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ExxonMobil’s Altona refinery is one of those struggling in the pandemic ©David Jackmanson
ExxonMobil’s Altona refinery is one of those struggling in the pandemic ©David Jackmanson

Lacking refinement

The slump in fuel demand hasn’t been kind to Australia’s refiners, and there’s now a real danger of no local fuel production at all in the future, John Rickards writes

Refining is hardly a sector that has breezed along trouble-free in recent times – three Australian refineries have closed in the past ten years – but the slump in demand caused by Covid-19 risks putting paid to two or more of the remaining four. Local fuel production, which going back a year was one of the concerns regarding Australian VLSFO availability ahead of IMO 2020, could be under serious threat as a result.

Viva Energy, the first producer to offer VLSFO in the country, is going to decide whether or not to shut its Geelong refinery in December. The company said in October that it expected to see an A$30 million loss for Q3, building on an already poor year, with low demand expected to continue into 2021.

 

“The company continues to incur unsustainable operating losses in this part of business and is pursuing all available options to improve cash flow and near-term profitability,” Viva said in a statement.

 

If conditions don’t improve – or the at-time-of-writing proposed offer from the government to bolster the oil sector to the tune of A$2.3 billion doesn’t do enough to make refining viable, Geelong could close during the first quarter (Q1) of 2021.

 

Lytton refinery, operated by Ampol, could close too. In Q3 of 2020 it recorded losses of A$82m, taking the plant to A$141 million in the red for the year so far. The refinery had been closed for a time during the winter when planned maintenance was brought forward. Ampol reported in October that the Lytton plant was expected to produce
1.3 billion litres of products in Q4, more than a third of the year’s total, which is down sharply from the 5.8 billion litres in 2019. The company is now carrying out a review of the refinery’s future, which will “consider all options for the facility’s operations and for the connected supply chains and markets it serves”. Options on the table include closure, continuation and “other alternative models of operation”.

 

Speaking about its Q3 results, Ampol managing director and CEO Matt Halliday said: “Global economic conditions triggered by Covid-19 have put significant pressure on refining, as evidenced by our performance in the first half and the significant losses announced today.”

ExxonMobil Australia – which with BP Australia make up the country’s other two remaining refiners – has remained tight-lipped on its own plans, but has been critical of the government’s lengthy consultation process for its fuel industry support package, which could take up to six months. However, sources have suggested to local press that proposals could be finalised by December and funding available in January. Nevertheless, the company launched a voluntary redundancy program for staff in September. The Australian Workers’ Union (AWU) has been quite clear that ExxonMobil’s Altona refinery, as well as BP’s at Kwinana, are in danger too. “These refineries support well-paid, highly-skilled blue-collar jobs in areas that desperately need them,” AWU chair Mick Denton said. “Our governments can’t afford to shed 5,000 of these jobs in the middle of this crisis. A shutdown of the local fuel refining sector would see a direct contraction of $6.7 billion – that’s 0.36% of GDP.”

 

In the long-term, there are companies operating routes out of Australia with an eye on a less oil-based future. In September, Eastern Pacific Shipping inked a five-ship, five-year charter deal with mining giant BHP for its dual-fuel VLOCs due to be delivered in 2022. The ships will work on BHP’s iron ore routes from Australia to China, and will,
EPS said, “be the cleanest and the most efficient in the entire dry bulk shipping fleet”. BHP was originally thought to be eyeing 14 dual-fuel LNG VLOCs, but seems to have scaled back its ambitions for now.

 

“As one of the largest dry bulk charterers in the world BHP recognises the role we play in working with our suppliers and customers to drive actionable reductions in GHG emissions across the maritime supply chain,” BHP’s chief commercial officer Vandita Pant said, describing the deal as marking “a progressive shift” for the industry.

 

“We expect the introduction of LNG-fuelled vessels will result in more than 30% lower CO2 emissions on a per voyage basis compared to conventional fuel along the Western Australia to China route.”

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