations in the
formula over time and across countries in response to changed market circumstances, the
pricing formula employed is generally of the following linear form:
𝑃𝐿𝑁𝐺 = 𝛼 × 𝑃𝐶𝑟𝑢𝑑𝑒 𝑂𝑖𝑙 + 𝛽
Where
PLNG is the price of LNG in US$/mmbtu
PCrude Oil is the price of crude oil in US$ per barrel
α and β are constants negotiated by the buyer and seller

The constant α is known as the slope and is typically expressed as a percentage, so that if it
were equal to 0.15 it would be referred to as a slope of 15%. It can be demonstrated that
with a slope of less than approximately 17% and a positive constant β, the resulting LNG
price is at a premium to crude oil at low prices, which gradually erodes and then turns into
a discount as the price of crude increases.
Subsequent revisions to Japanese LNG import contracts have seen refinements to the above
simple formula to account for changing market conditions. The most important of these has
been the introduction of the so-called ‘S-curve’ and the use of the Japan customs cleared
crude oil price or the “Japanese Crude Cocktail” (JCC) as the reference oil price. The S-curve
means that there are different (lower) gradients at the lower and upper end of the price
curve, which are designed to protect sellers and buyers, respectively, against adverse
movements in the oil price.
A distinguishing feature of Japanese long-term LNG import contracts in recent years has been
the widening disparity of prices. In the early 2000s, Japanese prices moved within a narrow
range around an average of about 5 US$/mmbtu, but since the beginning of 2004 the range
has widened significantly. At the bottom end of the range are a few contracts finalised during
the buyers’ market of the early 2000s with slopes below 10% and at the upper end are more
recent contracts with slopes above 15%.

Wholesale pricing
Japanese LNG buyers are gas and power companies carrying out business in an integrated
manner, from procurement and imports to transmission, distribution, downstream gas and
power supply and marketing. As a result, the Japanese gas market is highly fragmented with
regional monopolies and limited competition, despite the ostensible opening of the larger
end of the market. The consequence of this is that there is no national gas market and
wholesale trading of gas. The few gas trading companies in the country only trade in LNG
cargoes, rather than actual pipeline gas deliveries. Nevertheless, in late 2012 the Japanese
government announced that it intends creating an LNG futures market that would set prices
based on gas supply and demand factors. METI is currently in consultation with power and
gas utilities and other stakeholders (traders and financial institutions) on the mechanics of
market operation with the intent that listing on a commodity exchange commence from April
2014.
End user tariffs

Japanese end user prices are regulated by METI on a cost plus basis. Japan has historically
had higher gas prices for both residential and industrial customers than in other OECD
countries. This is partly due to its complete reliance on imported LNG supply, but also (in the
case of residential consumers) relatively low consumption per household compared to
Europe and the US.
There is no formal gas allocation mechanism in Japan. Individual gas and power utilities are
responsible for sourcing gas for their own use or their consumer base.
Electricity sector
Some Japanese electricity utilities adopt a fuel cost adjustment mechanism to set electricity
tariffs. Under this system, an adjustment is made to electricity prices every month based on
the average prices of crude, LNG and imported coal. The LNG price used for this purpose is
the average price of all the LNG imported into Japan each month i.e. it represents average
LNG procurement costs, irrespective of an individual buyer’s actual purchase costs.
Other sectors
A similar system to that employed in electricity is also in place for downstream gas prices.
That is, a cost adjustment system is in place that passes through average LNG procurement
costs to end users, taking into account external factors such as crude oil price and exchange
rate changes. Price changes for large customers normally occur with a one-month lag and
with a lag of two months for smaller customers.

As previously discussed, a TPA regime was instituted in 2004. This requires that gas utilities
and ‘pipeline service providers’ offer negotiated access to third parties and they cannot
refuse such access unless there is justifiable reason, such as technical capacity constraints.
Moreover, gas utilities are required to keep separate accounts for transportation services
and other relevant services and to publicise the relevant accounting data. This ‘functional
unbundling’ was introduced to ensure fair and transparent accounting provisions and to
encourage new entry. The bundling provisions, however, are not rigorously enforced in the
manner that they are, for example, in Europe or the US.
In the case of LNG infrastructure, there is no mandatory functional unbundling. However,
gas trading guidelines stipulate that it is ‘desirable’ that business operators that own or
manage LNG terminals create manuals for negotiations about the use of LNG terminals by
third-party companies so as to clarify the preconditions and rules for such negotiations from
the viewpoint of ensuring fair and effective competition. Moreover, the guidelines also state
that is desirable that such business operators ensure sufficient information disclosure
regarding the capacity of LNG terminals, the current status of capacity utilisation and plans
for future utilisation so as to enable an estimate of spare capacity.
Some LNG terminal operators have developed access guidelines, but in practice it has
generally proven difficult to establish TPA at LNG terminals. This is because LNG
regasification terminals are generally designed to match an importer’s specific supply
portfolio (secured under long term contract) within the terminal’s hinterland. The lack of
network interconnection between regions described earlier further constrains the ability and
the incentive to secure TPA and increase competition.

The LNG terminals in Japan have either been developed as merchant operations acting as
both importer and marketer or for own gas use by power utilities. Under both types of
arrangement, the LNG owners and operators effectively pay for their own services through
the margin achieved between the cost of gas and the sales price (either as gas or electricity)
into their local market. In the absence of a transparent TPA regime, it is not clear what
terminal infrastructure charges apply in Japan.

There is limited information on pipeline infrastructure charges in Japan given that access is
on a negotiated basis and limited in practice.

E.3 Malaysia Gas Price Framework
E.3.1 Gas pricing
Upstream pricing
Malaysia carries out its exploration, development and production activities through its
National Oil Company, Petronas, through Production Sharing Contracts (PSC) with a number
of international oil and gas companies and with its wholly owned subsidiary, Petronas
Carigali Sdn Bhd. While there is no specific mechanism for pricing gas at the wellhead or LNG
at the re-gasification terminals, the comparatively low price of domestic gas - compared to
high gas export prices - has acted as a disincentive for gas producers to supply gas
domestically48.
As a result the Government chose to implement a new policy to attract foreign investment
which led to the introduction of a novel PSC concept in 1997. This allowed gas producers to
have significantly larger fiscal benefits to attract them to Malaysian gas markets. The new
PSC is based on the “revenue over cost” concept (R/C PSC) which allows PSC Contractors to
accelerate their cost recovery if the contractors achieved certain cost targets 49. The basic
principle of R/C PSC is to allow the PSC Contractors a higher share of production when the
Contractor’s profitability is low and to increase Petronas share of production when
Contractor’s profitability improves. The contractor’s profitability is measured by the “R/C
Index,” which is the ratio of the contractor’s cumulative revenue over the contractor’s
cumulative costs.
Despite these measures the price of gas in Malaysia continues to be significantly below the
world market – a direct consequence of the governmental subsidies – and thus has led to a
large share of gas production being exported.
As Petronas is the sole domestic gas wholesaler and is also involved in all gas production,
domestic buying contracts are determined during initial development of the field.
Government allocations of gas to offshore Sabah and Sarawak also have to be met after
which subsequent gas is allocated for offshore peninsular Malaysia and LNG exports.
Wholesale pricing
Malaysia is suffering from a low domestic gas price which is attracting producers to sell their
gas in other higher price zones. The reason for this low domestic price is due to the significant
government subsidies in place to protect the domestic consumers from high or volatile
prices. Table 11 displays the disparity between unsubsidized and subsidized prices to large
natural gas consumers in 2011.
48
(The Economist Intelligence Unit, February 2013)
49 (Putrohari, Kasyanto, Suryanto, & Abdul Rashid, 2007)

Table 11 Malaysia Wholesale Gas Pricing
Natural Gas Consumer Subsidized Price per mmbtu Unsubsidized Price per
mmbtu
Electric Power Sector RM10.70 (US$3.21) RM41.16 (US$12.35)

Large Power Consumers RM15.35 (US$4.54) RM56.20 (US$16.86)
Gas Malaysia RM11.05 (US$3.32) RM42.35 (US$12.71)
LNG Exports - RM56.00 (US$16.80)

Source: Zuraimi Abdullah. “Hidden cost to
Subsidies.” New Straits Times April 12 2010. High Beam Research (September 18, 2011).
http://www.highbeam.com/doc/1P1-178619780.html
In addition to this the Department of Agriculture noted that the price for natural gas to
consumers in the fertilizer industry was less than US$1 per mmbtu. The government has
decided to reduce the subsidy value in the coming years and has estimated that the country
would embrace the global market rate for gas by 2015 50. This would lead to a reduction in
the effects of demand destruction that low domestic gas prices are having in the gas industry.
This is understandable considering the price for LNG exports to Asia-Pacific was RM56
(US$16.80)/mmbtu51.
End user tariffs

