Government throws Australia’s struggling refineries a lifeline

The Morrison Government is accelerating support for Australia’s struggling oil refineries in exchange for a commitment to stay operational for the next decade.

The Australian Government will fund the $83.5 million support package for the first six months. It will be provided through a minimum one cent payment for each litre of primary transport fuel (petrol, diesel, and jet fuel) from the major domestic refineries who continue operations in Australia.

The country’s three remaining fuel refineries have been under immense pressure with global economic conditions triggered by COVID-19 putting significant pressure on refining.

In October, Ampol announced that it would conduct a comprehensive review of its Lytton refinery, which ran at a loss of $82 million in the September quarter, taking the year to date loss to $141 million.

Days later, Viva Energy Group reported a $30 million loss from its Geelong refinery in the same quarter, leading to the company considering its long-term viability.

Meanwhile, in November BP said that it would cease production at its Kwinana refinery and convert it to an import terminal.

The Government has committed to fast tracking relief to the refining sector by bringing forward the production payments announced as part of its comprehensive fuel security package in the 2020-21 Budget, with support to begin on 1 January 2021.

Minister for Energy and Emissions Reduction Angus Taylor said the Government was taking immediate and decisive action to keep our domestic refineries operating.

“The COVID-19 pandemic continues to place immense pressure on our refineries and the many Australians employed in the fuel sector,” Minister Taylor said.

“We have worked closely with the sector to design and implement our comprehensive fuel security package.

“The production payments will help the industry withstand the economic shock of this crisis, protecting local jobs and industry, bolstering our fuel security and shielding motorists from higher prices.”

Ampol has confirmed that while it appreciates the Government support, it would not immediately accept the payment until such time as it completes the review of its Lytton refinery.

Managing Director and CEO, Matthew Halliday, said: “Ampol appreciates the Federal Government’s support through COVID-19 and willingness to work with domestic refiners on the current challenges faced. Yesterday’s announcement acknowledges the acute issues facing the refining sector and provides an opportunity to get long-term settings right.” 

As previously announced, Ampol is currently undertaking a comprehensive review of the Lytton refinery to determine the best operating model over the medium-term. The review is considering all options for the facility’s operations and for the connected supply chains and markets it serves and will be completed in the first half of 2021.

Ampol will defer a decision on receipt of the production payment until it becomes clear that Ampol can meet the terms of the production payment, which is likely to be when a final decision is made on the future of the Lytton refinery. Ampol will continue to engage constructively with the government and yesterday’s policy announcement will be one of many considerations incorporated into the ongoing refinery review process.

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