The Morrison government will not delay tighter fuel standards for the four remaining oil refineries in Australia, due to come into effect in 2027, but has flagged possible exemptions for the sector to guarantee domestic fuel supplies.

With Australia’s oil refineries struggling to stay afloat during the COVID-19 pandemic, federal Energy Minister Angus Taylor has been in negotiations to ensure they can help make Australia less reliant on overseas suppliers.

Federal Energy Minister Angus Taylor says they will help oil refineries boost domestic supply. Alex Ellinghausen

While Mr Taylor has left the door open for possible exemptions for the sector, delaying the 2027 fuel changes – which is aimed at cleaning up Australia’s petrol which is 15 times “dirtier” than the US and Europe – won’t be one of them.

“A competitive refining capability in Australia helps to lower local fuel prices and stimulate jobs across the economy,” Mr Taylor said in a statement to AFR Weekend.

“We recognise that the future refining sector in Australia will not look like the past, but that balance is important to lock-in fuel security.”

However, there is an expectation the refineries in Australia continue to tighten their belt to become more competitive and to secure their long-term future.

Analysis conducted during a strategic review of the sector found internal efficiency measures, including advanced analytics, logistics optimisation, energy efficiency and cost management could save up to $1.9 billion over 10 years for the domestic industry.

The same analysis showed the benefits of boosting domestic refinery capability – apart from giving Australia more flexibility during emergencies and protecting national security – was worth about $4.9 billion over 10 years to Australian consumers in the form of keeping prices down.

Mr Taylor and his officials have been in negotiations with the oil refinery sector for the past few months, with a range of possible options being raised to ensure domestic supplies, including a possible levy on fuel at the pump.

The Minister is adamant the oil refining sector needs to do more to secure its own future, but has told the companies the federal government was willing to look at the regulatory and legislative settings to give senior executives greater confidence in the long term.

There has been a strong interest from industry on the storage Request for Information process, with 61 submissions from 57 companies.

Submissions were received from across multiple fuel types, including crude oil and product storage (petrol, jet fuel and diesel).

Australia’s four remaining oil refineries are struggling to survive given the shock to demand for transport fuels during the COVID-19 pandemic and persistently weak margins.

Viva Energy warned last week its loss-making Geelong refinery in Victoria would close without government support, while ExxonMobil said its Altona refinery was also running in the red. Both those plants, as well as Ampol’s Lytton refinery in Brisbane and BP’s Kwinana refinery in Western Australia have cut output to try to reduce losses.

But investment to upgrade the Australian refineries is expected to cost a total of $1 billion.

Paul Barrett, chief executive of the Australian Institute of Petroleum, which has been involved in discussions with the federal government on the future of the sector, said that “all options have been on the table” in terms of potential measures to assist the sector.

He said the AIP hadn’t requested a further delay to the fuel standard changes but that “obviously people have talked about it”.

“Given the challenging nature of the circumstances every option has been canvassed,” he said.

Mr Barrett said there was no absolute urgency on the upgrades, given the timing for the introduction of the tighter standards was still two maintenance cycles away for the plants.

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

BP, whose Kwinana refinery in WA is operating at reduced capacity due to COVID-19 impacts, said it supported the tightening standard.

“The fuel standard policy settings that will commence from 2027 were developed following close consultation with industry and stakeholders and BP supports these regulations,” a spokesman said.

“BP welcomes the government’s consultation with industry as it considers its domestic refining and storage policies and will continue to work with the government on its objectives.”

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