Gazprom Neft, Russia’s leading oil and gas company, signed an agreement on 6 April to take a 49% stake in the operator of the Dung Quat oil refinery, currently Vietnam’s only operating oil refinery.

Gazprom Neft signed the agreement with PetroVietnam’s Chief Executive Officer Nguyen Xuan Son during Russian Prime Minister Dmitry Medvedev’s visit to Vietnam.

Negotiations between PetroVietnam and Gazprom Neft began in May 2013. A framework agreement was reached with Gazprom Neft on co-investing in Binh Son Chemical and Refinery Company, and expanding Dung Quat refinery in November 2014.

As part of the modernisation program, the annual production capacity of the refinery will be increased from the current 6.5 million tonnes to 10-12 million tonnes at an estimated cost of between USD 1-1.5 billion.

Under the agreement, Gazprom Neft also will supply 3 million tonnes of crude oil to the Dung Quat oil refinery in 2015, 3.6 million tonnes in 2016, 4.8 million tonnes in 2018 and not less than 6 million tonnes in the following years.

The refinery’s crude throughput currently is 85% sourced domestically and the remainder is sourced from the Middle East. However, Vietnam’s oil production is forecast to decline to only 313,000 barrels per day (bpd) by 2020 at the same time that oil consumption is forecast to reach 554,000 bpd.

A detailed feasibility study to expand the oil refinery was submitted to the Vietnamese government for approval in September 2014. The expansion of Dung Quat to 10.7 million tonnes, from its current level of 6.5 million tonnes per year, is vital to make the refinery’s operations more economical.

Completion of the refinery upgrade is expected by 2021.