The struggling Geelong oil refinery is facing a growing threat of closure after its owner, Viva Energy, revealed the plant has sunk to a $50 million half-year loss.
Viva’s 65-year-old refinery west of Melbourne has been under enormous pressure since travel restrictions and stay-at-home orders to arrest the spread of coronavirus wiped out demand for refined products including petrol, diesel and aviation fuel, straining the plant’s profit margins.
Chief executive Scott Wyatt on Monday described the plant’s worse-than-expected operating losses as “unsustainable” and said the future of the refining business had been placed under review.
“We are continually assessing both the short and long-term viability of this part of our business,” Mr Wyatt said.
The Geelong refinery, which can process up to 120,000 barrels of oil a day, is the second-largest of Australia’s four remaining refineries and supplies about 10 per cent of the nation’s liquid fuel needs. Margins at the site crashed from $US5.1 a barrel to $US2.9 in the past six months, accounts showed, below the margin needed to break even.
The pain caused by the severe drop in fuel demand has been felt across Australia’s refining sector, with other operators BP, ExxonMobil and Ampol all announcing measures including production cutbacks and extended maintenance closures.
“COVID has put an awful lot of pressure on the refining sector, not just in Australia but globally as well, with the unprecedented decline in global oil demand,” Mr Wyatt told investors on Monday.
“We have seen a number of refinery closures around the world.”
Mr Wyatt said the refinery’s losses – $49 million for the half-year, down from an $18.4 million profit a year earlier – were “not results we can nor want to sustain for a long time”.
“So, as a result, we need to review the viability of the refinery,” he said.
The Geelong refinery is a major employer in the region, with about 700 full-time workers. Ben Davis, secretary of the Australian Workers Union, which represents the plant’s workforce, said staff were heartened by Viva’s decision to proceed with a $100 million maintenance upgrade of the site despite its heavy losses.
However, he said the coronavirus crisis was clearly having a “significant impact” on fuel demand and the refinery’s operations. “That’s not a surprise to anybody,” he said.
The Victorian government said it was closely monitoring the situation at Viva Energy.
Australia has become increasingly reliant on imported fuel over the past decade, with three of the nation’s seven domestic refineries closing down and domestic production of liquid fuels declining sharply.
Federal Energy Minister Angus Taylor said he has been working with all of the refineries to ensure the “long-term viability” of the sector, including the development of emergency fuel storage of 7 million to 15 million barrels – equivalent to 14 to 30 days of consumption. Refiners have applied for the contracts to expand their storage for the local reserve, which could provide a lifeline for their under-pressure refining operations.
“Those developments could potentially help improve the sustainability of the refining sector,” Mr Wyatt said. “But the outcomes are not known at this time.”
Earlier this year, Viva unveiled plans to transform the Geelong refinery’s site into an “energy hub”, which would include the development of a shipping terminal to import liquefied natural gas (LNG) into Victoria, and potentially a solar farm.
The ASX-listed fuel supplier, which runs the refinery and the national network of Shell-branded petrol stations, told investors on Monday its first-half underlying net profit had fallen from $50.9 million to $34 million.
The introduction of travel restrictions to arrest the advance of coronavirus has slashed Viva’s fuel sales volumes by 10.5 per cent compared to the same time last year. Sales of jet fuel have collapsed by up to 75 per cent. The company said profits from the non-refining divisions of the business rose 14.2 per cent to $318.7 million.
Extracted from The Sydney Morning Herald