Viva Energy will reap a bigger taxpayer subsidy for its Geelong oil refinery than initially anticipated after rivals, including ExxonMobil and BP, decided to close their plants, leaving more for those that are still operating.
The March quarter subsidy is now expected to total $19.6 million, Viva said on Tuesday in a quarterly update in which it reported a doubling in the refining margin at Geelong and fuel sales that were deemed “encouraging” by one analyst but which remain mostly softer than at the same time last year.
Viva had originally signalled in December that it expected to get about $30 million from the federal government’s emergency 1¢-per-litre subsidy for refiners for the whole of the June half.
A long-term subsidy package, aimed at retaining domestic refining to help domestic security of petrol and diesel supply, is still under negotiation and is scheduled to kick in on July 1. It is expected to involve a bigger subsidy for domestic petrol and diesel production.
“The refining environment remains challenging, but the company is working with the federal government on the long-term Fuel Security Package,” Viva said.
“Viva Energy now expects to receive approximately $19.6 million from the federal government’s Temporary Refinery Production Payment program for 1Q 2021, following the announcement of further refining closures in the sector.”
Shares in Viva were flat at $1.82 in early afternoon trading.
Since Energy Minister Angus Taylor began talks with refiners last year on possible subsidies and other fuel security measures, BP decided to close its Kwinana refinery in Western Australia, while ExxonMobil pulled the pin on its Altona plant in Victoria. Australia’s only other refinery, Ampol, didn’t accept the interim subsidy as it carries out a review of its Lytton plant in Brisbane that could result in another refinery closure.
While the refining margin at Geelong rose to $US5.90 ($7.55) per barrel in January-March from $US2.70 in the year-earlier period, that is expected to mean the plant still barely breaks even. Viva said it has deferred all non-essential capital spending on refining to the second half.
“Refining remains challenging, but production is strong, and we are continuing discussions with the federal government on the long-term Fuel Security Package,” said chief executive Scott Wyatt.
Macquarie Research said the refining margin was stronger than its estimate for the June half of $US5.50 a barrel “but confirms that whilst there has been some improvement in refining margins off the 2020 bottom, these are still well below mid-cycle”.
Mr Wyatt added that Viva was making “good progress” on work to transform the Geelong site to a broader energy hub that included an LNG import terminal.
The business case for the LNG terminal, which is targeted for a final investment decision in the first half of 2022, appears likely to have been strengthened by the Victorian government’s blocking of AGL Energy’s more advanced LNG import project at Crib Point, although Viva still has to secure planning approval. France’s Engie, Japan’s Mitsui and Viva’s part-owner Vitol joined the project in December.
Mr Wyatt said the retail business is performing well, with sales in the Alliance with Coles rising above 60 million litres a week in March. However, jet fuel sales remain sharply lower than in the March quarter last year, before the worst of the lockdowns for COVID-19 hit, while the temporary elimination of the cruise market has smashed sales to the marine sector.
Viva’s total petrol sales were flat compared to a year earlier, while diesel sales rose 4 per cent in the quarter. But jet fuel sales plummeted 62 per cent compared with the March quarter of 2020, while “other” sales, which includes sales to the cruise market, dropped 39 per cent.
Sales in the Alliance averaged 58.4 million litres a week in the March quarter, 6 per cent lower than a year earlier.
Premium petrol sales further outperform, and rose 11 per cent from the March quarter of 2020; they now account for almost one-third of total petrol sales.
Macquarie described the quarterly performance as “solid”, noting that Viva’s 3.03 billion litres of fuel sales were 48 per cent of its estimate for the half, amid an expected pick-up in momentum in the June quarter. It said the better-than-expected trends for aviation fuels and premium petrol are “very encouraging” but that diesel sales were a little softer than it anticipated.
Extracted from AFR