Chapter 2 Australia’s oil refinery industry
The oil refinery industry has been experiencing structural change
globally and domestically. These changes have tended to follow an orderly
transition over many years, allowing the market to respond. This has involved
the rationalisation of the refining sectors in established markets such as
Europe and the United States of America, and the emergence and expansion of
refining capacity in other regions, in particular Asia.
Recent and impending closures of oil refineries in Australia have raised
concerns about the viability of Australia’s oil refinery industry, and the
potential impacts of declining domestic refinery capacity on the economy,
energy security and employment in the sector.
The major oil refining companies—Shell, Caltex, BP and Exxon Mobil—argue
that Australia’s oil refineries are at a competitive disadvantage in the
region. Decisions to close selected refineries have been based on commercial
considerations, as some refineries have been operating at a loss.
As a result, the trend has been to move away from domestic refining to a
greater dependence on liquid fuel imports. This will include converting
selected domestic refineries to import terminals. The companies have not sought
government subsidies to continue the operation of these suboptimal refineries.
The oil refinery sector and the Australian Government are in agreement that a
market based approach is the best way to meet Australia’s energy needs.
The Australian Institute of Petroleum (AIP) publication Downstream
Petroleum 2011 graphically depicted Australia’s key liquid fuel
infrastructure in 2011 as follows:
Figure 2.1 Key liquid fuel infrastructure in Australia
Downstream Petroleum 2011, p. 4.
In September 2012, Shell’s Clyde refinery closed. Caltex has also
announced that its Kurnell refinery will close by mid-2014. This will leave no
oil refineries in New South Wales and five domestic refineries in Australia.
The Clyde and Kurnell facilities will both be converted to import terminals.
These recent closures and those in the last decade have been attributed
to domestic and global trends impacting negatively on Australia’s domestic
refining competitiveness. Many submitters shared the view expressed by Shell
Australia that the ‘Australian refining industry has been under pressure and
challenged for some time’.
From a global perspective, the AIP outlined that significant growth in
refining capacity has outstripped demand for these petroleum products. This has
led to a global surplus of these products, which the International Energy
Agency (IEA) argued would only be ‘balanced out by lower utilisation of
refineries and further closure of refineries in OECD countries’.
The AIP reiterated the IEA assessment that:
… over the next five years, we will see a significant
structural adjustment occurring through the refining sector as we see
rebalancing of supply and demand throughout each region. They are expecting to
see a very significantly different global refining crude and product trade over
the rest of this decade.
The AIP noted the trend of the last decade towards refinery scale-backs
and closures. This trend has been evident in the European and North American
refining sectors. The IEA medium term outlook suggests that:
… we are likely to continue to see further closures of
refineries across the Northern Hemisphere. They have also signalled that, if
those refineries do not close, more refineries are going to run at a
significantly lower utilisation rate than has been the practice …
The AIP maintained that these structural adjustments have, and are
likely to continue to occur over a longer period of time, allowing the market
time to react and adapt.
Many OECD countries have been facing challenges, for example with eight
European refinery closures since 2009, and further closures likely. The Australian
Competition and Consumer Commission (ACCC) noted the UK Government’s
acknowledgement that it is facing similar competitive pressures from competition
in Europe and Asia.
While industry changes—restructuring and closures in some areas and
growth in others—have been occurring internationally, the Construction,
Forestry, Mining and Energy Union (CFMEU) contended that as an island
continent, attention must be paid to Australia’s refining capacity.
The ACCC found that the changes in Australia’s refining sector have been
in line with international trends. The ACCC outlined that in recent years
Australia’s refining sector has been characterised by comparatively smaller
production volumes and lower profits and rates of return, which it attributed
- weaker economic
conditions and flat growth
- the impact of large
complex refineries in emerging economies, such as Jamnagar in India, with the
capacity to refine petrol to Australian standards at competitive prices.
Further planned openings of refineries in China and Saudi Arabia are likely to
add to the availability of Australian standard petrol
- the ability of
independent wholesalers to access storage capacity in import terminals and to
import refined fuel at competitive prices.
The Department of Resources, Energy and Tourism (RET) noted that the
majority of Australia’s refineries were built in the mid-1950s and mid-1960s.
At the time there was a favourable international and domestic environment,
which included: limited competitive pressures from other refineries in the
region; assistance from state governments; tariff protection for defence and
industry investment purposes; and price and demand stability.
