UPDATE 2-BP to close Australian refinery as mega-plant competition mounts

Wed Apr 2, 2014 12:11am EDT

Related Topics

* BP blames competition from mega-refineries in Asia

* Says considering converting refinery in Brisbane into an import terminal

* Australian refineries have mostly booked losses in recent years

* BP's west coast Kwinana refinery part of growth strategy (Adds details, company, analyst quotes)

SYDNEY, April 2 (Reuters) - BP is ceasing production at its Bulwer Island refinery in Brisbane, Australia by mid 2015, blaming competition from new mega-refineries in Asia that are cheaper to operate.

Australia's refineries, owned by BP, Royal Dutch Shell , ExxonMobil and Caltex, have mostly booked losses over several years as a higher local dollar, tighter fuel quality standards and the introduction of super-sized refineries in Asia have made them uncompetitive.

Rather than spend money on upgrading plants, BP and other majors have been looking to sell them or turn them into fuel import depots.

"Market reality global refining capacity is shifting to service the energy growth areas of the globe and is doing so with very large port-based refineries," Andy Holmes, president of BP Australasia, said in a media conference.

BP said it was considering converting the Bulwer Island refinery, which dates back to the 1960s and has a capacity to produce 102,000 barrels of fuel per day, into a multi-product import terminal.

"We have concluded that the best option for strengthening BP's long-term supply position in the east coast retail and commercial fuels markets is to purchase product from other refineries," Holmes said.

The shift away from refining in Australia follows reductions in refining in countries including Germany, France and Britain, where growth in energy consumption is slowing.

"If you look at the players in Australia, there are BP, Chevron and Shell and they do have refineries elsewhere in Asia outside of Australia," said Suresh Sivanandam, short-term downstream oil analyst at Wood Mackenzie

"For example, Chevron has refineries in South Korea and Thailand and Shell has Malaysia, Singapore and also Japan. They can easily meet Australia's deficit from these markets," Sivanandam said.

BP employs 380 staff and 300 contractors at Bulwer. The refinery has a capacity of around 102,000 barrels per day and produces petrol, diesel, kerosene, aviation fuel, heating oil and LPG.

Asian mega refineries generally produce petrol as a by product, given the primary demand for transport fuel in the region is diesel.

Shell earlier this year said it was exiting refining and marketing in Australia, selling the business for around $2.6 billion to global oil trader Vitol SA. Shell has already closed its Sydney refinery, while Caltex is due to convert its Sydney refinery to an import terminal this year.

BP's 146,000 barrel-per-day Kwinana refinery on the western coast remained a "big part" of the company's growth strategy in the Australian states of Western Australia, South Australia and Tasmania, a BP spokesman said. (Reporting by James Regan, Jane Wardell in Sydney and Florence Tan in Singapore; Editing by Ed Davies)

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