Vietnam’s energy tightrope: balancing demand, geopolitics & supply security

Vietnam’s energy sector is struggling to both meet domestic energy demand as well as provide electricity to a growing list of multinationals that have recently set up operations in the country’s north. So far, that struggle seems to be endless. However, new LNG shipments from Russia could help alleviate part of the problem.

Last month, Vietnam imported its first Russian LNG cargo, taking in the fuel at its new 3 mtpa Cap Mep LNG terminal in Ba Ria Vung Tau province in the south. The Blue Dragon 1 LNG tanker delivered 90 billion cubic metres of LNG from the Sakhakin-2 project in Russia’s far east. Reuters said that the cargo is being used to test and commission the facility, which is expected to become Vietnam’s second operational LNG terminal. 

The shipment arrived just a month after Russian President Vladimir Putin and Vietnamese General Secretary Tô Lâm reached a number of oil and gas development deals, including deliveries, crude oil refining and LNG supply. The shipment, however, was procured on the LNG spot market since Vietnam hasn’t inked any long term off-take agreements with Russia yet.

The EurAsia Daily Monitor reported that it’s unknown whether there will be future deliveries from the Sakhalin 2 project, often referred to as Arctic LNG, since it’s under U.S. sanctions and might not be actively seeking new markets for its LNG production.

Ben Seligman, an independent Arctic, sub-Arctic oil and gas development consultant, told Gas Outlook that it’s still conceivable that Vietnam could reach an agreement to import Russian LNG. “Although Sakhalin 2 is sanctioned, there are exemptions in place allowing Japan to import Sakhalin 2 oil, for example,” he said.

He added, however, that the Sakhalin 2 project likely won’t have much spare capacity to supply LNG to Vietnam. “They haven’t got the resource base (yet) to underpin a third train, something that has been talked about for years. Russian LNG would need to come from elsewhere,” he said.

Summer power crunch

The LNG delivery comes as Vietnam prepares for what could be another brutal summer season of record high temperatures and power outages in the industrialised north. This is at least the third year that Vietnam has prepared for possible power outages and strained energy supplies that also show vulnerabilities in its still largely antiquated electrical grid.

For the past two summers, Vietnam has been unprepared to handle increased energy consumption from both industry and residential end-users. May and June 2023 simply caught the country’s energy planners, and its national electricity distributor Electricity Vietnam (EVN) flat-footed.

Over that two-month period low hydropower reserves and delayed maintenance of thermal power plants caused massive power outages. A power grid that needs modernisation and expansion also exacerbated the problem. Hardest hit were businesses, international manufacturers and logistics companies whose operations ground to a halt, leading to an estimated US$1.4 billion (0.3% of Vietnam’s GDP) in economic loss, according to World Bank data.

In the past few years, scores of international manufacturers set up shop in highly industrialised northern Vietnam, one of four major economic zones that account for more than 32% of the country’s GDP and some 26% of its total FDI. The pivot to Vietnam away from China began in 2018 when U.S. President Donald Trump began slapping trade restrictions on China during his first term. Logistics companies, and manufactures also pivoted to Malaysia, Mexico and India.

Summer 2024 was also brutal. Power outages in May and June forced EVN’s hand when it asked Apple supplier Foxconn and other foreign manufacturers based in the north to voluntarily cut power consumption by at least 30%, Reuters reported at the time.

However, EVN and high-level government officials quickly refuted the media report, claiming that their message to manufactures  was an “encouragement” not a “requirement.” Since then, analysts and firms based in the country have warned that Vietnam risks losing much of its new foreign industrial base if EVN can’t keep the lights on this year.

As of late June 2025, major widespread power shortages haven’t been reported in Vietnam. However, the system is clearly under significant strain, while vigilance is reportedly extremely high. EVN’s plan of action this year appears to be focused more on preparedness and prevention, rather than ongoing crisis. The situation will play out over the next month.

To its credit, EVN has been investing in upgrades. A new US$1 billion transmission line connecting the centre of the country to the north is nearing completion. But, in rare candid remarks for a Vietnamese state-run company, Trinh Mai Phuong, EVN’s communications director, said it might not be enough and was not a game changer.

Vietnamese LNG market share

Another take-away from Vietnam’s recent Russian LNG procurement could be that it sets up competition between Russian and American LNG exporters, both keen to lock in Vietnamese market share. The situation puts Vietnam in a delicate political situation since it’s currently negotiating with the Trump Administration to reduce trade tariffs by buying more U.S.-sourced LNG and energy products, including gas-to-power infrastructure.

Yet, Vietnam also needs to diversify its LNG supply by striking deals with other suppliers, including Russia, an already established energy partner that has worked with Vietnam in offshore oil and gas exploration and production for decades.

Seligman agreed that competition could develop between U.S. and Russian LNG as a supplier to Vietnam. “It’s perhaps a similar situation to Europe – the Trump Administration hasn’t imposed any new sanctions on Russia (deference to Putin), yet Trump would love to send more U.S. LNG to Europe, displacing Russian/Yamal LNG. It’s a bit of a balancing act,” he said. “So, I’m sure that Trump would love U.S. LNG to go to Vietnam, but he’d perhaps have a better chance of succeeding with that goal by strengthening sanctions on Russian LNG.”

(Writing by Tim Daiss; editing by Sophie Davies)