Australia`s oil refiners are being forced into drastic action by the continuing slump in refining margins in Asian markets.
Within a week of each other, Caltex Australia Ltd. and then Mobil Oil Australia Ltd. said that there would have to be cuts in production levels at their facilities.
Caltex Managing Director Ian Blackburne has warned that the company`s first-half profit will be below the $40.3 million (Australian) it reported in first half 1998 because the fall in refining margins means it was unable to cover costs. He said benchmark Singapore refining margins averaged $1.16 (U.S.)/ bbl in May across all petroleum products. Some of those products were being produced at a loss at that time.
Caltex is "rigorously reviewing" its operating costs and will cut spending. The deterioration in industry conditions means that it will continue cutting output, although the company has not said at what level it will run its Australian refineries.
Mobil has taken the step of reducing its forward crude oil purchases for the next few months, as it prepares to cut output from its two Australian refineries by about 10%.
Shell Australia Ltd. has not yet changed its operating schedule, but the company is urgently reviewing its figures and may have to scale down its Australian throughput. BP Australia Ltd. also has its local production under review, saying that, if refining margins go any lower, it will reach a stage where it is cheaper to import petroleum products than refine them in Australia.
The problem stems from a number of new refineries coming on stream in Asia (particularly in India and Taiwan), with analysts predicting a 4%/year rise in refined products supply for the next 2 years. Demand is unlikely to keep pace, and there is a growing glut of cheap product available in the region.
All four companies say their international parents are reluctant to make further investments in Australia unless the local subsidiaries are allowed to merge their operations or strike product alliances.