‘Extreme’ COVID pressures may shut Geelong refinery: Viva

Angela Macdonald-Smith

Sep 7, 2020

AFR

Petrol and diesel supplier Viva Energy has advised it is considering the complete shutdown of its loss-making refinery at Geelong amid “extreme pressures” due to COVID-19, even as the federal government reviews ways to try to keep plants open.

The refinery, which supplies over half Victoria’s fuel, employs about 700 people. Some production units were already closed after demand for fuel slumped in March when the lockdown took hold, and maintenance work is currently being carried out at the site.

“Unfortunately, the impacts of COVID-19 and the restrictions on mobility and the economy are putting extreme pressures on the refining business that we have not experienced before and are not sustainable over the longer term,” Viva chief executive Scott Wyatt said in a statement on Monday morning.

“We are closely monitoring the evolving situation and will continue to

keep our employees, investors and stakeholders updated.”

One of only four oil refineries still operating in Australia, the Geelong plant was at risk of closure six years ago when former owner Shell decided to exit. The threat revived again this year with a vengeance under new owner Viva when the pandemic slashed demand for transport fuels and sent refining margins plunging.

The plant made a loss of almost $50 million in the June half.

The federal government has been reviewing the viability of the struggling refining sector in a bid to retain critical manufacturing in the country in the wake of the pandemic. That includes a plan to award contracts for fuel storage, as well as a broader review of the sector.

Viva said the company is “encouraged” that that review but given the materiality of the issues it is assessing other options “including the possibility of moving to a full shutdown of the facility”.

It advised it would update the market on the future of the plant, which is already running at reduced capacity, in its September quarter trading update, to be released in October.

Viva is reconsidering maintenance work at its refinery at Geelong amid a slump in margins and the need to preserve cashflow.

The refining sector globally is “undoubtedly in crisis times,” Sri Paravaikkarasu, head of Asia oil at consultancy FACTS Global Energy in Singapore said in May, pointing to the risk that none of Australia’s remaining plants would proceed with costly investments required to meet stricter sulphur standards for petrol to be introduced in 2027.

Mr Wyatt has been warning over the past months of the risks to the future of the sector, as has Ampol chief executive Matt Halliday. Ampol’s Lytton plant in Brisbane, ExxonMobil’s Altona refinery and BP’s Kwinana plant in Western Australia have all had to cut back and modify operations due to the slump in demand.

The news comes after the Victorian government on Sunday effectively extended a six-week lockdown for another fortnight, dashing hopes of a quicker loosening of restrictions that could boost the state’s economy and save jobs.

Viva noted Sunday’s announcement and said that if restrictions are relaxed as foreshadowed and fuel demand recovery enough, the Geelong plant could possibly return to full output in November.

“The situation, however, is very uncertain and will be monitored closely over the coming weeks to determine whether these extended restrictions will impact these plans,” it said.

Viva, which owns the Shell branded petrol station network, said its fuels retailing business “continues to show resilience” in the face of the ongoing restrictions in Victoria.

It said sales volumes in its Alliance with Coles are holding at more than 50 million litres a week, while retail margins remain “supportive”. Once restrictions ease in Victoria, the company said it would expect to see a similar recovery in sales in Victoria as it has seen in other states and territories.

Viva’s commercial business, excluding aviation fuels, remains “relatively unaffected” by the restrictions, it added, noting it has cut operating costs and spending to reflect lower sales.

“While the Government’s announcements yesterday provide only directional guidance on easing restrictions, we are confident in the performance of the retail and commercial businesses throughout

this extended period of restrictions,” Viva said.