CHAPTER13

OffshoreOilExploration

Vietnam’sGreatPotentialforOff‐ShoreOil&GasDevelopment!

ThecoverofManagementMagazineOct.1974

Mr.TrầnVănKhởi,theengineerwhoservedasHeadoftheVietnamAgencyforPetroleumandMinerals,publishedthebookentitled“DẦUHỎAVIỆTNAM1970‐1975,”whichdescribes

Vietnam’soilandgasexplorationduringthatperiod.

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1966:THEVERYBEGINNINGOFVIETNAM’SOFF‐SHOREOIL&GASDEVELOPMENT

Duringwartime,thediscoveryofoil inVietnamwasagreateventforthewareffort.In1966,theCCOP(“CoordinatingCommitteeforOffshoreProspectingin Asia”) was initiated by China, Japan, Republic of Korea and The PhilippinesundertheauspicesofESCAP(EconomicandSocialCommissionforAsiaandthePacific)andtheUnitedNations.CCOPbecameanindependentintergovernmentalorganization in 1987 based on the common understanding of its membercountries and the aspirations of the UnitedNations. The namewas changed in1994, but the acronym CCOP was retained. CCOP has devoted itself to the co‐ordination of, and co‐operation in, scientific activities related to coastal andoffshore areas with respect to geological/geophysical surveys, regional mapompilations, database development, development of human resources andctransferofstateofthearttechnology. TheverybeginningofVietnamOffshoreOilbeganin1968.Whileworkingat theMinistry of Economy, I coordinatedwith CCOP inBangkok towelcome avery important technical assistancemission to Vietnam. CCOP sent a high‐techteam of three specialists from London Imperial College to Saigon to help theVietnamOff‐ShoreExplorationProject.VietnamwasaCCOPmemberwhileGreatritain,Germany, andHollandprovided financial and technical contributions tohisorganization.ItsinitialreportonVietnamoilpotentialwasnotoptimistic.Bt

MapofVietnamOffshoreoilfields2001

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In1968,wesetuptheheadquartersof this international teamatSaigon’s

famousMajesticHotel,onTựDoStreet.Theyneeded10,000kgofexplosivesandtwooceangoingshipsforthetwomonthseismicsurveyofthecontinentalshelfoff Vietnam. I explained the importance of this project, and the technicalrequirementsofthisinternationalteamtoRearAdmiralTrầnvănChơn,theheadof the Vietnamese Navy. Obviously, during this critical phase of the war, thediscoveryofoilandgasinthecountrywasimportant,andindeedcriticalfortheurvival of Vietnam’s war time economy. Because of this I received fulloopesc rationfromtheArmedForces.

I was assigned the responsibility of coordinating the transportation ofexplosivestotheNavyshipswiththemilitarystaffofThànhThủyHạAmmunitionDepotlocatedinthesuburbofSaigon.AconvoyoftrucksfromthisdepotthroughdowntownSaigon, then to the shipswas extremely dangerous and complicatedbecauseofobvioussabotageeffortsbytheCommunists.TheMP(MilitaryPolice)escort for the explosives to the Embarcadero proceeded without incident. Tocelebrate this importantmilestoneday for theVietnameconomy,AdmiralChơninvitedmetojoinhimintheceremonialsendoffpartywithNavybandandhonorguardsat theSaigonRiverpier.Wewereallveryproudandfortunatetobethefirst Vietnamese team participating in the exploration of Vietnam’s offshore oilndgas.Asagoodwillgesture,IdidnotforgettoputtwocasesofJohnnyWalkerlackaB Labelontheshipsfortheteam’stwomonthexpeditionatsea.

Iwastoldbythepetroleumspecialiststhattheexpertscoulddetonate200kgofexplosivesatatimeontheNavywarships,asopposedto100kgthatcouldbe detonated ordinarily on civilian ships, because of the difference in thethickness of the steel hulls. As a result, the reflection and refraction wavesthrough the sediment and rocks were better recorded for the study of thecontinental shelf.Thegoodnewswas that,according to the findings, theSaigonSabubasinsedimentsweresimilartothoseontheothersideofthecontinent.Therocksand thesea floorvegetationwere thesame.Thiswasgoodnewsbecauseroduction of oil and gas on the Sabu (Malaysia) side had alreadybegunmanyears py before.

