Australia’s last two oil refineries are engaged in critical negotiations with the Albanese government over increased taxpayer subsidies, deemed essential for their survival. This development comes as the ongoing conflict in the Middle East heightens concerns about the nation’s fuel security.
The discussions are taking place against the backdrop of Iran’s effective closure of the Strait of Hormuz, a crucial passage for one-fifth of the world’s oil supply. This blockade has led to rising petrol and diesel prices, underscoring Australia’s heavy dependence on imported fuels. With the current government support deal for local refiners set to expire mid-next year, the future of Viva Energy’s Geelong refinery in Victoria and Ampol’s Lytton plant in Brisbane is uncertain. These facilities are vital for thousands of jobs and Australia’s capacity to produce its own petrol, diesel, and jet fuel amid a volatile global market. Presently, the nation relies on imports for approximately 90% of its liquid fuel needs.
Negotiations and Economic Pressures
Negotiations over new government subsidies have been described as “constructive.” However, refinery owners emphasize the need for a swift resolution due to the ongoing strain on their operations from persistently volatile refining margins. Sources close to the talks indicate that refiners are seeking adjustments to their subsidies to address the significantly higher costs resulting from years of rising inflation.
Viva Energy CEO Scott Wyatt remarked on the heightened focus on liquid fuel supply and supply chain vulnerabilities due to the Middle Eastern conflict, highlighting the critical need to maintain refining capability within Australia. “Over the past 15 years, Australia has lost around 70% of its local refining capacity, making it more important than ever to protect what remains,” he stated.
Historical Context and Industry Challenges
The Geelong and Lytton refineries are the last remaining in Australia after a decade-long decline in the local industry, which has struggled to compete with cheaper imports from larger, lower-cost mega-refineries in South-East Asia. The COVID-19 pandemic further exacerbated these challenges, with travel bans drastically reducing fuel demand and leading to the closures of ExxonMobil’s Altona refinery in Melbourne and BP’s Kwinana facility in Perth.
In response to these pressures, Ampol and Viva agreed in 2021 to a Fuel Security Service Payment—a subsidy of up to 1.8¢ per litre for locally made fuel—in exchange for a commitment to remain operational until mid-2027. However, this safety net is now under review.
Government Support and Future Outlook
Energy Minister Chris Bowen has signaled the government’s intent to support the continued operation of Australia’s remaining oil refineries, stating, “We back our refineries—unlike the Coalition, who let four close under them.” Refiners anticipate a decision from the talks within the next three weeks.
An Ampol spokesman expressed confidence that the government recognizes the critical role refining plays in Australia. Meanwhile, Viva Energy has noted that its Geelong refinery is operating in a higher-cost environment than when the subsidy deal was initially struck, citing increased costs across energy, wages, and construction. Wyatt emphasized the need for the subsidy scheme to remain fit-for-purpose to support sustainable refining operations in Australia.
Global Implications and Expert Analysis
The outbreak of war in Iran has intensified concerns over global crude oil supplies, which are refined into petrol, diesel, and jet fuel. The conflict is expected to drive up prices for Australian motorists, even if it is short-lived. The price of a barrel of oil has surged more than 20% since the fighting began, reaching approximately $US90, its highest level in nearly two years.
The longer the disruption in the Strait of Hormuz persists, the greater the threat of higher prices at the petrol pump. Energy analyst Tom Allen from UBS noted that while Australia faces the risk of higher prices, it is not in immediate danger of a physical supply squeeze unless the blockade continues for another month.
Last week, the Albanese government confirmed that Australia has enough petrol in storage to last 36 days and enough diesel for 34 days, based on normal consumption patterns. These levels are the highest in more than a decade but still fall short of the International Energy Agency’s recommendation for countries to maintain a 90-day stockpile.
The ongoing negotiations and geopolitical tensions underscore the precarious nature of Australia’s fuel security and the critical importance of maintaining a robust domestic refining capability.
