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A week after the federal budget, the government has revealed it will spend more than $3 billion to bolster Australia’s oil refining capacity, and a further $600 million to build a gas plant in the Hunter Valley. By Max Opray.

Government subsidises oil refineries

Prime Minister Scott Morrison and Energy Minister Angus Taylor at the Ampol Lytton oil refinery in Brisbane on Monday.
Credit: AAP / Darren England

Hitting talkback radio to detail his plan to fund Australia’s oil refineries for the next decade, the federal Energy minister, Angus Taylor, confided in 3AW’s Neil Mitchell about his own need for fuel security.

“I drive a Ford Everest, Neil – a five-cylinder, 3.2 litre,” Taylor said on Monday during their interview. “I’m not driving an electric car. I live in regional New South Wales and drive huge distances each year – 60,000 or 70,000 kilometres.

“So, I need something that can handle the hard roads and the distances.”

Taylor is right that electric vehicles aren’t the most practical option for everyone in regional Australia. Although that’s not due to their range or hardiness – some new electric SUVs travel further than 400 kilometres on a single charge – instead it’s because of Australia’s woeful electric vehicle charging infrastructure.

According to the Electric Vehicle Council, Australia has just 2307 public charging stations, of which 357 are fast public charging points.

The International Energy Agency (IEA) estimates China installed more than 200,000 public fast charging points alone as of 2019, the United States more than 13,000, and Norway nearly 4000.

The recent federal budget contained no new funding for electric vehicles. Instead, Taylor committed to a government intervention worth up to $2.3 billion through to 2030 to rescue Australia’s ailing oil refineries, thus allowing Ford Everest drivers to continue filling up their sizeable tanks for years to come.

Richie Merzian, The Australia Institute’s climate and energy director, marvels at Taylor’s anecdote.

“It’d be ironic if the person complaining about [electric vehicle challenges] is the one best placed to do something about it,” Merzian tells The Saturday Paper. “What he’s revealed is that the minister responsible for Emissions Reduction has an oversized carbon footprint himself.”

While the refineries plan was referenced in last week’s federal budget, the cost was not detailed, due to what the federal government claimed were “commercial sensitivities”.

After a week of favourable headlines about the budget, such sensitivities were suddenly gone and Taylor was free to reveal the cost to taxpayers.

Up to $2 billion of the funding for refineries will be paid via a variable Fuel Security Service Payment (FSSP), made directly to the facility operators themselves.

Local refineries welcomed the support, which only kicks in whenever the margin marker for oil drops below $10.20 a barrel.   

Ampol, which reported a refining margin of $7.08 a barrel in the first quarter of 2021, expects the variable support payment to provide the company up to $108 million a year.

“The structure of the FSSP is not designed to underpin or support the profits of Geelong but rather to mitigate some of the downside risk of low-refining margin cycles to which Australian refineries are exposed outside of their control,” said Scott Wyatt, the managing director of Viva Energy, the operator of Australia’s largest remaining refinery, based in Geelong.

“Reducing this risk allows us to proceed with greater confidence as we seek to invest in the future of the Geelong site.”

Speaking to media at the Viva Energy facility on Tuesday, Taylor said his package would protect the interests not only of the 700 refinery workers employed ther but also other Australians.

“Whether you’re a truckie or a tradie, a farmer, emergency services worker, you need that reliable, affordable supply of fuel,” he said.

The Viva facility and Ampol’s Lytton facility in Brisbane are the two remaining refineries in Australia. This has fallen from seven a decade ago – a decline that energy experts say presents real risks to national fuel security.

By safeguarding the future of these two facilities, Australia will be able to refine oil domestically. It will, however, still need to import most of that oil – meaning fuel security is not immune to major global crises.

 

It is instructive to examine why Australian oil refineries started closing in the first place.

“They’re small in scale and can’t compete with the massive refineries in Asia,” Richie Merzian says. “They’ve struggled to invest in upgrades to refine the kind of products needed, which is part of the reason we don’t have the fuel-quality standards seen overseas.”

