Viva’s Geelong plant to become ‘energy hub’
Viva has joined the race to build Australia’s first LNG import terminal, with plans to transform its Geelong refinery into a major energy hub.
Viva Energy has joined the race to build Australia’s first LNG import terminal with plans underway to transform its Geelong refinery in Victoria into a major energy hub after the facility fell to a loss due to falling margins and a COVID demand hit.
Amid intense pressure in the refining sector due to tough margins and tepid demand due to COVID-19, the owner of the Coles Express service station network will battle with high profile and deep pocketed rivals, including AGL Energy’s Crib Point terminal on Victoria’s Mornington Peninsula and the Andrew Forrest-backed Port Kembla facility in NSW.
Viva said the project was in a pre-engineering and design stage, with an expression of interest process to shortly kick off to gauge interest from potential partners for gas supply, gas demand, power generation and LNG floating storage management.
The company faces severe pressure on its refinery, which is one of only four remaining in Australia.
At Geelong, underlying earnings before interest, tax, depreciation and amortisation are expected to show a first half loss of $32.5m-$42.5m due to COVID-19 and the transition to new shipping standards. It posted an $18.4m profit in the same period a year ago.
Refining margins are likely to remain weaker throughout 2020 and possibly into 2021 and Viva’s overall underlying net profit is expected between $20m-$50m compared with $50.9m in the first half of 2019.
With supplies from offshore gas fields in the state’s Gippsland Basin drying up, Viva has pitched the LNG import plant as a “virtual pipeline” able to deliver 80 to 140 petajoules of gas, or 30 per cent of southern state demand, from northern fields.
“The company believes that Geelong is well positioned to establish an LNG import, supply and storage facility which could bring natural gas from other parts of Australia and abroad to Victoria. This virtual pipeline would increase diversity and competition of gas supply, improve capability to meet peak demands, and potentially support an entry into the local gas markets,” Viva said in a statement on Tuesday.
Import plans
Australia is looking to import LNG for the first time with tight supplies on the east coast forecast over the next few years with much of Queensland’s gas diverted for LNG exports and contract prices failing to budge from a $8-10 a gigajoule window.
Still, progress has been slower than anticipated. The Port Kembla facility is still looking to sign up long-term customers, AGL faces a drawn out environmental planning timeline before it proceeds while energy giant ExxonMobil canned plans for its own import terminal in Victoria’s Longford hub.
Viva has sketched up plans for a broader energy hub at Geelong, including solar and battery storage, the manufacture of hydrogen and gas power generation.
The fuels retailer said it will proceed with major maintenance of its Geelong residual catalytic cracking unit in early July at a cost of $85-$100m compared with an earlier $110-$140m estimate. All units will be ready to restart in November.
While weekly petrol sales fell 35 per cent in April to under 40m litres a week due to COVID restrictions, volume had since recovered to an average of 45.1m litres per week during May.
“Sales volumes have continued to improve as restrictions are relaxed and traffic recovers. Declines in retail sales have been offset by cost reductions and improvements in retail fuel margins compared with levels achieved in 2019,” Viva noted.
A buyback that had been paused due to market volatility will be restarted with funds going back to investors after the sale of its share of the Viva real estate investment trust.
