BP Plc will supply Petrovietnam with up to 70,000 barrels per day (bpd) of foreign crude for the country’s new Dung Quat refinery, which needs to invest another $1 billion to upgrade to process lower-quality crudes by 2011.

Under a contract signed on Monday but made public on Tuesday, BP would supply sour crude oil to replace Vietnam’s flagship Bach Ho grade, now used as the only feedstock to the 140,000-bpd Dung Quat refinery, Petrovietnam officials have said.

“The signing of this contract opened a new direction for the refining industry in Vietnam and would make an important contribution to meet demand from the domestic market, which now relies 100 percent on product imports,” a government report quoted Petrovietnam Deputy Chief Executive Vu Quang Nam as saying.

Petrovietnam would have to invest up to $1 billion to add a “desulphuriser component” to enable it to process sour, or high sulphur, crude at the refinery that is slated to come onstream on Feb. 25 after more than a decade of planning, a company official said. The complex already costs $2.5 billion to build.

Chief Executive of Petrovietnam’s crude trading arm PV Oil, Nguyen Quoc Khanh said in the government report, the refinery would only need to import foreign crude oil from 2011.

In the meantime, BP could also supply sweet crude to the refinery if the imported grade is cheaper than, but similar to, the domestic Bach Ho crude, a Petrovietnam official said.

“Until then, the refinery would only run on the light sweet Bach Ho or similar grade if BP can find, but it has to be cheaper than Bach Ho,” said the official who declined to be named due to company policy.

BP is already a major investor in Viet Nam and is operator in Vietnam’s biggest natural gas pipeline, the $1.3 billion Nam Con Son project. It is a major producer of West African and North Sea crudes and also produces Middle East and Asia Pacific grades.

ALTERNATIVE SUPPLY

Petrovietnam-owned Binh Son Refining and Petrochemical Company Ltd, which runs Dung Quat, had previously said the refinery was designed to either process Vietnam’s flagship light sweet Bach Ho crude or a mixture of 85 percent of Bach Ho and 15 percent Dubai crude.

Under the engineering agreement with the refinery’s builder, Technip, Dung Quat would use exclusively Bach Ho in 2009, Petrovietnam officials had said.

But shrinking output from the ageing Bach Ho field, which now churns out about 150,000 bpd, is forcing Petrovietnam to seek alternative crudes to ensure stable future feedstock to Dung Quat.

In 2007, Petrovietnam also clinched two separate preliminary agreements with oil traders Glencore and Trafigura to study the possibilities of using foreign sour crude for Dung Quat.

Traders in Singapore said it would make sense for Petrovietnam to sell high-quality, more expensive Vietnamese crudes and import cheaper Middle Eastern grades for refining.

Other traders added it could also buy sweet crude from West Africa and Asia Pacific depending on prices, at a time when demand and prices for such sweet grades lag that of sour Middle Eastern grades.

Petrovietnam test-ran the $2.5 billion refinery from December at about 30,000-bpd capacity.

The plant will run at its full capacity of 140,000 bpd from the fourth quarter this year, meeting about 30-40% of the country’s total consumption.

DIVEST PLAN

Petrovietnam’s Chairman Dinh La Thang said in a statement last week the group would sell up to a 49% stake in the refinery to foreign investors who could guarantee secure crude supply.

So far no foreign companies, including BP, have expressed interest in Dung Quat, mainly on concerns over the refinery’s location far from two main consumption centres in Ho Chi Minh City and Hanoi, Petrovietnam officials said.

Last year Petrovietnam secured a $6 billion joint-venture contract for its second refinery, the 200,000-bpd Nghi Son plant, with Japanese refiner Idemitsu Kosan Co and Kuwait Petroleum International. The plant will use 100 percent crude imported from the Middle East, Petrovietnam has said.

It is also holding talks with foreign companies including Venezuela’s national oil company PVDSA for a third refinery in Long Son in southern Ba Ria Vung Tau province, as it moved to become self-sufficient in oil products by 2015 when the three refineries are up and running. (Reuters)