Gas Malaysia transports gas to final end users which are distributed into three major
categories: industrial users, commercial users and residential users. Gas prices charged by
Gas Malaysia are regulated by the Economic Planning Unit. Users are divided into seven key
categories (based on usage requirements) and are charged accordingly. Table 12 below
portrays the tariff charged to the different bands of consumers.
Table 12 Malaysia End User Gas Pricing
Tariff Category Applicable Range mmbtu/month Tariff

(mmbtu/year) (RM/mmbtu)
A 19.52
B 0 - 50 20.61
(0 - 600)
C 51 - 416 13.98
(601 - 5,000)
D 417 - 4,166 14.61
(5,001 - 50,000)
50
(Maybank, 2012)
51 (Maybank, 2012)

Tariff Category Applicable Range mmbtu/month Tariff
(mmbtu/year) (RM/mmbtu)
E 4,167 - 16,666 16.07
(50,001 - 200,000)
F 16,667 - 62,500 16.07

(200,001 - 750,000)
L > 62,500 16.45

(> 750,000)
AVERAGE 16.07
Source: Gas Malaysia

The Malaysian government has imposed a Utilization Objective that serves as its gas
allocation mechanism. This Objective relies heavily on the energy industry and consumers to
exercise efficiency in energy production, transportation, conversion, utilization and
consumption through the implementation of awareness programmes52. Demand side
management initiatives by the utilities, particularly through tariff incentives, have had some
impact on efficient utilization and consumption. The government has also launched
initiatives to encourage co-generation to promote an efficient method for generating heat
and electric energy from a single source.
The Government realizes that to enhance the success of its Utilization Objective, the market
approach needs to be supplemented by the regulatory approach. Hence, the government is
currently formulating a new Energy Efficiency Regulation which will be focusing on
designation of large consumers, appointment of energy managers and equipment labelling.
In addition, the Government is continuing its work alongside industry to promote energy
efficiency to reduce inefficient and wasteful use of energy in industrial facilities. A number
of industrial energy efficiency initiatives are being planned and these include energy auditing
programs, energy service companies support programmes and technology demonstration
programmes53.
Electricity sector
Changes in gas price are accounted for by primarily transmitting the changes in cost
downstream to the final end customer. With Malaysia being heavily dependent upon gas as
its primary source of electricity, this does make electricity tariffs vary with changes in gas
prices.
Historically due to the large subsidies placed by the governments on the prices of gas, prices
have not been extremely volatile thus not leading to large gas driven variations in electricity
52
(Ministry of Energy, Green Technology and Water, 2009)
53 (Ministry of Energy, Green Technology and Water, 2009)

tariffs. However, as the government seeks to reduce the subsidies on the gas sector, the
rising gas prices has led to significant changes in the electricity sector.
In 2011 a 28% upward revision of gas prices to the power sector (from RM10.70
(US$3.21)/mmbtu to RM 13.70 (US$4.11)/mmbtu) led to an average increase of 5.12% in
electricity tariffs. While domestic customers (using below 300kWh per month) were
protected from this increase, industrial and commercial customers received average
increases of 8.35% in their tariffs54.
Fertiliser sector
Natural gas subsidies in the fertiliser sector have once again led to very few changes in gas
prices. As a result, the fertiliser sector has not had to face the issues of how to deal with
increasing or decreasing gas prices. The industry will have to come to terms with these issues
in the near future as gas prices begin to rise as the government reduces its subsidies.
Other sectors
The other key sectors that use domestic gas are the basic metal industries and non-metallic
industries. Both of these industries use less than 20% of total Malaysian industrial
consumption. As a result, they are not key drivers in the gas industry.
While originally, the gas transmission pipeline network was solely used by Petronas Gas,
after the passing of the Third Party Access (TPA) initiative, the transmission pipelines are
open for access by interested parties who wish to participate in Peninsular Malaysia’s gas
market.
While there are stringent rules and network codes for use of these pipelines, the benefits
from this initiative include the improved security of gas supply in Malaysia, additional
opportunities for industries and businesses to source their own gas supply and provision of
growth opportunities for energy players. All third parties seeking to participate in this
scheme must enter into a legally binding Gas Transportation Agreement or Grid Connection
Agreement with the transporter.55

The Petronas Gas code clearly states that “services of Transporter shall not include the
production, processing or sale of gas.” Thus there exist no rights of access to processing
facilities.

Transportation tariffs for third parties using the national pipeline grid are laid out in a zonal
system. The Gas transportation system is divided into 4 zones and specific tariffs are applied
depending on where the gas was being transported from and the final destination.
54
(Tenaga Nasional Berhad)
55 (Petronas Gas, 2011)

There are two types of transportation charges available: Firm transportation charges and
interruptible transport charges. Firm transportation charges incur a higher tariff and allow
the shipper to reserve the right to flow gas through gas transportation system in a
transportation path from entry point to exit point. Interruptible transportation charges are
lower by a fixed factor and entitle the shipper to receive interruptible capacity – which is
nominated on a daily basis. Tariffs are adjusted on 1 April 2014 and every 5 years after this
date.
Unused capacity may be offered to any other shipper as available interruptible capacity
which allows more freedom for the third parties involved.
E.4 Thailand Gas Price Framework

E.4.1 Gas pricing
Upstream pricing
The wellhead gas price is specified in the gas purchase contract signed between the producer
and PTT. It is normally indexed with the price of fuel oil, the exchange rate, and the consumer
and producer price index. The price for natural gas produced from the Gulf of Thailand is
roughly US$2/mmbtu. Gas procured from joint development with neighbouring Malaysia
and Myanmar is slightly more expensive at US$2.3-2.75/mmbtu. Significantly lower wellhead
gas prices are common for less mature gas fields.56
Wholesale pricing
The wholesale gas price in Thailand comprises the wellhead price, a marketing margin, the
transmission tariff and the distribution tariff. After determining the wellhead price – as noted
in the section above – the marketing margin is regulated by the Electricity Policy and Planning
Office (EPPO) in the Ministry of Energy. The current rate of the pooled gas price (the
weighted average price of gas purchased from various production sources) is 1.75% for sales
to IPPs and EGAT and 9.33% for SPPs. The higher margin reflects the higher risks that PTT
has to bear as SPP contracts are shorter (5 years as opposed to 20-25 years) and allow an
SPP to switch from one source of energy to another depending on the price level. However,
this rate is currently being revised downward as statistics show that SPPs rarely exercise this
option. Hence the risk involved with the contract may have been overestimated. However,
since 1999 a cap of THB2.15 [US$0.07] (which equates to a rate of less than 1%) has been
imposed.
The transmission tariff is set by EPPO with approval from the Minister of Energy. The tariff is
uniform for all gas customers and is made up of the demand charge (TD) component to cover
fixed costs and the commodity charge (TC) to cover variable costs. The rate of return on
capital used for the demand charge is 18% for older pipelines and 12% for new pipelines
(pipelines installed after 2007). The value used in the price cap has always been 2%. The cap
is revised every 5 years or when a new investment qualifies for a revision of the capital
allowance. Finally, the distribution tariff is unregulated and PTT typically negotiates a price
for this tariff directly with its customers.
56 (Nikomborirak)

End user tariffs
Electricity tariffs and pass-through of gas price are discussed earlier.
The vast majority of gas utilization occurs in the power sector. EPPO reported that in 2010
67% of domestic gas consumption occurred in the power sector. An additional 17% was
utilized in gas separation plants operated by PTT. The remaining 16% was used in other
industries and as NGV.
While there is not any official policy pertaining to gas utilization and allocation, the Ministry
of Energy has indicated its desire to set the alternative energy usage as national agenda by
“encouraging the production and usage of alternative energy, especially bio-fuel and bio-
mass.” In addition, there has also been mention to try and reduce the dependence of gas
driven electricity generation to help ease the transition to a less regulated industry.
Figure 65 below displays the current utilization of gas in Thailand’s domestic sectors.
Figure 65 Thailand’s Natural Gas Supply, 1990-2011
Natural Gas Consumption by Sector

MMSCFD
Share
4%
NGV
12%
Industry
GSP 17%
Power Gen. 67%
Growth Rate Power Gas Separation Industry NGV TOTAL

Generation Plant
2008
2009
2010
Preliminary data
Source: EPPO Energy Forecast 2010
Electricity sector
Electricity tariffs and pass-through of gas price are discussed later.

