Australian refineries continue to operate with no indications of any plans to close the remaining four
- There have been statements and Inquiry submissions from all refining companies about their future refinery investment plans and the ongoing role of these facilities in meeting customer requirements and providing broader economic benefits.
- It is true that Asian refineries do enjoy significant advantages over Australian refineries in terms of cost, scale and technology and also government assistance.
- However, the Australian downstream petroleum industry has responded to this challenge through stringent cost controls, enhanced efficiency (including through investments in new supply chain infrastructure) and major structural adjustments in refining and marketing operations.
- Decisions to close Australian refineries reflect business assessments of commercial viability of individual refineries based on the competitive pressures faced by each facility.
Refinery closures have not weakened Australia’s supply security
- Reductions in Australian crude oil production and refining capacity mean that more of our transport fuel demand growth will be met by imports largely from the Asian region (where excess supply capacity exists and is forecast to continue).
- As Australian refineries operate largely on imported crudes, any Australian refinery closure will mean a substitution of crude oil imports with imports of finished petroleum product.
- There is no significant difference in the supply risk between a crude and petroleum product shipment.
- Domestic refinery capacity adds to supply diversity in Australia and can provide additional flexibility to cope with the short term product supply interruptions or imbalances which can occur.
- Refinery closures in Sydney and Adelaide have seen no adverse impact on those fuels markets – either in terms of supply reliability or price to consumers (given ‘Import Parity Pricing’ in Australia).
- Industry has also found that the regular flow of finished transport fuels to Australia is highly valuable for supply continuity purposes, as fuel on ships can be diverted around the country and within States to where it is needed most; Australia having very regular and structured import arrangements is delivering highly reliable fuel supply to the domestic market.
Australian crude oil and condensate is insufficient/incompatible for our needs and is largely exported
- Domestic crude production has been in decline for some time and Australia does not produce enough compatible crude oil to run existing domestic refineries.
- Most crude oil production is located long distances from Australian refineries and has better transport proximity to key Asian markets.
- Bass Strait crude oil is refined in Victorian refineries given transport proximity and economics (delivered via pipeline) and some local condensates are trucked to refineries.
- Much of Australia’s crude oil production is also of a quality (light sweet) which is very commercially attractive for processing in other countries. Australian refineries require a blend of crude oils to produce the product slate demanded by Australian fuel users.
- In general, it is more commercially attractive to use a majority of imported crude oils in Australian refineries to meet the balance of transport fuels needed by Australian fuel users, and this imported crude diet better matches Australian refinery processing capabilities.
- Transport fuel security depends on flexible supply chains and diversity of product supply, not domestic refining of domestic crude oil.
Australia does not need to subsidise local refineries or a new nationally owned refinery
- If Australia had more refineries than currently to meet domestic fuel demand, this would simply result in more crude imports as domestic crude production is insufficient and unsuitable by itself to achieve ‘self-sufficiency’ in transport fuels. Substituting crude oil imports for petroleum product imports would not increase transport fuel security.
- No new refinery has been constructed in a industrialised/Western nation for over twenty years.
- Australia offers none of the capital or operating cost benefits available in many developing countries.
- Compared to refineries across Asia, Australian refineries suffer from substantial disadvantages in operating and capital costs that preclude Australia from consideration for major new refinery projects.
- In the context of Australia’s demonstrated efficient and reliable access to large scale refineries in Asia (and excess Asian supply currently and forecast), it is difficult to see any case for the very significant cost of a taxpayer funded refinery (eg. at least US$5 billion for a minimum efficient scale refinery).
- Even with the construction of such a domestic refinery, bulk fuel products produced by the refinery would still need to be shipped around Australian to major demand centres and in the event of refinery disruption (planned or unplanned) there would still be a need to import refined products.
- High coastal shipping costs would make domestic distribution from a “central” refinery uncompetitive against imported cargoes of fuel.