Australian Institute of Petroleum warns remaining refineries at risk of closure despite new subsidies

Australia’s petroleum industry is warning the nation’s two remaining oil refineries in Queensland and Victoria are still at risk of closing down despite more generous Federal Government subsidies designed to prop up local fuel production.

Climate Change and Energy Minister Chris Bowen on Friday announced the Fuel Security Services Payment program for Ampol’s Lytton refinery in Brisbane and Shell supplier Viva Energy’s Geelong facility would be tweaked so oil companies had easier access to funds to continue providing 20 per cent of Australia’s refined fuel needs.

Between them, they last year produced 12 billion litres of petrol, diesel and jet fuel, which is minuscule compared to the capacity of mega refineries in Asia that process crude oil.

They are the only two remaining refineries following the closure of five others in Australia since 2012, under both sides of politics.

“The operation of Australia’s refineries are extremely important — we want to see them operating right in the future,” Mr Bowen said in Brisbane.

“These payments will continue and we have taken the decision to make it easier for Ampol and Viva to access these payments into the future so that they can make the decision to secure their production here in Australia in coming years.”

A payment cap of 1.8 cents for every litre of refined fuel being produced is remaining in place, but help will now kick in when refiner margins fall to 10 cents a litre, up from 6.4 cents previously which was considered too low to cover production costs.

The Fuel Security Services Payment had started under the previous Coalition government after three refinery closures had been announced on its watch between 2014 and 2021.

Under Labor, two closure announcements were made in 2012.

Despite Labor’s more generous arrangements, Australian Institute of Petroleum chief executive Malcolm Roberts said government subsidies would be unlikely to stop refineries from closing in Australia, speaking as the representative of Ampol, Viva Energy, BP and Mobil.

“That’s a real risk. The economics of refining are pretty tough. The survival of refining is not assured,” he told The Nightly.

“It’s a manufacturing business — we’ve seen our car industry exit despite very substantial government support.”

Compared with refineries in India, Australia produces just one-tenth of the volume.

“We’ve got very old refineries here and by global standards they’re a pretty modest size,” Mr Roberts said.

“Normally, the ones that are doing well are those which are high volume, so scale’s important.”

With crude oil prices on Friday hovering around the $US100 a barrel level, the Australian Competition and Consumer Commission has been given more resources to monitor retail prices.

“If crude oil prices are elevated and at the same time you can have a relatively low or competitive retail price, that margin gets crushed,” Mr Roberts said.

Ampol chief executive Matt Halliday said Labor’s changes to refinery subsidies, announced on Friday, would reduce earnings volatility at its Lytton refinery in Brisbane by making the help threshold accessible when margins had fallen to 10 cents a litre.

“We welcome the adjustments made to the FSSP, which effectively increase the level at which payments under the scheme will commence,” he said.

“The favourable adjustment to the Government’s refiner margin will also assist in reducing the volatility in Lytton earnings over time.”

The Fuel Security Services Payment scheme debuted under the previous Coalition government in July 2021 when Opposition Leader Angus Taylor was energy minister.

“The policy of the Fuel Security Services Payment was meant to help people get through those downturns in the market - a lot less money was spent than expected,” Mr Roberts said.

The scheme was established shortly after BP had announced the closure of its Kwinana refinery in Perth in 2020, after 65 years, and Exxon Mobil had flagged the shutdown of its Altona facility in Melbourne in early 2021.

In less than a decade, under both sides of politics being in power, Australia has lost five refineries.

Shell’s Clyde refinery in Sydney closed in 2012 when Labor was in power.

Caltex’s Kurnell refinery, also in Sydney, closed in 2014 but its demise was announced in 2012 before the Coalition came to power.

Under the Coalition, BP’s Bulwer Island refinery in Brisbane closed in 2015 - making it one of three refinery closures announced on its watch.

Australia sources 80 per cent of its refined fuel from overseas, with Singapore last year the top source for petrol, South Korea the No.1 source of imported diesel and China providing the most jet fuel.

Even before the US lifted sanctions on Russian crude oil, Australia may have been getting Russian crude oil via refineries in India since 2022.

“Under the normal sanctions regime and international customs legislation, if you take crude oil and you refine it in a third country, it’s actually a product of the third country,” Mr Roberts said.

“That’s why we may have had Russian crude in some of the products we’ve imported.”

The lifting of restrictions could see more Russian crude come to Australia via other refineries in Asia, despite Australia in 2022 condemning Russia’s invasion of Ukraine.

Reuters estimates 3 million tonnes or 614,500 barrels a day of Russian crude oil would be arriving at Asian refineries this month, based on ship-tracking data from Kpler and LSEG.