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A bleak future for Australian oil refining?

Hydrocarbon Engineering,

Last week Shell announced plans to sell its last remaining refinery in Australia. If the company fails to receive a satisfactory offer for this refinery, it will convert it into an import terminal.

Caltex Australia, partially owned by Chevron, has also recently expressed its intention to convert its Kurnell refinery into an import terminal.

These closures follow two others: Shell’s Clyde refinery, and Exxon Mobil’s Port Stanvac refinery in Adelaide, which was completely demolished last year; rendering domestic refineries incapable of matching even half of domestic demand. If the Geelong refinery does close, Australian oil will be able to account for only 40% of 2011 demand levels.

Furthermore, as fuel demand within the country is growing rapidly, the gap between demand and domestic supply will continue to grow at a similar rate, without plans to undertake new projects in the region.

Lack of investment in new developments stems largely from growing competition from Asia, and weak profit margins. Australian refineries are struggling to cope with high crude prices. Simultaneously, the strong Australian dollar has led to high labour and financing costs.

This has generated a catch-22 for Australian refineries, which are desperately in need of the investment that they fail to attract in order to remain competitive. Commentators have highlighted the age of Australian refineries as a key contributor to their unprofitability; the youngest plants are around 48 years old.

Given this information, it is unsurprising that they are unable to compete with newer megaplants, such as Reliance Industries’ two refineries on India’s west coast, which have a combined capacity of more than 1.2 million bpd. (In contrast, the Shell Geelong refinery is capable of only 408 600 bpd).

If the Australian government wishes to narrow the gap between domestic demand and supply for refined products, it will need to do more to help the industry. A review of its carbon tax, which does not affect offshore competitors, might be one way forward.

Edited from various sources by Emma McAleavey.

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