Viva Energy will shut down two units at its refinery in Geelong in the latest move among fuels suppliers to tackle a surplus caused by the slump in demand during the COVID-19 pandemic.
A processing unit that primarily produces petrol and a smaller crude distillation unit will be shut from early May, with other units unaffected. Crude processing will be cut by about 30 per cent.
Shares in Viva, which owns the former Shell refinery and petrol stations, rose 1.1 per cent to $1.375.
The decision comes as Viva is already re-examining its plan to carry out major maintenance work at the same petrol plant, the residual catalytic cracking unit, from late August through to October due to COVID-19 restrictions and as it halves capital spending this year. An outcome of that review is expected by the end of June.
Rival Caltex Australia has already brought forward a planned maintenance shutdown at its Brisbane refinery to May from later this year.
The work will be spread over four months rather than two, with the timing of the restart hinging on an improvement in soft refining margins. Australia’s other two refiners, ExxonMobil and BP, have also adjusted production as they struggle with the drop in demand, in particular for jet fuel and petrol.
While Viva will still be able to produce some petrol without the RCCU, production will now “closely align” with post-COVID demand, it said.
The shutdown will cut crude processing to about 2.5 million barrels a month from a monthly average of 3.6 million barrels in the March quarter. The added economic impact would be “immaterial” given current margins, Viva said, adding fuel supply wouldn’t be disrupted.
Viva reported refining margins at Geelong of just $US2.70 a barrel in the March quarter, down 45 per cent from a year earlier.
Fuels suppliers have put the destruction of demand due to COVID-19 up to 90 per cent for jet fuel, up to 50 per cent for petrol and up to 30 per cent for diesel.
Viva meanwhile welcomed a proposal announced by federal Energy Minister Angus Taylor last week to temporarily relax fuel standards to help refiners deal with surplus jet fuel. The move would allow refiners to blend surplus jet fuel into other products.
While an application to vary fuel standards must be made by industry, the government is working with refiners on the submission of one or more applications.
Any change to fuel standards would only apply during the pandemic, and the modified fuel may need to be sold to industrial facilities such as mine sites rather than at the bowser.
Extracted from AFR