Other sectors
Other than the power sector, gas is primarily used for petrochemicals. There is limited
industrial demand and a small but rapidly growing NGV market.
Gas is priced at the prevailing pool price plus margin for these sectors. However, the retail
price of NGV is set below the cost-recovery level, with the difference being compensated by
a subsidy from the government budget to PTT, in order to promote its use over petroleum
products57. By end-2012, the accumulated losses to PTT under this mechanism to be covered
by subsidies were reported at almost US$ 2 billion and increasing by around US$ 600 million
annually.
Concerns over the level of this subsidy led government to move in 2012 to increase the
selling price for NGV from Bt 8.50 /kg (~US$ 0.3 /kg) to the then-estimated cost-recovery
level of Bt 12 /kg (~US$ 0.4 /kg) in a series of staged increases. There was very strong
opposition to this and the government subsequently ended the series of price increases at a
level of Bt 10.50 / kg58.
There are no legal restrictions on new entries into any of the natural gas business subsectors
including the importation of LNG. However, PTT’s monopoly in transmission - and hence
buying and selling of gas - amounts to significant barriers to entry.
Additionally, PTT prefers to enter into longer term contracts with entities such as EGAT or
other IPPs which will ensure that its large capital costs will be recovered. PTT does offer
shorter term contracts to other small independent power producers (SPPs) but these are
offered at significantly higher mark ups to reduce the risk incurred by PTT.

As part of Thailand’s efforts to secure more gas supply and supplement the country’s pipeline
imports from Burma, the country commenced operations of its first re-gasification terminal
at Ma Ta Phut economic zone in the Rayong area in 2011. While there are no legal restrictions
on new entries into the natural gas business subsectors including the importation of LNG,
due to PTT’s de facto monopoly on gas transmission lines, all imports would have to be
transported using PTT’s approval.

Thailand’s natural gas transmission infrastructure is very advanced compared to other
ASEAN countries. PTT Natural Gas Distribution (PTTNGD) currently has 2,434 miles of total
natural gas transmission and distribution pipelines throughout the country. The 1,972-mile
offshore transmission system links fields in the Gulf of Thailand to the country’s six gas
separation plants supplying gas by-products to petrochemical facilities and other markets.
The 764-mile onshore portion consists of both eastern and western sections linking the gas
57Thailand’s energy policy emphasizes the replacement of oil imports with natural gas, biofuels and renewable energy.
58
The current NGV retail price is equivalent to approximately US$ 0.23 / litre of gasoline. The current retail price for
gasoline (gasohol 91 E10) is approximately US$ 1.20 / litre.

separation plants and gas from Burma to power facilities. While such a network would be
extremely useful for transporting of gas, PTT has monopolistic rights over gas transmission
in Thailand. Hence, there is no scope of third party access for pipelines within the country.

Appendix F Case Study: Western Australia Gas
Market Development
F.1 Background
The natural gas industry in Western Australia has grown over 50 years from the discovery of
gas in the onshore Perth Basin, approximately 350km north of the state capital, Perth, to
become a key input into the domestic economy and one of Australia’s leading commodity
export industries. This development has been achieved through a combination of regulatory
and market mechanisms introduced over time, with each step tested and refined before
moving ahead to the next one. It is a useful model from which to apply lessons learned to
the development of a gas market in Viet Nam.
Until the early 1970’s, Western Australia was reliant on indigenous coal and imported oil for
its energy supply. The state’s economy was based on agriculture and mining, with services
industries focussed on supporting these primary industries. However, opportunities for
economic expansion had been identified, particularly in minerals processing, but a secure
energy supply was essential for the state to achieve its potential.
Natural gas was first discovered in the Mondarra and Dongara fields in the onshore Perth
Basin by West Australian Petroleum Pty Ltd (“WAPET”) – a joint venture between Caltex and
Ampol – in 1965 and over the following 2 years was proven up to demonstrate its
commercial viability. In 1971, WAPET commenced construction of the Parmelia Gas Pipeline
to connect its gas fields to Perth and the adjacent industrial areas. The foundation customer
was the State Energy Commission of Western Australia (“SECWA” – the government owned
electricity and gas utility. SECWA installed multi-fuel (coal/gas/oil) fired boilers at its
Kwinana Power Station and retailed gas to industrial customers, including Alcoa of Australia
which converted the calcining process at its Kwinana and Pinjarra alumina refineries from oil
to gas.
However, gas supply from the Perth Basin was limited to around 120TJ/day (114bbtu/day)
by reserves, processing capacity and pipeline capacity. During the 1970’s, the Government
of Western Australia continued to encourage exploration for oil and gas, particularly in the
highly prospective off-shore Carnarvon Basin 1,500km north of Perth, where the North West
Shelf Gas fields were discovered in 1975.
F.2 Early Market Developments

In 1979, the Western Australian Government, through SECWA, reached agreement with the
North West Shelf Gas Joint Venture (“NWSG”, comprising Woodside, BHP Petroleum, BP,
Chevron and Shell) and foundation customers, Alcoa of Australia and Japanese LNG buyers,
to develop the North West Shelf Gas project. The first phase of the NSWG project was the
construction of a domestic gas processing plant and the 1,600km long Dampier to Bunbury
Natural Gas Pipeline (“DBNGP”) which were commissioned in 1984. The LNG plant was
commissioned in 1987.

From 1984 until 1994, SECWA was the single buyer of gas from NWSG. It used gas for power
generation and sold gas to retail and industrial customers in Perth and the surrounding
industrial areas, as well as to some mining operations in the Pilbara region near the gas
production facilities.
With an initial capacity of 350TJ/day (340bbtu/day), the DBNGP was a catalyst for the
development of new industries and expansion of existing industries, including nickel
processing, alumina refining, LPG refining, fertilisers and petrochemicals as well as
expanding the market for retail gas to households, commercial businesses and small
industries. SECWA remained a vertically energy business operating in every part of the gas
supply chain, except exploration and production, including as the largest customer through
its power stations.
By 1994, Apache-operated joint ventures had established gas processing facilities on Varanus
Is, just to the south of the NWSG facilities and the customer base for gas had diversified from
power generation and alumina refining. In recognition of the changes in the market, and
microeconomic reforms being developed in the energy industry nationally, the Western
Australian Government took the first steps towards an open market for gas.
The end customer base had now diversified with the retail gas segment growing to
approximately 15% of the market, with power generation accounting for 35% and alumina
refining 50%.
F.3 Industry Re-organisation

The first step, in 1994, was to re-organise SECWA into 3 separate government owned
businesses.
The electricity generation, transmission, distribution and retail functions were transferred
to the Electricity Corporation, known as Western Power. Each of these functions was set up
and managed within the Western Power organisation as a separate business unit,
accountable for its performance against annual targets, with the central administration and
technical services functions established as a service provider to these 4 business units.
The gas transmission, distribution and retail functions were transferred to the Gas
Corporation, which traded as Alinta Gas. The same approach to managing the business units
was applied by Alinta Gas. In this structure, the retail business unit was required to negotiate
terms and conditions for access to the transmission pipelines and distribution networks with
the respective business units.
The policy and safety and technical regulatory functions of SECWA were transferred to the
Office of Energy which reported directly to the Minister for Energy.
F.4 Contractual Re-organisation

The re-organisation of SECWA required legally enforceable contracts to be established
between the various business units of Alinta Gas and between Alinta Gas and Western
Power. The broader microeconomic reforms taking place drove further disaggregation of
contracts so that SECWA’s former industrial customers would have the option to either

continue to receive gas from Alinta Gas, or to contract directly with gas producers for gas
supply and with Alinta Gas for transport of that gas from the producer to their facility.
To provide a framework for these new contracts, the Western Australian Government
introduced the Gas Transmission Regulations and the Gas Distribution Regulations,
administered by the Office of Energy to provide the “rules” for parties operating in this new
market. The Regulations included template contracts, which were widely adopted by market
participants, and tariffs.
The contracts adopted in 1994 allowed for a range of measures designed to encourage the
development of a gas market over time. Some of the key features of these contracts are:
 Rights of gas buyers to on-sell gas;
 Rights of buyers to bank gas (i.e. to store take-or-pay gas in the reservoir until it is
needed for their operations, or until the end of the contract);
 Access to short term or spot gas supplies and pipeline transportation capacity on pre-
agreed terms;
 Rights to store gas in pipelines, or borrow gas from pipeline inventory for short periods
to manage imbalances between deliveries into and receipts from the pipeline system;
 Rights of buyers to trade gas between themselves in the pipeline; and
 Rights to relocated pipeline capacity between outlet points to facilitate gas trades and
sales between buyers.
These contractual provisions resulted in a basic secondary market being established. This
market was administered by the pipeline operators as they had access to all of the necessary
data.
In recognition of their foundation customer status, Alcoa of Australia and the LNG export
sector were exempt from the Regulations, except in regard to matters of safety. The
contracts they had negotiated with the Government of Western Australia to support the
development of the NWSG project and the DBNGP were amended only to the extent
necessary to allow the industry re-organisation to function efficiently and to allow Alcoa of
Australia to access the secondary market.
The market now looked quite different from both an ownership and customer base
perspective. Approximately 55% of gas consumed in Western Australia was now being
purchased by private sector business with the former SECWA businesses now accounting for
45% of gas sales. However, as the market had grown from 300TJ/day in 1985 to 420TJ/day
in 1995, the actual consumption and sales of Western Power and Alinta Gas were
approximately 25% higher after disaggregation than they had been 10 years earlier.
The customer base had now diversified so that alumina was now approximately 48% of the
market, power generation 29%, industry 7% and retail gas 16%.
F.5 Second Phase Industry Re-organisation