However, despite substantial investments in infrastructure and
modernising these ageing facilities, the sector has continued to feel the
pressures of remaining viable in the current environment. The AIP found that:
The costs of doing business in Australia as well as the costs
of meeting tighter regulatory requirements are increasing, with labour and
capital costs for refinery construction, operation and maintenance also increasing
faster than in competitor countries. This means Australian refineries face
increasing competitive pressure from mega-refineries in Asia which have large and
increasing cost advantages.
The Australian Government’s Energy White Paper 2012 (EWP) noted
that the domestic energy sector has been facing structural changes for some
time. The EWP stated:
Our gas and liquid fuel markets are also undergoing important
structural changes, driven by a closer integration with global markets and
supply chains, the growing development of new technologies such as electric
vehicles and alternative fuels, and expanding sources of supply and demand
competition. These factors have introduced new dynamics and transitional
pressures in these markets and for some downstream industries (such as plastics
and chemicals) that rely on them for fuel or feedstock. The full implications
of this have yet to be established and need to be closely monitored.
The AIP argued that while Australia has not been insulated from the
wider global trends and pressures, the necessary structural changes in
Australia’s refinery operations have occurred in a measured and orderly way to
allow the market time to respond effectively by producing additional product
supply and ensuring supply security.
At the roundtable hearing the AIP provided the committee with examples
of structural changes to refining in Australia:
Over the past decade the industry has invested nearly $9½
billion in refineries. That includes over $3 billion on the Cleaner Fuels
program. The industry has had an ongoing process for debottlenecking individual
refineries as well as expansion of port handling capacities. We have also
invested heavily in energy efficiency and other sustainability opportunities at
refineries, and the import terminal infrastructure has been enhanced
significantly over the recent decade. By and large, these are factors which have
been within the industry’s control. However, we note that there are a range of
issues that sit outside the industry’s ability to pursue further improvements
and enhancements in efficiency. Some of those factors are cost related. … There
is also a range of broader economic settings that influence what the industry
is able to do. That covers general regulations at federal, state and local
level, approval processes, taxation policy et cetera.
Mr Velins also commented on the changes to Australia’s oil refining
sector, stating that:
At its peak, Australia had 10 major refineries, including 4
luboil plants, plus several tiny ones, but today only 7, and within several
years, no more than 5. Individual refinery capacity is somewhat over
100 000 b/d [barrels a day], a small fraction of the size of regional
exporters. Furthermore, Australian refineries have shallow berths and hence are
unable to use large crude oil tankers, thereby paying more for crude oil
freight than regional suppliers.
Domestic refining capacity
The Australian refining sector can be viewed as a collection of separate
markets. Australian oil refineries operate on a smaller scale than its regional
competitors. RET commented that the ‘total Australian refinery capacity
represents a very small proportion of global and regional capacity’.
RET noted the 2012 BP Statistical Review of World Energy finding
that in 2011, the Asia-Pacific refining capacity was equal to 31.3 per
cent of the global capacity. Australia’s capacity in 2011 was 2.6 per cent
of the Asia-Pacific capacity, and only 0.8 per cent of global capacity.
The AIP provided a breakdown of Australia’s oil refinery capacity for
Table 2.1 Australian refinery capacity in 2010-11
Capacity ML pa (megalitres per year)
Closing by mid-2014
Closed in September 2012
Bulwer Island (BP)
Downstream Petroleum 2011, p. 5.
Following the closure of the Clyde refinery, the total capacity of
Australian refineries is 40 440 ML per year. RET noted that Australia’s total
production of petroleum products in 2011-12 was 36 192 ML, which
included 15 390 ML of automotive gasoline, 12 212 ML of automotive
diesel oil and 5 452 ML of jet fuel. RET explained that:
A refinery’s capacity is the volume of fuel that could be
produced through distillation of crude oil operating non-stop at an optimum
utilisation rate. Generally capacity is not achieved, due to shutdowns and
inherent difficulties in balancing crude inputs with demand for outputs. In
some cases capacity can actually be exceeded—for example, by increasing the use
of blend components, which do not need to be distilled.
The closure of the Caltex Kurnell refinery in 2014 will reduce
Australia’s total domestic capacity to 32 620 ML per year. The EWP found that
the combined effect of the Clyde and Kurnell refineries would reduce Australia’s
maximum refining capacity by 28 per cent.
The ACCC observed that Shell may also be reviewing its Geelong refinery
operations. In its December 2012
monitoring report, the ACCC stated:
Shell reported that the future of the refinery is
‘borderline’ and may be impacted when the further capital investment is
required to maintain reliability. As the Geelong refinery requires imports of
crude to feed production, a switch to directly importing petrol is not a big
jump, according to Shell, commenting that there is no structural reason to keep
the facility operating.
