Building new fuel refineries in Australia is “hard to justify” commercially as high costs and long construction times make the investment “very difficult”, an energy CEO has warned.
Calls for Australia to build more refineries grew after the oil crisis erupted and a fire swept through Viva Energy’s Geelong refinery 10 days ago.
Australia has just two oil refineries, down from seven it had in 2013 as major oil and gas companies shut their domestic operations.
Building new refineries in Australia would be challenging and not cost-effective considering oil’s roll-off, Viva Energy’s CEO Scott Wyatt told Business Weekend.
“To build a new refinery in Australia … it’s an enormous amount of money,” Mr Wyatt said.
“These modern refineries are significantly larger than what we operate.
“They’re very expensive to build, take five to ten years to actually construct and then you probably need 20 years to get a payback.”
He said the construction of refineries was far less common because energy users are looking away from oil.
“If you fast forward 10 years to when a new refinery would be in operation and think about the next 20 years after that, we would have reached peak oil demand at that point,” Mr Wyatt said.
“We’re into a decline in demand for hydrocarbons.
“Since you’re running a very expensive refinery into a market that is in decline, they’re hard to justify on a pure commercial basis.”
He suggested that expanding the capacity of existing refineries would be a more cost-effective way to ensure Australia can better meet its fuel security needs.
“That’s a more sensible proposition because a lot of the capital that’s needed to support processing is already there so that might be a different way of thinking about improving Australia’s refining capability,” Mr Wyatt said.
“But building new I think is very difficult.”
The Albanese government was reportedly in discussions with energy companies about a new refinery in early April.
A new refinery could cost between $8b and $10b, but sources told The Australian that Labor was open to an investment in this space.
More than 70 per cent of Australians support the development of new fuel refineries, according to an SECNewgate survey.
Sky News Pulse revealed 57 per cent of Australians support more oil and gas exploration, even if it undermines the Albanese government’s emissions reduction goals.
Just 21 per cent of respondents were opposed to fossil fuel exploration, with 22 per cent undecided.
The polling also revealed 63 per cent of the nation backed Labor spending $20 billion to ensure Australia has a 90-day fuel supply reserve, marking a shift in attitude towards fossil fuels.
Meanwhile, Mr Wyatt also shared his initial reaction to the fire that swept Viva Energy’s Geelong refinery.
“I was actually on a call with the GM of the refinery at the time, we were finalising the cargos for the federal government that was announced the next day and then the call came through while we were talking,” he said.
“Your heart really does sink because you know how impactful this will be. You think immediately of the people on site, are people safe?”
The refinery can process up to 120,000 barrels of fuel per day.
It is back to about 60 per cent production capacity for petrol and 80 per cent for diesel and jet fuel.