Two “supermajors” of the oil industry have warned the viability of their Australian oil refineries will be threatened if the Australian government pushes ahead with changes to petrol standards.
The Turnbull government has flagged its desire to reduce the sulphur content in unleaded petrol from 150 parts per million to just 10 parts per million, as part of a broader review of Australian fuel standards.
Viva Energy warned this week that such changes would require about $300 million in changes to its Geelong oil refinery, and BP and Exxon have gone a step further saying their refineries’ future may be threatened by the costs of upgrading to meet the standards.
Australian had eight refineries in 2000, but that has fallen to four with the closure of South Australia’s Port Stanvac, Sydney’s Clyde and Kurnell refineries and Queensland’s Bulwer Island facility.
Exxon operates the 68-year-old Altona refinery in Melbourne’s west and said the viability of the refinery would be threatened if fuel standards were tightened.
“The cost to implement the change at this time based on current technology would be prohibitively expensive and may threaten the financial viability of the refinery with potential ramifications for Victoria economic contribution and for supply security,” said Exxon, in a submission to a federal government discussion paper.
“Investment in Altona Refinery to enable it to produce the lower sulphur petrol being considered is technically possible, but very costly, with little economic return for the refinery.
“In addition to providing significant economic contributions to their state of operation, local refineries are an integral element of the Australian fuel supply chain, providing an important service to support Australia’s supply security and reliability.”
The Australian Institute of Petroleum estimated that changes to petrol standards would require $979 million in upgrade spending by refiners.
Like Viva, Exxon has called for a 10-year period to adapt to the proposed changes in the hope that will give the oil giants time to identify cheaper solutions.
But Exxon said it could not guarantee it would spend the money required to meet the proposed standard.
“The required investment decision will, however, be subject to shareholder endorsement and Mobil cannot guarantee that the investment will proceed,” it said.
BP said reducing sulphur content in petrol to 10 parts per million would have limited environmental benefits but would have a big impact on its Kwinana refinery south of Perth.
“Australian petroleum refining is already under economic pressure. The viability of BP’s refinery will be challenged with any changes made to the current fuel quality standards act,” the company said in a submission.
“For BP to manufacture 10 parts per million sulphur petrol, would be a material cost that would impact the viability of Kwinana refinery.”
BP hinted the government should offer financial incentives to the refiners if standards are tightened.
“We believe that formally setting a timetable for adoption of the new specification, coupled with incentives for early adoption, will create the necessary certainty against which we can plan and at the same time manage stakeholder expectations towards an agreed outcome,” said BP.
But Costa Tsesmelis from Protos Consulting said Australia’s four remaining oil refineries may shut down within the next decade even if petrol standards are not changed, and he said Australia should try to keep pace with petrol standards in Europe for a range of health and environment benefits.
The NSW government was also keen for change, urging the federal government to reduce sulphur content in petrol at the “earliest possible” time, saying such a change would deliver health and economic benefits with “limited implications for domestic industry”.
Aside from Viva, BP and Exxon, Caltex also operates an Australian oil refinery at Lytton, in Brisbane.
Extracted from Financial Review