Australian refiner and marketer Viva Energy said today that the longer-term outlook for its 128,000 b/d Geelong refinery in Victoria remains uncertain in light of the significant decline in global demand for oil products, which is likely to continue to weigh on regional refining margins through 2021. The company will provide another update on the plant's long-term outlook in December.
Viva said last month that it was considering the possibility of a full shutdown of the Geelong refinery because of its challenging long-term outlook following the sharp fall in oil products on the impact of the Covid-19 pandemic that has resulted in severe restrictions on global air travel and road transport.
The firm is also evaluating the support pledge by the federal government through its fuel security package as part of its effort to boost fuel storage capacity and meet its obligation as a member of the International Energy Agency to have sufficient stocks for 90 days of net imports. It is working with Canberra to confirm and finalise the details and implementation of the previously announced fuel security package, and particularly the proposed refinery production payment.
The company's options to boost profitability include deferring or cancelling all non-essential capital and operating expenditure to minimise operational disruption to production and reduce cash outflow, it said. Major maintenance on the hydrofluoric acid alkylation unit has already been deferred from the 2019-20 fiscal year to 30 June until 2020-21, it said.
Viva plans to fully resume refining operations early next month, and progressively increase production subject to refining margins and fuel demand in Victoria, Viva said.
Refinery margins at Geelong averaged $2.30/bl for July-September, Viva said. This is below the average of $2.90/bl for the first half of 2020, and is also below the average of $6.60/bl in 2019.
The refining intake was 7.9mn bl in July-September or 85,900 b/d, which is a utilisation rate of 67pc.
Geelong refinery margins continue to be impacted by weak regional refining margins, reduced market demand and lower production as well as an impaired production mix while the company completes its major maintenance programme, Viva said. Lower crude premiums in the period provided some uplift to refining margins.
The firm expects to report an underlying profit before interest, tax, depreciation and amortisation on a replacement cost basis of around A$30mn ($21.5mn) in its refining business in July-September.
The decision to operate the refinery in hydro-skimming mode on reduced market demand has allowed the firm to bring forward major maintenance, manage excess gasoline production, recover a significant portion of fixed cost exposure and manage crude purchasing commitments, it said. The major maintenance programme on the residual catalytic cracker is expected to be completed by the end of this month, and within the previously announced budget of A$85mn-100mn, it said.