The period from 1994 to 2005 was largely one of consolidation of the arrangements which
had been put in place in 1994, with some refinement of the industry structures. It was also

a period where the gas industry grew on the back of the reforms which had been put in place
with new suppliers, new pipelines and new customers entering the market.
The Western Australian Government continued with its institutional re-organisation to
ensure that industry structures could continue to support the growing market.
In 1997, the transmission pipeline division of Alinta Gas was separated from the rest of the
business and sold to a private sector operator, Epic Energy. Epic Energy was responsible for
the operations and development of the DBNGP, but the Government maintained control of
technical and safety standards and tariffs through the Gas Transmission Regulations.
In 1999, the Office of Energy was re-organised into 3 separate regulatory bodies, each with
a very specific focus:
 The Economic Regulation Authority (“ERA”) was given responsibility for overseeing the
tariffs and terms and conditions for access to pipelines being sought by the operators.
It also had responsibility for terms and conditions and charges for electricity, water and
rail infrastructure. The ERA reports to the parliament;
 Technical and safety regulation of high pressure pipelines and all upstream facilities was
transferred to a division of the Department of Mines and Petroleum; and
 Technical and safety regulation of distribution networks and consumer installations and
responsibility for emergency management was transferred to a division of the
Department of Consumer Protection, which retained the Office of Energy name.
The rest of Alinta Gas was listed on the Australian Stock Exchange and sold to the public
through a share offer in 2000.
F.6 Second Phase Regulatory Development

In 1998, Western Australia adopted the National Third Party Access Code for Natural Gas
Pipeline Systems. This Code had been developed by a joint industry / government working
group to set out the rules for access to pipelines and govern tariff and minimum terms and
conditions for the services offered by pipelines and the processes to be followed by
customers requesting access to those services. The Code is administered in Western
Australia by the ERA. It continues to be developed as the industry evolves.
F.7 Second Phase Market Development

In 1996, the 1,400km Goldfields Gas Pipeline (“GGP”) was commissioned with a capacity of
approximately 150TJ/day. The GGP initially delivered gas from the processing facilities on
Varanus Is to customers (primarily mining operations) in the Western Pilbara and Goldfields
regions. This pipeline opened up a new region for gas sales and led to the conversion of
many mining operations from diesel power generation to gas fired generation.
During this period both the South West region market serviced by the DBNGP and the
Goldfields region market serviced by the GGP continued to grow, with total gas consumed
in Western Australia (excluding LNG exports) growing from 420TJ/day to 550TJ/day. This
market growth required capacity expansions on both the DBNGP and GGP, and saw an

additional producer, a joint venture of Apache and Santos, construct a new processing
facility onshore in the Carnarvon Basin.
When it sold Alinta Gas, the Western Australian Government announced that it would open
up the retail gas market to competition, allowing other gas sellers to compete with Alinta
Gas. It established a joint government / industry working group to develop the rules for the
proposed gas market and in 2004 issued the Retail Gas Market Rules to govern the operation
of the retail market.
By 2005, the private sector accounted for approximately 70% of the Western Australian gas
market, with Western Power’s generation plants being the only government-owned
facilities.
The growth in demand came primarily from expansions to alumina refining capacity by both
Alcoa of Australia and Worsley Alumina, new gas-fired IPP’s, industrial loads either
converting from diesel or coal to gas and new industrial customers, particularly in the
Goldfields region.
F.8 Third Phase Regulatory Developments

While the regulatory frameworks had been supporting market growth, an incident at the
Varanus Is gas processing facility resulting in 30% of Western Australia’s gas supplies being
unavailable for 4 months demonstrated that further refinement was needed in the
emergency management aspect of the regulatory framework. The incident was well
managed due to the goodwill of the market participants, but the formal systems for
emergency management were found to be lacking, especially in regard to transparency of
information.
The Office of Energy took the learnings from the Varanus Is incident and used them to further
develop the various regulations which govern the operation of the gas market. The key
outcomes were the establishment of the Independent Market Operator (“IMO”) to oversee
all market operations, including having access to operational information, and the issue of a
formal Gas Emergency Management Plan by the Minister for Energy.
In 2103, the IMO launched a Gas Bulletin Board on which operational information is
published in real time on its web page, allowing both emergency services (in the case of an
emergency) and market participants to access flows and capacities. This information is
useful to market participants to identify opportunities and assess the state of the market.
F.9 Third Phase Market Developments

Since 2005, the market has continued to grow to almost 1,000TJ/day with customers seeking
greater flexibility in how they contract for and take their gas. With a stable functioning
regulatory framework in place, developments have focussed on improving the operation of
the market to support a range of flexible services being offered to customers.
Gas suppliers and pipeline operators continue to develop new contractual terms to allow
customers to store gas on terms which can be tailored to each customer’s specific needs and
to better meet intra-day demand fluctuations. The Mondarra Gas Storage Facility which uses

the depleted Mondarra Gas Field as a storage reservoir and is operated by APA Group which
now owns the Parmelia Gas Pipeline, entered commercial operation in 2005 and provides
storage and load management services to customers in the South West region.
The first independent gas aggregator, gasTrading Australia (“gTA”), started operations in
2007. gTA manages gas supply and transport contracts for its customers and offers gas which
its customers are committed to buy but cannot use on a day for sale through a bulletin board
on which buyers offer prices to purchase spot gas which the sellers can accept or reject.
After nearly 10 years of operation, gTA now trades around 300TJ per month on behalf of its
customers.
In 2013, Kleenheat Gas, which had been supplying LPG in cylinders to industry and small
customers for many years, entered the retail gas market in competition with Alinta Gas.
Kleenheat’s entry into the market has led to lower prices, more flexible services and an
expansion of the total market.
AGL Energy announced in 2017 that it also intends to enter the Western Australian retail gas
market.
F.10 Introducing Broad Specification Gas

Gas specifications in Western Australia were set with regard to the composition of gas being
produced from the various gas fields, the processing costs for that gas with public safety
setting absolute limits for some measures, particularly Wobbe Index (which is related to
Higher Heating Value). These specifications were initially prescribed in contracts, with the
contractual being adopted in Regulations in 1995.
As existing gas reserves were depleting in the mid-2000’s, some new discoveries could not
be processed commercially to meet historical specifications, even though the composition
did not present a risk to public safety.
Following extensive industry consultation, the Western Australian Government passed the
Gas Supply (Gas Quality Specifications) Act in 2010. This Act provides a mechanism for gas
which does not comply with the historical contractual specifications for the various pipeline
systems to be developed and delivered to the market, provided that the specification meets
the requirements of Australian Standard 4564 Specification for General Purpose Natural Gas.
The practical outcome of this legislative change is to allow gas with a lower than normal
heating value or Wobbe Index to be introduced into a pipeline system where it is blended
with other gasses. The blended gas stream is supplied to customers, mitigating the effect of
the lower specification gas on any particular customer.
The supplier has a choice between installing processing plant to meet historical
specifications or paying compensation to any downstream party whose operations are
commercially impacted by the lower heating value. As the test for compensation is actual
loss suffered by the downstream user, the compensation payable has been negligible to
date, due to the mitigation afforded by the blended gas stream.

This legislative development has opened the Western Australian gas market to gas resources
which can been considered non-commercial, but are now competing with existing gas
reserves.
F.11 Conclusion
The development of the Western Australian gas market has been a process of evolution over
20 years and has moved gradually from a government dominated market to one where
commercial arrangements operate with regulatory oversight.
The experiences from 20 years of gas industry reform in Western Australia are largely
applicable in Viet Nam. The transition from a government owned monopoly to stand alone
commercial businesses in each market segment; the establishment of independent policy
advisor, technical regulator and economic regulator using resources from the monopoly
organisation; the creation of a market and the introduction of broader specification gas to
deepen the market are all issues with which Viet Nam must deal in the transition to a
liberalised gas market. The experience in Western Australia can inform the process in Viet
Nam and provide opportunities to accelerate some reforms from lessons learned.
Figure 66 Australian Gas Industry Map
Source: http://www.ga.gov.au.