Australia’s fuel standards have slipped so far behind Europe, the US and Japan that some new models of vehicles are unable to run on local fuel.

The federal support package announced in the budget does seek to address fuel standards, with up to $302 million earmarked for refinery upgrades to bring forward the production of higher-quality fuels from 2027 to 2024.

Merzian is critical of the support coming so late, noting plans to raise standards were pushed at a ministerial forum five years ago.

“If you’re going to pick a point to bargain a deal and wait ’til you’ve got the weakest hand possible with very few refineries left, you can assume the refineries are dictating the terms,” he says.

 

While Australia scrambles to catch up with modern fuel standards, the country risks being left further behind in the coming decade as the world moves towards electric vehicles.

Tony Wood, director of the Grattan Institute’s energy program, welcomes the improvement to fuel standards but also wishes it had happened long ago.

“By the time they’ve got around to sorting it out, we might not be using fuel anymore,” he tells The Saturday Paper. “By 2026-27 the total ownership cost of electric vehicles is projected to be less than internal combustion vehicles. Put it this way: you wouldn’t want to be making big investments in your refinery that assumes we’re going to have internal combustion engines forever.”

Wood says the federal government has made a political choice in subsidising the refineries directly, rather than charging taxpayers extra at the petrol pump.

This further obscures the true cost of petrol to the public and represents a market distortion, he warns.

This week, the IEA, a body expressly founded to protect the global supply of oil, released a plan recommending no new investment in new fossil fuel projects from the end of this year, if the world is to achieve the Paris accord ambition of containing climate change to within 1.5 degrees Celsius.

The Morrison government’s refinery subsidy contradicts this, as does its announcement this week of a $600 million public subsidy to build a gas plant in the NSW Hunter Valley.

Like the refinery subsidy, this fossil fuel investment was also not contained in the recent budget.

The IEA’s plan expects that, by 2030, electric vehicles will increase from about 5 per cent of global car sales to more than 60 per cent. The agency is readying for no sales of internal combustion engine cars beyond 2035.

The report recommends the world invest $90 billion a year by the end of the decade into expanding public charging points for electric cars, from about one million today to 40 million.

Last year the federal government announced the Future Fuels Fund would provide $16.5 million to expand fast-charging stations in Australia. The only mention of electric vehicles in Taylor’s fuel security announcement was a reference to the role refineries would play in the rollout of future fuels such as electric vehicle charging and hydrogen transport infrastructure.

“Ampol is well placed to provide EV charging to mobility customers at our retail sites,” a spokesperson for Ampol told The Saturday Paper. “Ampol currently has 10 EV charging stations across five sites.”

Another fuel security option the federal government was exploring last year was development of a heavily publicised bioenergy road map. John Hewson, chair of Bioenergy Australia, notes that biofuel appears to have vanished from the federal government agenda.

“No support in [the] budget,” he tells The Saturday Paper. “[The federal government should] start with releasing the Bioenergy Roadmap prepared by ARENA and Deloitte.”

Hewson adds that local refineries could play a part in developing local capacity for biofuels drawn from Australia’s agriculture sector. “But why would they with the government paying them to stay with old technology and dirty petrol?”

Public funding for the fossil fuel industry is by no means a new development. Analysis from The Australia Institute found that fossil fuel subsidies are set to cost the public purse $10.3 billion across the 2020-21 financial year.

“It’s perverse,” Merzian says. “Every budget, we keep giving money over to fossil fuel companies for fuel security.”

It is perhaps no surprise, though, that Taylor thought to publicly fund refineries – after all, taxpayers have been funding his own personal fuel security for years.

In the second half of 2020 alone, Taylor claimed $5295.53 in expenses for a private-plated vehicle, including lease costs and fuel.

That Ford Everest sure does cover some ground.

This article was first published in the print edition of The Saturday Paper on May 22, 2021 as "Fuel boosters".

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Max Opray is Schwartz Media’s morning editor and a freelance writer.