PV Gas, a subsidiary of state-run PetroVietnam, on Monday started construction on the 1 million metric ton/year Thi Vai liquefied natural gas (LNG) facility in Ba Ria-Vung Tau province in southern Vietnam.

The facility is part of a series of gas and power projects being built in Vietnam that includes Nhon Trach 3 and Nhon Trach 4 gas-fired power plants in the Thi Vai-Nhon Trach area, PV Gas General Director Duong Manh Son said at a ceremony marking the project’s construction.

PV Gas places the price of the project at $285 million, with a scheduled date of completion by the third quarter of 2022. Phase two is expected to more than double initial capacity the following year. The facility will receive LNG vessels with a capacity of up to 85,000 tons, while providing 1.4 billion cubic meters of gas for the two power plants and other industrial customers.

The Thi Vai LNG storage facility and the two Nhon Trach power plants will ensure gas and electricity demand for the south-eastern key economic zone, Son said. Thi Vai will be the first Vietnam’s first LNG terminal.

The project is not only significant for PV Gas, but also an important milestone in the implementation of Vietnam’s national energy development strategy, National Assembly Vice Chairman Uong Chu Luu said at the ceremony.

On Monday, PV Gas reportedly signed deals to borrow $80 million for the project from HSBC and two Taiwanese banks, Mega Bank and Taipei Fubon Bank. Two Vietnamese banks will provide an additional $81.2 million for the project. PV Gas did not disclose where the remaining funds for the project will come from.

In June, PV Gas awarded an engineering, procurement and construction contract to build the terminal to Seoul-based Samsung C&T Corp. and PetroVietnam Technical Services Corp.

Because of increased population and economic growth, Vietnam has been searching for alternative energy sources to offset gas production declines. The country is facing an impending gas shortage that could begin as early as next year, with some reports forecasting a gas shortage by 2022. The World Bank estimates that Vietnam’s electricity demand will expand by around 8% per year over the next decade, and said the country needs to invest $150 billion by 2030 to develop its energy sector.

The Thi Vai LNG facility is also part of Vietnam’s ongoing push to develop its LNG infrastructure to offset gas production declines. Though the country has ample offshore natural gas reserves, Beijing has forced PetroVietnam and its Spanish partner Repsol SA to abandon two nearly completed offshore gas production projects in Vietnam’s United Nations-mandated 200-nautical mile exclusive economic zone (EEZ) on two separate occasions since 2018.

Beijing lays claim to a large swath of Vietnam’s EEZ in the hydrocarbon rich South China Sea in an ongoing geopolitical dispute, as well as laying claim to around 90% of the entire South China Sea. China, Vietnam, the Philippines, Taiwan, Indonesia, Malaysia and Brunei all have various overlapping South China Sea territorial claims.

Under Vietnam’s natural gas industry development plan, the country plans to have at least six LNG import terminals in operation by 2025 at a total cost of more than $6 billion. Some projections are for as many as 10 LNG facilities that could be operational in Vietnam within the next decade.

Declining domestic gas production and rising power demand in Vietnam could see a bigger role for LNG if integrated power projects can progress, according to Wood Mackenzie.