Ampol has defended the fuel security subsidy introduced by the Morrison government after recording a record half-year profit, saying its customers were under pressure amid soaring inflation and interest rates.

The subsidy started in May 2021 with the government desperate to prevent the closure of Ampol’s Lytton and Viva Energy’s Geelong plant – the nation’s remaining refineries – after ExxonMobil closed its Altona facility, and BP decided to cease production at Kwinana in Perth following huge refining volatility.

Just over a year on, Ampol has more than doubled its interim net profit on a replacement cost basis – which strips out the impact of oil prices on its stockpiles – to $471m from $187m with its dividend also surging to $1.20 a share from 52c.

Ampol chief executive Matt Halliday said government support was critical for keeping Lytton open and the refining industry had always been highly cyclical.

“I think you look at where we are today and Lytton has played an important role in helping support the country through an extremely challenging period of international disruption,” Mr Halliday told The Australian. “Frankly Lytton is unlikely to still be operating without the package that was discussed with and put in place with the government.”

While Lytton received temporary government support in 2020 after losing $145m, it has yet to tap the subsidy package since it was introduced. The variable Fuel Security Service Payment increases when refineries’ margins are low and tapers off when profits are high, hitting $2.04bn by 2030 under a worst-case scenario.

Ampol’s Lytton refinery. Picture: AAP

“You tend to have a moment in the sun and then a number of challenging periods,” Mr Halliday said. “Certainly the strong performance that we’ve seen in the first half of 2022 – and the second quarter in particular – follows a long period of challenging margins. A lot of refineries did close … it needs to be viewed in that context.”

The strong performance of its Lytton facility saw fuels and infrastructure earnings jump to $616m from $183m a year ago due to strong refining margins. Broker RBC Capital Markets described the result as “materially above our forecasts and consensus data”.

Ampol’s convenience retail division went backwards, however, with earnings falling 15 per cent to $127m for the six-month trading period. The Ampol chief said economic headwinds played a part in the softer numbers with fuel volumes down 7.5 per cent or 5.8 per cent on a like-for-like basis.

You can see the consumer is under pressure from the inflation that is sector wide. I think our customers are certainly feeling it in terms of very high fuel prices linked to those international events including Russia’s invasion of Ukraine. And that has driven softer retail fuel volumes through our business,” Mr Halliday said.

The Reserve Bank expects inflation to peak at 7.75 per cent by the end of 2022, before trending down to about 3 per cent over the next two years, after it hit a 21 year high in July. Both the RBA and government needed to make sure policy settings were in place to tame inflation, Ampol said.

“We need to make sure – as the government and the Reserve Bank are doing – that our policy settings to get inflation back under control are there,” Mr Halliday said. “There is the potential to do that. And the right steps are being taken given the events that we‘re seeing unfold geopolitically around the world and will continue to be for the next 12 months.”

Extracted in full form: Ampol powers to record profit, defends fuel security subsidy | NT News