Australia’s two remaining oil refineries will continue operating for at least another six years, saving the jobs of more than 1200 workers, after fuel suppliers Ampol and Viva Energy reached a deal with the federal government.

The companies had been assessing whether to shut down their refineries in Brisbane and Geelong, which process crude oil into refined fuel products, following the closure of ExxonMobil’s refinery in Melbourne’s Altona and BP’s refinery in Perth.

Australian refineries have been battered by a slump in demand and margins during the pandemic.
Australian refineries have been battered by a slump in demand and margins during the pandemic. CREDIT:

On Monday, the chief executives of Ampol and Viva said they intended to keep their plants running until at least mid-2027, safeguarding at-risk jobs and ensuring the nation does not lose the capacity to produce its own transport fuels.

“Ampol is pleased that today’s outcome delivers value for shareholders and provides clarity and a path forward for our valued employees at Lytton, supporting the continued employment of 550 Australian manufacturing jobs and the indirect employment of hundreds more,” Ampol chief Matthew Halliday said.

“The outcome will also allow Ampol to progress alternative future energy uses for this strategic site, preserving manufacturing skills that will be critical for success in the energy transition.”

The oil refining sector has been under enormous pressure since the onset of the COVID-19 crisis last year, as travel bans to arrest the spread of infections gutted demand and hammered their profit margins. Oil refineries in Australia have also been struggling to compete against the cheaper-to-run mega-refineries of south-east Asia.

“This has seen the number of refineries in Australia reduce from six in 2011, to only two continuing refineries today, leaving the country predominantly reliant on product imports from international refineries for our fuel requirements,” Viva Energy chief executive Scott Wyatt said.

“In financial year 2020, our Geelong operations had a cash loss of over $200 million, and without the support of the federal government continued operations would have not been sustainable.”

In the hope of retaining local refining “wherever commercially possible”, Federal Energy Minister Angus Taylor has been in talks with Ampol and Viva over the rescue package that includes a 1.8¢-a-litre payment for locally made fuel and further grants of as much as $125 million to upgrade their refineries to meet new sulphur fuel limits by the end of 2024.

Mr Wyatt said the plant’s closure could have caused the loss of more than 700 direct jobs as well as the loss of the “last major manufacturing operation in Geelong, and a significant contributor to the Victorian economy.

“Today’s announcement by the federal government provides important and welcome structural support,” he said.

Union officials for Viva’s Geelong workforce said there was a “sense of relief going through the refinery today”.

“To give credit where it’s due, the federal government have come up with an announcement that guarantees refining will remain active in Australia for at least the next six to 10 years,” said Ben Davis, Victorian secretary of the Australian Workers Union.

“We are really happy with the outcome.”

Investors, too, welcomed the federal support package, sending Ampol’s and Viva’s shares up more than 9 per cent on Monday morning.

“The government support package reduces the risk of underperformance at the Lytton refinery, whilst still allowing for all the upside should there be an improvement in refining margins,” said Ian Chitterer, vice-president at Moody’s Investors Service.

Climate advocates, however, have questioned the merits of taxpayer subsidies for fossil fuels and dispute the necessity for Australia to retain domestic fuel-production capacity. The refiners would otherwise have converted the sites into shipping terminals for importing fuels from overseas instead.

“The oil industry is a key driver of climate change,” Greenpeace Australia’s Nikola Casule said. “Rather than propping up one of the biggest drivers of climate change, the federal government should be investing in electric vehicle infrastructure and the electrification of our transport systems, which currently rely on oil and contribute around 19 per cent of Australia’s domestic emissions.”

Under the government’s rescue package, taxpayers will also fund a $50.7 million investment for the implementation and monitoring of the minimum stockholding obligation of 24 days to act as a safety net for petrol and jet fuel stocks while diesel stocks will be increased by eight days, to around 28 days of supply.

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