Government subsidy deal to keep Australia’s last oil refineries operating

Ampol (formerly Caltex Australia) and Viva Energy will keep their oil refineries operating until at least 2027 following a $2.3 billion (Aus.) subsidy deal with the Australian government.

The government’s fuel security package is expected to protect the earnings of the two companies during times of weak refining margins that saw the closure of two refineries owned by ExxonMobil (Altona) and BP (Kwinana) in 2020.

Ampol, which had contemplated the closure of its Lytton refinery in Brisbane, will continue operations for at least 6 years, while Viva will continue refining at Geelong west of Melbourne for the same period with a 3-year extension option.

Ampol’s support package includes payment of up to $108 million/year (Aus.) if margins are low plus another grant up to $125 million (Aus.) to upgrade the refinery to meet Australia’s cleaner fuel standards (including stricter limits to sulphur content in petrol) that will come into effect at end-2024.

The company could still close Lytton earlier than 2027 and convert the site into an import terminal if there were persistently low margins or changes to the subsidy package by future governments, or if there was a one-off force-majeure type incident, said Ampol chief executive Matt Halliday.

Viva had been contemplating conversion of Geelong into an import terminal. The plant suffered a $200 million (Aus.) loss in 2020.

The company’s chief executive, Scott Wyatt, said the support payments are only available when margins are low, but acknowledged the deal was a good outcome for the company and for the country in terms of energy security.

The package could enhance Viva’s ability to invest in the ‘energy hub’ the company is planning at Geelong, which includes an LNG import terminal, energy storage, and solar power, he said.

Lytton and Geelong are the only refineries left preventing Australia becoming wholly reliant on imported petroleum products, particularly petrol (gasoline), diesel, and jet fuel.

The government package includes up to $2.05 billion (Aus.) in fuel security service payment, up to $302 million (Aus.) in support for refinery upgrades, and $50.7 million (Aus.) to implement and monitor the payment and the minimum stockholding obligation included in the new fuel security framework.