Duringoneof thedinnerbanquets at theMajesticHotel, I sat next to theDirector of the Massachusetts Wood Hole Oceanographic Institute. He was amember of ECAFE (TheUnitedNations Economic Commission for Asia and theFar East) team with a lot of experience in the exploration phase. I asked himabout the crudeoilpotentialof theSaigonSabuBasin,Vietnamside.At firstherefused togivemeaguesstimate. I kept insistingandpromisednot to leakany

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newsconcerninghisestimate.Finallyheuttered10billionbarrelsbasedonwhathesawin thesimilarstructure fromtheBorneoSabuside.Hekeptwarningmenottoleakanynumberstothehungrypress.I feltsohappytohearthisnews.Ithought “My God, it’s quite a revelation; and so critical to the survival of theVietnamesewareconomy!Maybewiththisnewlyfoundwealth,theUSwillnotletthecommuniststakeoverallthatoil!AndmaybetheUSCongressmayreconsidertsdrasticaidcuttingand letVietnamsurvivea fewmoreyears.” Itwaswishfulhinkiit ng!

The critical issuewas that several yearswere needed for the productionplatformtobeconstructedandpreparefortheexplorationphasetotransitiontotheexploitationphase.Sadly,weknewthattheUSCongresshadcuttheVietnamwar b dget against thewishes of the Executive branch in theWhite House forontin edaid.

uu

c

DepthoftheContinentalShelfofVietnaminmeters

Offshore Oil Exploration 399

VisittoVietnamShellOilDrillingPlatform1974LefttoRight:

Mr.HồTấnPhát,PresidentofVietNamPowerCompany,Mr.TrầnvănKhởi,CEOPetroleumandMineralsAgency‐RepublicofChina’sAmbassadortoVietNam,HENguyễnvănKiểu,VietNamAmbassadortotheRepublicofChina,Mr.KhươngHữuĐiểu,PresidentofIndustrialDevelopment

Bank,ShellDrillingSpecialist‐SikorskyHelicopterinthebackground

ManagementMagazine10‐1974PetroleumProspectsandEconomicDevelopmentinVietnamByKHƯƠNGHỮUĐIỂU

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Vietnam’sFirstOilDrillingOperationTime:14:10,8.17.1974Ocean‐ProspectorPlatform

ManagementMagazine10‐1974Oil&GasinVietnam

Offshore Oil Exploration 401

Offshoreoilwasdiscoveredin1974.Atthattime,Ifeltveryproudtohaveabottle of Vietnam sweet base crude oil in my office, a symbol of hope for oureconomy. During the war, I was the chairman of the joint Vietnam‐Shell‐Essorefinery.We rejected the Quảng Ngãi site formany obvious economic reasons.Furthermore,wecouldnotbuilda refineryduring thewarbecauseaUS$1000rocket ncould bur downtheoilrefinery‐amulti‐billiondollarinvestment.

Sadly,my dream and hope to see a prosperous SouthVietnamultimately

id not come true. By April 1975, it turned into a nightmare because of theietnadV m“BolshevikRevolution.”

In2010Kissinger,forthefirsttimeinaStateDepartmentconference,toldtheaudiencethatthelossofthewarwasnotbecausetheSouthVietnameseArmydid not fight, but because the US decided to change its policy toward thecommunists.ToopenthedoortoCommunistChinawasmoreimportanttotheUSforeignpolicy than to fight theNorthVietnamese communists. Itwas observedthat the more the US isolated Red China, the stronger Mao Tse Tung became.ietnam,a small country,wasoncemore, thehopelessandconvenientpawnofheGrVt eatPowerschessgame.