The 2011 National Energy Security Assessment (NESA) found that ‘regional
refinery growth was considered a risk to domestic refining capacity as domestic
demand growth was increasingly met by imports from these large mega-refiners’.
RET noted that the demand for liquid fuels in Australia has ‘risen
steadily over the past decade, and consumption of refined petroleum products is
projected to continue to grow’. The liquid fuel market
includes feedstock and fuels, which covers crude oil, condensate, liquefied
petroleum gas (LPG), refined petroleum products such as fuels (i.e. petrol,
diesel and jet fuel), and alternative transport fuels such as biofuels (ethanol
and biodiesel), compressed natural gas (CNG), and liquefied natural gas (LNG).
In 2010–11 Australia imported around 83 per cent of its crude oil and
other refinery feedstock, primarily from Malaysia, Indonesia and the United
Arab Emirates. Petroleum product
imports are sourced primarily from Singapore (59 per cent in 2010-11).
Shell noted at the roundtable hearing that a lot of the product described as
coming from Singapore has been transhipped through Singapore and may have originated
elsewhere, such as Taiwan, Thailand or China.
Challenges to Australia’s competitiveness
The major oil companies all provided evidence to the committee that
Australian domestic oil refineries are operating at a competitive disadvantage
to other refineries in the region.
The pressures of high local costs, the strength of the Australian dollar
and the relative age of domestic facilities, are having significant impacts on
The CFMEU argued that the high Australian dollar is having an impact,
and is ‘hurting all manufacturing’. Caltex also claimed that
the high Australian dollar is having an impact on the refining sector, stating
Our margin, which is the difference between what we pay for
crude and what we get for our products, is set in US dollars. So the world of
crude oil is a US dollar world and the world in which we sell our products is a
US dollar nominated world as well. We have talked previously about import
parity. We have a US dollar margin and we have A dollar costs. So, to the
extent the A dollar costs chew into that margin it leaves less for the refiner.
Shell asserted that labour costs comprise around 60 to 70 per cent of
fixed costs for refineries, and commented that Australian labour costs are
higher than many of its regional competitors:
We would see that the typical cost for employees in Australia
is around 2.3 times higher than Korea and around seven times higher than India.
The cost of running a refinery in Australia, of which labour is one component,
but only one component, has increased about three times over the last ten
years. Part of that is the Australian dollar, but part of it is the underlying
The CFMEU acknowledged that wages are a cost factor, but argued that ‘in
capital-intensive businesses labour costs are a minority—often a small
minority—of operating costs, so they are not the biggest factor determining
what is going on in refineries in Australia’. Labour costs as a
component of refining costs are discussed in Chapter 5 on employment issues.
Given the nature of the petroleum products, shipping is at the core of
international movements of these products. During the inquiry, submitters
commented on shipping arrangements for transporting oil, including noting the
effects of cabotage—a legal arrangement to reserve the right to transport goods
or passengers within Australia’s coastal waters to Australian carriers.
While refiners did not supply any indicative cost figures on cost
implications of shipping regulation in Australia, the major oil refiners
claimed that current shipping regulation in Australia restricts shipping
flexibility and impacts on their costs. Mobil Oil argued that by restricting
their ability to use foreign flagged vessels to move between Australian ports
added a cost to that domestic movement, which resulted in making it more cost
effective to export rather than redistribute supply nationally.
Caltex concurred that anything that increases the costs reduces company net
In its December 2012 report Monitoring of the Australian petroleum
industry, the ACCC found that the Australian refining sector had recently
recorded comparatively low net profits. It commented that as domestic petrol
prices are based on import parity, Australian refiners and suppliers have a
limited ability to pass on costs that are ‘out of line with international best
practice for refinery production’.
It is generally acknowledged that large refineries in the Asian region
represent a competitive challenge to Australia’s refineries. Mobil Oil observed
that ‘the true competition in Australian refining is not the other Australian
refineries but the much larger refineries elsewhere’.
The Nelson Complexity Index is a measure of secondary conversion capacity
in comparison to the primary distillation capacity of any refinery. It provides
an insight into refinery complexity, indicating investment intensity, cost
index and value of additional potential of a refinery. It also allows for some
degree of comparison between refineries. Shell noted that Australian refineries
were operating at around the eight or nine index mark, in contrast to the Asian
environment where the average has risen from 6.5 to over 10, with the Jamnagar
refinery in India having an index of 14.
