ExxonMobil stares down China for Vietnam gas

US energy giant recommits to $20 billion ‘Blue Whale’ gas project despite tacit threats from Beijing and shifting sentiment on fossil fuels

Vietnam’s long-delayed Blue Whale offshore gas development project may be closer to pumping after operator and majority owner ExxonMobil said last week it was working on a final development plan for the field, which sits 80 kilometers off the central coast. 

The Ca Voi Xanh field, located 80 kilometers off the central coast and known in Vietnamese as Blue Whale, was quietly but never officially shelved in 2019. It was initially planned to have supplied about 10% of the country’s surging electricity demand by transmitting gas to four separate power stations in two of Vietnam’s poorer central provinces.

It is forecast to generate as much as US$20 billion in revenue for the Vietnamese government. ExxonMobil discovered the field a decade ago and holds 63.75% of the field in a joint venture with national entity PetroVietnam. In January 2019, it awarded Italian multinational oilfield services company Saipem engineering design contracts. 

“The proposed project consists of an offshore platform, a pipeline to transport the gas to shore, an onshore gas treatment plant and pipelines that feed gas to third-party power plants to generate electricity locally,” ExxonMobil said at the beginning of 2019. 

By mid-2019 there was talk ExxonMobil was trying to sell the project due to issues over gas agreements with the Vietnamese government. At the same time, China was a persistent threat in the background. 

“ExxonMobil continues to progress preparatory work [for] Ca Voi Xanh. We completed front-end engineering and design for the project in May 2020, and are working on the final development plan,” an ExxonMobil spokesperson told S&P Global Platts. 

Vietnam shelved its plans for a series of Russian- and Japanese-built nuclear plants in late 2016 when coal was cheap and offshore gas exploration was not overtly threatened by China.

But bubbling tensions in the South China Sea between Vietnam and China saw Spanish energy giant Repsol pull out of two joint venture projects with the Vietnamese government in 12 months during 2018. 

At COP26 in Glasgow, Vietnam made a commitment to net-zero by 2050 – it has even mulled moving away from its vast rice production given the thirsty crop’s methane emissions profile and its new commitment to the Global Methane Pledge – and committed to lowering initial LNG-to-power plans.

Its most recent Power Development Plan (PDP) makes clear it won’t build any new coal-fired power stations. 

It may make changes to its Power Development Plan 8, which the nation has been waiting for since at least early 2020, to reduce the share of fossil fuels in its power mix. The government held a press conference on November 19 to explain its new net-zero efforts. 

The PDP is the starting point for all new power projects; without inclusion in the document they cannot proceed, although it is not a guarantee if they are. Coal-fired power generation will be at just 40GW of the national power mix by 2030 under the new draft. 

Under Rex Tillerson, who left ExxonMobil to become then-president Donald Trump’s secretary of state, the energy giant was one of the few over the past decade to push back against China and refuse to leave its South China Sea position.

Beijing was then using stick and carrot tactics, suggesting multinational energy companies could be locked out of what looked like a new shale frontier onshore in mainland China. Geology significantly trickier than what the US shale boom offered ultimately hindered that, and even now China struggles to unlock its onshore resources. 

Vietnam has largely turned away from developing its offshore resources. However, outside China’s nine-dash line claims in the South China Sea, in the south close to the Gulf of Thailand, Vietnam continues oil and gas production and some new exploration. 

Singapore-headquartered Jadestone Energy, which holds projects across the Asia-Pacific and typically buys older producing assets, holds Vietnamese energy assets, while Italy’s Eni made a large gas and condensate discovery in mid-2020 in two nearshore blocks in the Song Hong Basin, north of Danang and the old DMZ.

The find was a follow-on from an original 2019 discovery. 

There is also Block B, owned by PetroVietnam, Thailand’s PTTEP and Japan’s Mitsui, which aims to send gas to the large planned Mon II gas-fired power complex in the southwest. Chevron pulled out of the project in 2015 after failing to reach a gas price agreement with the Vietnamese government. 