After 1975, Communist Vietnam no longer had to deal with the pre‐warsecurityproblem.FeasibilitystudiesshowedsituatingtherefineryatDungQuấtwascontrarytoalleconomiccriteria.Therewasnocommercialport.TheportofDungQuấthadmanyothermajorproblems.Itisnotlargeenoughnorwasitwellquippedenoughtoallowtheunloadingoftheheavyequipmentfortherefinery.

o o o eTheroadfromtheporttotherefinerysitewasals inpo rconditi n. The Communists took 34 long years to build the first oil refinery inietnam.Worst of all, itwas built at thewrong placewith thewrong capacity.hy?

VW Again,Communistpolitics.

Itwasawell‐knownfactaroundtheworldthattheVietnamesegovernmentwouldgrantapprovalforanoilrefinerybasedonlyonspecificpoliticalreasons.Ithad to be built in the central Quảng Ngãi region of Vietnam because theircommunist leader Phạm văn Đồng was born there. In 1930, he was a charteremberoftheIndochineseCommunistparty,andheservedasPrimeMinisterofheSomt cialistRepublicofVietnamforthreedecades.

As it turned out, the refinery project was finally slated to begin in the1980’s.Atfirst,itwassupposedtobeconstructedneartheportofVũngTàu,just100km(60mi)away fromtheoffshoreoil fields.However, therefineryproject

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wasshelved.Why?Intheearly1990s,TotalSA(France)expressedinterestintheproject.Atthesametime,theVietnamesegovernmentdecidedtomovethesitetoDungQuất.Followingthis,in1995TotalSApulledout,claimingthatthenewsitemade no economic sense. Total SA was replaced with a consortium of foreignnvestors, including the LG Group and Petronas, but this consortium alsoithd

iw rewtwoyearslatercitingthesameeconomicreasons.

In1998,VietRoss,ajointventureofVietnamandRussia,wasestablished.The intergovernmental agreement on the construction and operation of therefinery was signed on 25 August 1998. The Front End Engineering Design(FEED) contract was signed between Petro Vietnam, Zarubezhneft and FosterWheelerEnergy.ConstructionoftheDungQuấtrefinerywasoriginallyscheduledtobeginin2000,buttheprocesswasdelayedseveraltimes.OnDecember25th,2002,Russiapulledoutforthesameeconomicreasons,andtheprojectcontinuedunder themanagementofPetrovietnam, a state enterprise. Finally, the refinerywasinauguratedonFebruary25th,2009,34yearsafterthewar.Thelongdelayand the political decision to build at the wrong site caused great long terminancial lossforthecountry,andconsequentlytheconstructioncostsincreasedrom$ff 1.3billionto$3billiondollars.

For a period of more than 30 years, Communist Vietnam kept exportingcrudeoilandimportingcostlyrefinedproductssuchasdieseloilandgasolineforheirownuse.Theleadersrecognizedtheneedtohaveanoilrefinerytosustainheco e ngone.tt untry’seconomicdevelopmentbutwereincapabl ofbuildi

TheDungQuất refinerywas1000km from thecountry’sBạchHổ (WhiteTiger) oil field off the Southern coast. This would increase the cost oftransportation of crude oil and refined products. Theywould probably need toconstructanadditionalpipelinetosolvethislong‐termlogisticsproblem.Thesitewasalsosituated far fromthecountry’seconomiccenters,SaigonandHanoi.Oftherefinedcrudeoil,60%wouldbeshippedbacktoSaigon,30%toHanoi,andonly10%wouldbeusedlocally.

Notuntil2011didcommunistVietnamviaPetroVietnamadmitthatithad

learned a lesson from its first oil refinery. The chairman of PetroVietnamwasuoted as saying that future facilities should be built according to soundcono i .qe micfeasib lity studies

Investing in future refineries with such a wrong capacity would beinefficient. The state Vietnam News quoted Đinh La Thăng, chairman ofPetroVietnam,assaying:"ThisisthelessondrawnfromDungQuất."Thăngalso

Offshore Oil Exploration 403

added that therewas a plan to build two refineries located inNorth and SouthVietna with an annual capacity of 10 million tons of oil each. PetroVietnamconfirmedhiscommentswithAFP.

m

LocationofnewrefineriesinNorthandSouthVietnam

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DungQuấtRefinery

ENDOFVOLUME1