Final report project the situation of the petroleum market in vietnam in 2023 course title principles of microeconomic

Supply S - Supply: Supply refers to the quantity of goods or services that sellers are willing and able to offer at different price levels within a specific period, under the condition t

VIETNAM NATIONAL UNIVERSITY, HANOI UNIVERSITY OF LANGUAGES AND INTERNATIONAL STUDIES

FACULTY OF ENGLISH LANGUAGE TEACHER EDUCATION

FINAL REPORT PROJECT: THE SITUATION OF THE PETROLEUM MARKET IN VIETNAM IN

2023 Course title: Principles of Microeconomic

Class: ENG3106 Lecture: Ph.D Dang Ngoc Sinh Date submission: 26/12/2024

Hanoi, December 16 th 2024

VIETNAM NATIONAL UNIVERSITY, HANOI UNIVERSITY OF LANGUAGES AND INTERNATIONAL STUDIES

FACULTY OF ENGLISH LANGUAGE TEACHER EDUCATION

FINAL REPORT PROJECT: THE SITUATION OF THE PETROLEUM MARKET IN VIETNAM IN

2023 Course Title: Principles of Microeconomic

Class: ENG3106 Lecture: Ph.D Dang Ngoc Sinh

Group: 9

Hanoi, December 16 th 2024

TABLE OF CONTENTS

PCCV

LIST OF ILLUSTRATIONS

ABSTRACT

INTRODUCTION

1 Rational

2 Objectives 2.1 General objectives

3 Scope of study

4 Research questions

CONTENT

PART I: CƠ SỞ LÝ THUYẾT

1.1 Literature Review

1.1.1 Foreign research review

1.1.1.1 Research on the future prospects of the Petroleum Industry in Vietnam

1.1.2 Domestic research review

1.2 Theory of supply and demand

1.2.1 Supply of goods and services

1.2.1.1 Definitions

Supply (S - Supply): Supply refers to the quantity of goods or services that sellers are willing and able to offer at different price levels within a specific period, under the condition that other factors remain constant

Quantity Supplied (QS - Quantity Supply): Quantity supplied is the number of goods or services that sellers are willing to sell at a specific price level within a particular timeframe, assuming that other factors do not change

To better understand the relationship between price and supply, consider the following supply curve:

b External Factors Firstly, production technology (T) plays a crucial role in determining supply levels When technology improves, producers adopt technological advancements, leading to increased labor productivity and higher output Conversely, outdated technology reduces productivity and supply Secondly, prices of input factors (pi) matter when the prices of input factors increase, production costs rise, leading to a decrease in the supply of goods from producers, and vice versa (under the condition that other factors remain constant) Thirdly, higher taxes (t) lead to a reduction in supply, and lower taxes increase supply Additionally, producers' expectations (E) about changes in the price of goods, input prices, and tax policies also influence supply If expectations are favorable for production, supply will expand, and if expectations are unfavorable, supply will contract Ultimately, the number of producers (Nsx) is believed to be an external factor to supply when the more producers there are, the greater the quantity of goods supplied, and vice versa Changes in any factor other than price are considered changes in external factors, which cause the entire supply curve to shift

1.2.2 Demand for Goods and Services

b External Factors

1.3 Overview of the Petroleum Market in Vietnam

1.3.1 Characteristics of the Petroleum Market in Vietnam

1.3.1.1 Government Price Policies in the Petroleum Market

1.3.1.2 Government intervention in the petroleum market through tax policies

PART II: DISCUSSION

2.1 Current state of petroleum supply

2.1.1 Supply from imports

Figure 5: Import market of Vietnam (Cafef.vn, 2024)

2.1.2 Supply from domestic sources

2.2 Current state of petroleum demand

2.2.1 The current state of petroleum exports

2.2.2 Domestic gasoline consumption demand

Figure 7: Fluctuations in domestic fuel prices throughout 2023

Figure 8: Rate of increase in domestic CPI and fuel prices by the end of September 2023

Figure 9: Fluctuations in global refined petroleum product prices in October 2023

