Australia refiners seek mergers, reevaluate gasoline sulfur rule

Jan. 3, 2000
Australia has officially acknowledged the financial plight of the country's refining industry with the release in December of the Downstream Petroleum Products Action Agenda.

Australia has officially acknowledged the financial plight of the country's refining industry with the release in December of the Downstream Petroleum Products Action Agenda. Issued by the federal resources minister, Sen. Nick Minchin, the document acknowledges that the government will support restructuring in the refining industry, provided the companies concerned-BP Australia Ltd., Caltex Australia Petroleum Pty. Ltd., Mobil Oil Australia Ltd., and Shell Australia Ltd.-deliver clear public benefits.

The refiners met individually with the government late last year to convey the need for extraordinary measures in order to combat increasing competition from products imports (OGJ, Dec. 6, 1999, Newsletter).

The government now says it will also support industry proposals for downstream mergers that were submitted to the Australian Competition and Consumer Commission (ACCC). The government has also agreed to review its plan to rapidly introduce ultra-low sulfur diesel legislation, pending further discussion with the industry. In its turn, the refining industry has agreed to make any merger deals transparent and to ensure that they deliver economic benefits.

Neither the companies nor the government would state an ideal number of refining operations to emerge from looming industry rationalization, however. Sen. Minchin would only say that the government does not have an "end game" in mind, other than the desire to ensure retention of an internationally competitive industry in Australia.

Shell Australia Chairman and CEO Peter Duncan-also chairman of the Australian Institute of Petroleum, which represents the downstream sector-stressed that the situation in Australia's refining industry is unsustainable. Shell has already flagged the likely closure of its Clyde refinery within 6 years (OGJ, Dec. 6, 1999, p. 38), and there is speculation that Mobil will close its refinery at Port Stanvac in Adelaide. In fact, given the recent global merger of Exxon Corp. and Mobil Corp., there is even speculation that Mobil will exit Australian refining altogether in favor of its Singapore operations. (Exxon quit the downstream arena in Australia a number of years ago.)

Australia has eight refineries, but all are relatively small, compared with the huge refineries in Asia. They simply cannot compete, as Australian refiners have made barely a 2% rate of return on capital investments totaling more than $10 billion (Aus.).