Australia Dangerously Dependent On Chinese Fuel Imports

There’s growing alarm in Canberra over what’s expected to be Australia’s inevitable increased dependence on foreign petroleum amid a major influx of cheaper refined oil products from China. It comes as China’s crude oil refinery capacity is rapidly expanding and simultaneously Australia is about to see its last four refineries cut down by two, given the recent announced closures of an Exxon Mobil and separately a BP refinery.

It’s yet another way that Beijing has the upper hand and leverage amid the ongoing trade war which has seen the two sides slap tariffs and even a few import bans on each other. A recent report out this week in the South China Morning Post runs through the numbers which suggests China is poised to dominate crude exports in the Asia-Pacific region, particularly to “vulnerable” Australia – leaving Aussie government leaders concerned over self-sufficiency and if the country can weather the storm of Beijing’s “coercive trade warfare”.

“Chinese exports of refined oil products to Australia rose from a few thousand tonnes before 2011 to nearly 300,000 tonnes at the end of last year, according to figures from China customs,” the report begins by noting.

Following the announced impending closures of BP’s Kwinana and ExxonMobil’s Altona plants, a third – Ampol’s Lytton plant – is now also said to be mulling a shutdown given its inability to compete with Asian refineries. And the fourth, Viva Energy’s Geelong refinery, has since last year been kept afloat by a federal government rescue package amid spiraling losses estimated at over $100 million.

Julie Torgersrud, an oil markets analyst at Rystad Energy, was cited in the report as explaining, “The reason we see China as the main potential import source is the country’s rapid increase in refinery capacity combined with a slower growth in domestic oil products demand in the long term.”

“New, high-complexity refinery capacity starting up in China puts increased pressure on competing refiners in the APAC region, who are suffering from lower margins and usually have older, less efficient operations,” she said.

“We expect a net decrease in refinery capacity of around 1.2 million bpd in this region in the next two years, compared to a net increase in China of 1.5 million bpd in the same period,” she added, emphasizing the bleak outlook for Australia in terms of increasing reliance on China.

More broadly there’s also the practical logistical matter of big crude producers favoring export to Asian refineries due to the typically newer facilities (compared to the decades-old Australian refineries) being geographically closer, making them more cost-effective.

Torgersrud said Canberra is taking supply chain steps to mitigate the impact of its closing refineries, however: “When it comes to energy security, increased dependence on imports puts pressure on reliability of shipping and supply chains, but this is the reasoning behind old refineries converting to continue operating as import terminals, as these facilities will become increasingly important.”

Extracted from Oil Price

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