2.5 Impact of price fluctuations on the domestic petroleum market in 2023

2.5.1 Positive impacts

2.5.2 Negative impacts

PART III: SOLUTIONS AND GOVERNMENT POLICIES FOR STABILIZING PETROLEUM PRICES

3.1 Solutions for stabilizing petroleum prices

3.1 Government policies for stabililizing petroleum prices

PART IV: CONCLUSION

Vietnam’s petroleum market in 2023 experienced many ups and downs due to both global and local challenges International factors like OPEC+ production cuts and rising oil prices, combined with refinery issues at home, led to price increases that affected consumers and businesses The government responded with effective measures, such as lowering environmental taxes, using the Price Stabilization Fund, and enforcing rules to stop unfair practices like hoarding These efforts helped keep the market stable and protected the public from major price shocks For the future, Vietnam needs to focus on improving its energy independence by expanding domestic fuel production, using better tools to monitor the market, and working with other countries to manage global risks These steps will be important for keeping prices steady and supporting economic growth

APPENDIX

REFERENCES

PCCV

Intro + List of illutration + Ref Huyền Ngọc

Discussion 2.2.2 + 2.3 Minh trẩu tre :)))

Giải pháp + Abstract + Conclusion QAnh

LIST OF ILLUSTRATIONS Figures

Tables

In 2023, the Vietnamese petroleum market experienced significant flutuations due to globalgeopolitical tensions such as the Russia-Ukraine war and the Israel-Hamas conflict as well asdomestic supply challenges, and regulatory adjustment This paper provides an in-depth analysis ofthe supply and demand dynamics, price fluctuations, and the causes and impacts of economic’schanges The research highlights key measures implemented by the government to stabilized thepetroleum prices, such as reducing the environmental protection taxes, utilizing the Price StabilizationFund, requiring businesses to register their prices, and inspecting the market This findings aims toanalysis the state of Vietnamese petroluem market in 2023 as well as contribute to the stabilization ofpetroleum prices, ensuring consumer welfare and maintaining macroeconomic stability amidstvolatile global energy markets

1 Rational

Currently, 40% of the world's energy resources are petroleum As we know, petroleum is aspecial commodity, important to the development of the economy and human life In fact, petroleumhas an impact on most economic sectors in society In addition, activities in daily life such asstudying, working, traveling, etc all have a significant contribution from petroleum Although it plays

an extremely important role in the economy, petroleum is a non-renewable energy source and thedemand for it is increasing It is predicted that in the near future, the depletion of petroleum supplywill occur and greatly affect the economy

The effects of petroleum on the current economy have been increasingly evident when theconflict between Ukraine and Russia broke out and the Israel-Hamas conflict lasted The interruptionand shortage of petroleum supply have caused petroleum prices in many countries to escalate andVietnam is no exception In recent months, the newspapers have been full of news about gasolineprices as well as the government's efforts to stabilize gasoline prices, etc From the important impacts

of gasoline, we see the need to have a deeper understanding of the Vietnamese gasoline market in

2023 - a year when gasoline is of particular interest due to its erratic fluctuations, specifically in terms

of supply, demand, market, price fluctuations, causes, and impacts of gasoline price fluctuations onthe economy, thereby proposing solutions to stabilize gasoline prices That is the reason why ourgroup chose the topic “The current state of the gasoline market in Vietnam in 2023” for this report

3 Scope of study

Petroleum is a commodity that has fluctuated a lot in the market over the past years However,due to the limited research period, the research team will focus on assessing the current situation and demand and price fluctuations of petroleum in the Vietnamese market in 2023

4.3 What factors affect the fluctuations in Vietnam's petroleum prices in 2023?

4.4 What measures effectively stabilize Vietnam's petroleum prices in 2023?

CONTENT PART I: CƠ SỞ LÝ THUYẾT1.1 Literature Review

1.1.1 Foreign research review

1.1.1.1 Research on the future prospects of the Petroleum Industry in Vietnam

Vietnam's petroleum prospects are characterized by significant potential, ongoing exploration,and strategic challenges The country has a history of oil discovery dating back to 1974, withsubstantial reserves identified in various basins, particularly in shallow waters The government,through Petrovietnam, has actively engaged international partners to enhance exploration andproduction, indicating a robust commitment to developing its petroleum resources Petroleum’shistorical context is assumed to begin in 1974 when oil was first discovered in Vietnam, marking theinitiation of exploration efforts The Revolutionary Government's takeover in 1975 initiated a newphase in petroleum development, although early efforts faced challenges due to limitedinformation(Brown, 1976) Despite positive prospects, Vietnam’s petroleum faces several strategicchallenges According to Conley, Vietnam's growing energy demands and reliance on foreign sourcescomplicate its petroleum strategy, especially amid territorial disputes with China Additionally, theneed for technological advancements and investment in exploration challenges Vietnam in pursuit ofsustaining growth in the petroleum sector (Hoang,2022)

