The recent commencement of crude output from Vietnam's offshore Ca Tam oilfield comes as a relief as the Southeast Asian producer saw its exports rapidly decline over the past decade due largely to decreasing production at many aging fields.

The new Ca Tam production stream will likely lead to higher exports of Vietnam's flagship Bach Ho grade, which often commands strong premiums in the Asian low sulfur crude market.

Russian-Vietnamese joint venture VietsovPetro, announced last week that it produced first oil from Ca Tam offshore oilfield in southern Vietnam.

The crude oil from Ca Tam will be sold as part of Bach Ho, according to a source at PetroVietnam, which holds a 51% stake in the JV.

As for Vietnam's own domestic requirements, state-run Dung Quat refinery's fresh interest in light sweet US crude could mean that the country could slash its oil import bills amid WTI's persistent discount against other global benchmarks including Platts Dubai and Platts Brent.

Vietnam's state-run Dung Quat refinery will receive up to 1 million barrels of light sweet WTI crude for the very first time in April and more imports from the US is on the cards, Nguyen Van Hoi, Vice President of Binh Son Refining and Petrochemical, the operator of the refinery, told S&P Global Platts earlier this month.

"Selling premium domestic crude and buying cheaper barrels for domestic use ... It makes sense in terms of maximizing cost efficiency," a feedstock procurement manager at a Southeast Asian refiner, that regularly buys medium sweet Vietnamese grades, said.

Export premium, import discount

Bach Ho is a niche light-medium sweet crude that consistently commands high premiums in the regional market, making a case for Vietnam to export more to capture the lofty market valuation, industry sources said.

The new output from Ca Tam will be streamed for both Dung Quat refinery and Bach Ho exports, an official at PetroVietnam Oil said.

PV Oil is the Vietnamese state-run entity that handles marketing and sale of crude oil from offshore Vietnam and overseas oil blocks.

The flagship Vietnamese grade was assessed at an average premium of $4.44/b to Platts Dated Brent during Q4 2018, premium of $2.69/b in Q3 and premium of $2.78/b in Q2, S&P Global Platts data showed.

Most Bach Ho output is typically termed out by PV Oil, with the company last tendering out H1 2019 term supply of both Bach Ho Light and Heavy streams in late October 2018.

Heavy Bach Ho was offered in one tender for a term supply of 20,000 b/d over January to March 2019 and 30,000 b/d from April to June 2019, while Light Bach Ho was offered in another tender for a term supply of 10,000 b/d over January to June 2019.

Trade sources said both tenders were likely awarded to PV Oil's trading arm PV Oil Singapore, which often re-sells the cargoes on the secondary market.

Market participants indicated that the final outlet for the H1 term Bach Ho barrels could be a Thai end-user and an unidentified refiner in the Philippines, but the details could not be immediately confirmed.

On the procurement side, Binh Son Refining and Petrochemical's interest in regular purchase of US crude this year is widely seen as a prudent move as majority of light sweet North American grades have been consistently trading at a steep discount against various Southeast Asian and Mediterranean grades that Vietnamese end-users typically procure.

The spread between WTI Magellan East Houston, or MEH, and Azerbaijan's Azeri Light crude on a FOB Ceyhan basis averaged minus $3.67/b in Q4 last year, minus $2.90/b in Q3 and minus $2.98/b in Q2 2018. So far in Q1 2019, the spread averaged minus $3.89/b, Platts data showed.

Bach Ho, production

The production at the Ca Tam field will be facilitated by existing infrastructure where the country's flagship Bach Ho crude and other major producing oilfields are located.

Initial production from the field in block 09-3/12 was 1,630 mt/day and the output could more than double at its peak, according to the JV company sources, with knowledge of the field output.

The field is jointly developed by operator Vietsovpetro (55% stake), PetroVietnam Exploration and Production (30%) and Bitexco (15%).

Bitexco is a private-owned multi-sector company in Vietnam.

Vietsovpetro recently indicated that it produced 4.077 million mt of crude oil last year, down 13.9% from 2017, as production at the aging Cuu Long basin oilfields continued falling.

Of the total, the output from Bach Ho was 3.06 million mt in 2018 and from Rong field was 698,300 mt.

S&P Global Platts - February 4, 2019