When comparing Australia’s refineries with those in Asia, the AIP
In terms of size, all the [Australian] refineries sit in the
range of 4½ to 8½ thousand megalitres per annum, which is a capacity of about
80,000 to 145,000 barrels a day. By comparison with other refineries around the
Asian region, the Australian refineries are relatively small, sitting in the
mid-range of the pack. Jamnagar refinery in India is one of the largest
refineries. It has a total capacity of about 1,200 thousand barrels a day
processing—substantially bigger than the total Australian processing capacity.
Further, the AIP found that other factors are also affecting Australia’s
In recent years the surplus refining capacity in the Asian
region has forced refiner margins to very low levels which are exacerbated by
high Australian dollar exchange rates. While all refineries will face low margins
for some years to come, many Asian refineries are supported by national
governments that are pursuing refining self-sufficiency objectives rather than commercial
Similarly, Shell commented that:
Over the last 10 years the operating costs of running smaller
scale refineries in Australia have grown to be as much as running a refinery
two to three times their size in Singapore or the Middle East.
BP Australia currently has refineries operating in Perth and Brisbane.
It observed that:
Some of our locally based competitors have closed, or are
closing their refineries. While not privy to their decision making it is BP’s
experience that Australian refining does suffer a competitive disadvantage
which is born from a higher operating cost-base and lack of economies of scale
compared to regional competitors.
Whilst the materiality of these higher costs present
themselves in a number of ways they are dominated by labour costs, the relative
age and scale of Australian refinery assets and the high Australian dollar.
Other submitters also agreed that Australian facilities are facing
constraint challenges. For example, Mr Eriks Velins commented that:
The refineries, albeit debottlenecked and upgraded to meet
new product specifications, have grown old, with no longer an ability to reach
globally competitive economies of scale due to the low growth in local demand
and an inability to compete in the major product export markets.
The AIP described Australian refineries as being affected by ‘legacy
constraints’, and commented that:
They were designed to meet a particular domestic crude supply
and demand set of fundamentals—that is, a sweet crude to be processed with a
high focus on petrol as opposed to diesel. The new Asian refineries are
significantly more complex in their operations than the Australian refineries.
That provides a range of opportunities to process a much wider range of crudes.
That also enables them to process crudes more intensively than the Australian
refineries can in general and capture a much wider range of opportunities to
enhance refinery profitability.
In relative terms, the operational and construction costs in
the refining sector are higher in Australia than across Asia, and the
Australian refineries are challenged by having a higher energy intensity for
the same level of complexity in comparison with the Asian refineries.
Mobil Oil agreed with the AIP assessment that Australia is facing
considerable competitive challenges in the region. It commented that:
We have a high cost of compliance and higher taxes. We have
high and rising costs throughout our infrastructure and particularly in
utilities—electricity and water. We are subject to higher labour costs. Even
though there has been some very good work in improving productivity, we still
have very high absolute labour costs compared to the rest of the region and, of
course, we have a high Australian dollar.
Caltex operates refineries in Sydney and Brisbane. Following a review of
its refineries, Caltex decided to close the Kurnell refinery in Sydney by mid-2014,
and convert it into an import facility. Its Lytton refinery in Brisbane will
continue to operate.
In its submission to the inquiry, Caltex advised that it had carried out
an exhaustive review of its two refineries. It contended that:
These refineries lost about $200 million (EBIT) in 2011, with
the greater part of the loss arising from the Kurnell refinery. Like many
manufacturing plants, Caltex’s refineries face strong import competition and
Caltex has not been able to find an economically attractive
way to make the Kurnell refinery sufficiently competitive in the Asian market.
Caltex has therefore decided to close Kurnell’s refining facilities in the
second half of 2014 and convert the site to a major import and fuel storage
Caltex’s Lytton refinery in Brisbane will continue operating
as the company has identified a range of opportunities to improve performance,
and a number of potential targeted incremental investment options, to drive
Caltex observed that all refineries are different in terms of
capabilities and their economics, and contended that even government
intervention, such as providing a ‘tax holiday’, would not have changed the
company’s decision about the Kurnell refinery.
Shell’s downstream businesses supply around 25 per cent of Australia’s
liquid petroleum requirements. Shell agreed with industry assessments that
domestic refineries are under pressure from the mega refineries in the region,
which ‘have lower operating costs and can produce large quantities of high
quality products from cheaper crude oil and feedstocks’.