1.1.2 Domestic research review

1.1.2.1 Environmental impacts of the petroleum industry in Vietnam

The oil and gas industry in Vietnam significantly impacts the environment, primarily throughpollution and ecosystem disruption The increasing activities in oil exploitation and transportationhave led to heightened oil spill incidents, which contribute to severe ecological damage in theVietnam Sea and East Sea (Hao, 2012) Additionally, Diem’s article clarifies waste sources and types

of waste from offshore oil and gas exploration and production and assesses the environmental controlresults in offshore Vietnam oil and gas exploration and production activities On that basis, the paperalso points out the obstacles in the process of implementing the Law on Environmental Protection [1],Decree No 08/2022/ND-CP dated January 10, 2022, for oil and gas activities

1.1.2.2 Current petroleum exploration efforts

The exploration efforts of petroleum in Vietnam have been a topic of interest for manyresearchers over the years In recent years, the government has promoted the integration process

Noticeably, Vietnam has issued 27 production-sharing contracts to foreign companies, focusing onpromising areas like the Nam Con Son and Cuu Long basins(Tin & Ty, 1995) Another research takesnotice of tertiary sedimentary basins along the continental shelf, which exhibit hydrocarbon potential.Challenges include deep-sea drilling technology, high investment costs, and the need for adequateinvestigation and exploration of these basins ( Nhu, 2014) Besides, efforts in oil extraction inVietnam are emphasized to reduce environmental impacts, such as studies on the environmentalconditions at the Tan Rai bauxite mining area in Bao Lam District, Lam Dong Province (Pham,2018) This study evaluates environmental conditions through factors such as air, water, and soil,aiming to select suitable plants for environmental rehabilitation after mining activities Generally, theresearch has adopted a balanced approach to petroleum exploration, focusing on both economicgrowth and environmental sustainability While international collaboration and promising basinssignal progress, challenges like deep-sea drilling and high costs remain The integration ofenvironmental assessments further highlights Vietnam's commitment to sustainable development,positioning it as a responsible player in the global petroleum industry

1.2 Theory of supply and demand

1.2.1 Supply of goods and services

1.2.1.1 Definitions

Supply (S - Supply): Supply refers to the quantity of goods or services that sellers are willing andable to offer at different price levels within a specific period, under the condition that otherfactors remain constant

Quantity Supplied (QS - Quantity Supply): Quantity supplied is the number of goods or servicesthat sellers are willing to sell at a specific price level within a particular timeframe, assuming thatother factors do not change

To better understand the relationship between price and supply, consider the following supplycurve:

Figure 1: Supply curve

The supply curve is typically an upward-sloping straight line or may have a different form depending

on the nature of the supply

The supply curve can be expressed mathematically as:

Q = cP + d (c ≥ 0) or P = c’Q + d’ (c’ ≥ 0)

Law of Supply: Price and quantity supplied have a direct relationship Under the condition that other factors remain constant, if the supply of a good increases, the price of that good will also increase, anddecrease when the price falls The market supply at each price level is the total supply from all suppliers in the market at that price level

1.2.1.2 Factors Affecting Supply

The general supply function: : Qsx = f(Px, T, pi, t, Nsx, E, )

a Internal Factor (Px)

The price of the good or service itself is an internal factor affecting supply When the price increases, the quantity supplied will also increase, and vice versa Changes in price result in movement along thesupply curve, as shown in Figure 1

b External Factors

Firstly, production technology (T) plays a crucial role in determining supply levels When technology improves, producers adopt technological advancements, leading to increased labor productivity and higher output Conversely, outdated technology reduces productivity and supply Secondly, prices of

input factors (pi) matter when the prices of input factors increase, production costs rise, leading to a decrease in the supply of goods from producers, and vice versa (under the condition that other factors remain constant) Thirdly, higher taxes (t) lead to a reduction in supply, and lower taxes increase supply Additionally, producers' expectations (E) about changes in the price of goods, input prices, and tax policies also influence supply If expectations are favorable for production, supply will

expand, and if expectations are unfavorable, supply will contract Ultimately, the number of producers(Nsx) is believed to be an external factor to supply when the more producers there are, the greater the quantity of goods supplied, and vice versa Changes in any factor other than price are considered changes in external factors, which cause the entire supply curve to shift

