COLUMN-Time for Australia to decide if it wants oil refining – by Clyde Russell (Reuters India – April 5, 2013)

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LAUNCESTON, Australia, April 5 (Reuters) – 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 (bpd).

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 operations.

Shell has already closed the Clyde refinery in Sydney, a 90,000-bpd plant that was the nation’s oldest and is now an import terminal.

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 next year.

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 1965.

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 downstream operations.

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 around.

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.

For the rest of this column, please go to the India Reuters website: http://in.reuters.com/article/2013/04/05/column-russell-australia-refineries-idINL3N0CS0BZ20130405

 

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