In making its decision to close its NSW Clyde refinery and convert the
facility to an import terminal, Shell argued that it:
… not only recognised these global pressures and that Clyde
was unable to compete in this market but also that fuels to Australian
specifications are more readily available in the quantities required to service
this important NSW market.
When contrasting the Clyde refinery to the large refinery in Singapore,
Caltex argued that the Singapore refinery was ‘an incredibly more flexible
machine’, that ‘could make products for a range of different countries; it
could adjust its schedules on a much more frequent basis’.
Shell indicated that a number of factors influenced the Clyde closure:
- There is growing
excess refining capacity in our region;
- Clyde is a small
scale refinery in comparison to its regional competition and was not able to
generate the returns needed to justify further investment (For example, Clyde
competed with regional refineries which produce 1.2M barrels per day versus
70,000 barrels per day at Clyde); and
- Shell can access
adequate supply of Australian-grade products in the marketplace.
Further, Shell argued that:
Each refinery is different but one thing remains the same - a
refinery needs to generate a positive cash flow to justify ongoing operation
and the significant amount of reinvestment required year on year. Just covering
costs is not sufficient. …
Additionally the notion of “cross subsidisation” from other
more profitable segments of our business is flawed as there is no business
reason to do this given the access to adequate supply of fuel products in
highly “liquid” markets and, from an internal perspective, each Shell business
unit is expected to perform and contribute to the overall business. Through
cross subsidisation you have the potential to reduce the profitability of the
overall business thereby further reducing the ability to access available
Shell submitted that its analysis showed Clyde refinery’s long-term
projected cash flows as negative, as the refinery’s costs have ‘almost doubled
in the last decade and in US dollar terms they had almost tripled’.
Mobil Oil argued that Australia’s six remaining oil refineries are
‘small by regional and global standards and suffer economies of scale
disadvantages versus many large regional refineries’.
Many of these large regional refineries are newer and more
fuel efficient and have more sophisticated processing facilities than
Australia’s domestic refineries. Regional refining capacity is increasing
(expansions or new builds) at a rate which currently exceeds product demand
growth and this is depressing refinery margins. This trend is not expected to
change before the latter part to this decade.
Mobil Oil’s Port Stanvac refinery in South Australia ceased operations
in 2003, and was permanently closed in 2009. The AIP noted that as one of the
smallest refineries in the region, the Port Stanvac refinery could not compete
against the larger and more sophisticated Asia-Pacific refineries.
The facility will be demolished and the site prepared for future industrial
Mobil Oil’s remaining refinery, the Altona refinery in Melbourne, is a
key part of Victoria’s energy supply chain, providing around 50 per cent of the
state’s petroleum needs. It continues to operate in a ‘very challenging
business environment, facing substantial competition from overseas refineries
which have cost and scale advantages not available to Australian operators’.
Mobil is also one of the largest importers of petroleum fuels into Australia.
Looking forward, Mr Velins observed that there ‘is no incentive for any
oil company to invest in expansion of its refinery, as that can never be large
enough to gain economies of scale’.
However, decisions to close refineries should be carefully considered,
because, as Mobil Oil cautioned:
Once refinery facilities are shut and demolished they are
essentially gone for good as it is extremely difficult to envision a business
case for the establishment of a new refinery in Australia in the foreseeable
future, particularly with the value of the A$ and labour costs as they are
The Business Council of Australia did not support government
intervention to sustain unprofitable businesses that operate in the presence of
While discussion at the roundtable hearing focused on contractions in
the domestic refining industry, Mobil Oil argued that while it would be tough,
a future for the Australia’s refining sector is possible.
Caltex commented that it was taking an ‘asset by asset’ approach to its
refining operations. While the Kurnell refinery was not viable, it intends to
explore investments in its Lytton facility to improve its competitive position.
The global oil refining industry is undergoing significant structural
change. Larger, more efficient refineries are being established in the Asian
region resulting in increased competitive pressures. The expansion of refining
capacity in Asia has led to the rationalisation of refining in established
markets such as Europe and the United States of America. The Australian
Institute of Petroleum (AIP) noted that ‘we are likely to continue to see
further closures of refineries across the Northern Hemisphere’. Since 2009
eight European refineries have closed with further closures likely. Of these
closures, two have been in the UK.