Figure 2: Movements of supply curve

1.2.2 Demand for Goods and Services

1.2.2.1 Definitions

Demand (D – Demand): Demand refers to the quantity of goods or services that consumers arewilling and able to purchase at various price levels within a specific period, assuming other factorsremain constant

Quantity Demanded (QD – Quantity Demand): Quantity demanded is the amount of goods orservices that consumers are willing and able to purchase at a specific price level, assuming otherfactors remain constant

Demand reflects the relationship between price and quantity demanded, which is illustratedthrough the demand curve as shown below

Figure 3: Demand curve

The demand curve above is a straight linear line, but it can take other shapes depending on thenature of demand

Linear demand function: Qd = aP + b (a ≤ 0) or P = a’Q + b’ (c’ ≤ 0)

Law of Demand: Price and quantity demanded have an inverse relationship Under thecondition that other factors remain constant, if the price of a good increases, the quantity demandedfor that good decreases, and vice versa

The market demand at each price level is the total demand of all individuals in the market atthat price level

1.2.2.2 Factors Affecting Demand

General demand function: Qdx = f(Px, I, Py, T, Ntd, E, )

a Internal Factor (Px):

The price of the good or service itself is an internal factor affecting demand When the priceincreases, the quantity demanded decreases, and vice versa Changes in price result in movementalong the demand curve, as shown in Figure 3

b External Factors

- Consumer Income (III): For normal goods, can be categorized into essential goods andluxury goods, when income increases, demand for these goods also increases, and viceversa for essential goods, an increase in income leads to a small or proportionateincrease in demand, while, for luxury goods, demand increases significantly as income

rises However, for inferior goods, an increase in income leads to a decrease indemand, and vice versa.

- Prices of Related Goods (Py): Related goods are divided into substitutes andcomplements For substitutes, when the price of one good decreases, the demand forthe other good decreases, and vice versa Meanwhile, for complements, when the price

of one good decreases, the demand for the other good increases, and vice versa

- Consumer Tastes (T): If a product is trending or favored by consumers, demand for itwill increase, and vice versa

- Number of Consumers in the Market (Ntd): The more consumers in the market, thehigher the total demand, and vice versa

- Consumer Expectations (E): If consumers expect the price of a good to increase in thefuture, they tend to buy more of that good in the present, leading to an increase incurrent demand

- Changes in factors other than price are considered changes in external factors, whichcause the entire demand curve to shift

1.3 Overview of the Petroleum Market in Vietnam

1.3.1 Characteristics of the Petroleum Market in Vietnam

The petroleum market in Vietnam is regulated by government policies, allowing forintervention in the market

1.3.1.1 Government Price Policies in the Petroleum Market

In practice, numerous mechanisms and policies are enacted by the government to enableenterprises to have some control over adjusting fuel prices However, they do not have full decision-making authority According to the pricing management principles for petroleum products outlined inArticle 27 of Decree No 84/2009/ND-CP dated October 15, 2009, issued by the government, theprinciples include:

a Petroleum prices are implemented based on market mechanisms under state management

b Key traders have the right to decide wholesale prices Adjustments to retail prices mustfollow the principles and procedures mentioned in this regulation They are also responsible forparticipating in price stabilization as per current legal regulations and are entitled to reasonable costrecovery for participating in price stabilization

c The interval between two consecutive price adjustments must be at least ten (10) calendardays for price increases and no more than ten (10) calendar days for price decreases When adjusting

retail petroleum prices, key traders must simultaneously submit their pricing decisions and price plans

to competent state authorities

d Competent state authorities, upon receiving the pricing decisions and price plans from keytraders, are responsible for supervising to ensure that the price adjustments comply with legalregulations

1.3.1.2 Government intervention in the petroleum market through tax policies

Today, there are numerous types of taxes applied to businesses operating in the fuel sector.These include fuel fees, import taxes, value-added tax (VAT), special consumption tax, and othertaxes, fees, and mandatory contributions as stipulated by law

