Vietnam: A Delay in Nuclear Power Raises Energy Security Concerns

An expert (R) explains a nuclear reactor to students in Hanoi. Vietnam has delayed the construction of its first nuclear power plant, which was to begin this year. (HOANG DINH NAM/AFP/Getty Images)

Summary


Vietnamese Prime Minister Nguyen Tan Dung has announced that the construction of the country's first nuclear power plant, the 4,400-megawatt Ninh Thuan 1 -- slated to begin this year -- will be delayed until 2020 due to concerns about safety and efficiency. Dung said national energy company Petrovietnam will need to build a 5,000-megawatt, natural gas-fired power plant complex to provide electricity in place of the nuclear plant.

The delay would undermine the energy security that nuclear power is eventually supposed to bring to Vietnam. Hanoi will increase imports of hydropower, coal and liquefied natural gas to make up for the share of future power supply that was ultimately projected to come from nuclear sources. This energy profile will put pressure on Vietnam's ability to maintain trade balances and secure its maritime supply chain. Nevertheless, Hanoi hopes that buying time now will give it a greater capability to pursue nuclear power in future.

Analysis


On Jan. 15, Dung told the board of Petrovietnam, the country's national oil champion, to prepare an extra natural gas-fired power plant to make up for a possible delay in the construction of the country's first nuclear power plant in Ninh Thuan province, according to Vietnam's Tuoi Tre and Lao Dong newspapers. Dung said that the demand for efficiency and safety would require delaying the nuclear plant, stressing that the project would not go forward until standards were met. Minister of Science and Technology Nguyen Quan later added that construction might be delayed until 2016 or 2017. Prior to these comments, the Vietnamese had claimed they would start construction on the plant in 2014 in order to begin operations in the early 2020s.

Vietnam has delayed this nuclear project in the past -- setbacks are a common problem for newcomers to nuclear power -- and Hanoi's statements suggest that construction will in fact be delayed for several years. Doubts about Vietnam's capabilities with regard to nuclear power and concerns over safety have been growing for some time. Last week, International Atomic Energy Agency chief Yukiya Amano visited the political leaders of Ninh Thuan province as well as the nuclear project's managers. Despite voicing support for Vietnam's plans, he advised that Vietnam should not be in a hurry, a statement that was only the latest reference to domestic and international concerns that Vietnam lacks the skill, technology and infrastructure to operate a nuclear plant safely.

Russia -- whose nuclear firm Rosatom is contracted to build the plant -- has sought to address these issues in order to smooth the export of its nuclear infrastructure and services. Russian personnel have been training Vietnamese researchers, scientists, engineers and support staff to develop the skillset the country needs to operate a civil nuclear program. Lessons have included tutorials on how the Russian nuclear industry responded to the Fukushima Daiichi crisis in Japan. Russia also plans to open a nuclear science training center in Vietnam.

Needless to say, safety is a concern for the Vietnamese Communist Party as well as the international community. Hanoi recognizes the extreme difficulty it would face in managing any kind of nuclear crisis -- even one much smaller than Fukushima -- with fewer resources and capabilities than Japan.
Alternatives to Nuclear Power

With ambitious nuclear plans moving slowly, Vietnam must look to other sources to make up the difference in its electricity needs through 2020 and beyond. At present, the majority of Vietnam's power is generated from natural gas, hydropower and coal, with electricity accounting for 52 percent of consumption. Vietnam's nuclear plant would have raised nuclear power to 2 percent of power production by 2020 and 10 percent by 2030, while decreasing the natural gas share from 41 percent to 14 percent by 2030 and hydropower's share from 28 percent to 9 percent. The amount of coal-fired power production, meanwhile, is anticipated to rise from 20 percent to 58 percent. Hanoi's plan is to harness indigenous and low-cost coal for Vietnam's future power production in order to reduce power imports -- a strategic liability -- from 6 percent to less than 4 percent by 2030.

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These plans will have to be adjusted in light of the nuclear delay, to the detriment of the energy security that Hanoi had hoped to improve. Vietnam's electricity demand is increasing rapidly (the average yearly growth rate has been over 12 percent for the past decade) and any nuclear postponement reinforces the prospect of Vietnam having to import more energy to satisfy its growing electricity needs. Hanoi already imports hydropower from Laos and China, a strategic dependency it hopes to limit. Vietnam is also attempting to ramp up coal-fired power production, aiming to increase generation capacity from 6,000 megawatts to 36,000 megawatts by 2020. Coal reserves are already well developed, although concentrated in the north, as opposed to the south where electricity demand is rapidly growing. Vietnam will likely become a net coal importer over the second half of the decade in order to meet its demand for coal-fired power.

