Oil, Green Homes and Europe

Vietnam importing oil

Source: Vietnamese customs

Vietnam is producing less oil than it did previously. We talked about its import bill on Sept. 19 (see here), where I basically said rising oil prices don’t matter that much, because it doesn’t import that much overall (every $10 increase in oil prices increases the import bill by about $85m). But for specific refineries, it matters a lot. That’s why Vietnam has recently signed an agreement to import 5m barrels in 1H2020 from Azerbeijan for the Binh Son Refining and Petrochemical JSC, an SEO.

The important thing to note here is that the refiner needs light (low specific density) sweet (low sulphur) crude, which is not available everywhere. For example, many US refiners are used to medium and heavy crude, so when the US sanctioned Venezuela, they had to scramble to find other crude that was also medium or heavy. The reverse is true in this Vietnamese refiner. My point is that people talk about the oil market as if all oil is interchangeable, and it probably is in the long run. That’s because refineries can make adjustments over time, if it makes economic sense.. But in the short run, the type of fuel for which refineries are optimized is very important.

Recently, Vietnam abolished its import duty on oil, I guess because the state would probably have to eat most of it, so what’s the point. That’s what helped allow the refinery to start these imports.

Also, as I mentioned in my last post on oil, Vietnam imports something like 8m barrels a year. Well, it is almost doubling that with just this deal.

A New Effort to Green Vietnamese Homes

So while Vietnam is increasingly importing oil, it is also increasing the amount of electricity produced by solar. This Million Green Homes initiative aims to bring solar and/or green efficiency to a million homes by 2030. It’s basically a platform that connects financiers, business, NGOs and consumers all together.

One end result would be to get a bunch of small homes outfitted with solar, and then sell whatever resulting product to the financiers. I think of it like this: lots of consumers band together to get their solar arrays financed and then pay into one big pot. The financier would get the cash flows in exchange for paying for solar installations. And it could be done at small scales, and the financiers could then bundle them. A securitization of green homes, if you will.

More details here.

Europe and Vietnam

Source: Vietnamese Customs, EU, Vietecon.com calculations

The trade agreement between Europe and Vietnam still has not been ratified, probably because the EU has other more important concerns (read: Brexit). According to this article, it should be done in January 2020.

I found this article interesting. A jailed journalist is asking the EU not to sign the deal until Vietnam fixes its human rights issues. He appeals to the EU’s values but also he talks about the trade deficit with Vietnam. Basically, he is appealing to the EU by saying: “your trade will suffer from this.” I kind of thought this was a weird way to think of it, because the EU obviously knows it has a trade deficit. See the chart to the right, which is built on EU data.

The EU negotiators hope this trade deal will help reduce the EU’s trade deficit by promoting exports. I don’t know, it seems like a weird appeal for a Vietnamese person to make: don’t do this deal, because it will be good for me and bad for you!

Anyway, the VOA article linked to above talked about the importance of British trade to Vietnam. I had talked about this back on July 30. Boris Johnson and the conservatives look to win the parliamentary elections. If they do, then some sort of Brexit will happen. After that, I assume Britain will try to sign a new trade deal with Vietnam, although it may continue to have all of the EU trade deals. If not, maybe they will join TPP, if possible. It will be interesting to see what happens.

Just to give you a sense of the impact, Vietnam exported $5.4bn worth of merchandise to the UK through November, while importing just $783m from the UK, for a surplus of $4.6bn!