TOKYO -- Japanese utility Tokyo Gas and trading house Marubeni will build a liquefied natural gas-fired power plant in Vietnam, betting on the emerging economy's growing appetite for an energy source cleaner than coal.
The Japanese companies have signed a memorandum of understanding with Petrovietnam Power -- a member of state-run Vietnam Oil and Gas Group, known as Petrovietnam --and a local construction company for the project with an estimated total investment of 200 billion yen ($1.93 billion).
The deal comes as China, Japan and South Korea lead the way in setting goals for cutting greenhouse gases in Asia in the coming decades. Natural gas plays a key role in such plans.
LNG "will be an outperformer in the medium term," a gas industry insider said.
The Japanese companies and their Vietnamese partners will begin a feasibility study and negotiations on power pricing, with the aim of bringing the plant online in 2026.
To be located in the coastal province of Quang Ninh about 200 km from Hanoi, the LNG power station will have a capacity of 1,500 megawatts, or the equivalent of one nuclear reactor. The all-encompassing project will include construction of a terminal for receiving LNG ships and for regasification, as well as a pipeline to the plant.
Power demand is increasing 10% a year in Vietnam's growing economy, which is outperforming regional peers this year. While a global shift to renewable energy is accelerating, this transition poses a challenge for rapidly industrializing emerging economies.
This is where LNG comes in. The fossil fuel is considered a relatively clean energy, with carbon dioxide emissions from its combustion about half of those from coal.
Vietnam is moving forward with LNG-fueled power plants, many of which are expected to begin operating in the mid-2020s. Gas-fired power generation is projected to grow to 158.1 billion kilowatt-hours in 2030 from 44 billion kwh in 2020, according to government data.
The LNG plant in Quang Ninh will mark the first overseas one-stop project for Tokyo Gas, which is eager to export its LNG know-how to markets beyond the stagnant Japan.
Marubeni has similar projects involving steps from LNG procurement to power generation in Indonesia and Myanmar as well, working with other Japanese companies.
While Japan remains the world's biggest LNG importer, some predict China will ascend to the top spot as soon as 2023.
Tokyo Gas buys LNG from six countries as of this year. If Japan's energy demand shrinks in line with its demographic decline, this would weaken the country's purchasing power, resulting in higher import prices. Tokyo Gas wants to broaden its markets to maintain its procurement edge.