Australia weighs new refinery expansion as fuel security fears grow

Australia has begun a pre-feasibility study into expanding oil refining capacity as fuel security concerns intensify after disruption in the Middle East. The federal and Western Australian governments announced the process this week in Karratha, but experts say the proposal remains uncertain and expensive.

Prime Minister Anthony Albanese said the government was acting to protect Australia from the effects of the conflict and to prepare for future challenges. He said: “The longer war in the Middle East goes on, the greater the impact on Australia will be, and my government will continue to do everything we can to shield Australia from the worst effects and set us up for the future.”

The study will cost $4 million, split evenly between the state and federal governments. It is only a pre-feasibility study, which would come before any feasibility study, site selection process or Front End Engineering Design.

Not everyone supports the idea. Grattan Institute expert Alison Reeve said it made sense to examine the proposal before committing to it, but warned that Australia does not have much oil and would likely still need to import crude for any new refinery. She argued that this would do little to reduce reliance on overseas supplies.

The article says Australia derives about 90 per cent of the liquid fuel it consumes from imports. When Iran retaliated to bombing campaigns by Israel and the US by closing off the Persian Gulf, Australia faced a shortage of petrol, diesel and jet fuel until the prime minister secured supplies from regional trading partners.

Australia once had eight refineries at the start of the century, but declining domestic supply and competition from larger, more modern facilities in Singapore and elsewhere made them uneconomic. Today, the refineries in Geelong and Brisbane supply only about 10 per cent of national needs.

Jarden Australia head of energy research Nik Burns called the feasibility process a step in the right direction from a security perspective, but said any new refinery would still have to compete with much larger Asian plants with lower running costs and shorter transport routes. He also said older refineries closed because they were outdated and lacked flexibility in feedstock.

MST Financial analyst Saul Kavonic said the Middle East events highlighted the need for greater security over national energy supplies. He said there was a strong case for more refining capacity and more oil supply, and pointed to the Bedout Basin off Western Australia and the Taroom Trough in Queensland as possible sources.

Kavonic estimated that a refinery doubling Australia’s capacity would cost about $15 billion. He said that would probably require either taxpayer support or a guarantee of minimum revenue, meaning consumers or taxpayers would ultimately bear the cost.

The timing was notable because Viva, based in Geelong, told the Australian Securities Exchange that its earnings would be more than double last year’s. The article says this reflects a less discussed part of fuel pricing: during shortages, refiners can raise margins, and motorists can face higher prices even when crude supplies are tight.

Australia is especially exposed because it is the world’s largest diesel importer. Mining, agriculture and transport all depend heavily on diesel, and the article says this makes the fuel system particularly important for the economy.

The main obstacle is cost. A large new refinery would need to operate for about 50 years, but Australia has pledged to reduce emissions. Reeve said she doubted the project would proceed and argued that importing oil for a new plant would not make economic sense or protect Australia from higher prices or fuel insecurity. She said she would be surprised if the study found the project worthwhile.