Appendix G Case Study: Viet Nam Electricity Reforms
Roadmap and its Implementation
G.1 Background to Electricity Industry Reforms Roadmap
Initial restructuring of the Viet Nam power sector began as early as 1995, with the creation
of the utility Electricity of Viet Nam (EVN) as part of a broader economic reform program
that began in 1986. Consequently, independent power producers (IPPs) were allowed to
enter the generation sector in 2000. Nevertheless, the more explicit power sector reform
was considered to have started in 2005, when the first Electricity Law came into effect59. The
objective of the law is to create a competitive, transparent, more efficient, and equitable
power market. As one of the implementing tools to achieve this objective, the Government
of Viet Nam has formulated the roadmap for electricity market reforms Roadmap, which was
promulgated in 2006.
G.1.1 Earlier reforms
Before 1995, Viet Nam’s government-owned power sector was managed by the then
Ministry of Energy through the three separated regional power companies, each responsible
for generation, transmission, and distribution within its own territory. The first stage of
reform began in 1995 when these three utilities were merged into a single monopoly power
corporation, the EVN, which was commercialised to focus on production and operations.
Regulation was still managed by the Ministry of Energy, being merged into the Ministry of
Industry. Notably, the beginning of EVN corporatisation was facilitated by the construction
and operation of the first 500-kV transmission backbone line joining the three regional
transmission networks into an interconnected power system, and the commencement of
national load dispatching (power system operations).
Despite having achieved some rapid growth rates of asset and network coverage expansions
(particularly in rural electrification), EVN was suffering from financial and managerial
difficulties. The major factor was the low electricity tariff rates, which were not
commensurate with cost. In 2000, the estimated average tariff to household consumers was
US cents 5.87/kWh, which was half a cent lower than in neighbouring Thailand and was the
second lowest among five selected Association of South East Asian Nation (ASEAN) countries.
The EVN’s overall revenues were insufficient for system operational maintenance and
investment needs, putting a strain on the state finances. The Government had to
compensate EVN’s losses through a variety of indirect subsidies such as preferential access
to financial resources and special tax treatment.
In 2000, the government started to look beyond the EVN to provide continued and adequate
electricity services. IPPs started entering the generation in 2000 with 452 MW, or
approximately 7% of total generating capacity, and 2.51 TWh, or 9.2% of total generation.
This more than doubled to 15% of the total generating capacity (1,575 MW) and total
generation (6.88 TWh) in 2004. In 2003, the government began partly restructuring the EVN,
selecting several generation and distribution assets for partial privatisation, referred to as
59 Asian Development Bank, “Assessment of power sector reforms in Viet Nam: Country report”, 2015.

“equitisation.” In 2004, the EVN proposed an equitisation strategy for generation wherein it
would retain 100% ownership and control of the three large multipurpose hydropower
projects (about 30% of the country’s installed capacity), but the EVN’s remaining eight power
plants (about 48% of total installed capacity) would be equitised.
The country’s even more rapidly growing economy push greater pressure on the electricity
supply in meeting increased demand. As the economy developed and modernised, it became
evident that the single-monopoly public sector model was no longer adequate. An emerging
need was to create institutions that were financially viable and adaptable enough to improve
system efficiency. Against the limited outcome of initial restructuring and the greater
challenges to the sector, a more comprehensive reform program was subsequently
introduced with the promulgation of the first Electricity Law.
G.1.2 Promulgation of the first Electricity Law
Viet Nam’s Electricity Law (No. 28-2004-QH11) was approved by the National Assembly in
December 2004 and came into effect from July 2005; it governs all aspects of Viet Nam’s
electricity industry, including planning, investment, generation, transmission, distribution
and the development of wholesale and retail electricity markets. The Electricity Law
committed Viet Nam to the introduction of a competitive electricity market. It also formally
establishes the sector’s regulatory agency under the MOIT.
The following summarise the law’s relevant contents that specifically stipulate electricity
market reforms.
 Investment in the power sector: Diversification in power sector investments, allowing
participation of all economic sectors with the creation of conditions for reasonable
returns of investment and efficient use of energy resources.
 Electricity pricing: Sale prices of electricity are implemented in according to the market
mechanism with the regulation by the State in conformity with the level of electricity
market development. Electricity prices shall encourage energy savings and efficiency.
 Electricity market development: The electricity market should be created and operating
to ensure openness, transparency, fairness, healthy competition, non-discrimination
among market participants. It instructs that the market be established and developed
gradually through the three stages of competitive generation, wholesale competition,
and retail competition markets.
The state shall regulate the operation of the electricity markets in order to ensure the
sustainable development of the power system, meeting the requirements of safe, stable
and efficient supply of electricity.
The law has also set out the Prime Minister’s responsibility in specifying the conditions,
sector structure for each stage of the electricity market; designing the roadmap of
electricity market development, reviewing and adjusting the roadmap in conformity
with the country’s current socio-economic situation.
 Sector governance and regulation: The law mandates the Ministry of Industry (now the
Ministry of Industry and Trade - MOIT) to govern the power sector. It also stipulates the

Prime Minister to establish the electricity regulatory agency under the MOIT, with the
following main functions:
 Advising on power market structure and industry restructuring policy;
 Development and regulation of power markets;
 Economic regulation (electricity pricing);
 Monitoring power supply-demand balance to promote energy security, efficiency
and conservation;
 Licensing and dispute resolution for electricity activities.
The Electricity Regulatory Authority of Viet Nam (ERAV) was established in October 2005 in
pursuance of the above law.
The reforms mandated by the Electricity Law aim at satisfying growing demand in a
sustainable manner, deliver reliable and high quality electricity supply to support economic
growth in the country, while also ensuring reasonable and fair revenues to investors with
efficient and transparent costs to consumers. The expected outcomes of the reform program
are to attract foreign investment, enhance electricity supply security and transition towards
a regime of efficient and market-reflective electricity prices.
The intended outcome of the reform process is to attract investment from foreign and non-
traditional sources, as well as to improve the management and operation of the electricity
industry as a whole. A key part in the reforms process was the transition towards electricity
tariffs that, on the supply side, enable the financial viability of efficiently managed and
operated companies, and on the demand side, that provide pricing signals that encourage
more efficient use of electricity.
The 2004 Electricity Law was supplemented with a set of amendments and revisions in 2012;
nevertheless, the set forth sector reform path has remained intact.
G.2 2006 Electricity Industry Reforms Roadmap

To implement the Electricity Law, the Prime Minister approved the roadmap, and the
conditions for establishing and developing a competitive electricity market in Viet Nam in
Decision No. 26/2006/QD-TTg dated 26 January 2006 (“Decision 26” or “Roadmap”). The
Decision 26 envisaged Viet Nam’s electricity market would be established and developed in
3 phases:
 Phase 1 (2005 - 2014): Competitive electricity generation market
In this phase, a Single buyer market model for competitive electricity generation would
replace the current system of State monopoly and subsidies.
 Phase 2 (2015 - 2022): Competitive electricity wholesale market
The power distribution companies (PCs) owned by the Electricity of Viet Nam Group will
be allowed to directly buy electricity from generation entities. The generation entities,
in turn, will compete to sell to these PCs. The wholesalers would also compete to sell to
the PCs and large wholesale customers.

