Monday, October 15, 2007

Australia's coal to fuel Vietnam's rapid expansion

By Andrew Trounson

October 15, 2007 02:00am

VIETNAM is shaping as a major export market for Australian thermal coal, with a delegation from the country's electricity industry flying in this week to talk to coal suppliers, the second such visit in two months.

Vietnam imports almost no coal, but billions of dollars are set to be invested in building coal-fired power stations in the south, and the country is expected to import 20 million to 30 million tonnes a year by early next decade.

At current spot prices of more than $US70 a tonne, that would be worth in excess of $2 billion a year. The Vietnamese Government has developed a long-term plan based on using a massive 80 million tonnes a year by 2025. That is equivalent to almost all the coal that will be shipped out of Newcastle this year.

Last month Deputy Prime Minister Hoang Trung Hai called on Electricity Vietnam (EVN) to speed up long-term coal supply talks with Australian and Indonesian coal producers, and to look into investing directly in mine projects.

EVN vice-president Dinh Quang Tri was in Australia last month for the APEC summit and met coal mining executives from Rio Tinto, Xstrata and Queensland's Felix. He will be here again this week to underscore Vietnam's seriousness.

"The sort of tonnages they could be importing are quite large, so Vietnam will be very interesting to the Australian and Indonesian exporters," Wood Mackenzie senior coal analyst Clyde Henderson said.

Wood McKenzie unit Barlow Jonkers has just completed a report assessing Vietnam's potential as a coal market.

Vietnam has always been off the agenda for the coal industry. The communist country initially lagged the extraordinary growth of the Asian tiger economies around it, and that, combined with the country's own coal deposits and offshore gas potential, meant it was never seriously considered as a coal market.

But the country, which has a population of more than 85 million, has been motoring along at an annual growth rate in recent years of more than 8 per cent.

With that has come persistent blackouts as the country's electricity capacity struggles to keep pace.

Power demand in the country is forecast to grow at about 15 per cent annually to 2010, but with offshore gas reserves yet to prove as plentiful as first hoped, the country is turning to coal imports.

"It has been under the radar for a while," said Allan Dawson, marketing general manager at Queensland coal miner Ensham Resources. "Vietnam is the next development ground for Asia. They have the people and a great location, but they just don't have the power," Mr Dawson said.

With major coal-fired power station projects set to be commissioned from around 2011-12, Mr Dawson said Vietnam could soon be importing 20-30 million tonnes a year, with Indonesia and Australia best placed to be the major suppliers. "I would say Australia has a good chance of getting up to half that," he said.

Vietnam is currently a net thermal coal exporter, mainly supplying coal to neighbouring China for power, and to Japan for use in steel making. Exports last year almost doubled to 29.8 million tonnes and are now flatlining, but the country is expected to start husbanding its coal for its own use, although it is likely to want to preserve the high-margin export trade with Japan in favour of importing thermal coal.

According to Platts Commodity News, Vietnam could be importing more than 1 million tonnes a year as early as 2010. EVN expects coal demand to almost double from 5 million tonnes to 9.6 million tonnes by 2010.

The big kicker will come when the new power plant projects start commissioning. Vietnam has been opening its economy to foreign investors, and global power companies have been quick to spot the opportunity. Ensham Resource's major shareholder J-Power is planning to build a $2.4 billion coal-fired power plant in Ba Ria-Vung Tau province, while Sumitomo Group is proposing to build a $3.8 billion coal-fired plant in Khanh Hoa province, with first generation as early at 2012.

Others proposing to build coal-fired plants in Vietnam are France's EDF, Malaysia's Toyo Ink, Japan's Kyushu Electric Power and Sojitz, and Czech power utility CEZ.

Representatives from these utilities can be expected to be come knocking on the doors of our coal miners soon.