Australia offers to subsidise its remaining refineries

Australia's federal government has agreed to subsidise the country's remaining four refineries and spend A$200mn ($146mn) on boosting diesel storage to improve its liquid fuel security.

Australian taxpayers will pay A1.15¢ a litre of refined product produced in Australia under a deal to be finalised over the next six months. In return the refiners will commit to hold minimum stocks of gasoline and jet fuel in Australia to improve fuel security. Canberra will also spend A$200mn to build additional diesel storage capacity across Australia, as it continues its efforts to meet its IEA strategic reserves commitments.

The deal shows Australia's commitment to a domestic refinery industry, which has become largely unprofitable during the Covid-19 economic slowdown. The subsidy to the refineries will help pay for the upgrades required for the refineries to meet the lower sulphur limits of 10ppm (0.001pc) from 2027 and replace the current upper limits of 150ppm, bringing Australia in line with Europe, the US and China.

The upgrade to the Australian refineries to meet the new sulphur limit by 2027 is expected to cost around A$1bn, putting extra pressure on owners to convert the remaining refineries to import terminals instead of paying for the upgrade. The subsidy is designed to offset this cost and encourage more production and storage of liquid fuel product in Australia.

The refiners are yet to respond to Canberra's plans.

Australian refiner and marketer Viva Energy last week said it was considering closing its 128,000 b/d Geelong refinery near Melbourne because of the challenging long-term outlook. Fellow Australian firm Ampol is also reviewing the future of its 109,000 b/d Lytton refinery in Brisbane because of the highly uncertain market for refining in Asia-Pacific.

The other two refineries, ExxonMobil's 90,000 b/d Altona in Melbourne and BP's 146,000 b/d Kwinana in Perth, are also struggling to remain profitable and are operating below full capacity.

The combined capacity of the four operating plants is 473,000 b/d and is less than half of Australia's consumption, after BP's 98,000 b/d Bulwer Island in Brisbane, as well as Ampol's 135,000 b/d Kurnell and Shell's 75,000 b/d Clyde, both in Sydney, were closed during 2012-15.

The disruption to supply chains caused by Covid-19 has forced Canberra to focus on domestic sources and storage of liquid fuels to compliment deals signed earlier this year. It announced in May that it will spend A$94mn to store crude in the US Strategic Petroleum Reserve following a similar deal with Hungary.

By Jo Clarke