 Phase 3 (from 2022 onwards): Competitive electricity retail market
In Phase 3, eligible customers will be allowed to choose electricity suppliers (retailers)
that best suit their demand or purchase electricity directly from the spot market.
Each market development phase would envisage an initial pilot stage before full
implementation. Full details of all proposed milestones of this roadmap are shown in Figure
67.
Figure 67 2006 Electricity Market Roadmap
The roadmap also set out other areas of reforms as follows:

 Restructuring the organisations in electricity industry as prerequisites for each market
phase so they can support the operation of a competitive electricity market, eliminate
potential conflicts of interest due to cross-ownership between buyers, sellers and other
aspects of the industry. Thus, to progress market reforms, EVN would need to be
restructured to separate buyers, sellers and service provider entities;
 Introducing an electricity tariff setting mechanism that reflects efficient costs in the
supply chain, including power purchase costs in a competitive electricity market, and
regulated network and system operation services; and
 Establishing the legal framework and institutions to support energy efficiency, policy to
promote the efficient use of electricity and programs to reduce electricity consumption
on the demand-side of the industry.
G.3 2006 Electricity Reforms Roadmap Implementation

Despite some delays relative to the proposed timelines, Viet Nam has made important
progress in implementation of the Electricity Law and the 2006 roadmap. Below we have

summarised the main changes / achievements with respect to the power sector
restructuring, the commercial aspect (market design and operations) and the regulatory
aspect that covers the legal framework developed for the new market environment.
G.3.1 Summary of main achievements
The main achievements with respect to the power sector restructuring, the commercial
aspect (market design and operations) and the regulatory aspect that covers the legal
framework developed for the new market environment were:
 More diversified ownerships in power generation with greater participation from
private investors as well as other non-EVN companies including PetroVietnam (PVN) via
its subsidiary PV Power and Vinacomin (TKV);
 Establishment of 3 GENCOs by regrouping EVN owned power plants (in June 2012) for
achievement of a more competitive structure in the generation segment;
 New entities established and given new responsibilities to accommodate an electricity
market. This includes the establishment of the National Power Transmission Corporation
(NPT) as the TNO and the Electricity Power Trading Company (EPTC) as the Single Buyer;
 The VCGM as a single buyer model of generation competitive market was designed and
put in operation from July 2012. The VCGM unique features in cost-based pricing and
limiting participants’ exposure to market prices by no more than 10% have been some
essential tools for the MOIT to control the pace of the market evolution without it
running away and leading to problems;
 Regulatory and legal frameworks improved to accommodate a market, with the role and
functions of the regulatory authority (ERAV) firmly set and reinforced over time. Main
legislations promulgated to govern the electricity market include the VCGM Rules and
Procedures, Grid Code, Metering Code and the regulations covering PPAs;
 Modern ICT systems established to facilitate the market operations;
 The NLDC (SMO) and other market participants (generators, TNO) starting to gain
understanding of market mechanisms in their processes, which is an important
prerequisite for transition to the next phase of the wholesale competition.
 Market participants gained experience in operating under the new arrangements.
G.3.2 Overall structure of the electricity industry
The goal of the market reform roadmap was to establish the rules and procedures for a
single-buyer electricity market, unbundle and restructure EVN, and to develop the systems
and infrastructure necessary to support the operation of an electricity market. Figure 68
below illustrates the general structure of Viet Nam’s electricity industry that has evolved
since the commencement of the Viet Nam Competitive Generation Market (VCGM) in 2012.

Figure 68 Structure of Viet Nam’s Electricity Industry under the VCGM
System & Market
Generation Transmission Distribution & Retail
Operations
PV Power EVN GENCO 1
NLDC EVN Group
Vinacomin EVN GENCO 2
SMO TNO SB
System & National Electric Power PCs
Other IPPs EVN GENCO 3
Market Transmission Trading Distribution
Operations (NPT) Company and retail
Equitised
BOTs EVN NPC
GENCOs
MDMSP
Meter Data EVN CPC
SMHPs Management
EVN SPC
EVN HN
EVN HCM
G.3.3 More diversified ownership in generation

The electricity market reform has seen a wider participation of investors into the generation
segment, highlighted as follows:
 Generation investment from other state-owned companies, notably PetroVietnam
(PVN) via its subsidiary PV Power and Vinacomin (TKV).
 Moree private and foreign investor -owned generators into BOT and IPP plants.
 Further privatisation of EVN-owned plants to create a number of joint-stock companies
(JSCs). This equitisation was largely carried out in the period 2005 to 2009 and included
including Vinh Son-Song Hinh Hydro Power Plant, Thac Ba Hydro Power Plant, Pha Lai
Thermal Power Plant, Ninh Binh Thermal Power Plant, Danhim–Ham Thuan–Dami Hydro
Power Plant, Thu Duc Thermal Power Plant, and Thac Mo Hydro Power Plant.
Restructuring has also taken place among EVN owned power plants. On 1 June 2012, in order
to create a competitive industry structure, MOIT approved the establishment of 3 GENCOs
with comparable sizes and technology mix to manage generation assets that were directly
owned by EVN and by the joint-stock companies (JSCs).
As of the end of 2015, the total installed generation in Viet Nam was 38,409 MW with the
breakdown in capacity ownership shown in Figure 69. EVN owns approximately 60% of the
total installed generating capacity, either directly (20%) or through its 3 power generation
companies (46%). The other main groups of owners of generation capacity are the state-
owned PV Power (12%), TKV Power (4%) and foreign Build Own Transfer (BOT) projects and
Joint Stock Companies (18% combined). Viet Nam is also dependent on power imports from
China and imports power from a hydro project in Laos (Xekaman 3 Hydo).

Figure 69 Generation Capacity by Ownership (MW as at 2015)
Source: EVN 2016
G.3.4 Establishment of the National Power Transmission Corporation (NPT)

The National Power Transmission Corporation (NPT) is a transmission operator incorporating
four transmission companies, each of which was previously responsible for managing
transmission assets (at 220 kV & 550 kV) in its franchise area. As the sole transmission owner,
the NPT’s responsibilities include operating transmission facilities according to the Market
Rules and Grid Code, coordinating and maintaining assets, assuring conformance with quality
of service standards.
G.3.5 Establishment of the Electricity Power Trading Company (EPTC)
The Electricity Power Trading Company (EPTC) is the single buyer operating as an EVN
subsidiary during the tenure of the competitive generation market. It is a special wholesaler
and enters into power purchase agreements with generators in accordance with relevant
rules and regulations. EPTC is responsible for compiling, on an ongoing basis, current and
forecast demand data and information from the distribution companies; procuring power to
meet the forecast demand on a least-cost basis, including conducting competitive
solicitations for new generation capacity, and signing the contracts for differences with
direct trading generation in the MOIT issued standard form; honouring power purchase
agreements with independent power producers, and procuring remaining power
requirements from the spot market backed by bilateral contracts for differences as
appropriate.
G.3.6 Consolidation of the regional Power Corporations (PCs)
EVN has five Power Corporations that are subsidiaries and that operate as independent
Single Member LLCs and that take the role of power distribution and retail supply. They are

responsible for both distribution and retailing as these functions are not presently separated
in Viet Nam.
The PCs are:
 NPC, which is in charge of electricity distribution and retail in Northern Viet Nam
including 27 cities and provinces (but excluding Ha Noi city);
 CPC, which is in charge of electricity distribution and retail in Central Viet Nam, including
13 cities and provinces;
 SPC, which is in charge of electricity distribution and retail in Southern Viet Nam,
including 21 cities and provinces (excluding Ho Chi Minh city);
 Hanoi Power Corporation (HPC) is in charge of distribution and retail in Hanoi capital;
and
 Ho Chi Minh Power Corporation (HCMPC), which is in charge of distribution and retail in
Ho Chi Minh City.
The establishment of the five PCs follows the restructuring and consolidation of distribution
and retail businesses in 2009. Each PC essentially co-ordinates the operation of many smaller
provincial distribution utilities called Power Companies (PCOs) within geographic proximity
to one another. Each PC maintains a monopoly to supply and sell electricity to their customer
base. In addition to the five PCs, which supply the bulk of Viet Nam's customer base, there
are a number of independent and privately owned local and rural distribution companies
that are also involved in distribution mostly to smaller communities and more remote areas.
PCs own and operate all of the distribution networks from 110 kV and below (except for a
small number of 110 kV lines that are owned / operated by the transmission company, NPT),
the local distribution networks, and the connections to end-users. They are responsible for
metering and billing of consumers, with revenues ultimately flowing back to NPT, EVN (EPTC)
and the other generators.
G.3.7 New commercial arrangements
As a major milestone in the roadmap, the VCGM commenced its full operation in July 2012,
after a 12 month period of trial operations. This followed the MOIT approval of the market
design and market rules that had been in development by ERAV since 2006.
The VCGM set out a new electricity trading model in generators dispatch and contracting
with the introduction of a spot market. It is a cost based pool with the following operational
principles:
 mandatory participation for grid-connected generators with capacities exceeding 30
MW, with some exceptions: geothermal generators, wind generators and Build-Operate
Transfer (BOT) plant that have long-term PPAs in place or that are presently under
negotiation;
 all electricity generated by power plants is sold to the Single Buyer (EPTC); the dispatch
schedule of generation units is set up by the SMO for each trading interval, based on the
variable cost-based bids generation bids, forecasted system load and the available

capability of the transmission network following the principle of minimising the total
power purchasing cost;
 the spot market has a trading interval of one hour;
 payments to generators participating in the VCGM are based on the contract prices for
VCGM contract for differences (CfDs) called Standard Power Purchase Agreements
(SPPAs) and the Full Market Price (FMP) for each trading interval;
 the SPPAs are CfDs written around the FMP; the FMP is the sum of the System Marginal
Price (SMP) for energy and a Capacity Add-on (CAN) price for capacity, the contract
quantities are centrally determined by SMO based on year-ahead and month-ahead
models and contract prices are determined through a negotiation process between
project proponent and the Single Buyer, EPTC (the next subsection provides more
detail); and
 the proportion of electricity procured at the SPPA contract prices in the first year of the
market was to be set in the range of 90% – 95% of the total electricity generated by the
plant; the remaining was to be procured at the spot market price. This proportion of
generation procured at the spot market price may be adjusted by ERAV based on their
assessment of the competitiveness in generation.
An illustration of the main features of the VCGM is given in Figure 70.
Figure 70 VCGM Cost-Based Pool Market Structure
GENCOs Non-Market PPA payments PCs
Non-Market PPAs
PV Power GENCO 1 Market-based SPPAs (CfDs) Hanoi PC