The government is currently implementing an import tax method based on the percentage ofCIF prices ( Cost, Insurance, and Freight) This means when global fuel prices increase, import taxesand special consumption taxes also increase Consequently, the State budget sequentially increasesand benefits from additional revenue generated by these taxes However, businesses may facechallenges because if the retail prices regulated by the government fail to rise in line with global pricetrends, fuel trading companies may find it difficult to achieve profitable operations

Conversely, the State budget experiences a notable reduction It is because when importprices decrease, import taxes and special consumption taxes also decline To compensate for thebudget shortfall, the State may increase taxes This action, however, can negatively impact theeconomy and society in various ways

1.3.1.3 Government intervention in the Petroleum Market through loss compensation policies forenterprises

To stabilize the market, key enterprises are responsible for importing petroleum as mandated

by the State (even during periods of significant global petroleum price fluctuations) At the same time,the obligation and responsibility to ensure an adequate supply of petroleum for the population isunderscored, though price adjustments are only allowed within an anticipated range to maintainmacroeconomic stability

Major enterprises such as Petrolimex and PVOIL must not only adhere to strict timelines forimporting petroleum and selling it at regulated prices but also ensure the availability of petroleumsupplies at regulated prices in remote areas, such as distant islands or isolated mountainous regions.This strict requirement has resulted in significant losses for these enterprises at certain times

Consequently, in recent years, the State has allocated substantial funds to subsidize the losses incurred

by key petroleum trading enterprises

1.3.1.4 Licensing conditions for Petroleum trading enterprises

Adhering to Decree No 84/2009/ND-CP dated October 15, 2009, issued by the Government,traders meeting the following conditions are eligible for a license to engage in petroleum export andimport activities:

1 The enterprise must be established legally, and its business registration certificate mustinclude the petroleum trading activity

2 The enterprise must own or co-own, or have a long-term lease (minimum of fiveyears), a specialized port located within Vietnam's international port system, capable

of accommodating oil tankers or other petroleum transport vessels with a minimumcapacity of 7,000 tons (7,000T)

3 The enterprise must own or co-own, or have a long-term lease (minimum of fiveyears), a storage facility with a minimum capacity of 15,000 cubic meters (15,000 m³)for receiving imported petroleum directly from oil tankers or other petroleum transportmeans

4 The enterprise must own or co-own, or have a long-term lease (minimum of fiveyears), specialized petroleum transport vehicles to ensure supply to its distributionsystem

5 The enterprise must have its own petroleum distribution system, including a minimum

of 10 retail outlets owned or co-owned by the enterprise and at least 40 retail agents

6 Traders dealing in the export and import of jet fuel are optinal to have the distributionsystem specified in Clause 5 of this Article but compulsory to own or co-own jet fuelrefueling equipment

1.3.1.5 Other characteristics of the Petroleum MarketThe petroleum market in Vietnam is not only a market for ordinary goods and services butalso a critical fuel source for production and services, with unique mechanisms Therefore, in addition

to adhering to general market rules such as price laws and supply-demand laws, it is also necessaryfor the petroleum market to have the following distinctive characteristics:

Firstly, absolute safety in petroleum trading must be emphasized, particularly fire attentionand explosion prevention Petroleum possesses special properties, including toxic chemicals such assulfur and octane, which are harmful to human health Furthermore, the odor of petroleum is highlyhazardous, negatively affecting the environment and ecosystem.

Secondly, international and domestic political relations have a significant impact on thepetroleum market, therefore, this market must be considered within the broader context ofinternational relations and the nation's foreign policies In other words, petroleum is often labeled as a

"sharp weapon" in the smoke-free battle of international politics and military strategy

Thirdly, the petroleum market in Vietnam is primarily concentrated on downstream activities.Compared to other imported goods, petroleum has a high import volume and substantial importturnover Each year, Vietnam consumes approximately 20.5–21 million tons of various petroleumproducts, leading to an import turnover of tens of billions of USD annually

Currently, the domestic market features four main types of petroleum products: E5 RON 92gasoline, RON 95 gasoline, Diesel oil (DO), and kerosene (KO)

