Australian refiner and marketer Viva Energy is considering the long-term viability of its 128,000 b/d Geelong refinery, as margins are hit by slumping demand and regional overcapacity.
Viva reported refiner margins of $2.90/bl at Geelong in January-June, down from $5.10/bl in the first half of last year and $10/bl in 2018 as a whole.
"We expect refining margins to remain uncertain and challenging as regional and local demand recovers over the remainder of 2020 and 2021," Viva's chief executive Scott Wyatt said.
Viva is working with the federal government on its plans to build domestic strategic fuel reserves, which it said have the potential to improve the long-term sustainability of the refining business.
"However, we acknowledge that these operating losses are unsustainable, and we are continually assessing both the short- and long-term viability of this part of our business," Wyatt said.
Viva said earlier this year it is considering building an LNG import terminal next to the Geelong refinery in Victoria as part of a plan to develop the area into an energy hub.
The Australian government wants to expand the country's fuel storage capacity and asked for industry proposals in June. Canberra is looking to add 7mn-15mn bl of capacity through this process, which equates to 7-14 days of Australia's current oil product consumption. This amount of new capacity would bring Australia close to its IEA obligations to hold 90 days of net oil imports in storage. Submissions closed in mid-July.
Geelong is one of only four refineries left in Australia. Three other refineries - BP's 98,000 b/d Bulwer Island plant in Brisbane, as well as local firm Caltex's 135,000 b/d Kurnell refinery and Shell's 75,000 b/d Clyde plant, both in Sydney – were closed in 2012-15, adding to the country's reliance on fuel imports.
Australia's other three operational refineries are Ampol's 109,000 b/d Lytton plant in Brisbane, ExxonMobil's 90,000 b/d Altona refinery in Melbourne and the 140,000 b/d Kwinana plant in Perth owned by BP. The four refineries' combined capacity of 449,000 b/d is less than half of Australia's consumption.
The impact of the Covid-19 pandemic on oil product demand has exposed rising refinery overcapacity in Asia-Pacific. Chinese capacity in particular has increased sharply in recent years, calling into question the viability of some refineries elsewhere in the region. Shell last week announced the permanent closure of its 110,000 b/d Tabangao refinery in the Philippines, while Refining NZ is considering converting its 135,000 b/d Marsden Point plant in New Zealand to an import terminal.