SB
(Single
Vinacomin GENCO 2 Bids Buyer) Payment Northern PC
SMO under the
BOT Bids BST
(System and Central PC
Other IPPs GENCO 3 Market Market End
Market
Payments Operator) Payments Payment Users
Equitised HCM PC under
BOTs Real Time
GENCOs regulated
Dispatch
Metered Southern PC tariffs
SMHPs Data Metered
Data Other small /
MDMSP private PCs
Metered
Data
TNO
Electricity Electricity Electricity
Service Providers: System Distribution &

Generation Wholesale End-Use
Operations & Transmission Retail
Source: IES
G.3.8 New regulatory framework

Since the inception in 2006, ERAV has assumed the role of the regulator for the VCGM in
particular and the operation of the entire electricity sector in general. ERAV has developed
and proposed to MOIT or the Prime Minister for approval / issuance of legal documents

necessary to oversee and regulate the sector. The legal framework that is managed by ERAV
includes the following main areas and legislations:
 VCG Operations
 Market Rules and Procedures
 Market Monitoring
 Dispute Resolution
 Technical Codes
 Grid Code
 Distribution Code
 Metering Code
 Market IT Infrastructure
 Generation Pricing and Charges
 Method for Generation Price Determination for Standard PPAs
 Method and Process for Setting up and Publication of Generation Price Band
 Transmission Charges
 System and Market Operation Fees
 Avoided cost tariffs for small hydro plants
 Retail Tariffs and Fees
 Average electricity retail tariff calculation and adjustment
 Retail tariff adjustment with market-based mechanism
G.4 2013 Electricity Industry Reforms Roadmap

To adjust the market development milestones and fine tune specific development conditions
taking into the actual outcome of the VCGM phase, the roadmap for implementation of the
competitive power market was reviewed and revised in 2013 as set out in the PM’s Decision
No. 63-2013-QD-TTg. As illustrated in Figure 71, the new roadmap is a 20 year
implementation plan for gradually transforming Viet Nam’s electricity industry into one that
allows for competitive wholesale and retail electricity markets. This defines a time line for
transitioning between three major stages of reform:
 Viet Nam Competitive Generation Market (VCGM);
 Viet Nam Wholesale Electricity Market (VWEM), and
 Viet Nam Retail Electricity Market (VREM).
Each stage commences with a pilot period, with a number of constraints defined, which is
subsequently followed by a “full operation” period.

Figure 71 Electricity Industry Reform Roadmap (2013)
(VWEM) (VREM)
Source: ERAV
The Roadmap defines the following broad principles for the VWEM60:
 Operational principles (Article 7):
 Power Corporations may purchase power from generators via bilateral contracts
and to purchase from the spot market;
 Generators may sell electricity to power corporations, and eligible large customers
via bilateral contracts and to sell to the spot market;
 Large customers satisfying specific conditions may purchase power from generators
or power corporations under bilateral contracts or directly from the spot market;
 New trading entities may be established to purchase and/or sell electricity;
 Power sector sstructure (Article 8):
 In the VWEM Pilot period, the following restructuring will be required:
 SMO shall be an independent entity, and will share no interests or benefits from
market participants;
 EVN’s generators (apart from the strategic power plants) will become
independent GENCOs and will share no interests or benefits with the SMO,
transmission system operator, or any newly created trading entities in the
VWEM;
 The total installed capacity of any single generator in the VWEM will not exceed
25% of the total installed capacity 61;
 Eligible PCs will be required to separate their retailing and distribution
functions and set them up as independent accounting units;
 Under full operation of the VWEM, power companies operating under the PCs will
be required to separate their distribution and retail functions and assign these to
separate independent accounting units;
 Preconditions to be satisfied before VWEM (Article 9):
60 Note that this has been paraphrased from the content of Decision No. 63, in light of discussions with ERAV on the
meaning and interpretation.
61 Note that the consultant views 25% to be too high, 15% would be more appropriate.

 Legal framework preconditions:
 Power sector restructuring plan approved by the Prime Minister;
 VWEM detailed design approved by MOIT;
 MOIT promulgates or amends the following regulations:
 Regulations governing VWEM participants;
 VWEM rules;
 Regulations on electricity regulatory regimes, grid codes, distribution code,
metering code;
 Regulations on transmission pricing, distribution pricing, SMO fees, trading
operation charges;
 Any other regulations that may be necessary and applicable to the
operation of the VWEM;
 Infrastructure to support the operation of the VWEM:
 SCADA/EMS upgrade completed, remote metering systems for all independent
accounting distributors and large customers to be in place, and infrastructure
to generally satisfy any VWEM standards or VWEM requirements;
 IT systems equipped to support market operations in line with the
requirements of the VWEM;
 VWEM participants have been staffed with trained human resources that
understand the new environment and also the infrastructure to support the
operation of the VWEM;
Prior to the full operation of the VWEM, the legal framework and system infrastructure shall
satisfy the full VWEM standards and requirements.
G.5 2013 Electricity Reforms Roadmap Implementation

G.5.1 Industry restructuring
To achieve the power sector structure envisaged in the roadmap, ERAV / MOIT have studied
and proposed the Restructuring Plan for the Electricity Industry for the period 2016 to 2020
with outlook toward 2025. The plan was approved by the Prime Minister in February 2017
at Decision No 168/QD-TTg. Main contents of this legislation are of this summarised as
follows:
 Objectives:
 Enhance the effectiveness of the electricity sector in line with the continual
transition to market mechanisms, and strengthening the transparency, equality,
and fair competition.
 Establish the structure of the electricity sector to facilitate the operation of the
wholesale electricity market and the retail electricity market in future.
 Improve the effectiveness of the electricity regulation in ensuring the sustainable
electricity system.

 Implement electricity prices in line with the market mechanism appropriate to each
electricity market phase.
 Generation Restructuring:
 By 2018, state-owned generation corporations including EVN Gencos, PV Power and
TKV generators will be equitised, with the parent groups retaining at least 51%
controlling equity.
 By 2020, the state-ownership in these Gencos will be reduced to less than the
controlling level, and the Gencos will be fully separated from their current parent
groups (e.g. EVN, PVN, TKV).
 Market and System Operation:
 Restructure the current EVN-subsidised NLDC into an Independent SMO owned by
EVN by 2020 before the commencement of the full VWEM.
 Propose to fully separate the SMO from EVN in the period 2021-2025.
 Distribution and Retail:
 Commence separation of distribution and retail accounting in the PCs in the period
2019-2020.
 Continue the separation of distribution and retail businesses in the period 2021-
2025.
 Propose to equitise the retail arms in the PCs.
G.5.2 Commercial arrangements – VWEM design
On 10th August 2015, the MOIT approved the Detailed Design of the Wholesale Electricity
Market of Viet Nam (VWEM). The decision applies to the Pilot VWEM and the Full VWEM.
The key aspects of the MOIT decision with respect to trading arrangements are:
 Greater participation of all generating units over 30MW in the VWEM with the aim of all
BOTs and SMHPs participating directly or via a trader;
 The participation of electricity buyers in the VWEM; and
 Creation of service providers: System and Market Operator (SMO), Electricity
Transmission Service Provider (ETSP), Electricity Distribution Service Providers (EDSPs)
and Meter Data Management Service Provider (MDMSP).
The Full VWEM (2019-21) will allow all eligible customers and wholesalers who meet the
defined requirements to participate in the VWEM.
The proposed trading arrangements for the VWEM are designed to have the PCs contract
directly with generators and change the role of the Single Buyer (EPTC) in the market. The
VWEM, also allows for wholesalers to enter the market and contract with generators and
then sell to PCs (contract with PCs). The MOIT’s approved VWEM design allows for the
possibility of having eligible customers being allowed to contract directly with generators or
PCs other than their current PC. An eligible customer is either an existing or new customer

