PERTH (miningweekly.com) – The federal government has introduced a fuel security package to help secure Australia’s recovery from the Covid crisis and to help secure the country’s sovereign fuel stocks, locking in jobs and protecting families and businesses from higher fuel prices.

Prime Minister Scott Morrison said the government was delivering on its commitment to maintain a self-sufficient refining capability in Australia by supporting the operation of the Ampol refinery in Lytton, in Queensland, and the Viva Energy refinery in Geelong, in Victoria.

The package will protect the jobs of 1 250 direct employees across the two refineries and create another 1 750 construction jobs.

“This is a key plank of our plan to secure Australia’s recovery from the pandemic, and to prepare against any future crises. Shoring up our fuel security means protecting 1 250 jobs, giving certainty to key industries, and bolstering our national security.

“Earlier investment in Australia’s ability to produce better quality fuels, including ultra-low sulfur levels, will also improve air quality and deliver an estimated A$1-billion in lower health costs.

“Major industries like agriculture, transport and mining, as well as mum and dad motorists, will have more certainty and can look forward to vehicle maintenance savings and greater choice of new vehicle models.

“This next stage in our plan for Australia’s recovery will create jobs and make our country more self-sufficient and secure,” Morrison said.

Minister for Energy and Emissions Reduction Angus Taylor said Australia's economy is reliant on fuel and this significant package will not only lock in Australia's refineries, but the jobs of thousands of Australians.

“Fuel is what keeps us and the economy moving. That is why we are backing our refineries,” Taylor said.

“Supporting our refineries will ensure we have the sovereign capability needed to prepare for any event, protect families and businesses from higher prices at the bowser, and keep Australia moving as we secure our recovery from Covid-19.”

The 2021/22 Budget initiatives include a variable Fuel Security Service Payment (FSSP) to the refineries, up to A$302-million in support for major refinery infrastructure upgrades to help refiners bring forward the production of better-quality fuels from 2027 to 2024, and A$50.7-million for the implementation and monitoring of the FSSP and the minimum stockholding obligation (MSO), ensuring industry complies with the new fuel security framework.

The variable FSSP has been costed up to A$2.047-billion to 2030 in a worst-case scenario.

This figure assumes that both refineries are paid at the highest rate over the entire nine years in Covid-19-like economic conditions, which is unlikely as the economy recovers.

Actual payments are expected to be less than this, as payments are linked to refining margins at the time and to actual production of key transport fuels, Taylor said.

Refineries will have an option to extend the support and their commitment out to mid-2030.

Taylor said that the government is also ensuring better quality fuel is provided across Australia earlier.

“We will work with the refineries to bring forward improvements to fuel quality from 2027 to 2024 by co-investing with domestic refiners to undertake the necessary infrastructure upgrades for low sulfur fuel production.

“Accelerating the necessary major infrastructure upgrades will create up to an additional 1 750 construction jobs, bringing flow-on benefits to the Lytton and Geelong communities.

“The government will also accelerate the industry-wide review of the petrol and diesel standard to 2021, including a consideration of aromatics levels. This aims to create a Euro-6 equivalent petrol and diesel standard that is appropriate for Australia,” Taylor said.

The government will work with both refineries on their plans to consider future fuel technologies and other development opportunities, including the refineries’ roles in the roll-out of future fuels, such as electric vehicle charging and hydrogen transport infrastructure.

Ampol has welcomed the federal government’s intervention.

The company told shareholders that after careful consideration of all options available for value creation from the Lytton site, Ampol had decided that continued refining operations with the proposed government support would maximise shareholder value and retain the opportunity to transition the strategically located site to alternative uses in the future.

“We are pleased that the government recognises the challenges faced by the local refining industry which includes competition from large-scale international refineries and the impact of Covid-19,” said Ampol MD and CEO Matt Halliday.

“Under the proposed government support initiatives, we expect Lytton to generate an appropriate return on capital through the cycle, which will allow for continued investment to deliver both cost competitive and ultra-low sulfur fuels, while also investing in future energy initiatives at the site.”

Viva Energy MD and CEO Scott Wyatt said that the structural support from the federal government was welcome.

“The sector has faced several structural headwinds in recent years from challenged trading conditions globally, increased competition from Asian refinery imports and the significant impacts of demand destruction from the Covid-19 pandemic.

“This has seen the number of refineries in Australia reduce from six in 2011 to only two continuing refineries today, leaving the country predominantly reliant on product imports from international refineries for our fuel requirements.”

The government will introduce the Fuel Security Bill to Parliament in the coming weeks. This Bill will implement the FSSP to ensure it can begin on July 1, and set the key parameters for the Minimum Stockholding Obligation that will commence in 2022.