Kwinana refinery closure to shrink Australian-made fuel market by one-fifth

The closure of BP’s Kwinana oil refinery by the middle of the year will wipe out more than one-fifth of Australia’s fuel-making capabilities.

The Kwinana refinery is the biggest in Australia, with a new report by industry market researcher IBISWorld finding it had a market share of 23.9 per cent in 2020-21 and provided about 70 per cent of WA’s fuel requirements.

IBISWorld senior industry analyst James Thomson said the closure would shave 21.4 per cent off Australia’s total refinery production to 352,000 barrels per day and cause industry-wide revenue to decline by 15 per cent, despite improved energy prices.

Mr Thomson said the impacts of Kwinana’s closure would largely be contained to the west, with fuel prices unlikely to be impacted because of increased reliance on imports.

But he said this reliance could hurt the state and the rest of the country down the track if supply chains were disrupted.

“The issue we have currently is that there is insufficient storage capacity,” he said.

“In 2019-20, Australia only had stockholdings of diesel oil to last 20 days, automotive gasoline to last 25 days, and aviation turbine fuel to last 26 days.

“So in the event of supply chain disruptions … Australia could find itself undersupplied, which could lead to significant security concerns or economic issues.

“The mining, agriculture and transport sectors are significant contributors to the economy and all are heavily dependent on having secure fuel supplies.”

Mr Thomson said with Kwinana closed, Australia would have just three refineries in operation which have a combined capacity lower than a single average refinery in Asia.

Crude oil and natural gas prices are expected to rise this year, providing some much-needed support to refineries, but IBISWorld still forecast more would close with only one refinery taking the federal government up on a recent production payment incentive.

BP announced the closure of the terminal in October, blaming cheaper fuel producers in places like Asia and the Middle East.

About 590 jobs will go as a result of the closure and the facility will be converted into an import terminal when production stops.

A modification to the state agreement was made on October 28, 2020 to allow the change.

A state government spokeswoman played down concerns about fuel security and said the refinery was already almost fully reliant on imported crude oil.

“The refinery has successfully relied entirely on fuel imports in the past when it temporarily shut down every four years for maintenance work,” she said.

“The company has advised that it has sufficient capacity right now for the storage of refined products with additional tankage available if required.

“Under its State Agreement, BP is required to co-operate with the state to ensure that the supply of and distribution of petroleum (including aviation fuel) within Western Australia is not adversely affected in any material respect by the closure of the crude oil refining and the transition to a fuel import facility.”

The federal government’s fuel security policy includes a proposed $200 million fuel security package for new storage facilities.

Extracted from Brisbane Times

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