Australia's Last Two Refineries Get Subsidy Lifeline as Crude Hits $109

The Australian government confirmed Thursday it will extend subsidies to the country's two remaining oil refineries as global crude prices surge past levels not seen since 2022.

Energy Minister Chris Bowen announced the continuation of the Fuel Security Services Payment scheme, which provides up to 1.8 cents per litre for domestically refined fuel. The payments apply to Viva Energy's Geelong refinery in Victoria and Ampol's Lytton plant in Brisbane, the only facilities still producing petrol, diesel, and jet fuel on Australian soil.

Brent crude futures settled at $108.65 per barrel on Thursday, March 19, after touching an intraday high of $119.13. That represents a 60% increase from the $68 level in late February, before the US and Israel launched military operations against Iran. West Texas Intermediate crude closed at $96.32.

From eight refineries to two

Australia operated eight oil refineries in the early 2000s. Six closed between 2012 and 2021 as margins compressed and operators found it more economical to import refined products from Singapore, South Korea, and India rather than process crude domestically.

The 2021 subsidy deal was negotiated by the previous Coalition government when oil prices collapsed during the COVID-19 pandemic. Viva and Ampol committed to staying open until at least mid-2027 in exchange for the per-litre payment. Those agreements were due to expire in roughly 16 months.

Bowen told reporters Thursday that negotiations over extending the payments had been underway for six months. He did not specify the new end date or total dollar value, stating only that the terms were "commercially sensitive."

The Geelong refinery processed approximately 7.5 billion litres of crude annually as of 2017, making it Australia's second-largest plant. The Lytton facility has similar capacity. Combined, they supply roughly 20% of Australia's fuel consumption. The remaining 80% is imported.

Supply chain coordinator appointed

Prime Minister Anthony Albanese announced Wednesday that Anthea Harris, former chief executive of the Australian Energy Regulator and the Energy Security Board, will serve as national coordinator of a new Fuel Supply Taskforce.

Harris will oversee coordination between federal and state governments, industry, and the Australian Competition and Consumer Commission, which is currently investigating alleged price-gouging by major fuel suppliers in regional areas.

The taskforce was established in response to fuel shortages reported across parts of Queensland and regional New South Wales over the past week. Albanese said the government was monitoring the situation daily and urged consumers not to panic-buy.

What's happening in Asia

Australia's fuel security concerns sit within a broader regional picture. Singapore, which supplies roughly 40% of Australia's diesel and petrol imports, is itself importing more crude from the Middle East to compensate for disrupted flows through the Strait of Hormuz.

Japan announced Thursday it would release oil from its strategic petroleum reserve for the third time this month. South Korea's government extended price controls on diesel and petrol through April 15, a move that will likely squeeze refinery margins further.

China's state-run refineries have been operating at 85% capacity since early March, down from the typical 92-95% utilization rate, according to data from China Oil, Gas & Petrochemicals. Beijing has not publicly addressed fuel export restrictions, but traders report tighter quotas for March and April shipments.

India, which runs the world's third-largest refining complex, has increased processing volumes to take advantage of elevated margins. The country exported 1.2 million barrels per day of refined products in February, up 18% from the same month last year.

Strategic reserves and 36-day math

Australia holds strategic fuel reserves both domestically and through arrangements with the International Energy Agency. The IEA stockpiles, stored in the United States, can be accessed under specific emergency conditions but involve logistical delays measured in weeks, not days.

Domestic reserves are held at the two refineries and at major fuel terminals in capital cities. Industry estimates put total supply at roughly 36 days under normal consumption patterns, though that figure assumes refinery operations continue and imports arrive on schedule.

A University of Sydney analysis published March 18 calculated that if both refineries were forced offline and maritime imports ceased entirely, Australia would face critical shortages within 28-32 days depending on demand rationing measures.

Bowen said the government was not considering fuel rationing at this stage. He noted that only a "very low percentage" of service stations were experiencing stock-outs, primarily in regional Queensland where distribution infrastructure is less dense.

Market response

Viva Energy shares rose 3.2% Thursday to close at $3.84 on the ASX. Ampol gained 2.8% to $38.12. The broader ASX 200 Energy Index reached a two-year high of 11,071.80 points.

Retail petrol prices in Sydney averaged $2.18 per litre Thursday, up from $1.64 in late February. Melbourne prices tracked slightly lower at $2.14 per litre. Brisbane and Perth both exceeded $2.20.

Wholesale diesel margins have widened to their highest level since 2022. Singapore gasoil cracks — the price differential between crude and refined diesel — hit $28 per barrel Wednesday before easing to $24 Thursday.

The Australian dollar weakened 0.4% against the US dollar Thursday, closing at 62.3 cents. A weaker currency amplifies the impact of rising crude prices, as fuel imports are denominated in US dollars.