In addition to coal, Vietnam will also need to increase its natural gas imports. Dung's demand that Petrovietnam bridge the absence of nuclear power with a new natural gas power plant would (at most) require about 5 billion to 7 billion cubic meters of additional natural gas supply per year. While the actual figure will likely be less, Dung's statement amounts to an attempt to kick-start the state-owned Petrovietnam to move faster to meet domestic production targets. The cost to build a natural gas-fired power plant is half as much as the price of a nuclear plant, which in this case was expected to range from $8 billion to $10 billion to construct. Natural gas plants could be built much more quickly and with existing domestic know-how. However, Vietnam's increasing demand for natural gas comes at a time when the resource is in short supply. Natural gas shortages affect not only the power grid but also industrial and fertilizer consumers, compounding the problem. Finding a solution will require significant investment in the development of offshore natural gas fields and associated infrastructure to bring the natural gas onshore. There is also likely to be significant future investment in the construction of regasification terminals to enable the import of liquefied natural gas.

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As a result, Vietnam needs massive outside investment and production sharing agreements with international oil companies to explore for new resources. However, Hanoi's policy of strict natural gas pricing has hampered potential investment. The biggest source of demand for natural gas in Vietnam comes from the power sector, and Hanoi has fixed natural gas prices for power plants extremely low -- about one-third of the price of liquefied natural gas in Asia. For other consumers, most notably in the industrial and agricultural sectors, Hanoi has allowed natural gas prices to increase but still holds them below international levels.

Prior to a breakdown in negotiations, Vietnam expected most of its future increase in natural gas production to come from Chevron's offshore blocks in the Malay Basin, but Hanoi's unwillingness to pay more than $6 per million British thermal units of the natural gas led to an impasse. In November 2013, Chevron announced that it was selling some of its interests in Vietnam following the price dispute. Potential suitors for Vietnam's natural gas demands include India's Oil and Natural Gas Corp., but it remains to be seen how effective the next company will be at negotiating the price and developing its assets (getting the oil out of the seabed in a cost-efficient way). Chevron's Block B alone was expected to add another 5 billion cubic meters of production per year -- around half of current production -- to Vietnam's national supply before negotiations broke down.

Even if Vietnam is able to hit its production marks, it still expects to have natural gas shortages amounting to 6 billion cubic meters by 2020 and 16 billion cubic meters by 2025. This is why Hanoi has proposed to build several liquefied natural gas import terminals, already signing a deal to import liquefied natural gas from Russia. The first of these terminals, the Cai Mep-Thi Vai terminal, is expected to come online by mid-2016 with an annual regasification capacity of 1 billion to 2 billion cubic meters. The second proposed terminal, Son My, would come online in 2018 with an initial capacity of 2.3 billion cubic meters, expanding to 8 billion cubic meters in the early 2020s. Notably, neither project has begun construction yet, having already been delayed and likely subject to further delays. Liquefied natural gas is also more expensive than domestic natural gas, and will remain so, even if Hanoi decides to raise domestic prices.
Strategic Implications for Vietnamese Energy

The rising need for energy imports highlights the strategic advantages that Vietnam eventually hopes to gain from launching a civil nuclear program. Becoming an importer will create new pressures on Vietnam's trade balance and economic management. Moreover, offshore hydrocarbon production and all energy imports are exposed to security risks from China. Beijing's growing naval power is worrisome to Vietnam when it comes to production in disputed waters, especially as the maturation of nearby fields leads Vietnam to push exploration and production farther out to sea. Hanoi cannot fail to consider the more general threat to its entire maritime energy supply in the event of conflict.

While nuclear power would enhance Vietnam's energy self-sufficiency, drawing in the Russian and Japanese nuclear industries gives those nations a deeper investment in Vietnamese security. Delay will affect Russian plans for nuclear industry export growth, having a potential knock-on effect for Japanese nuclear plant makers who hope to build Ninh Thuan 2 following the completion of the first plant. Already Japan's Ministry of Economy, Trade and Industry says it will monitor the situation in case the delay expands beyond Russia's project to affect Japan's $9.6 billion nuclear project at Vinh Hai, which is also set to begin operating in 2020. A delay in developing its foreign-sponsored nuclear power plants will also slow down Vietnam's tactic of binding these countries' economic interests to its energy security and economic stability.

Energy supply security and the need to court foreign patrons will continue to motivate Vietnam's plans to launch a nuclear program in the long run and establish a platform for building more reactors and strengthening domestically-sourced power supplies. But for now, any nuclear plans appear likely to be postponed. It makes sense that Hanoi would be focused on meeting its immediate energy needs as cheaply and as quickly as possible, taking more time to build the extensive institutional foundations necessary for a nuclear program in the future. At the same time, delay reveals the Communist Party's awareness of the need to correct its energy ambitions and points to serious challenges in managing domestic energy production, trade balances and maritime security.