Viva Energy profits from turnaround in refinery market

Fuels retailer Viva Energy expects a big jump in first half pre-tax earnings from rising refining margins with its Geelong refinery in Victoria profiting after several bruising years during the Covid-19 pandemic.

Underlying group earnings are forecast to increase by 140 per cent to $614m with its Geelong refining margin nearly tripling to $US19 ($28) per barrel in the first half 0f 2022 from the same period a year earlier.

The refining margin bounce was sparked by strong global demand for diesel, tightening supply, reduced China exports and Russian oil sanctions.

“Viva Energy has delivered an exceptional first half result in the face of ongoing impacts from the pandemic and significant volatility in global energy markets driven by the war in Ukraine,” Viva chief executive Scott Wyatt said.

“After a period of significant losses during the pandemic, it is especially pleasing to see our refining business now delivering strong results and playing a key role in meeting the country’s energy security needs.”

The strong margins mean the once struggling refiners are unlikely to need payments under the federal government’s fuel security program.

The variable Fuel Security Service Payment increases when refineries’ margins are low and tapers off when profits are high, hitting $2.04bn by 2030 under a worst-case scenario. The subsidy was developed with the government desperate to prevent the closure of Geelong and Lytton – the nation’s remaining refineries – after ExxonMobil’s announcement in February 2021 that it would close its Altona refinery, and BP’s decision to cease production at Kwinana in Perth.

The Geelong refinery supplies half of Victoria’s fuel while Viva has a 1300-strong network of Shell and Liberty service stations. It supplies fuel to 50 airports around Australia although demand for jet fuel suffered during the pandemic.

Viva hopes to make a final investment decision on an LNG import terminal at its Geelong energy hub by the end of 2022, if it receives environmental approvals for the facility.

Speculation has been building the federal government could consider underwriting gas import terminals on the east coast as they do with other critical infrastructure with both EnergyQuest and UBS suggesting Anthony Albanese may choose to intervene in the market to ease a supply crunch.

Viva rose 2.6 per cent or 7c to $2.81.


Extracted from The Australia

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