BP has insisted that Western Australia’s security of supply for petrol and diesel won’t be damaged by the closure of its Kwinana refinery, but farmers and miners are calling for beefed-up rules around storage to make sure, while the Maritime Union of Australia wants the federal government to nationalise the plant.

The shutdown of the 65-year-old oil refinery, which has capacity to meet about 80 per cent of the state’s demand for petrol, diesel and jet fuel, will increase WA’s reliance on imports to 100 per cent.

The move, announced by BP on Friday, has worried the agricultural sector in particular after farmers came close to running out of imported herbicide and pesticide essential to production during COVID-19 lockdowns.

BP will convert crude oil storage tanks to use to stockpile fuels such as petrol and diesel. Simon Dawson

WAFarmers chief executive Trevor Whittington said the latest blow to local manufacturing highlighted the need to get fuel reserves up to scratch.

“We can live with no WA refinery. What we can’t live with is no 90-day strategic reserves,” he said.

“There is no point in having just-in-time delivery if it relies on imported crude.”

Australian Manufacturing Workers’ Union state secretary Steve McCartney said COVID-19 had highlighted just how vulnerable WA was to disruption in overseas supply.

“To take our fuel offline is a very dangerous proposition,” he said.

“It is not good for the state because it takes away a bit of our self-reliance. It is also not good for our state because it displaces 600 workers who had full-time jobs.

“I can’t believe that we have a federal and a state government sitting there and watching this happen when it is going to seriously isolate WA.”

Mr McCartney, who met BP refinery workers on Monday to discuss the job losses, said they had been blindsided by the closure plan and accused BP of starving the plant of investment and upgrades.

But BP says the refinery just can’t compete against much larger plants in Asia, particularly given weak margins and soft demand, which have pushed it into a loss. The country’s other three refineries are facing a similar closure threat.

The 138,000 barrels per day Kwinana refinery will cease processing crude oil in the March quarter of 2021, with the facility to be converted into an expanded import terminal by 2022, building on the site’s existing import capability.

“Kwinana … has very robust import storage and distribution infrastructure; It will be further enhanced by the investment that we will make into the terminal,” said BP Australia chief Frédéric Baudry.

“We have fuel security today, we have a fully operating terminal, but we will make it even more competitive.”

Despite the federal government’s push to preserve domestic refining capacity to ensure security of supply, federal Energy Minister Angus Taylor has agreed that closure of the plant won’t negatively affect Australian fuel supplies.

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Sources close to the government noted the recently completed Puma Energy import terminal in Perth together with BP’s enhanced import capacity at Kwinana will mean an overall increase in Australia’s refined fuel storage capacity. The Morrison government is also increasing requirements for domestic fuel reserves.

“BP have made a commercial decision and will convert the site to an import terminal,” a spokesman for Mr Taylor said on Monday.

“The government is in the process of meeting with industry participants and is prioritising the production payment element of the fuel security package to provide additional certainty to the market.”

He reiterated that the government is “deeply disappointed” with the closure decision and said it “expects BP to deliver on its commitment to do everything it can to support workers through this challenging period”.

Chamber of Minerals and Energy WA chief executive Paul Everingham said the refinery closure was a national security issue.

“The resources industry takes fuel security very seriously,” he said.

Mr Everingham said the sector’s biggest reliance was on diesel at mine sites, although that is reducing as companies looked to diversify energy supply.

He said big- and medium-sized resources companies sourced and stored their own fuel supplies to ensure their operations were not at risk, but that farmers or smaller businesses don’t have the balance sheet to do that.

Meanwhile, the pending closure has dealt a blow to junior oil producer Triangle Energy, which sells oil from its small Cliff Head field in the Perth Basin to the plant. Triangle has halted its shares from trading as it assesses the impact.

Triangle managing director Robert Towner said the decision had come “totally” out of the blue, apart from the general discussion in the country about the difficulties all the refiners are facing.

“We certainly had had no discussions about it,” he said. “In fact we were in the process of renegotiating our pricing.”

Jade Energy is believed to face a similar situation at its Jingemia field in the Perth Basin, which also sells oil to the Kwinana refinery and amounts to only a few hundred barrels a day.

Mr Baudry said BP is “absolutely committed” to maintaining security of supply and its market share in WA, and that investments would be made to convert crude oil tanks at Kwinana to fuel tanks and to enhance the competitiveness of the site as an import terminal. He said BP’s global trading and shipping operations would ensure competitive supply.

Longer term, BP plans to develop a multi-user “clean energy hub” at Kwinana to produce and store lower carbon fuels, including sustainable aviation and marine fuels and renewable diesel. Mr Baudry noted BP is also expanding its solar power generation business on the east coast and is studying the feasibility of a hydrogen plant in Geraldton.

Extracted in full from: https://www.afr.com/companies/energy/farmers-fear-for-fuel-security-as-bp-turns-to-imports-20201102-p56amz

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