Canberra's Fuel Security Services Payment programme (FSSP), designed to protect Australia's refining sector from weak margins, is not working as planned in the face of losses in January-June, Australian refiner and retailer Ampol has said.
The programme is designed to pay Ampol and fellow domestic company Viva Energy when refining becomes unprofitable. But Ampol has not received funds despite weak results in the first half of the year, especially during the January-March quarter, when the 109,000 b/d Lytton refinery near Brisbane was affected by a cyclone.
Active discussions with the federal Labor government are underway to improve the "effectiveness" of the FSSP for the remainder of its present period, running to 30 June 2027, Ampol said.
"As costs have escalated, the mechanism does not take that into account and that's a part of the decision we're engaged on as part of the review," chief executive Matt Halliday said on 18 August, with the firm expecting an outcome in the present half.
Ampol will work with Canberra for the post-2027 period to understand its objectives for refining. This includes potentially incorporating biofuels, such as renewable diesel and sustainable aviation fuel, before recommitting to keeping Lytton operational beyond that date.
Just one FSSP payment has been made since the July-September quarter of 2021. This was a A$25mn ($16mn) payment in July-September last year to Viva, which operates the 120,000 b/d Geelong refinery.
Ampol's Lytton refinery margin (LRM) for the January-June first half was $7.44/bl, down by 28pc from $10.27/bl a year earlier. Refiners become eligible for the FSSP when margin markers fall to A$10.20/bl, with a maximum of A1.8¢/litre available when the marker drops to a floor of A$7.30/bl.
The LRM firmed following the end of the half to $9.95/bl in July, while the alkylation turnaround at Lytton started in mid-July and the refinery will return to normal operations at the end of September.
Alkylation and crude distillation unit works underway will affect 130-150mn litres, or impact Ampol to the tune of A$15mn-20mn in opportunity costs, while next year's planned turnaround on the fluidised catalytic cracking unit will affect about 300mn litres of production.
This means volumes produced next year will be similar to 2025, chief financial officer Greg Barnes said.
Earnings before interest and tax at Ampol's Lytton refinery in Brisbane slumped to $1.1 million in the half, from $89.5 million a year earlier.
Ampol reported a replacement cost operating profit of A$180mn in the first half, down by 23pc from A$234mn a year earlier.
Forecast capital expenditure (capex) in 2025 was unchanged at A$600mn, including the Lytton ultra-low sulphur fuels project and Lytton alkylation turnaround. Transitioning to 10ppm gasoline will begin at retail sites from September to ensure regulatory compliance, Ampol said.
The proposed A$1.1bn EG acquisition does not represent a large capex outlay, Barnes said. Capex will likely fall to about A$500mn-600mn next year and the mid-A$400mn-500mn level from 2027 onwards.
