Industry News

Federal Government commits $2.3B to fuel security

Australia’s last two refineries are set to receive a significant boost of support from the Federal Government.

A fuel security package announced by Prime Minister Scott Morrison yesterday will increase onshore fuel storage including critical supplies of diesel which fell to 21 days worth of storage for the entire country in March earlier this year.

Viva Energy’s Geelong refinery and Ampol’s facility in Brisbane are set to benefit from an investment of $50.7 million in which the monitoring of the minimum stockholding requirement would see diesel stocks increased by eight days to an estimated 28 days of supply.

At present the country is predominantly reliant on product imports from international refineries to fulfill the national fuel obligations with 98 per cent of the energy for the transport sector currently sourced from liquid fuel.

The 2021-22 Budget initiatives includes a variable Fuel Security Service Payment (FSSP) to the refineries, and up to $302 million in support for major refinery infrastructure upgrades to help refiners bring forward the production of better-quality fuels.

It is anticipated that the package helps Ampol and Viva Energy Group operate their refineries until at least 2027 with nearly 1,250 jobs saved across both sites.

Shares for both companies, following the announcement, were up around 9 per cent.

“This is a key plank of our plan to secure Australia’s recovery from the pandemic, and to prepare against any future crises,” the Prime Minister said in a statement.

“Major industries like agriculture, transport and mining, as well as mum and dad motorists, will have more certainty and can look forward to vehicle maintenance savings and greater choice of new vehicle models,” said Morrison.

The package includes up to $125 million each to Ampol and Viva Energy to upgrade their refineries to produce ultra-low sulfur petrol.

In return, the companies have agreed to start making the new cleaner fuel by end-2024, nearly three years earlier than planned.

In addition to the support pledged to both domestic refineries, including onshore fuel storage and modernising the liquid fuel emergency legislation, the Government will also improve fuel fuel standards for what industry hopes will encourage the delivery of the latest engine technology in commercial vehicles and passenger cars.

Travel restrictions on passenger aviation last year upheld by the Government to mitigate against the spread of COVID-19 crushed demand in oil refining locally with profit margins severely impacted.

The variable FSSP has been costed up to $2.047 billion to 2030 in a worst-case scenario.

This figure, per the Government’s media announcement, assumes that both refineries are paid at the highest rate over the entire nine years in COVID-19-like economic conditions, which is unlikely as the economy recovers.

Ensuring Australia has a strong local refining sector and capacity for sovereign fuel production, according to Steve Knott AM, Chief Executive of Australian Resources and Energy Group AMMA, is a matter of economic and national security.

“The loss of national refinery capabilities would have clear defence implications, he said.

“These measures are vital to building sovereign capacity and will allay concerns about Australia’s fuel security during uncertain global economic times. Significantly more work will be required to ensure a viable and healthy Australian refining sector in the long term,” said Knott.

“Australia’s refining capacity has been in decline for more than a decade, with the COVID-19 pandemic further accelerating the need for financial support for our two remaining refineries. Without this support, Australia would be at the mercy of imported fuels.”

Prime Minister Scott Morrison.


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