Viva Energy has reported a stark lag in the recovery of petrol demand in Victoria compared with the rest of the country, with the crackdown on mobility amid the second wave of COVID-19 posing a threat to already-reduced operations at its Geelong refinery.

Sales of petrol in Victoria last month slumped by 25 per cent compared with July last year, due to restrictions in the state. This was in contrast to recovering sales across the rest of the country, which were about 11 per cent down, the fuels supplier said on Monday.

Viva’s Geelong oil refinery is already running at reduced rates. Craig Sillitoe

“The company is closely monitoring the situation and assessing any further potential impacts on Victorian fuel sales and refining production as a result of these additional restrictions,” Viva said.

Shares in Viva, which slid below $1.20 in early April, were up 5.6 per cent at $1.70 shortly before the close, slightly outperforming rival Ampol.

Both companies own extensive service station and convenience retailing networks, assets very much in demand judging by a $US21 billion ($29 billion) cash deal announced in the US earlier on Monday for 7-Eleven’s Japanese owner, Seven & i, to buy the Speedway petrol station business from Marathon Petroleum in the US.

Ampol’s former suitor, Alimentation Couche-Tard, is said to have also been interested in Speedway, as was EG Group, which acquired Woolworths’ Australian petrol stations and also approached Ampol (then called Caltex).

Viva has already dialled back production at the Geelong refinery, where soft margins and the hit from the pandemic are expected to result in a loss of as much as $42.5 million for the June half.

COVID-19 has had a devastating effect on demand for aviation fuel in particular, which is off about 75 per cent, although diesel demand has held up much better due to the mining and industrial sectors.

Ray of hope

Viva closed one petrol unit at the Geelong site in May, as well as a smaller crude unit, and is using the JobKeeper scheme to support about 1000 employees, including airport refuellers and refinery workers.

The company is in the middle of major maintenance work at the Victorian plant, which got under way in early July and is due to be completed in time for a November restart.

Viva makes about a quarter of its petrol and diesel sales in Victoria, mostly through its retailing operations, which include the alliance with Coles, the Liberty network and Shell-branded service stations, as well as wholesale channels.

It noted Victoria’s move into stage four lockdown restrictions in metropolitan Melbourne and stage three restrictions in regional Victoria, and said it was focused on “maintaining safe and reliable supply of liquid fuels to support our customers and the Victorian economy through this challenging environment”.

“There is no doubt that COVID-19 has presented some very challenging trading conditions across our market,” a Viva spokesman said.

“We have taken steps to minimise exposure to the worst of the refining margin environment, but at the same time have maintained sufficient refining operations to meet local demand and give us the optionality to lift production when demand recovers.”

The spokesman said the company would continue to assess what the latest restrictions will mean for its operations in Victoria once the state government has advised of its decisions.

One ray of hope for Australia’s struggling refineries is the federal government’s plan to establish a strategic storage reserve for oil and fuels within the country, with the refinery owners and others keen to win contracts to manage the stockpiles.

The government is also carrying out a broader review of the ailing sector as it seeks to preserve critical domestic manufacturing.

Viva has a longer-term plan to convert its Geelong site into a hub for cleaner energy supply, involving LNG imports, solar power generation and battery storage.

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