Ampol’s recent announcements (The Australian, October 8 and 19, 2020) that it is considering closing the Lytton oil refinery in Brisbane and the BP Australia statement (October 30, 2020) of the closure of its Kwinana refinery in Western Australia pose a strategic test and conundrum for the Federal Government. The vexed issue is this: will the Government stand aside and allow these two strategic refineries to close down, or will it intervene and implement a formula to keep all the refineries viable and operating?
Several factors contributed to the reappraisal of the Ampol oil refinery plant’s viability:
The worldwide collapse of oil prices, which fell from an average of $US65 per barrel in 2018 to $US31 in March 2020.
The fall in Australian demand for diesel and petrol due to the covid19 pandemic.
A dramatic slump in the demand for jet fuels, due to the covid19 lockdowns and international cancellation of flights out of Australia.
Lytton and Kwinana are strategically important because they are two of the four remaining Australian refineries and they produce some 6.5 billion litres and 7.5 billion litres respectively of fuel annually, including jet fuel.
Tensions have been rising in the Straits of Taiwan and in the South China Sea, which China claims as its own and where it has constructed naval military bases on tiny atolls and sand islands in the face of international condemnation.
On October 13, Chinese Communist Party (CCP) Leader Xi Jinping advised naval personnel at a coastal marine base close to Taiwan to “prepare for war”.
China’s provocative military activities against Japan, India and Taiwan in recent months, plus the ongoing purge of and execution of serving generals from the PLA should have had early-warning sirens blaring in Canberra.
To be fair in the last few months, it does appear that the Federal Government has realised the growing threats to our vital sea lanes and has announced action (albeit it too little and too slowly) to boost Australia’s defence preparedness and enhance our fuel security.
In April, Minister for Energy Angus Taylor announced a deal with the United States to allow Australia to park oil stock within the U.S. Strategic Petroleum Reserve (SPR). Though it sounded impressive, Mr Taylor did not say what the storage costs associated with the deal were, or that it required a Presidential approval to release product from the reserve.
The cost to store fuel in the U.S. has doubled in recent times and is about US55¢ per barrel per month. Parking oil in maritime tankers has increased dramatically this year, from $US40,000 per day to US $150,000 per day, and many vessels are now tied up in ports throughout the world as floating crude-oil storages.
The Government’s Request for Information (RFI) on fuel security in June this year, sought to “better understand the opportunities to increase domestic liquid fuel storage that industry consider to be viable projects” and determine “any next steps to potentially increase Australia’s fuel storage capacity”.
However, the Morrison Government’s announcement on July 1 last, increasing defence spending suggests that the government finally grasped the seriousness of Australia’s fuel vulnerability and recognised the need for strategic in-country reserves to be upgraded.
The recent Australia-U.S. Ministerial Consultations 2020 (AUSMIN) in Washington issued a statement (July 28, 2020) that said that, in “strengthening the resilience of our supply chains, the United States and Australia intend to establish a U.S.-funded commercially operated strategic military fuel reserve in Darwin”.
The joint declaration highlights the U.S. perception that the logistical fuel resupply chain into the strategic city of Darwin, its airport, and also serving RAAF Base Tindal near Katherine, is flawed.
Then, suddenly, in September the Federal Government announced a $211 million package to increase domestic diesel-fuel storage capacity within Australia by 780 megalitres. That sounds impressive but represents only about 20 days’ consumption. The Government also announced a miserable 1.15¢ per litre subsidy on fuels refined onshore, while gouging motorists with a 42.3¢ per litre excise tax, plus another double-dip of 10 per cent GST per litre on the total price.
These are but small steps toward increasing our in-country fuel reserves and keeping the refineries operational; but the real test of the Government’s commitment in view of rising tensions in the South China Sea and immediate regions comes down to the answers to these three questions:
- Is the Morrison Government committed to ensuring the continuation of Australian refineries, or will it now allow Lytton and Kwinana to cease operations, then the remaining two to join the exodus?
- Is the Government prepared to allow Australia’s strategic fuel security to rely on the vagaries of the international oil supply chain?
- Will the Government act to protect our strategic sea routes in the South China Sea, through which the bulk of fuels are transhipped to Australia?
Only six months ago, Mr Taylor was assured that Ampol’s Lytton oil refinery would operate into the future and that there was no threat to Australia’s fuel security. On October 8, that assurance quivered, when Ampol revealed that for the first nine months of 2020 losses at the Lytton refinery exceeded $141 million. Worse, on October 19, reports stated the Viva Energy refinery in Geelong and the ExxonMobil Altona oil refinery were trading at losses and facing “unprecedented pressure” from Victoria’s tough lockdown measures.
Part of Australia’s problem with fuel security is the Government’s blind belief in the globalists’ snake-oil spin that our fuels will arrive just in time, all the time, because the fuel market is sophisticated and our needs will be best met through the global market and market measures. Sadly, Australia’s oil and fuel history proves otherwise.
The lessons of drastic fuel shortages learned during 1939-45 and in the immediate postwar years demand that no Australian government would ever forget that historical nightmare and abandon in-country refineries and ample strategic fuel reserves for any reason. Yet they have. In the last 10 years, three of the nation’s refineries closed.
In any strategic appreciation, it is important that there be refineries in different localities throughout Australia and that they be connected into the railway network. How many more refineries must shut down and be demolished before the Government realises that protecting and supporting Australia’s fuel production and resupply is a priority national security issue?
The indications are that, despite the Government’s fuel security rhetoric, the Minister is prepared to endanger national security by standing aside and allowing the Lytton and Kwinana refineries to shut down.
Announcing the closure of the Kwinana oil refinery, the head of BP Australia, Frédéric Baudry, oblivious to the CCP threat to sea lanes in the South China Sea, and much else, and the disruption to global supply chains due to the covd19 pandemic, said: “Converting to an import terminal will not impact the safe and reliable supply of quality fuel products to Western Australia.”
And Mr Taylor stated in response: “Closure of the refinery will not negatively impact Australian fuel supplies.”
Who is he kidding? Time for Mr Taylor to step aside.