Viva grasps subsidy lifeline for Geelong refinery

Viva Energy has seized on the federal government’s fast-tracked rescue measures for oil refiners as a lifeline for its loss-making Geelong plant, but there is no certainty that the taxpayer subsidy on local production will avert any other closures.

The interim “refinery production payment” of at least 1¢ a litre announced on Monday by Energy Minister Angus Taylor will help keep the Geelong plant afloat and contribute about $30 million to refining earnings for the first half of 2021, Viva calculated.

That signals Viva, which is partly owned by commodities trader Vitol, expects to secure a major chunk of the $83.5 million budgeted for the emergency subsidy that runs from January 1 to June 30, 2021.

Ampol, the former Caltex Australia, gave no assurances of the future of its Lytton refinery in Brisbane, which is under review ahead of a decision on its fate in the June quarter of 2021. It made clear it is still considering switching fully to rely on imported fuel.

“Ampol remains confident in our ability to continue to meet our customers’ needs through either an import model or a model including operation of the Lytton refinery,” said chief executive Matt Halliday, while voicing appreciation for the government support.

“We will continue to engage with government as we work through the review of our refinery operations, while ensuring we make decisions to ensure safe and reliable supply for Australians, protect our balance sheet and maximise shareholder value from our integrated supply chain.”

Shares in Viva dipped 1 per cent to $2.05 despite the news, while Ampol slipped 0.6 per cent to $30.64.

ExxonMobil, which had called for the fuel security measures to be accelerated, said only it is “evaluating” the support package. It made no commitment on the future of its ageing refinery at Altona, which is widely seen as the most vulnerable of the remaining plants to closure.

“There are people’s livelihoods involved here, so I wouldn’t want to trivialise the matter, but on a global scale for Exxon the Altona refinery is an irrelevancy,” said MST Marquee analyst Mark Samter.

“All the government support in the world cannot prevent it from being about one-fifteenth of the size of the biggest refineries in the region, nor does it change the fact that Australia is one of the higher cost places in the world to operate a refinery.”

One analyst said they still expected Exxon to close Altona, but that Ampol would likely keep Lytton running.

But the remaining refiners are understood to want a higher production subsidy longer term, of more than 2¢ a litre. Mr Samter said the reality is that the interim 1¢ isn’t enough to sustain the plants, with the strength of the Aussie dollar only increasing the challenge.

“I would suggest that more needs to be shared by less, so pick a winner or two (Australian owned making more sense) and make sure you keep them open,” he said.

BP, meanwhile, remained unmoved by a call from Australian Workers’ Union national secretary Daniel Walton – who led a campaign for an emergency rescue package for the stricken refineries – to reverse its shock October decision to close the Kwinana refinery in Western Australia.

“BP will continue to work with the government on its efforts to address Australia’s refining and domestic stockholding challenges and appreciates the efforts to support the industry as it works through these challenging times,” a spokesman said, declining to address the closure decision directly.

Mr Walton said that while the decision appeared to have been made he wasn’t giving up hope that it could be reversed.

“BP remaining open is in the 1 per cent territory but frankly they are not doing anything other than to maximise their bottom line at the expense of Australian jobs,” he told The Australian Financial Review.

The interim payment, together with the government’s other fuel security measures announced in September, “provides material support which underscores the importance of domestic refining to the country’s broader fuel security and to the local communities in which our domestic refineries operate,” Viva chief executive Scott Wyatt said.

He said Viva would work with the federal government on the details and funding mechanisms of the long-term fuel security measures “which we expect will provide the support that is necessary for Viva Energy to maintain refining operations” beyond the conclusion of the interim payment period in June.

All four refineries have plunged into heavy losses this year because of the COVID-19 pandemic, which depressed demand for aviation fuel and petrol in particular, and drove down refining margins.

The 1¢ a litre subsidy will be paid for petrol, diesel and jet fuel produced from refineries, to reflect their contribution to fuel security in Australia. In return, refineries must agree to continue to run their plants for the duration of the program, commit to long-term self-help measures and commit to an open book process to allow for long-term support measures to be developed.

If fewer than three refineries participate in the subsidies, the payments increase, creating competitive tension in the market and increasing the incentive to keep operating.

The longer-term package also involves $200 million in grants to build an extra 780 million litres of diesel storage, and a minimum stockholding obligation for key transport fuels.

Extracted from AFR

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