Australia Extends Support for Refineries to 2030

Written by Martin Lynch, European News Editor for IIR News Intelligence (Sugar Land, Texas)

Summary

Australia has confirmed that it will extend its subsidy for the country's last two refiners until 2030.

Securing Critical Fuel Supplies

The Australian government is extending its subsidy scheme for refiners until 2030 in a move that it claims will ensure the future of its only remaining refineries. 

The Fuel Security Services Payment (FSSP) programme was introduced in 2021 to provide payments to refiners - namely Ampol and Viva Energy - when prices don't cover the costs of production. It was due to end next year, but the government will now extend the scheme to 2030 in an effort to keep two key refineries going: Viva Energy's 120,000 barrels-per-day (BBL/d) Geelong refinery in Victoria and Ampol's 109,000 BBL/d Lytton refinery in Brisbane, Queensland. The government said that keeping both refineries going was critical for its fuel security, with both companies producing a combined 12 billion liters of petrol, diesel and jet fuel - about 20% of Australia's annual demand - in 2025. The decision comes after a six-month evaluation of the scheme, and the government said that the changes will make it more attractive to the refiners. 

Australia's Fuel Exposure

Australia is exposed greatly to the growing global fuel supply crisis due to the Iran conflict. Australia exports most of its crude oil and relies heavily on imports of refined fuels for more than 80% of its needs. In fuel terms, that's roughly 850,000 BBL/d in 2025, mainly from Asia. A number of key suppliers to Australia, including China, Singapore and South Korea, are implementing export restrictions due to the U.S. and Israel's war with Iran and its impact on the vital Strait of Hormuz sea route for crude oil, liquefied natural gas (LNG) and fuel shipments. Around half of the country's supply of jet fuel is under threat. The other key issue is that Australia maintains very low storage stocks, currently just more than a month's supply, which is a third of that recommended by the International Energy Agency (IEA). Keeping its last two domestic refineries operational has become a priority. 

How The Subsidy Works

Refineries will receive the subsidy when their refining margins drop below AUS$15.9 (US$10.9) per barrel over a calendar quarter, topping out at AUS$2.9 (US$10.9) per barrel for margins under AUS$13 (US$10.9). The maximum payout of AUS1.8 cents (2 cents) per liter remains unchanged, but the margins allowing refineries to receive a subsidy have been adjusted. The lower margin has been raised from AUS4.6 cents US3.1 cents) to AUS8.2 cents (US5.6 cents) per liter while the upper margin has been lifted from AUS6.4 cents (US4.4 cents) per liter to AUS10 cents (US6.8 cents) per liter. 

"This payment is an important insurance policy that provides payments to refiners when prices don't cover the costs of production," explained Chris Bowem, minister for Climate Change and Energy. "However, it's clear that the design was flawed -- with refiners only accessing payments twice since 2021. In return, Ampol and Viva are progressing plans to keep operating into the next decade. Ampol has also advised it now has the confidence to maintain full production and defer planned maintenance work to increase onshore production while international supply chains are under pressure. This will make it easier for refineries to access existing funds under the Fuel Security Services Payment - there are no additional costs to the Commonwealth."

Positive Reaction

Matt Halliday, Ampol's managing director and chief executive officer, said: "We welcome the adjustments made to the FSSP, which effectively increase the level at which payments under the scheme will commence. The important role Australian refineries play in supporting the resilience of our domestic fuel supply is being reinforced in the current global oil market environment. The amendments recognise the significant cost increases, and capital investment made, since the scheme began in 2021 and the importance of maintaining an economically viable domestic oil refining capability in Australia for the medium term by providing support when refiner margins do not cover the cost of production."

Key Takeaways

• Australia confirmed that it will extend its financial aid scheme for the country's last two refiners until 2030.
• The Geelong and Lytton refineries supply around 20% of the country's fuel needs.
• Australia is facing growing fuel uncertainty due to the conflict in Iran as it relies on mainly Asian imports of fuel for 80-90% of its needs.

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