Corporate self-interest drives Vietnam LNG development
The joint South Korea-Vietnam LNG project, Hai Lang, has been mired in controversy amid concerns over its economic feasibility.
Gas has been touted as the ideal power sector bridge fuel to help countries transition to more renewable energy sources and even as a way to reach net zero. That narrative, however, has been under increasing scrutiny in recent years as reports about CAPEX intensive projects, CO2 emissions and methane leakage continue to cast doubt on gas.
Gas investment in Southeast Asia, for its part, is stronger than ever as the region tries to balance its coal and gas usage as well as its renewable energy development. Admittedly, a difficult path lies ahead for the region.
Added to the mix, legacy LNG player South Korea has been ramping up LNG and gas-to-power plant investments in the region as the economic powerhouse seems set on meeting its own self-interests, a new study by Seoul-based non-profit Solutions For Our Climate (SFOC) found.
Vietnam has been a particular focus for this FDI. This includes the South Korean and Vietnamese joint owned US$2.3 billion Hai Lang LNG Project in Quang Tri province in central Vietnam. The project is set to reach a financial investment decision (FID) later this year.
However, the project has been mired in controversy amid concerns over its economic feasibility.
The SFOC analysis, based on an internal feasibility study leaked by a South Korean National Assembly member, found that Vietnamese state utility Electricity of Vietnam (EVN) could end up spending up to US$1 billion per year buying electricity generated from the Hai Lang gas plant. This could exacerbate Vietnam’s energy crisis, with EVN already experiencing major losses from its reliance on imported fossil fuels.
Added to the fray, South Korean project developers — state-owned Korea Gas Corporation (KOGAS), Korea Southern Power (KOSPO) and Hanwha Energy — plan to set electricity prices from the project at 2,596.5 VND/kWh (US$108.8/MWh). This is some 70 percent higher than the average price of electricity generated at major coal plants in Vietnam. As such, Vietnam could be locked into an overpriced stranded asset if the Hai Lang LNG project reaches its FID, according to the report.
“The feasibility report suggests that a PPA tariff of US$108.8/MWh would ensure a 12 percent financial internal rate of return for the Korean companies. However, this price proposal would impose a significant financial burden on Vietnamese consumers and EVN,” SFOC oil and gas associate Malika Maxutova told Gas Outlook.
“The cost of renewable energy is already quickly falling, and the Korean companies’ proposal prioritises their profits over Vietnamese electricity consumers,” she added.
Similar cost concerns prompted EVN to send a document to Vietnamese Prime Minister Pham Minh Chinh reporting problems in implementing LNG-fired power projects that’s included in the country’s recently approved Power Development Plan 8 (PDP8).
“With such a high production cost, the heavy fluctuations and required commitments for long-term LNG-fired power purchases, EVN’s expenses to buy electricity will be higher, thus affecting retail electricity prices when LNG-fired power sources become operational,” the document said.
Vietnam’s gas plans
The Hai Lang LNG project is part of a larger problem in Vietnam’s power sector, the SFOC report found, since the country plans to continue to rely on gas for its power sector for decades to come.
Vietnam has the largest gas power expansion plan in Southeast Asia, with 56.3 GW gas capacity in the pre-construction and construction stages as of December 2023, a report by the Manila-based Center for Energy, Ecology and Development (CEED) found.
Gas is also a major part of Vietnam’s PDP8. Domestically produced gas and LNG will make up some 24.8 percent of the country’s energy mix by 2030. This marks a four-fold increase over 2020, when total gas capacity totalled 9 GW.
Vietnam also plans to develop over 22 GW of new LNG power capacity, up from zero operational capacity currently. While PDP8 marks a decrease in coal-fired power generation from 30.8 percent in 2020 to 20 percent in 2030, and increases in renewable energy (solar power at 23.8 percent and wind power at 18.5 percent), its increase in gas development remains problematic.
Corporate self-interest
This over-reliance on gas is cause for concern both within Vietnam and among international observers. Many ask why Vietnam, since it already leads the Southeast Asia region in solar and wind power, representing two-thirds of the region’s total renewables capacity, can’t simply add more renewables capacity instead.
A report by climate think-tank Influence Map shows that South Korean and Japanese business interests are at the forefront of this gas push. The report analyses the climate policy engagement activities of major South Korean and Japanese businesses in Vietnam, including JERA, Mitsubishi Corporation, KOGAS, and KOSPO.
It also calls out the Japanese Chamber of Commerce and Industry in Vietnam and the Korea Chamber of Business in Vietnam with “both pushing for Vietnamese government support to fast-track and approve new LNG infrastructure.”
The report also highlights a range of messaging tactics being used by the industry to present unabated fossil gas as a low carbon solution to Vietnam’s energy needs.
Net zero could be missed
However, this gas build-out is not in Vietnam’s best interests since it could cause the country to miss its net zero emissions goals.
“Vietnam is more than ready to transition to renewable energy, and South Korea can facilitate this shift, rather than locking Vietnam into expensive gas projects. The two countries can leverage their partnership to spearhead a positive transformation in Southeast Asia’s energy landscape,” Maxutova said.
South Korean National Assembly member Sunghwan Kim recently said that South Korea should learn from its past mistakes, “while expanding costly LNG power plants outside of Korea is not only environmentally irresponsible but also financially risky for South Korean public entities.”
The argument against gas is even more compelling given both its CO2 emissions and methane leakage across the entire gas value chain. Gas emits roughly half of the CO2 as does coal, the world’s dirtiest burning fossil fuel, when used for power generation. Methane is at least 80 times more potent than CO2 in the short term and 30 times worse in the long term.
Energy economics also favour more renewables development over gas. Renewable energy is set to be the cheapest way for Vietnam to meet its rising electricity demand, with utility-scale solar already cheaper than new coal and gas plants in Vietnam, according to BloombergNEF.