Australian refining tough despite firmer margins: Viva

Refining margins during January-March at Australia's 128,000 b/d Geelong refinery in Victoria state more than doubled from a year earlier to $5.90/bl and as the federal government subsidy increased, although the refining outlook remains challenging, according to operator Viva Energy.

Refinery margins were in line with November and December, when the site returned to full production after a major shutdown, but were still well below long-term averages of around $10/bl in 2017.

"Refining remains challenging, but production is strong and we are continuing discussions with the federal government on the long-term Fuel Security Package," Viva chief executive Scott Wyatt said.

Viva expects to receive A$19.6mn ($15.3mn) from Canberra's temporary refinery production payment for January-March. This is implies it will get more than the $30mn it had expected for January-June, with the increase because of closure plans by two key competitors. ExxonMobil and BP are closing their respective 90,000 b/d Altona refinery in Victoria and 146,000 b/d Kwinana refinery in Western Australia. The remaining refinery operator Ampol is still considering the long-term future of its 109,000 b/d Lytton refinery in Queensland and expects to give an update mid-2021.

The federal government is keen to maintain fuel security by keeping some refining capacity in Australia, although crumbling refining margins have made the ageing, smaller refineries that operate in Australia uneconomic. Viva has deferred all non-essential refining capital expenditure into the second half of 2021, while it continues to negotiate a long-term subsidy agreement with Canberra.

Viva aims to benefit from the closure of the other refineries by capturing more domestic crude supplies and increasing its share of the Victorian fuels market. Its sales of gasoline during January-March were in line with a year earlier, despite various state border closures because of Covid-19 restrictions, while its sales of diesel were up by 4pc.

Jet fuel sales were down 62pc from the previous year earlier but had increased by 15pc over October-December as domestic air travel recovers from extreme lows caused by Covid-19. The halt of the cruise ship industry in Australia has significantly affected Viva's marine fuel sales, which caused its ‘other' category of sales to call 39pc from a year earlier during January-March.

By Jo Clarke