BP pulls plug on Australia refinery as Asian competition bites

INTERNATIONAL - BP will cease fuel production at its 65-year-old Kwinana refinery in Western Australia, citing low margins and tough competition from Asia, and will transition the facility into an import terminal.

The UK company’s move will leave Australia with just three remaining refineries, with the future of those also in doubt after the demand destruction caused by Covid-19 hit an industry already struggling to stay profitable. The government in September announced a package of measures to support the refiners, including a potential production payment to recognize their strategic role in supporting the nation’s fuel security.

“The continued growth of large-scale, export-oriented refineries throughout Asia and the Middle East has structurally changed the Australian market,” said BP’s Australia country head Frédéric Baudry in a media statement. “Regional oversupply and sustained low refining margins mean the Kwinana refinery is no longer economically viable.”

Converting to an import terminal would help to ensure ongoing security of fuel supply for Western Australia, Baudry said, although the transition will come at a cost to the local workforce. Kwinana employs around 650 permanent staff and contractors, while the import facility is expected to support about 60 jobs.

Refining activities will wind down over the next six months, while construction work on the import terminal is expected to go to 2022. BP is exploring further options for the site including a clean energy hub that could produce and store lower carbon fuels.

Ampol’s Lytton refinery in Queensland and Viva Energy Group’s Geelong facility are on review for potential closure, while Viva is also exploring options to locate an import terminal at the Geelong site. Meanwhile, Exxon Mobil said in September that market over-supply exacerbated by the pandemic has seen its Altona refinery operate at a loss, according to a report in the Australian newspaper.

Energy Minister Angus Taylor said in a statement that he was “deeply disappointed” by BP’s decision, adding that its closure would not negatively impact Australia’s fuel supplies.

“We will ensure Australia maintains a sovereign refining capability to support local industry,” Taylor said.

BLOOMBERG