The committee recognises that Australia is facing the same competitive
pressures and consequent structural change as that occurring in the Northern
Hemisphere. Evidence shows that Australian refineries are not competitive
compared to the new and expanding mega refineries in Asia. The domestic context
of high operating costs, ageing facilities, increasing sea miles for the
transport of crude to the refineries, shallow berths which are not suitable for
large crude carriers, increasing technical complexity needed for refining of
the broad range of crude oil and the high Australian dollar, put Australia at a
competitive disadvantage, resulting in the closure of certain domestic
refineries that were no longer commercially competitive.
Australia’s proximity to the Asian region poses some challenges for
domestic refineries, but it also provides opportunities to take advantage of
Asia’s surplus refining capacity and to continue to strengthen supply chains in
the region. These relationships help ensure a reliable and secure oil supply
It should be noted that while Australia has both crude oil reserves and
a refining capacity it is not self-sufficient. In 2010–11 Australia imported
around 83 per cent of its crude oil and other refinery feedstock. It has and
continues to import both crude oil and refined fuels. Following the closure of
Clyde and Kurnell, Australia will refine 50 per cent of its fuel needs onshore,
predominantly from imported crude.
The importation of refined fuels provides Australian consumers with
access to fuels refined from types of crude oil that could not be refined in
The committee notes that the changes in the oil refinery industry in
Australia reflect an orderly transition in response to global trends. They
should not be seen as a lack of commitment by the individual companies to the
Australian market. Each refinery closure is matched by a corresponding
investment in import terminal infrastructure that uses the refinery’s
distribution networks and infrastructures to deliver the refined fuel. During
the hearing, Shell advised that Australia will be a growth centre for Shell,
globally. Shell noted that it has made significant investments in exploration,
development and supply of liquefied natural gas and condensates. It employs
about 2 500 people in Australia, and has plans for significant growth.
It should be noted that there is a solid foundation for the reliable
supply of liquid fuels. The Energy White Paper (EWP) commented that ‘our lack
of oil self-sufficiency and the prospect of further refinery rationalisation
does not in itself compromise or reduce our energy security’. As previously stated,
it is essential to have diversity of supply. Going forward this will consist of
some refining capacity and the certainty of international supply through having
a diversity of supply chains and access to well-functioning global markets.
This approach provides flexibility and security of supply.
While Australia is unlikely to establish new refineries, it is desirable
to have some refining capacity. Mobil Oil noted that ‘some level of domestic
refining capacity is highly desirable to provide additional flexibility to cope
with the short term product supply interruptions or imbalances that can occur’.
Similarly, Caltex noted that when it announced the closure of the Kurnell
refinery, it did indicate a future for its Lytton refinery. The EWP also agreed
that ‘a domestic refining capacity presence provides Australia with a limited
ability to process domestically produced crude in-country, and a degree of supply
flexibility and reliability’.
While companies acknowledge that refining capacity is desirable, all
agree that it is extremely unlikely that market conditions and economies of
scale would warrant the building of a new refinery in Australia. That leaves the
nation with five aging refineries under increasing competitive pressure. The
committee notes that during the last decade, the oil industry has invested over
$9 billion in those refineries.
The committee noted observations about the general future of the oil
refining industry in Australia, in particular whether the closures were part of
a trend that would see Australia lose its refining capacity altogether. Various
stakeholders questioned whether such a trend, if it eventuated, would be in the
The most pessimistic view was that this is the beginning of the end of
Australian refining, and the most optimistic view was that there is a future
for Australian refining, albeit under increasing competitive pressure. The
committee also notes the almost universal agreement that given global
competition and the inability to generate competitive economies of scale in
Australia, we are unlikely to see new refineries opened. Once closed, a
refinery is very unlikely to be re-opened, particularly as a refinery’s
location, port and storage facilities and distribution networks make conversion
to import facilities a profitable option.
During the hearing, some groups sought guidance on whether there was a
minimum level of refining capacity required to meet Australia’s economic needs.
The EWP did confirm that the domestic refining presence provides Australia with
a limited ability to domestically refine crudes in-country, and several
witnesses confirmed that there are advantages in having a domestic refining capacity.
However, the energy industry is in a state of change, both with the global
rationalisation of the traditional liquid fuel industry, and the growth in
alternative and new types of energy sources. Australia’s liquid fuel needs
should be seen as one part of our energy future, albeit an extremely important
Overall, Australia is a net exporter of energy and we have a positive
energy future. As the world’s ninth-largest energy producer, Australia is the
largest coal exporter and third largest uranium producer in the world. In
future years, we are projected to be the world’s second largest liquefied
natural gas exporter. The EWP notes that as ‘a near neighbour to Asian
economies, we are well placed to cement our role as a leading energy supplier
to those nations and to assist their economic development’.