Refiners struggle despite subsidies as adverse market conditions continue
Australian oil refiners have warned of a tough outlook despite the Morrison government’s industry subsidy package.
Australian oil refiners have warned of a tough outlook despite the Morrison government rollout of an industry subsidy package, with adverse market conditions to continue pressuring local operations over the medium term.
Prime Minister Scott Morrison announced plans on Monday to invest in new domestic diesel storage facilities, create a minimum onshore fuel stockholding and a 1.15c-a-litre refinery subsidy to keep the nation’s four refining facilities afloat.
Refinery operators Viva Energy and Ampol both backed Canberra’s support but remain cautious over the outlook for the sector given soft margins, high costs and plunging demand due to COVID-19 lockdowns.
“The refining sector globally is under enormous pressure and it’s probably going to remain so until global demand for oil products recovers,” Viva chief executive Scott Wyatt told The Australian.
“In the meantime refineries in our region are going to look far and wide to export their surplus production. Australia is an obvious market for that and that is putting pressure on Australian refining margins.”
Viva, which operates the Geelong refinery in Victoria, said the industry package would help to keep local refiners competitive with their international rivals.
“The package is really important to retain our competitiveness and give us the best chance of maintaining our refining sector through these pretty challenging times,” Mr Wyatt said.
Three Australian refineries have shut since 2012 and the remaining plants now produce less than half of the country’s fuel needs, with most imported from bigger facilities in Singapore, South Korea and Japan.
Ampol, which runs the Lytton refinery in Brisbane, said it would continue to review the future of its plant.
“We look forward to working with Angus Taylor and across government as details of the measures announced today are developed over the coming months,” an Ampol spokesman said.
“Once those details emerge, we can better understand the overall impact of the package to our business. Global and domestic conditions for refining remain uncertain and extremely challenged. While we are currently focused on the restart of operations at Lytton, we will continue to review our refining operations.”
The federal government’s decision to prop up the industry was a dangerous tactic, the Grattan Institute’s energy program director Tony Wood said.
“I am not a fan of subsidising the refineries to stay open since it’s the sort of subsidy that is hard to stop and inevitably leads other industries to look for their own subsidy. Therefore there needs to be a very firm sunset clause on that aspect,” Mr Wood noted.
Still, Viva said there were also opportunities, hinting that it could consider co-investing with the Victorian government in building fuel storage at its existing Geelong site.
“This could well be one of the things that we could work on together,” Mr Wyatt said.
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