--Clyde Russell is a Reuters market analyst. The views
expressed are his own.--
By Clyde Russell
LAUNCESTON, Australia, April 5 Is Australia
prepared to see all its ageing oil refineries closed down in the
face of Asian competition or should the industry be deemed
strategic and eligible for government protection?
That's the question that should be asked after Thursday's
announcement by Royal Dutch Shell that it would close
its Geelong refinery in Victoria state and convert it to an
import terminal if a buyer couldn't be found.
Given the parlous state of Australia's refining industry, it
seems closure and conversion is a far more likely outcome for
the 55-year-old plant, which can process 120,000 barrels per day
If it does close, Geelong will be the fourth refinery to
shut since 2003, reducing Australia's capacity by about 40
percent to just 408,600 bpd by 2015.
The country consumed about 1 million bpd of crude in 2011,
according to BP's Statistical Review of World Energy.
This means that if Geelong does close, domestic refineries
will be able to meet only 40 percent of 2011 demand levels, and
likely considerably less of 2015 demand as consumption is
expanding given the heavy use of diesel in remote mining
Shell has already closed the Clyde refinery in Sydney, a
90,000-bpd plant that was the nation's oldest and is now an
A similar fate awaits Sydney's other refinery at Kurnell,
with owner Caltex Australia planning to convert the
124,500 bpd plant to an import terminal by the second half of
Exxon Mobil's Port Stanvac refinery in Adelaide
stopped processing in 2003 and started complete demolition last
year, thus ending any chance of its revival.
This leaves BP Plc's two plants, at Kwinana south of
Perth and in Brisbane, Caltex's Lytton plant in Brisbane and
Exxon's Altona operation in Melbourne as refineries that may
still be operating by 2015.
The problem for all of these plants is their age and the
need for significant investment for them to remain competitive
with the complex, export-orientated refineries in India and
Singapore, as well as the likelihood of increased Chinese
exports of refined products.
BP's 140,000-bpd Kwinana plant, the nation's largest, was
commissioned in 1955 and its 90,000-bpd Brisbane operation in
Caltex's 108,60-bpd Brisbane refinery started in 1965 and
Exxon's 80,000-bpd Altona plant commenced operations in 1955.
This means the youngest plants in Australia are about 48
years old, and while they have undergone regular upgrading, they
are likely no match for the new mega-plants such as Reliance
Industries two refineries at Jamnagar on India's west coast,
which have a combined capacity of more than 1.2 million bpd.
Although both BP and Exxon maintain they are committed to
keeping their plants operating, it does appear that the oil
majors would be willing to explore options for their Australian
An Exxon executive, who declined to be identified as he is
not authorised to speak to the media, told me they would love to
sell the Altona refinery, but there aren't any suitable buyers
It's entirely possible that Australia could meet all of its
fuel needs from imports, but the question has to be asked
whether this is a good idea.
The obvious risk is geopolitical, with any crisis affecting
sea lanes such as the Straits of Malacca outside Singapore
likely to have an immediate impact on fuel availability.
Once refineries are closed and converted to import
terminals, they can't be rushed back into service in the event
something goes wrong and building a new one would likely take
too long in the event of a genuine regional crisis.
So far the government of Prime Minister Julia Gillard seems
quite sanguine about the refinery closures, with what little
concern expressed being more about the loss of jobs than energy
Former Energy Minister Martin Ferguson, who resigned last
month after siding with attempts to replace Gillard with her
axed predecessor Kevin Rudd, said at the time of the
announcement of the closure of the Kurnell refinery that there
was no threat to the nation's fuel supplies.
If Geelong does close, and the threats of closure over other
refineries come to fruition, it's hard to see how the government
could remain so ambivalent about energy security.
There was public concern when Singapore Telecommunications
bought the number two Australian mobile phone operator Optus in
2001 amid fears that a strategic asset was falling into overseas
Imagine the concern when the public realises that they are
reliant on refineries in Singapore for their petrol, and if the
taps are turned off, Australia would have few options to secure
supplies short of launching military action.
Does this mean the government should be subsidising oil
refineries similar to what they do for the car manufacturing
The government has in fact added to the burden of domestic
refineries by subjecting them to the carbon tax, which doesn't
affect their offshore competitors.
The car industry has received almost A$4.5 billion ($4.3
billion) in assistance in the past 10 years, split between the
three local manufacturers, namely General Motors' Holden unit,
Ford and Toyota.
While politicians from both the ruling Labor Party and the
opposition Liberal Party talk up the benefits of having a car
industry, the real motivator is keeping manufacturing jobs alive
in an increasingly globalised industry.
In many ways refining is far more sensible an industry to
subsidise given its strategic nature, and any assistance could
be tied to commitments to upgrade and modernise the facilities
to give them a fighting chance against regional competitors.
However, politicians rarely act until the crisis is real or
perceived as such by the voting public, so the refining industry
will have its work cut out trying to get something from the
government, especially with a federal election due in September.
The refiners will also have to figure out for themselves
whether they are in Australian downstream operations for the
long haul or whether they want to exit.