Australia loses another oil refinery, leaving our fuel supply vulnerable to regional crises

In the space of four months, Australia has lost half of its remaining oil refineries.

In October, BP announced it was closing its Kwinana oil refinery in Perth and converting it into a fuel import terminal.

The oil major said the refinery — Australia’s largest — was no longer economically viable.

It blamed the regional over-supply of fuel and the growth of mega-refineries in Asia and the Middle East that had structurally changed the regional fuel market, saying Kwinana couldn’t compete with those overseas refineries anymore.

Its decision meant the number of oil refineries in Australia would decline from four to three.

Now, a few months later, ExxonMobil has announced the closure of its Altona oil refinery in Melbourne, saying it was no longer economically viable.

It, too, will be turned into a fuel-import terminal.

ExxonMobil’s decision will leave Australia with just two oil refineries.

Meanwhile, Australian fuel giant Ampol, which owns an oil refinery in Brisbane — one of the last two remaining in Australia (with the other being Viva Energy’s oil refinery in Geelong, Victoria) — is reviewing whether to keep its refinery open or convert it into a fuel import terminal, too.

It’s an inexorable decline for the industry.

Roughly 20 years ago, Australia had eight refineries that met virtually all of our domestic demand for refined fuel.

What does it mean for Australia’s fuel security?

According to Dr Hunter Laidlaw from the Parliamentary Library, as Australia’s refineries have closed our refining capacity and capability has diminished and we’ve become more dependent on imports of already-refined fuel.

This could have consequences if global supply chains are severely disrupted.

“Australia’s fuel supply therefore becomes more reliant on industry’s ability to source and ship the necessary fuels when required,” he wrote on the Parliamentary Library’s blog, FlagPost, in December.

“Once closed, refinery sites are often converted into fuel import and storage terminals (as announced for Kwinana), so remain important facilities in the fuel supply chain.

“However, having fewer refineries reduces Australia’s ability to refine fuels if shipping and supply chains are ever severely disrupted for any reason in the future.”

These concerns were reiterated loudly on Wednesday following ExxonMobil’s announcement about its Altona refinery.

Unions, employer groups, and opposition

Anthony Albanese, the Leader of the Federal Opposition, said Labor had been warning that the Federal Government’s “fuel security” policy was inadequate and “failed to address Australia’s fuel security needs”.

“Scott Morrison’s policy vacuum has left hundreds of workers without jobs and the nation without a sovereign supply of domestic fuel,” he said on Wednesday.

Innes Willox, the chief executive of AI Group, a national employer association, said Australia must confront “our severe fuel insecurity”.

“Not only is Australian refinery capacity plunging, but most of the oil comes from overseas,” Mr Willox said.

“A more aggressive push into electrification, hydrogen, and bioenergy can provide more sustainable security over time, but viable long-term solutions need to tie together climate, energy, industry and transport strategies.

“The closure [of Altona] adds to the pressure on governments to make far-sighted and clearheaded decisions to rebuild Australia’s industrial and economic recovery.

The Maritime Union of Australia warned that the nation’s growing reliance on fuel refined overseas and transported here, on foreign-owned and operated tankers, was making the country “increasingly vulnerable” to any international crisis.

“Even before these refineries close, more than 90 per cent of Australia’s refined fuels are coming from overseas, leaving the nation seriously exposed to any crisis that impacts on maritime supply chains,” MUA assistant national secretary Jamie Newlyn said.

“The COVID crisis exposed the vulnerability of Australia’s supply chains.

Government says it’s working towards solution

The Federal Energy Minister, Angus Taylor, said ExxonMobil’s decision to close its Altona factory “will not negatively impact Australian fuel stockholdings” — a reference to Australia’s emergency stockpile of fuel.

In April last year, the Government took advantage of historically low fuel prices to build a “strategic fuel reserve,” paying $94 million to bolster the national stockpile of crude oil (an equivalent of an extra four or five days of fuel use), with the oil to be held in storage space leased from the US Government on American soil, to help Australia get closer to its 90-day emergency threshold.

As a member of the International Energy Agency (IEA), Australia is supposed to maintain oil stocks equivalent to at least 90 days’ worth of net-oil imports. However, Australia has been non-compliant with its stockholding obligation since 2012.

In February last year, by the standard definition, Australia only had just 56 days’ worth of oil reserves, but 81 days’ worth when including oil en route to Australia.

By the end of November, Australia had 63 days’ worth of oil reserves, and 86 days’ worth when including oil en route to Australia.

On Wednesday, Mr Taylor also touted his Government’s “Fuel Security Package,” announced in September.

The package includes a $200 million competitive grants program to help industry build new diesel storage, and a minimum stockholding obligation on industry to maintain their petrol and jet fuel stocks at current levels (worth around 28 consumption cover days) by 2024 and to increase diesel stocks by 40 per cent (which will result in an extra 780 megalitres of diesel stockholding kept onshore) by 2024.

Fuel security has long been a concern

Australia was a net exporter of oil when it joined the IEA in 1979.

However, after the 1979 oil shock, Australia’s National Energy Advisory Committee recommended that with regard to oil supply insecurity:

“Consideration be given as a matter of high priority to the specific form and location of strategic stockpiles[,] the timing of their purchase, the methods of their release and their relationship to those required as a result of Australia’s IEA membership.

“Methods of financing incentives for such stockholdings should also be examined.”

In 1986, the “Energy 2000 Policy Review” for petroleum noted that:

“[With] a growing dependence on imports, Australia would also become more vulnerable to supply disruptions.

“The disadvantages of this vulnerability will never be easy to quantify and consequently, it will be extremely difficult for governments to decide what level of insurance against disruption would be appropriate.”

However, Dr Laidlaw noted in December that, even though contemporary industry saw no problem relying on fuel imports via a diversity of supply chains, “which has increasingly occurred over the last two decades without serious negative consequences”, some analysts still questioned how the Government could keep the country and Defence Force operating if global supply chains are severely disrupted.

Origin of petroleum imports

More than 90 per cent of Australia’s refined fuels are imported these days.

In 2019-20, automotive gasoline was imported from Singapore (33 per cent), South Korea (29 per cent), and the United States (9 per cent), while diesel fuel came from Singapore (24 per cent), Japan (19 per cent), and China (16 per cent).

In total, Australia imported $22.4 billion worth of refined petroleum products.

Source: ABC