Australia faces fuel security challenge as refineries close

Australia faces a growing fuel security problem following ExxonMobil’s decision to close an oil refinery in Melbourne, which leaves the country reliant on just two domestic fuel plants, experts have warned.

Exxon said the Altona refinery was no longer “economically viable”. The US oil major’s decision came four months after BP announced it would shut its Kwinana facility in Western Australia.

Ampol, the Australian energy company, is reviewing whether to close its refinery in Brisbane, despite Canberra offering A$2.3bn (US$1.8bn) in public funds to support the industry. If Ampol pulls the plug on the lossmaking plant, Australia would be left with a single refinery, operated by Viva Energy.

Australia had seven operating oil refineries in 2010 but competition from a generation of larger, more modern and efficient refineries in Asia and the Middle East has forced many companies to shutter facilities.

Covid-19 related lockdowns and curbs on international travel have also slashed demand for fuel.

The Australian government said it was “disappointed” by Exxon’s decision, which followed its introduction of a subsidy package designed to keep the last three refineries in operation. It said the closure would not “negatively impact Australian fuel stockholdings”.

John Coyne, an analyst at the Australian Strategic Policy Institute think-tank, said the loss of domestic refinery capacity was becoming a national security issue, as it undermined the nation’s resilience and self-sufficiency.

“This closure is a real kick in the guts at a time of heightened international tensions and when Covid-19 has highlighted the fragility of supply chains,” he said following the Exxon announcement.

Graeme Bethune, chief executive of EnergyQuest, a research group, said Canberra needed a more ambitious plan.

“Governments have kept putting the issue in the too-hard basket. The support being offered now is too little too late,” he said.

Canberra signed a deal with Washington last year to allow it access to the US strategic oil reserve in order to boost security of supply. However, a report by the Australian parliament found the government remained in breach of an International Energy Agency obligation to retain up to 90 days’ worth of net imports of oil.

“As refineries close, domestic refining capacity and capability reduces [sic] and Australia becomes yet more dependent on imports of refined product . . . [and] on industry’s ability to source and ship the necessary fuels when required,” said the report.

BP said its decision to close the Kwinana plant followed increasingly tough competition from Asia that caused a “structural change” in the Australian market.

Twice weekly newsletter

Energy is the world’s indispensable business and Energy Source is its newsletter. Every Tuesday and Thursday, direct to your inbox, Energy Source brings you essential news, forward-thinking analysis and insider intelligence. Sign up here.