Australian Refineries Receive Enhanced Government Support to Bolster Fuel Security
The Australian federal government has introduced significant adjustments to the financial support mechanisms for its two remaining domestic fuel refineries, Viva Energy’s Geelong facility and Ampol’s Lytton plant. These changes are designed to make it easier for these critical infrastructure assets to access production subsidies, particularly during periods of high operating costs. The move aims to ensure the continued viability of domestic refining operations, a crucial component of Australia’s energy security.
While the announcement coincided with ongoing global supply chain disruptions, exacerbated by geopolitical tensions in the Middle East, the review leading to these modifications was initiated at least six months prior. This proactive approach underscores a long-term commitment to maintaining a robust domestic fuel supply capability.
Key Adjustments to the Fuel Security Services Payment (FSSP)
The revamped Fuel Security Services Payment (FSSP) scheme introduces revised triggers and thresholds for subsidy payments. These adjustments are intended to provide more timely and effective support when refining margins, the profit margin between the cost of crude oil and the selling price of refined fuels, come under pressure.
- New Subsidy Commencement Threshold: Refineries will now qualify for production subsidies when their refining margins fall below $15.90 per barrel over a calendar quarter. This represents a significant adjustment from previous arrangements.
- Linear Subsidy Increase: The subsidy amount will increase on a linear basis as refining margins decrease below the $15.90 threshold. This ensures that the support scales proportionally with the decline in profitability.
- Subsidy Cap: The subsidy will cap out at $2.90 per barrel for refining margins below $13.00. This provides a defined upper limit to the financial assistance.
- Lifted Volume Margin Limits: The upper margin limit for which refineries receive a subsidy based on the actual volumes of gasoline, jet fuel, and diesel fuel produced has been increased. This limit has been raised from 6.4 cents per litre to 10 cents per litre.
- Revised Lower Margin Limit for Maximum Subsidy: The lower margin limit required to receive the maximum subsidy of 1.8 cents per litre has also been adjusted upwards. It has been raised from 4.6 cents per litre to 8.2 cents per litre.
- Unchanged Maximum Payout: Notably, the maximum payout of 1.8 cents per litre has remained unchanged, ensuring a consistent level of support at the lower end of the margin spectrum.
The Rationale Behind the FSSP Enhancements
The updates to the FSSP stem from a comprehensive six-month review conducted by the Department of Climate Change, Energy, the Environment and Water, with expert input from Deloitte. This review involved benchmarking cost claims against prevailing market conditions to ensure the scheme’s effectiveness and fairness.
Chris Bowen, the Minister for Climate Change and Energy, described the FSSP as an “important insurance policy” for Australia’s fuel supply. He acknowledged that the original design of the scheme had “flaws,” as evidenced by the fact that refiners had only accessed the payments twice since its inception in mid-2021. The revised structure aims to rectify these shortcomings and provide more accessible and relevant support.
In return for these welcomed adjustments, both Ampol and Viva Energy have committed to progressing plans to ensure their refineries continue operating well into the next decade. This commitment is vital for maintaining domestic refining capacity and reducing reliance on imported fuels.
Industry Response and Future Outlook
The adjustments to the FSSP have been met with positive reception from the industry.
Matt Halliday, Ampol’s Managing Director and CEO, welcomed the changes, stating, “We welcome the adjustments made to the FSSP, which effectively increase the level at which payments under the scheme will commence. The important role Australian refineries play in supporting the resilience of our domestic fuel supply is being reinforced in the current global oil market environment.”
Scott Wyatt, Viva Energy’s CEO and Managing Director, echoed this sentiment, adding, “Today’s announcement underscores the important role that domestic refining plays in strengthening Australian energy security.”
The operators of both refineries have highlighted the significant increase in operating costs since the FSSP was initially introduced. These increased costs, coupled with global market volatility, underscore the necessity of the enhanced government support.
Looking ahead, a phase two review of the FSSP is slated to further explore “Australia’s ambitions with regards to long-term fuel supply resilience, including domestic refining.” This review, expected to be completed by the end of the year, will be crucial in shaping the future landscape of Australia’s fuel security strategy.
In a related operational move, Ampol has deferred its refinery’s major maintenance program from early June to the start of August. This rescheduling is anticipated to enable the production of an additional 300 million litres of petrol, diesel, and jet fuel during that period, further contributing to domestic supply resilience.
