Refineries can help fuel nation’s energy security
Shortly after the Second World War, Shell announced the construction of Australia’s first oil refinery, at Geelong in Victoria. At the time, it sent ripples of excitement throughout the community and was widely applauded as a major development in strengthening Australia’s industrial capacity.
Nearly seven decades later, the Geelong refinery’s flare continues to burn brightly at the entrance to the city and today its new owners, Viva Energy, manufacture more than half the fuel Victorians need to go about their daily lives. Up to a third of the crude oil is supplied from Australian production fields, and the refinery is the country’s only remaining manufacturer of bitumen, hydrocarbon solvents, and avgas used by smaller piston engine aircraft that fly across our vast land. It is uniquely Australian and an integral part of our progress as a nation.
Since 2012 we have seen the closure of three other refineries in Sydney and Brisbane, and Ford and Alcoa have both ended their manufacturing operations much closer to home in Geelong. Manufacturing in Australia has indeed been a very tough business. A strong dollar provided cheap imports for a period, and more recently rapidly rising gas and electricity costs have brought headwinds that many manufacturers are struggling to endure. As a nation we have increasingly chosen products made overseas and, with it, lost some of our self-sufficiency and the important, highly skilled jobs this supports.
At the beginning of a new decade, the refining sector faces a new challenge with unprecedented declines in fuel demand due to the measures in place around the world to contain COVID-19. In the short term, this is good for consumers who have enjoyed lower fuel prices, but it is putting significant pressure on refining margins and the viability of the sector. Although demand will recover in time, some refineries around the world will no doubt close as a result of the more permanent demand impacts and challenging economic outlooks in their respective markets.
Rationalisation
The question for us is whether Australian refineries should again fall victim to this rationalisation. The remaining four refineries now produce less than half the country’s fuel requirements, with most of our fuel imported from refineries in countries such as Singapore, South Korea and Japan. They have been reliable suppliers for many years, and any further refinery closures in Australia can be easily covered by further increasing our dependency on imported fuel. The industry has highly efficient supply chains, and some markets, such as Sydney, are almost exclusively supplied in this way.
But there are other important considerations. With closures go the jobs, skills and capabilities that reside in our country’s manufacturing operations, and the broader contributions that they make to their local communities and other industries that service them or rely on the products they make. Our dependency on foreign refineries for our energy security would grow, and we might further reduce the level of commercial fuel reserves that are held in Australia.
These are important considerations for any nation and it is encouraging to see the government taking an active role to understand the significant challenges facing the sector and consider policies that might improve longer-term viability. The announcements this week from Energy Minister Angus Taylor to undertake a strategic review of the sector and consider bolstering strategic oil storage alongside refining operations are important signals that build confidence about the future. More broadly, the prominence of manufacturing within the National COVID-19 Co-ordination Commission, which highlighted the need to bring down energy costs and nurture skills and capability, provides a long overdue focus on a sector that employs hundreds of thousands of people.
For our part, Viva Energy is continuing to invest in modernising and improving the efficiency of our operations and working with government to bring new petrol specifications to Australia to support lower emission vehicles. We are also exploring ways to diversify and broaden our operations to include other lower-carbon energies such as bringing more natural gas to Victoria from other parts of the country, introducing solar and battery storage to provide cheaper electricity and reduce our emissions, and potentially supporting the early-phase production of commercial quantities of hydrogen.
We have a vision to develop an “energy hub” at Geelong that brings together research, community and commercial partners to create an exciting new future for the facility in the same way our predecessors did when the refinery was first constructed in 1954. This will require the support of our governments, our employees and our community, but we firmly believe that investing in our own people and local industries will best serve our country in the decades to come and that this will be more important than ever as we emerge from COVID-19 and rebuild our economy. We very much look forward to playing our role in protecting and building a more secure and brighter energy future.
Scott Wyatt is the chief executive of Viva Energy
