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Mounting inventory puts refinery under tenterhooks   2010-10-06 - VietNamNet/SGT

Mounting inventory at Dung Quat Oil Refinery is threatening to cripple production at the facility as local distributors have signed irrevocable import contracts earlier and cannot shift to local products at the moment, sources said.

Minister of Industry and Trade Vu Huy Hoang said at a regular meeting of the ministry on Monday that the country’s first oil refinery was having a backlog of two million cubic meters of liquefied petroleum gas (LPG) plus over 700,000 tons of oil products.

Meanwhile, local oil traders refused to buy products from the refinery based in the central province of Quang Ngai despite rising demand.

Dung Quat, if running at full capacity, can turn out 150,000 tons of petrol, 240,000 tons of diesel oil, 23,000 tons of LPG and others, which is enough to meet one-third of local demand.

Vu Quang Nam, deputy general director of PetroVietnam as the parent firm of the refinery operator, told the meeting that if consumption of its finished oil products continues to go slow, the refinery will have to scale down production due to the lack of storage facilities.

“So I suggest the Ministry of Industry and Trade instruct all oil and petrol traders in the country to quickly increase their purchases of our products,” Nam said. He noted imports were still increasing while local products were piling up.

Figures at the meeting show the country in the January-September period imported US$4.87 billion worth of oil products, an increase of 4% year-on-year.

However, traders have pointed an accusing finger at the oil refinery operated by Binh Son Oil Refinery and Petrochemical Co., a subsidiary of PetroVietnam.

Pham Thi Huyen, deputy general director of the country’s biggest oil trader Petrolimex, explained that oil traders were still importing oil products from foreign suppliers since production at Dung Quat was not stable.

Due to the unstable production at Dung Quat plant since 2009, several oil traders have since early this year signed contracts to import enough petrol for local demand until the year-end, Huyen said.

She added that domestic oil traders could not stop importing oil products under the signed contracts by this time, otherwise they will have to pay compensations.

So, she said, the reasonable thing now is that Binh Son Oil Refinery and Petrochemical Co. to secure more tanks for storing its products to avoid disrupting the Dung Quat refinery’s production plan.

The Petrolimex executive also traded barbs with PetroVietnam over what she termed as an illogical trading mode when the oil and gas group demanded that all local oil traders buy Dung Quat’s products via PV Oil. Huyen said her company wanted to buy products directly from Binh Son Oil Refinery and Petrochemical Co. to cut cost as PV Oil imposed a high intermediary fee.

Minister Hoang agreed to her point, asking PetroVietnam to allow oil traders to have direct access to Binh Son Oil Refinery and Petrochemical Co.

Nguyen Cam Tu, deputy minister of industry and trade, remarked that the operator of Dung Quat refinery was not serious in complying with production schemes that had been announced, posing difficulties for oil traders in selling its products.

Tu also requested that oil traders to purchase more from the oil refinery. “In the coming time, petroleum traders should limit imports and increase purchases from Dung Quat.”   

It is not known after the meeting whether oil traders would buy more from the oil refinery, or whether the facility would have to limit production.

The US$3 billion refinery has plans to process some 5.2 million tons of crude oil to turn out some 4.1 million tons of oil products this year.

The refinery is also expected to have a total processing capacity of 6.5 million tons by 2011 to meet 30% of the country’s demand.

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