that is connected (or that would connect) to the transmission network62 and hence needs to
be considered as part of the wholesale market. Eligible customers would be subject to
transmission charges. All other customers would be considered as part of retail market, an
issue for the VREM. The design allows for new retailers to enter the market and sell to
eligible customers.
The intended result of the VWEM over time is for:
 PCs to enter into contracts directly with generators such that their total contract
portfolio should largely match their load profiles; and
 Where mismatches between their contracts and actual demands occur, PCs will face
some spot market exposure.
For this stage transmission charges and possibly distribution charges will be unbundled. Thus
the power costs for a PC over time will change from the Bulk Supply Tariff (BST) to a
combination of transmission charges, contract difference payments (SPPAs) and spot market
payments. These arrangements are illustrated in Figure 72.
Figure 72 Outline of VWEM Trading Arrangements
Prices
Eligible VWEM
Spot costs
Customer
SMO
Spot Market Spot costs
Transmission charge
Direct Trading
Bids Generators SPPA (CfD) HPC
Hanoi PC Tariff
PV Power End User
Dispatch SPPA (CfD)
Spot revenue
SPPA (CfD) NPC

TKV Northern PC Tariff
SPPA (CfD) End User
SPPA (CfD)
EVN GENCO 1 SPPA (CfD) CPC
Central PC Tariff
SPPA (CfD) End User
Bids EVN GENCO 2
SPPA (CfD)
HCMPC
EVN GENCO 3 SPPA (CfD) HCM PC Tariff
End User
SPPA (CfD)
Equitised EVN
GENCOs & IPPs SPC
Southern PC Tariff
SPPA (CfD) End User
Traded by GENCOs or
EVN / EPTC Traders Non
BOTs Contestable
PCs
Customers
SMHPs Transmission charge
Generation Power Transmission Power Distribution Power
62The Grid Code defines the transmission system in Viet Nam to include “all power lines and substations at 220 kV or
greater voltage levels, and 110kV power lines and substations that have a power transmission function to receive
electricity from generators and inject it into the national power system”.

G.5.3 VWEM stages
The VWEM design envisaged the implementation steps ac activities involved in each step as
follows:
1. First step of Pilot VWEM in 2016 (paper market), which includes:
 Maintaining the VCGM actual operation while new VWEM arrangements of VWEM
(vesting contract allocation, market settlement, cross-subsidy, etc…) are modelled on
paper.
 Developing the necessary legal framework including the VWEM Rules and other
regulations.
 Reforming the electricity sector in accordance with the restructuring proposal and
Roadmap approved by the Prime Minister.
 Developing the ICT infrastructure system.
 Conducting the training for market participants.
 Assessing the outcomes of on-paper Pilot VWEM to make necessary adjustments in the
second step of Pilot VWEM.
2. Second step of Pilot VWEM in 2017-2018:
 Testing the VWEM arrangements in real operations.
 Revising, completing the VWEM Rules and relevant regulations.
 Continuing the sector reform in accordance with the Proposal and Roadmap approved
by the Prime Minister, which includes the transformation of NLDC into an independent
accounting unit under EVN.
 Completing the development of the ICT infrastructure system that includes the set-up
and testing of a new MMS system.
 Continuing the training for market participants
 Assessing the outcomes of the second step of Pilot VWEM to make necessary revisions
of VWEM’s arrangement (if required).
3. Full VWEM from 2019.
G.5.4 Regulatory framework
ERAV has managed the issuance of legislations on the VWEM design and implementation.
They are also working on finalisation of the WVME Rules and have updated or in the process
of updating other rules and codes for consistency with the VWEM operation.
G.6 Implications of Electricity Industry Reforms for Gas Market Roadmap

From the above Case Study on the Viet Nam Electricity Industry Reforms, the following
implications can be drawn for our proposed Gas Market Roadmap:
 Directions, main strategies and objectives of the industry reform are formulated in high
level policy documents such as laws: The Electricity Law has mandated the
establishment and development the power market in Viet Nam. The roadmap would
then detail an action plan to implement the overall policy set forth.

 The roadmap contains well-defined phases with prerequisites to be met against each of
the specific aspects pertinent to the industry operation such as the organisation
structure, trade arrangements and legal / regulatory frameworks.
 Maintain a slow, gradual but steady pace of reforms with the application of ,2/. Use of
Pilot and Full Market stages as a way of gaining experience and evaluating progress, and
avoiding a “step-change” to the industry. Gradual transitions between stages would also
give time for legal and regulatory frameworks and legal framework to accommodate
market mechanisms and be tested on their robustness.
 Building a market on top of existing arrangements rather than wiping out existing tools
/ processes and replacing with an entirely new market. In particular, the VCGM which
was a major step in the transition towards a wholesale electricity market, was an
example of largely using existing systems and resources to start a market. This was only
a small change from the current dispatch operations.
 Conduct step reviews of the roadmap and make adjustments and improvements as
needed but maintain the broad reform path intact as it has been originated on justified
principles. The 2013 updated electricity roadmap showed how experience gained was
leveraged to improve the plan but the general market development direction and stages
remained unchanged.
 Implementation of the roadmap would result in actual changes to the way the industry
operates, for example in regard to the organisation structure. The creation of the three
EVN GENCOs and the PM’s approval of further restructuring for the power sector have
been some significant outcome of the electricity reform roadmap to date.
 Having a dedicated regulatory entity for the industry is essential in ensuring the
roadmap is properly implemented and monitored.

Gas Roadmap

Uploaded by

Copyright:

Available Formats

Gas Roadmap

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Gas Roadmap

Uploaded by

Copyright:

Available Formats

VIET NAM: ROADMAP FOR

NATURAL GAS MARKET

GAS MARKET ROADMAP REPORT

Prepared by: Intelligent Energy Systems (IES) &

Intelligent Energy Systems IESREF: 6106 ii

Motivations for Gas Market Liberalisation

Intelligent Energy Systems IESREF: 6106 iii

Proposed Gas Market Roadmap

Figure 1 Proposed Gas Market Roadmap

Period from 2021 to 2025

Intelligent Energy Systems IESREF: 6106 v

Period from 2026 to 2030

Period from 2031 to 2035

Intelligent Energy Systems IESREF: 6106 vi

Figure 2 Required Legal and Regulatory Framework

Intelligent Energy Systems IESREF: 6106 vii

Intelligent Energy Systems IESREF: 6106 viii

Intelligent Energy Systems IESREF: 6106 9

Intelligent Energy Systems IESREF: 6106 10

Intelligent Energy Systems IESREF: 6106 11

Intelligent Energy Systems IESREF: 6106 13

Intelligent Energy Systems IESREF: 6106 14

Intelligent Energy Systems IESREF: 6106 15

Intelligent Energy Systems IESREF: 6106 16

Intelligent Energy Systems IESREF: 6106 17

Intelligent Energy Systems IESREF: 6106 18

1.2 Summary of Approach to the Study

Intelligent Energy Systems IESREF: 6106 19

Figure 3 Illustration of Project Tasks

• Focus on understanding the key issues in Hanoi

• Objectives of reform, constraints, importance of certain issues

• Current situation & planned developments, economic valuation of

• Set out feasible options for: governance, institutional, pricing

• Present the findings on issues and options to stakeholders

• Presentation on the draft roadmap

1.3 Summary of Key Documents Reviewed

Intelligent Energy Systems IESREF: 6106 20

1.4 Report Purpose

Intelligent Energy Systems IESREF: 6106 21

1.5 Report Structure

Intelligent Energy Systems IESREF: 6106 22

Intelligent Energy Systems IESREF: 6106 23

Intelligent Energy Systems IESREF: 6106 24

Intelligent Energy Systems IESREF: 6106 25

Intelligent Energy Systems IESREF: 6106 26

Figure 4 GMP Directives for Gas Market Development

Proposes gas market liberalisation at a high level:

2.2.1 Prior to 2025

Intelligent Energy Systems IESREF: 6106 27

2.2.2 Beyond 2025

Intelligent Energy Systems IESREF: 6106 28

Intelligent Energy Systems IESREF: 6106 29

3.2 Comments on Government’s Directives

3.3 Proposed Gas Market Roadmap

Intelligent Energy Systems IESREF: 6106 30

Intelligent Energy Systems IESREF: 6106 31

Intelligent Energy Systems IESREF: 6106 32

Intelligent Energy Systems IESREF: 6106 33

Intelligent Energy Systems IESREF: 6106 34