Vietnam’s government is scrambling to head off an impending energy crunch that threatens to bring blackouts within two years and hamper the near-term future of one of Asia’s fastest growing economies.

Prime Minister Nguyen Xuan Phuc has warned that power shortages could come as soon as 2021, and ordered other officials to speed up stalled plant projects. At stake is the future of an economy that relies on energy-intensive manufacturing, and which is drawing a surge of new international interest because it is seen as a refuge from, and beneficiary of, the US-China trade war.

Vietnam faces a potential energy crisis on two fronts at the same time: in addition to the shortfall of generating capacity government officials are warning about, China has been putting intense pressure on its oil and gas drilling operations at sea.

For a country trying to strike a delicate balance between the US and China in diplomacy and the economy alike, Vietnam faces short-term energy choices that will have geopolitical implications for years to come.

“The potential sources of supply from Vietnam’s own domestic oil and gas reserves have met with challenges and delays, whether it’s the financial capacity of the national oil company to develop those resources, or maritime disputes and political tensions,” said Andrew Harwood, research director of the upstream oil and gas team at Wood Mackenzie in Singapore. “There is concern over how Vietnam is going to meet its future energy needs.”

Vietnam has until now relied heavily on coal, fuel oil, and hydropower for its electricity. However, several such projects have been delayed in recent years by bureaucratic constraints or foreign investors’ inability to secure government loan guarantees for their projects. Hanoi in 2016 abandoned a long-mooted nuclear energy programme.

The country is now fast-tracking solar power, studying the large-scale import of liquefied natural gas and looking into importing power from neighbouring countries, according to government officials and industry analysts.

Earlier this month a $391m solar power farm, south-east Asia’s biggest, began operations in Tay Ninh, southern Vietnam. EVN, the state power utility, said last month that more than 4,000 households had installed rooftop solar power systems over the past three months with a total capacity of 200MW. Another 300MW was due to be added by the end of 2019.

“The rapid growth of the rooftop solar market in 2019 is a sign that the government has embraced a diversification of power generation, with increased emphasis on renewable energy as the solution,” said Gavin Smith, director of clean development with Dragon Capital in Ho Chi Minh City.

However, he added: “It remains to be seen if the rapid growth of renewable energy since 2018 will be enough to head off the risk of power cuts in the next three years.”

Power has crimped the growth of other developing economies. South Africa has faced frequent power outages because Eskom, the national utility, has failed to invest enough capacity in recent years to keep up with demand.

Demand for electricity in Vietnam is growing by about 9 per cent a year, faster than the economy, which grew by more than 7 per cent in 2018.

In one sign of the sensitivity of the issue, no government representative would speak to the FT on record for this story. However, one official confirmed there were “some risks of electricity shortage in extreme and unexpected circumstances”, most likely when the reservoirs powering hydroelectric dam projects run low.

Hanoi is pursuing technical fixes to bridge the power gap including increased electricity imports from Laos. Officials have also discussed the possibility of importing power from China, though this would be politically sensitive in a country where anti-Chinese sentiment is widespread, flaring recently because of the tensions at sea.

American companies and officials are promoting LNG as one solution to Vietnam’s power needs, selling it in part as a way of reducing the country’s record trade surplus with the US, a point of tension with the Trump administration.

However, liquefied gas would not be a quick enough fix to head off the impending energy crunch because Vietnam needs to build onshore facilities for the resource.

Vietnam’s ability to exploit its own offshore gas is now in question. Since early July a Chinese survey vessel, the Haiyang Dizhi 8, has been carrying out a survey off Vietnam’s southern coast near Lan Tay-Lan Do, a field under development by PetroVietnam and Russia’s Rosneft — a move described by the US as “coercion”.

Earlier this month Vietnamese social media was alight with unconfirmed reports that ExxonMobil had given Mr Phuc notice that it was pulling out of Blue Whale, Vietnam’s largest offshore gas project.

ExxonMobil, which is selling some of its assets ahead of a planned share buyback, declined to comment on what it called “market rumours or speculation about our business plans”. Vietnam’s government spokeswoman Le Thi Thu Hang, citing ExxonMobil’s Vietnamese partner in the venture, PetroVietnam, said the project was “being implemented as planned”.

By John Reed - The Financial Times - September 22, 2019