Power from LNG imports will drop from a planned 41 gigawatts by 2030 to 22.4GW, a steep fall and a volte-face for a nation that had spent three solid years advancing plans for import terminals and associated power stations, in part as a way to fortify energy security while improving the nation’s terms of trade with the US that had incensed Trump. 

The Biden administration has made project financing for large new fossil fuel projects much harder, a significant turn considering some of Vietnam’s planned LNG import projects had support from US foreign development banks. 

Financing and building a long string of LNG import terminals and associated infrastructure up and down the nation’s long coast is a daunting task, not helped by currently high spot LNG and oil prices. The large LNG import terminal in the northern port city of Hai Phong, which is far from sanction, involves Exxon. 

Another, in nearby Quang Ninh province with Tokyo Gas and Marubeni, has seen a positive final investment decision (FID) and construction started in October. Another import terminal saw FID this October in Quang Tri. 

Renewable energy accounts for more than 10% of the national grid, a vast achievement for a nation of over 90 million which had no serious renewable footprint a decade ago. Incredibly, favorable tariff terms drove substantial investment in both wind and solar. 

More recently, Vietnam has announced offshore wind plans and initial investment in the sector has been rapid, driven first by Denmark, whose multinational power company Orsed has led the offshore wind charge in recent years. 

But it will be years before the giant turbines are installed off the coast and sending gigawatts of power to the grid. In this light, the news ExxonMobil is back and working on the Blue Whale is significant. 

In 2019, received wisdom was that ExxonMobil would spin off the project given it was immaterial and in a “non-core” area. 

Then, the US energy giant had five main areas of focus: US onshore, Mozambique LNG, Guyanese oil, pre-salt offshore Brazil and LNG in Papua New Guinea. Its African project is now stalled, as is the expansion of Papua New Guinea plant. 

However, it was unlikely even in 2019 that ExxonMobil would find a buyer for the field given the hesitancy to move into an area where China had already chased away Spain’s Repsol at two separate developments and even asked ally Russia to leave a South China Sea position. 

In 2019, Chinese Foreign Minister Wang Yi asked his Russian counterpart Sergei Lavrov to abandon its offshore exploration with Vietnam. Lavrov reportedly declined.

Rosneft Vietnam had reportedly been concerned since 2018 that its Lan Do “red orchid” project in block 06.1 lies within China’s sweeping nine-dash line claim to the sea and that drilling there could upset Beijing. 

By 2019, China was pressing for the termination of a Vietnamese offshore development with Rosneft Vietnam, a joint Russia-Vietnam venture that then canceled its contract for London-based Noble Corp’s semi-submersible exploration rig.

Noble announced the cancellation in a fleet notice without explicitly naming the company, while saying it would still be paid for the contract. The notice came only days before then-US secretary of state Mike Pompeo claimed China’s wide-ranging claims in the disputed maritime region were “illegal.”

These problems have made an ExxonMobil sale difficult, but even without China the unusually high CO2 content of 30% of the gas would be even more of a hurdle than in 2019, before most international oil companies committed to climate targets and vowed to cut down on processes like venting and flaring. 

Typically CO2 is vented at the wellhead but companies are now committing to new solutions. 

The news from ExxonMobil came only a few days after the 60th anniversary of the Traditional Day of Vietnam Oil and Gas Industry on November 24, according to the state oil company’s website. It also noted it had hit its domestic production target of 9.72 tonnes of oil 39 days ahead of schedule. 

“This is very meaningful good news for PetroVietnam, continuing to write a golden history page with the glorious mission of ‘finding oil to enrich the country’,” it said. 

But it still needs to find gas to meet growing power needs. Landing the Blue Whale onshore is still a long way off, but for both ExxonMobil and Vietnam, it might be a better option than letting it slowly sink and drown offshore. 

By Helen Clarck – Asia Times – December 7, 2021