Australian Institute of Petroleum Presentation to APFI Forum The Australian Refining Industry: Meeting the Challenges Nathan Dickens Deputy CEO 1
The Take-Away... while there are ongoing challenges and uncertainties, the industry is meeting these head-on and is confident about a long term future for refining in Australia... 2 2
AIP Core Member Companies 3 3
Governance: AIP Governance & Operations AIP Board AIP CEO and CEOs or Senior Executives of core Member Companies Policy positions based on consensus Agreed positions and public statements AIP priorities set annually by AIP Board Operations: AIP Head Office in Canberra AMOSC offices in Geelong, Perth and Fremantle Additional stockpiles in Exmouth and Broome AIP is supported by a range of expert technical and policy committees AIP has close linkages to expert international organisations IEA, Concawe, IPIECA, OSRL 4 4
AIP Activities Management and sponsorship of major industry health and environmental programs Policy development and advocacy Fuel Standards Climate Change Fuel Pricing Liquid Fuels Supply Security & Reliability Alternative Fuels Policy Taxation Policy Competition Policy Energy Policy Environmental Regulation (oil spill response, air quality, contaminated sites, used oil and used oil containers) Industry representation on expert national and international organisations and government advisory committees International Energy Agency (Industry Advisory Board) Standards Australia National Oil Supplies Emergency Committee (NOSEC) ATO Petroleum Stakeholder Group ACCC Fuels Consultative Committee NSW Biofuels Expert Panel Fuels Standards Consultative Committee (FSCC) Oil Stewardship Advisory Council (OSAC) National Oil Spill Plan Strategic Industry Advisory Forum (NPSIAF) National Remediation Framework Steering Group Provision of independent data to key statistical and government agencies Australian Bureau of Statistics, BITRE, BREE, ATO, Australian Parliament 5 5
AIP Programs AMOSC Australian Marine Oil Spill Centre (wholly owned AIP subsidiary) operates Australia s major oil spill response equipment stockpile under Australia's National Plan for Maritime Environmental Emergencies in partnership with AMSA CRC CARE Founding partner of the Cooperative Research Centre (CRC) for Contamination Assessment and Remediation of the Environment, aimed at preventing, assessing and remediating contamination of soil, water and air Health Watch Amongst the largest and longest epidemiological studies in the world monitoring the health of over 20,000 petroleum industry employees during their time in the industry and after they leave or retire and tracking what happens to their health 6 6
Keys Elements of Australia s Supply Reliability & Security for Fuel Open International Markets for Crude Oil and Petroleum Products Supply Diversity (Wide Portfolio of Local & International Sources) A highly efficient domestic refining capability Supply Chain Flexibility, Resilience and Efficiency Ongoing investment in supply infrastructure to meet demand growth Robust Industry & Government Response Plans for supply disruptions 7 7
Australia is a Big Country 8 8
Australian Fuels Supply Chain 9 9
Australian fuels supply chain 10
Oils ain t Oils The Crude Oil Diet of Australian Refineries Need to match crude yields to products demanded in Australia Crude Oil Requirements of Australian Refineries (2017-18) Around 20% from Australian Oilfields Around 80% from imported crudes from 20+ countries Asia Pacific region (50%), including PNG and New Zealand Remainder (30%) from Africa, Middle East, US and Other sources Supply disruption risks spread between imported and domestic crudes, and between crudes from a variety of sources Finished Petroleum products sourced from 25+ countries in 2017-18 No problem sourcing suitable crudes for our needs, nor finished petroleum products to Australian quality standards 11 11
Refinery Production & Petroleum Product Demand From domestic & imported crudes, our refineries produce: In 2017-18, Australia s refineries supplied close to half of the total petroleum products required by major industries and the fuel distribution network including around 7000 service stations The reminder of domestic fuels consumption is supplied by imports of petroleum products from 25+ countries, largely (93%) from the Asia-Pacific region, and supply diversity and sources are growing. Demand for total products continues to grow at around 2% per annum, with different growth rates for different petroleum products and different regions of Australia 12 12
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Australian refineries Refinery Capacity ML pa Bulwer Island (BP - Brisbane) Closed 2015 Lytton (Caltex - Brisbane) 6,500 Clyde (Shell - Sydney) Import terminal 2012 Kurnell (Caltex - Sydney) Import terminal 2014 Altona (Mobil - Melbourne) 4,950 Geelong (Viva Energy) 7,470 Kwinana (BP Kwinana) 8,650 Total 27,570 The Port Stanvac Refinery in Adelaide with a capacity of 4,520 ML pa was mothballed by Mobil in July 2003 and was demolished in 2013/14 14 14
Asian Region excess supply 15 15
cpl Australian refineries financial returns 7 6 Average: 2002-03 to 2007-08 5 4 3 2 1 0-1 -2-3 Average: 2008-09-2013-14 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 Source: ACCC Annual Price Monitoring Report 2015 16 16
Major Investments in Supply Infrastructure AIP member companies have also invested heavily in strengthening the capacity, resilience and flexibility of their supply chains. Total investment in Australian refineries has been over $2 billion over the last 5 years Completion of major refinery maintenance cycles more recently and investments in increased production capacity, utilities augmentation, recycling projects and debottlenecking programs. Major infrastructure investments in new pipelines, pumping capacity and connects, and supply chain investments to improve port, import, gantry and distribution capacity. Major investment in expanded storage capacity across Australia, with more planned. Since 2012, close to half a billion litres of new storage capacity has been installed or is currently being constructed by AIP member companies an investment of around $400 million in new tanks. This investment has been focused in locations experiencing strong demand growth for transport fuels, particularly for jet fuel, and also diesel and premium petrol grades. Crude oil storage is being expanded by 30-40% at the two Victorian refineries to increase their production efficiencies and capabilities, and also strengthen fuel supply security. According to official Government statistics, the industry s investment program has kept pace with the growth in fuel demand and, as a result, commercial fuel stocks have been maintained at the longstanding levels needed to ensure reliable and safe supply to the Australian market. 17 17
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Changes to Petrol Fuel Standards AIP supports orderly transitions to cleaner fuel standards where a community benefit has been demonstrated. AIP has been unable to support the introduction of 10ppm sulfur petrol because of the lack of operability benefits, limited environmental benefits and significant cost impacts. The current petrol average sulfur levels in the Australian market are already well below the regulated limits at no cost to motorists The refining industry would have to invest approximately $979 million which could threaten their economic viability In responding to the Government s imperatives, it is possible to introduce 10ppm sulfur across all petrol grades by 1 July 2027. The transition to 10 ppm sulfur could be supported by industry reporting to safeguard the current petrol sulfur levels and other concrete steps to demonstrate progress This position does not guarantee that each Australian refinery will continue to operate into the future but rather allows careful consideration of the most cost effective solution. 19 19
Major costs of 10ppm sulfur petrol Costs to the refining industry Capital construction costs of $979 million Increased operating costs of $128 - $192 million p.a. Increased refinery emissions 160k - 320k tonnes p.a. Costs to Australian motorists Market price premium for lower sulfur fuels Costs to the Australian community In the event of refinery closure: Loss of economic activity of $1 billion p.a. per refinery Major localised regional impacts, e.g. Geelong Diminished liquid fuel supply security 20 20
In Closing.. there is a future for refining in Australia on market terms, and very significant industry investments are now backing that outlook 21 21
Thank You.. Questions? www.aip.com.au 22 22