It would be a shame if anyone thought you were throwing a wet blanket "on this party" wilto. Its a valid question to ask.
If there was an area that I have paid particular attention to, I'd say its this one. This is because - whatever your forecasting model - if you don't have an accessible market or one that is foreseeable in the future it doesn't matter what you pull up from the ground (as you cant sell it).
ENI has in place, a series of research and development agreements with Vietnam. Both the company and government are actively engaged. This is one of the building blocks in any project success - stakeholder identification and then engagement.
In terms of project priorities, ENI has specifically flagged Vietnam as one of four countries that they are focussing on, globally.
This indicates that our partner is heavily invested in delivering what the Vietnamese government is asking for; global private sector capital and expertise to come in and develop a gas industry. The government needs to do this due to the anticipated energy/gas shortages. As a stop gap the government has been signing deals with China and Laos to import energy (from various sources). Recently they signed and MOU with Russia to do the same. This is not sustainable as the government has a mandate to keep energy prices flat. To keep prices down they need to think long-term, and hence, support the development of in-country resources.
At the moment supermajors like Chevron are experiencing difficulties in agreeing acceptable terms that would ensure a minimum internal rate of return. This is one of the primary inputs into any feasibility study i.e what is the price to achieve 'x' %return. This is understandable given the mandate I mentioned previously. The actual reason for this rolls up to a fiscal directive; to curtail inflation pressures and also support growth. When there is low growth, the government cannot approve higher energy prices. Vietnam is currently in a low growth environment despite it becoming increasingly 'industrialised'.
The stalemate will run its natural course. The government needs cheap/er gas, fast. Chevron needs a minimum return. NEN and its JV partners have a project that could potentially support an industry due to its resource size. I view our position as more 'transparent' due to ENIs relationship with the government but also the project economics surrounding the find - very high flow rates, and a large exploitable resource. This is a perfect storm as we have 'scale' and 'quality'.
NEN Price at posting:
33.5¢ Sentiment: Buy Disclosure: Held
