The Viva Energy facility – backed by Dutch trading giant Vitol – processes 120,000 barrels a day, roughly 12 per cent of Australia’s one-million-barrel daily consumption.
On paper, it looks manageable. In reality, it is anything but. Geelong’s value is not so much in capacity but in its short supply chain. The plant moves product rapidly to high-demand areas across Victoria and serves as a critical supplier to Tasmania. With Mobil’s Altona refinery converted to a storage facility five years ago, the southern states now face longer import chains with considerably less flexibility while Geelong is disrupted. There are fears of restrictions, particularly around diesel, if damage to the plant comes in worse than feared or the entire plant needs to go offline.
Commercial diesel stocks were tight before the fire, and Geelong’s role as a major supplier to defence as well as commercial transport, including jet fuel, is expected to aggravate the exposure. More significantly, the plant holds a position as Australia’s sole local producer of packaging resins, ensuring disruption will cascade through consumer goods markets in ways that extend well beyond the fuel pump.
For its part Viva says the extent of the damage won’t be known for some time. It confirmed some impact on fuel and aviation fuel production, although Viva expects to replace lost output through imports.
Early assessments from Viva suggest damage is confined to petrol production – the plant’s smallest output stream. While supplies will be tight, it suggests Australia has escaped the worse of the impact given its stocks of petrol remain highest among diesel and jet fuel.
Even so it limits options for Australia if there’s another shock to global supplies. Energy minister Chris Bowen says the fire “is not good timing, and this is a setback” but is a situation that is expected to be managed.
The fire highlights uncomfortable truths about ageing infrastructure that the industry has long understood but rarely discusses.
The Geelong plant is over 70 years old. Ampol’s 109,000 barrel a day refinery in Lytton, outside Brisbane, is more than 60 years old. Both compete against Asia’s mega-refineries in Singapore and elsewhere that operate at significantly lower unit costs with modern technology and scale advantages.
This has prompted the Albanese government to step in over the past five years to underwrite the plants that struggle with the boom and bust nature of the fuel cycle. Singapore’s ExxonMobil owned refinery can produce more than 600,000 barrels a day – more than 50 per cent of Australia’s daily fuel needs.
The other complication that comes with older plants is the extremely limited tolerance. This is expected to come under scrutiny in any investigation around the cause of the fire. Refining is essentially a chemical process, and the plant has been running around the clock. The oil supply has been opportunistic, essentially wherever Australia can get it, which means there is likely to be big variation in feedstock which could have contributed to the mechanical failure.
This will be the biggest concern to Viva’s management, given the disruption to oil supplies is likely to persist, and it won’t want to risk damaging other parts of the plant.
Early investigations point to a gas leak from a failure of a component at the Geelong plant’s mogas alkylation unit, a step that upgrades low grade product into high-octane fuel.
For now Australia has good fuel imports scheduled for the rest of April and into May, however, futures pricing for shipments has indicated tight global supplies. If the blockade of the Strait of Hormuz continues into the next few months, this will be a big concern for the global market, not just Australia.
BP, which ranks as one of the biggest fuel importers, has 61 vessels contracted for April and May, and it is currently building its June supply program. The other big Australian importers are Ampol, ExxonMobil as well as Viva which all have deliveries locked in for the rest of this month.
Jarden’s energy analyst Nik Burns warned this week that even in the most optimistic scenario more than 1 billion barrels of oil supply will be erased from global markets this year. This is a stunning figure. The impact of this cumulative lost production has yet to fully flow to downstream markets: with pressures on fuel, petrochemical and fertiliser, shortages are building, not easing. This will cause a further spike in prices.
“The structural consequences of this conflict – damaged infrastructure, depleted strategic reserves – are likely to persist for years,” Burns says.
Goode’s deal
And just like that the Charles Goode-chaired Diversified United Investment was folded into the Charles Goode-chaired Australian United Investment Company bringing a quiet end to the $1.1bn Collins Street fund.
A shareholder vote on Thursday delivered 96 per cent support for the merger announced at the end of January. The two listed funds were already joined at the hip and share plenty of history. DUI was spun out of AUI in 1991 and was backed by the Myer family with an eye to invest in international shares as well as Australian names. However, it rarely ventured outside local market (it holds some international ETFs) Goode was named as DUI’s inaugural chair and will continue to chair AUI.
The blood at AUI is even bluer. It was founded in 1953 with the backing of the Melbourne endowment fund the Ian Potter Foundation. The fund holds a 41 per cent stake in AUI, as well as a 17 per cent stake in DUI. (In another related link, Goode chaired the Ian Potter Foundation for three decades until 2024).
Under the final terms AUI issued $1.1bn worth of shares, which didn’t pay a premium for control, with the deal being sold as a merger of equals. Independent export Kroll last month declared the scheme as being in the best interests of non-related DUI shareholders.
Folding the two fund together AUI will now have a $305m stake in CBA, making up 10 per cent of the merged fund’s assets. It will have $184m stake in BHP, $183m in Rio Tinto and $167m in Transurban,
While having some more clout as a $3bn fund, both listed investment companies have been under intense pressure given their shares trade at a deep discount to the value of the underlying portfolio. In DUI’s case the discount averaged 16.8 per cent during the past financial year. AUI’s was closer to 14 per cent. It is hoped that more liquidity will narrow the trading discount. The move will also considerably shorten the annual meetings with the two companies holding back-to-back sessions for the past two decades.
johnstone@theaustralian.com.au
Extracted in full from: https://www.theaustralian.com.au/business/companies/geelong-refinery-fire-exposes-critical-weakness-in-australias-fuel-security/news-story/cff9ec7229c7a9abd11b27bd60fbca82
The intense fire at Australia’s largest refinery could not have come at a worse time. With global oil markets already strained by the Iran crisis, the damage at Geelong exposes weaknesses in the nation’s fuel security.