The U.S. Risks Losing Out From Its Own Trade Push in Vietnam
(Bloomberg Businessweek) -- In 2019, as the Trump administration ramped up its trade war with China, it began to target Vietnam, which has a significant trade surplus with the U.S. American officials at the time thought Vietnam could begin righting that by buying U.S. liquefied natural gas and by contracting with U.S. companies to build the power plants, terminals, and pipelines to transform LNG into electricity. The administration, which had called the gas “molecules of U.S. freedom,” pushed new spending initiatives, sent trade missions to Vietnam, and funded research to boost sales of LNG to Vietnam, in part to counter China’s influence in the region by strengthening its alliances and trade presence.
U.S. exports of LNG grew 31% in 2020 from the previous year, and Asia became the primary destination, overtaking Europe. U.S. LNG exports to Asia increased 67% in 2020, with South Korea and Japan the largest buyers, followed by China.
The result of the U.S. push was a flurry of American proposals for LNG projects in Vietnam, including from industry giants such as Exxon Mobil Corp. and also from newly formed companies that headed to the country to propose multibillion-dollar projects, sign memoranda of understanding, and scrounge up financing. By January 2021, there were at least 30 proposed projects from American as well as global companies.
Fast-growing Vietnam aims to double its electricity capacity by 2030. A quarter of that need could be met by LNG as the country moves away from coal and toward renewables such as wind, according to the government’s latest draft power plan. LNG plants emit about half the amount of carbon dioxide that coal plants do.
Vietnam’s media regularly touted the huge projects. But several of those proposed by U.S. companies that received initial permits have uncertain odds of being completed because of their inability to secure financing and supply deals, according to a new report from the Ohio-based Institute for Energy Economics and Financial Analysis, an energy research organization.
“Due to the rapid deterioration of trade relations with Vietnam under the Trump administration, several LNG project developers saw an opportunity to portray LNG-to-power projects as means for Vietnam to ease tensions by boosting U.S. LNG imports,” says Sam Reynolds, a co-author of the IEEFA report. “However, their thin track records, claims of lasting official U.S. government support, and lack of publicly available information about their financial and operational capabilities have raised troubling questions about their ability to execute on their ambitions.”
Some of the developers of the projects “have no idea what they are doing,” says Michael DiGregorio, Vietnam country representative of the Asia Foundation. “It’s like someone coming into a poker match and saying, ‘I will up your ante even if I don’t have anything in my hand.’ It’s nuts.”
The IEEFA has raised questions about the feasibility of at least seven of the proposed projects. Several of them had appeared on the nation’s previous power plan of nine proposals, or on the draft of a new plan that expanded to more than 40 projects by February. The plan, which was supposed to have been approved in early April, was kicked back to the trade ministry by Deputy Premier Le Van Thanh for reconsideration and whittling down to the most viable.
Vietnam’s trade ministry did not respond to a request for comment.
One developer, Delta Offshore Energy, which has offices in the Houston area and in Hanoi, drew the endorsement of Wilbur Ross, the former secretary of commerce, despite having no apparent experience in projects of the size and scale it proposed. Ross plugged Delta in a video posted on YouTube after the company was chosen by the department’s Advocacy Center, which uses diplomatic personnel at embassies and consulates to push foreign governments to award contracts to U.S. businesses that the Commerce Department determines to be “in the U.S. national interest.”
Delta, co-founded by an Iraq War veteran, Bobby Quintos, has made questionable statements about its $4 billion project intended for Vietnam’s far south, in Bac Lieu province, according to the IEEFA report. Quintos’s Vietnam-based partner said last August that the project has “funding fully secured already.” Yet a Vietnamese provincial official speaking in April said Delta’s project has “unprecedented problems in attracting foreign investment.” In January, Delta issued a press release saying it had completed 95% of its milestones, including having begun the signing of a power-purchase agreement with the government, less than a year after receiving preliminary approval. PPAs for other power projects in Vietnam have taken up to a decade, according to IEEFA research. The provincial official said in April the two sides hadn’t reached agreement and negotiations were ongoing.
Quintos acknowledges that negotiating a PPA is normally a lengthy affair but says that “the signing process has begun” and the company is moving forward. Quintos says Delta is using the build-own-operate model, rather than the more conventional build-operate-transfer, so will keep the plant after it is finished. “Because we own it and we’re not giving it back to the Vietnamese government, there’s a lot less red tape,” he says.
Another Houston-based developer, Millennium Energy, put forward a project reported by Vietnamese media to cost as much as $27 billion—several times the norm, according to a Bloomberg analysis. Millennium Chief Executive Officer Jarl Pedersen declined to discuss pricing, except to say that proposed terminal storage capacity is larger than average. “Our dedicated team of experienced developers in Vietnam and our engineering experts in the U.S. continue to stay focused on advancing our LNG import terminal and power projects in Vietnam,” he said in a written response.
Bradley LaLonde, who set up Citibank in the country in the 1990s and now runs his own boutique investment firm, Vietnam Partners LLC, says power projects are especially hard to pull off in Vietnam, even for the likes of Exxon. Foreign investors need purchasing and price guarantees, which Vietnam is wary about offering. “When it comes to financing, the government doesn’t want to put up the guarantees, and foreign investors need the guarantees. That’s where things get bogged down,” LaLonde says. Weeding out non-legitimate projects while developing the sector’s regulatory framework also takes time, the Asia Foundation’s DiGregorio says.
With China making a territorial grab in the South China Sea, American LNG shipments—which would be protected by the U.S. Navy—will continue to hold appeal for the Vietnamese. But without guarantees for U.S. companies, Vietnam could just as easily turn to cheaper and closer LNG sources, such as from Qatar, Australia, and Malaysia. Since President Joe Biden came into office, Vietnam is no longer being pressured by the U.S. the same way on trade. Signaling a less confrontational approach to trade policy, the Treasury Department in April declined to designate Vietnam a “currency manipulator,” as the Trump administration had done in December. U.S. Trade Representative Katherine Tai merely mentioned the concern in an April call with her Vietnamese counterpart.
If Vietnam’s leaders make purchasing decisions based solely on market considerations, then U.S. gas looks far less attractive, says the IEEFA’s Reynolds.
For all the Trump administration’s bluster, the U.S. trade deficit with Vietnam rose 25% in 2020 from the previous year. The rhetoric may have helped propel Vietnam to seek out more trading partners, says Henning Gloystein, Singapore-based director at consulting firm Eurasia Group. In June 2019, as Trump was threatening trade tariffs and calling Vietnam “almost the single-worst abuser of everybody,” the country signed a free-trade agreement with the European Union. It already had one with Japan. The U.S. also scuttled the Obama-era Trans-Pacific Partnership, which would have given U.S. companies tariff breaks.
Now non-U.S. companies stand to gain. “For sure, the U.S. is going to need to play catch-up. Trump tried to apply pressure where no pressure was needed, and others snuck in,” says Gloystein. “It’s pretty obvious it backfired.” —With John Boudreau and Sergio Chapa
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