As Vietnam grows, oil demand and exports will increase

Although the country's oil production peaked a decade or so ago, Vietnam has been a net exporter of energy until this year.

Now the South East Asian powerhouse is exploring new oilfields in the South China Sea - but activity has suffered a number of delays as Vietnam has clashed with China over resource exploration.

Drilling at a Vietnam block was suspended after pressure from China, which said that the concession operated by Spain's Repsol overlapped a waterway it claimed as its own. Vietnam was alarmed, too, when Beijing reacted to an international tribunal's rejection of China's claims over the South China Sea by ignoring the judgement.

Such clashes are expected to diminish, however, in the the light of deepening economic relations between the two. China is Vietnam's biggest single trading partner.

August marked the first month in which Vietnam became a net importer of crude oil as the country boosted fuel refining at a time when local oil output is dwindling, according to Reuters. The trend is set to continue in coming months as the country’s refinery capacity grows, analysts say.

This surge in overseas orders for crude comes as Vietnam's 200,000 barrels per day Nghi Son refinery, its second such facility, prepares to produce liquefied petroleum gas, petrol, diesel, kerosene and jet fuel, mainly for the domestic market, with officials looking at a start date later this year or in early 2018.

With local oil production stalling and given Vietnam's more than 90 million people and 6 per cent plus annual economic growth, demand for oil imports will continue to grow, especially from current principal suppliers such as Kuwait, Azerbaijan and Brunei.

“We expect to send bigger and more frequent volumes of crude to Vietnam in the future," Reuters quoted a senior oil trading executive as saying. "Vietnam is one of the key new centres of oil demand growth, and we would not want to miss this opportunity,” the official added.

Kuwait Petroleum International and Japan’s Idemitsu Kosan each own 35 per cent of the Nghi Son refinery, while state-owned PetroVietnam holds a 25 per cent stake and Japan’s Mitsui Chemicals 4.7 per cent. Kuwait was the first supplier of crude oil to the new facility, sending 2 million barrels in August on a supertanker, with its oil minister saying in July that it expected to send regular shipments to Vietnam.

Vietnam is at the same time hoping to step up its exports of goods to Middle East nations. As reported in The National in August, a conference on Vietnam-Middle East business cooperation was held in Hanoi during that month, drawing more than 40 leading Vietnamese export firms.

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The country plans to increase exports to the Middle East, said Nguyen Xuan Cuong, the country's minister of agriculture and rural development, during the event. The Middle East is a huge market and a gateway to the European market, he noted. Vietnam hopes to export agricultural produce such as rice, tea, coffee, peppercorn, rubber, cashew, fruit and aquaculture products, to the 400-million person market of Middle East in 16 countries.

An early mover on the potential of exports from Vietnam to the UAE was Emirates' freight arm Emirates SkyCargo. It has played a key role in strengthening trade links in perishables between Vietnam and the UAE. Over the past 18 months, the carrier has facilitated a near five-fold increase in the volumes of exports of fruits, including rambutans and lychees, from Vietnam to Dubai.
Last year, Vietnam's agro-forestry-fishery exports were valued at over US$32 billion. Emirates SkyCargo has been working with Vietrade - Vietnam's trade promotion agency - to help develop export opportunities for Vietnamese produce in international markets, specifically in the UAE and other parts of the Middle East.
The volume of perishables exports from Vietnam to Dubai has increased considerably, touching a record of close to 110 tonnes in January 2017, according to SkyCargo.
"Emirates SkyCargo started operations in Vietnam in 2008 and has since then played an important role in the growing trade between Vietnam and the UAE. By working closely with Vietrade and by building upon our expertise in shipping perishables, we developed air freight solutions that have helped increase the exports of premium fruits and vegetables from Vietnam to Dubai," said Ravishankar Mirle, the Emirates vice-president, cargo commercial, Far East and Australasia.
"We will work with our customers and stakeholders to promote and develop new trade lanes for exports from Vietnam to global markets," he added.

Mr Cuong pointed out, however, that trade revenue between the two sides remains lower than hoped for, mainly owing to difficulties in payments as transactions are handled primarily via intermediary banks in Dubai, China and Singapore as well as some European countries, involving high transaction costs.

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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As Vietnam grows, oil demand and exports will increase

Opportunities for Middle East crude producers and Vietnamese providers of fruits and other goods

When Umm Kulthum performed in Abu Dhabi

The specs: 2018 Chevrolet Trailblazer