E5 biofuel gasoline has been widely available since early 2015 This type of gasoline is lightgreen and is a blend of 95% unleaded gasoline and 5% ethanol E5 gasoline is primarily producedfrom starchy agricultural products such as cassava and corn, rather than crude oil like conventionalgasoline E5 biofuel is of assured quality and is highly safe for vehicles, the environment, and publichealth Generally, the bioethanol component in E5 gasoline is renewable, contributing to energysecurity, reducing harmful emissions, and helping protect the environment

RON 95 gasoline, also known as A95 gasoline, is a premium fuel that has a yellow color and adistinctive odor With a high octane rating of 95%, which measures fuel's resistance to knocking, itprovides better anti-knock properties than E5 gasoline, ensuring smoother engine performance.Because RON 95 gasoline is produced by distilling fossil fuels, it emits significant amounts of COand CO2 into the environment, contributing to pollution

1.3.2.3 Diesel Oil (DO)Diesel oil is a liquid fuel derived from the fractional distillation of crude oil, with acharacteristic pale yellow color and a boiling range of 175–370°C It is heavier than gasoline andkerosene There are two main types of diesel oil available in Vietnam including DO 0.05%(containing a maximum of 500 mg/kg sulfur) and DO 0.001S-V (containing a maximum of 10 ppmsulfur) Diesel oil is commonly used in internal combustion engines It is recorded to emit relativelylow amounts of carbon monoxide, hydrocarbons, and carbon dioxide, thus posing minimalenvironmental impacts However, it contains significant quantities of nitrogen compounds andparticulates, which can cause acid rain, smoke, unpleasant odors, and adverse health effects whenburned.

Kerosene (also known as paraffin) is widely used in daily life It is a colorless, flammableliquid hydrocarbon mixture produced through the fractional distillation of crude oil at temperatures of150–275°C (carbon chains ranging from C12 to C15) In the past, kerosene was used as fuel for oillamps; today, it is mainly used as jet fuel for aircraft Another variant of kerosene, RP-1, burns withliquid oxygen and is used as rocket fuel Kerosene is typically colorless or slightly tinted, for examplepurple kerosene The lighter the color, the higher the quality of the kerosene

PART II: DISCUSSION2.1 The current state of petroleum supply

2.1.1 Supply from imports

According to preliminary data from the General Department of Customs, the import volume in

2023 was 10.05 million tons, with a turnover of USD 8.36 billion, representing a 13.2% increase involume and a 6.7% decrease in value compared to the previous year (Figure 4) Specifically, imports

of petroleum products into Vietnam in December 2023 increased by 10.3% in volume and 3.2% invalue compared to the previous month, reaching 669,902 tons with a value of USD 526.84 million

Table 1: Petroleum Import Situation in 2023 (Vinanet.vn, 2024)

According to the General Department of Customs, in 2023, various types of fuel wereprimarily imported into Vietnam from South Korea, totaling 3.92 million tons, valued at USD 3.21billion This represents a 20.1% increase in volume but a 6.08% decrease in value compared to 2022.The reason South Korea has become the largest fuel supplier to Vietnam is due to the 10% taxincentives provided under the Vietnam-South Korea Free Trade Agreement This tax rate is

significantly lower than the 20% MFN (Most Favored Nation) rate applied to goods from WTOmember countries.

Figure 5: Import market of Vietnam (Cafef.vn, 2024)

According to the Vietnam Petroleum Associations, the second-largest source was Singapore,accounting for over 21% of the total import volume and value in 2023 Imports from Singaporereached 2,171,473 tons, valued at USD 1.81 billion, marking a 45.6% increase in volume and a 26.4%increase in value Next was Malaysia, which accounted for approximately 18–19% of the total importvolume and value Imports from Malaysia increased by 37.4% in volume and 21.8% in value,reaching 1,944,976 tons and USD 1.57 billion Fuel imports from Thailand made up over 10% of thetotal volume and value in 2023, amounting to 1,007,129 tons and valued at USD 857.9 million Thisrepresents a 6.9% decrease in volume and a 25.9% decrease in value Finally, China accounted forapproximately 9–10% of the total import volume and value in 2023, with imports decreasing by 5.4%

in volume and 15.7% in value The total imports from China were 960,617 tons, valued at USD 848.4million

2.1.2 Supply from domestic sources

According to Vietcombank Securities, 60%-70% of the domestic petroleum consumption is supplied

by two refineries: Dung Quat Refinery (operated by BSR) and Nghi Son Refinery (NSR) Together,