Refinery fears grow with Altona under extreme pressure
Energy giant ExxonMobil has added to fears the nation’s refining sector could face collapse.
Energy giant ExxonMobil has added to fears the nation’s refining sector could face collapse after revealing its Altona refinery in Victoria is trading at a loss and facing “unprecedented pressure” from the state’s tough lockdown measures.
After Viva Energy warned on Monday it may be forced to shut down its Geelong refinery later this year, Exxon said its Altona facility had also been hammered amid falling demand due to the COVID-19 pandemic and Victoria’s prolonged shutdown.
“The Victorian government’s extended freedom of movement restrictions and subsequent prolonged reduction in fuel demand has placed unprecedented pressure on Altona refinery,” Exxon said.
“The global pandemic has led to an oversupply in the Asia-Pacific region, and together with the stage four restrictions, has caused Altona refinery to operate at a loss.”
The facility produces half of Victoria’s refined fuel needs and Exxon said the Andrews government decision to extend the lockdown had hiked demand risks for the refinery operator.
“The recently announced extended Victorian restrictions, with low case numbers to move to COVID-19 normal, will curtail demand for a long and unpredictable time and makes medium-term planning very difficult,” an Exxon spokesman said.
“Earlier this year Altona refinery and our fuel terminals took steps to maintain our operations in the midst of the demand reduction, including adjustments to our refining processes, product import program and alternative storage options. However, while these help manage the supply demand balance, they come at significant cost to our business.”
Exxon recorded a $250m writedown on its Australian downstream business in its 2019 accounts, with some of that charge reflecting the lower value of Altona.
The impairment “recognises the challenging earnings environment, tightening refining margins and current impacts as well as forecast cashflows,” Exxon said.
Australia’s four remaining refinery operators and fuel suppliers are weighing the future of their plants amid soft margins, high costs and plunging demand due to COVID-19 lockdowns.
Three Australian refineries have shut since 2012 and the remaining plants now produce less than half of the country’s fuel needs, with the bulk of supplies imported from bigger facilities in Singapore, South Korea and Japan.
Rival Ampol plans to closely review the performance of its Lytton oil refinery in Brisbane and is open to government support for the plant after it slumped to a $59m loss in the first half.
Viva said the longer-term outlook for the Geelong refinery remained “very challenging” given the big fall in global demand for oil products and economic jitters from the pandemic.
Viva has run scenarios including a full closure of the refinery should broader macro conditions not improve and said it had the balance sheet to handle a shutdown, but could only keep the facility running at a loss for a limited period.
BP owns the Kwinana refinery in Western Australia and said the global industry was under pressure. “The long-term global oversupply, and more recently the COVID-19 pandemic, have had a significant impact on refining around the world,” a BP spokesman said on Tuesday. “We continue to make the necessary interventions to maintain sustained operations in response to the demand impacts, low oil prices and refining margins.”
All four owners have been in talks with the Morrison government over possible support for refiners, including the creation of a strategic fuel reserve, as concern grows over safeguarding a key strand of domestic manufacturing.
Exxon said it was actively involved in discussions.
Ampol earlier this year opened the door to potential consolidation among Australia’s remaining refiners.
Exxon is selling its 50 per cent stake in the ageing Bass Strait gas fields offshore Victoria and in December canned the development of a gas import terminal in the state.
More Coverage
