Australia the odd country out on oil refining

Following the announcement of the forthcoming closure of ExxonMobil’s Altona refinery, we have been digging out the numbers on where Australia stands internationally in oil consumption versus refining capacity.

Australia isn’t a small oil consumer. According to the BP energy statistics, Australia ranked number 16 in the world consuming 1,046 thousand barrels per day (kbbl/d) in 2019. However, it ranked 36th in oil refining capacity, at 455 kbbl/d. With the closure of Kwinana and Altona this will fall to 229 kbbl/d, ranking Australia 57th globally in oil refining capacity. If Lytton closes it will fall to 66th, with only Viva’s Corio refinery.

Part of the explanation for the Australian closures is the tremendous growth in Chinese and Indian refining capacity over the last 5 years (+947 kbbl/d in China, +689 kbbl/d in India). Australia now also imports refined product from the US where there has also been expansion of capacity.

Petroleum imports from China have more than doubled over the last five years from 2,186 ML in 2015-16 to 4,886 ML in 2019-20.

According to Goldman Sachs, Chinese refineries are subsidized, receiving a price floor for refined product as well as tariff protection from imports. Chinese diesel and petrol exports are increasing quickly and Australian reliance on China is likely to increase with the closure of Kwinana, Altona and possibly Lytton.

We can assess the likely impact on Chinese imports from an analysis of the federal government’s petroleum statistics for 2019, the last “normal” year for Australian petroleum sales and imports.

Total petroleum sales in 2019 were 58,584 mega litres (ML), 98% of which came from imports of crude or refined products (57,504 ML) (a worry in itself).

Imports of crude oil (none of which is from China) were 20,580 ML. Imports of refined products were 36,923 ML of which 5,074 ML (14%) was from China. China’s share of total imports was 9%. Assuming total sales stay at around 58,600 ML but  Viva is the only refinery left, crude imports would drop to around 7,000 ML and imports increase to 50,000 ML. If China maintained the same share of refined imports, its share of total imports would increase from 9% to around 12%. Australia also imports from Japan, Singapore and Taiwan where there are also cuts to refining capacity so imports from China could increase further, replacing these.  A return to “normal” growth in petrol, diesel and jet fuel would also increase Chinese imports.

While the closures are understandable, Australia is increasingly the odd country out when it comes to massive dependence on fuel imports as our refining capacity continues to shrink. New Zealand consumes 176 kbbl/d and still has one refinery with capacity of 136 kbbl/d, although Refining NZ has announced it is exploring conversion to an import terminal.

Chile, another country at the bottom of the southern hemisphere, has a population of 19.1 million, a bit smaller than Australia. It consumes 381 kbbl/d (36% of Australian consumption) but has three refineries with capacity of 258 kbbl/d, a bit above the combined capacity of Corio and Lytton.

After years of Australian governments putting the issue of refining into the too hard basket it’s good to see the government trying to do something now to stem the collapse but unfortunately it is too little too late.

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