In Australia, major European and American oil companies have announced the closure of their refineries one after another. British Petroleum (BP) and Exxon Mobil of the United States decided to withdraw for the reason of intensifying competition with Chinese companies and other low-priced oil products. Australia will be left with only 2 refineries of local companies. Import dependence on petroleum products is expected to increase to nearly 80% in fiscal 2021, with the ratio of imports from China also rising.
“The increase in large export-oriented refineries in Asia and the Middle East has changed the structure of the Australian market,” said BP, which announced in October 2020 the closure of the Kwinana refinery in Western Australia. The plant is 65 years old, but BP Australia says it is “no longer profitable. The plan is to shut down production by April 2021 and convert it into an import base for petroleum products. The workforce will be reduced from 650 to 60.
ExxonMobil’s ALTONA refinery
ExxonMobil also announced in February 2021 that it would close its ALTONA refinery in Melbourne due to deteriorating earnings. The exact timing has not been specified, but it will also be converted to an import base. This will reduce the number of refineries in Australia from eight in the early 2000s to two owned by local companies.
The background to this is the intensification of competition with products from Chinese and Middle Eastern companies. For example, China has been pushing for new and enhanced refineries since around 2015, centered on CNPC and Sinopec, among others.
In particular, the increase in “mega-refineries” with a Crude Oil processing capacity of 300,000 to 400,000 barrels per day has expanded exports to the Asia-Pacific region. They are two to four times the size of the refineries in Australia that were decided to be closed. Refining costs and market prices are also relatively low, making it difficult for Australian refineries to compete with them.
With the closure of refineries, Australia’s dependence on imports of petroleum products continues to rise. The proportion of imports to consumption reached 65% in FY2019. In FY 2021, when 2 refineries are scheduled to close, the ratio is expected to increase to 79%.
The presence of Chinese products is particularly striking. In terms of import sources (by value) in FY2019, Singapore is at 26%, South Korea at 18%, and Japan and China at 14%. Compared to five years ago, Singapore is down 8 percentage points, South Korea is down 9 percentage points, and China is up 9 percentage points.
The increased dependence on China also poses a risk. Alexander Yap of S&P Global Platts Energy Information said that “China could overtake Singapore in the future” as a source of imports to Australia.
China and the Middle East continue to build capacity
Refineries in China and the Middle East are expected to continue to ramp up capacity in the future. According to the International Energy Agency (IEA), China’s oil refining capacity is expected to increase by 1.8 million barrels per day (bpd) from 2019 to 2025, and the Middle East by 1.6 million bpd. The rate of increase is about three times that of India and the rest of Asia.
In Asia in particular, China has a strong presence. its share of supply exceeds 50% in 2021 and is expected to increase further in the future.
The movement toward refinery closures is also expanding in other regions outside of Australia. In the Philippines, Pilipinas Shell Petroleum Corporation (PSPC), a subsidiary of Anglo-Dutch Shell Oil and a major Philippine oil distributor, announced the closure of its refinery in August 2020. In addition, Petron Corporation, a large distributor owned by San Miguel, the conglomerate that operates the only remaining refinery, recently said that earnings were deteriorating and decided to close temporarily.
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