AMPOL GOING GREEN IN TESLA TIE-UP

19/05/21

The Australian

Ampol CEO Matt Halliday. Picture: Ryan Osland

Australia’s largest fuel supplier Ampol will detail plans to turn green, including a tie up with Tesla, the world’s leading electric vehicle manufacturer, and a push into green hydrogen production at its Brisbane refinery.

The move comes just days after Ampol received a huge support package from the government to secure the future of its legacy refining business.

If you are as Australian as Ampol, you have to move with Australia. Ergo, Australia’s largest fuel supplier is committing to deliver net zero carbon emissions by 2040, keeping its ESG conscious shareholders close and hoping to attract new ones with new fuels that will “go the distance”.

Underpinning the deal struck between Energy Minister Angus Taylor and Ampol CEO Matt Halliday is a link between energy security and energy transition: a partnership, Halliday calls it.

“The partnership with government is an important part of making sure that we are solving the needs from a fuel security point of view and also opening up opportunities to develop solutions for future fuels for our customers,” Halliday says, adding Ampol with its vast integrated supply chain is uniquely placed to do just that.

“You think of the market position, the customer position that we have, the strategic assets, the distribution network that we have and you look at our capabilities, those advanced manufacturing skills. We handle hydrogen at Lytton today. I don’t think it can be underestimated how important those skills are going to be for the future.”

Ampol shares surged 9 per cent on Monday after the Prime Minister announced from Lytton in Queensland a package of up to $2bn to support the country’s last two refineries, Lytton and the Viva Energy-owned Geelong.

Ampol’s partnership with Tesla could help speed up EV adoption.

For the government, intervention is first about fuel security. For Ampol it secures 550 jobs and puts a floor under volatile refiner margins (which currently put Lytton well in the red). It radically changes Ampol’s financial strength and potential.

Halliday, who clocks up a year in the top job in June, has been in negotiations with government since the onset of COVID. Tying national energy security to energy transition gives him clear air to repurpose Ampol. The company will commit a minimum $100m spend on future energy projects to 2025.

Three projects have been announced. The first is a collaboration with EV titan Tesla and Enerven (owned by SA Power Networks) to pilot a virtual power plant which will install solar panels and Tesla power wall packs at three trial retail sites. The plant will reduce energy use by an expected 30-60 per cent and emissions by between 22 and 41 tonnes a year.

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Halliday says Ampol’s brand and a network that matches the population helped secure Tesla. If successful, Ampol will then move into the electricity market to serve EV customers.

Australia’s take up of EVs has been notoriously slow, however, with a chicken and egg challenge around take up and infrastructure development.

Asked if Tesla’s involvement could speed up transition, Halliday says: “Certainly we will be more proactive in how we can repurpose our infrastructure as part of an orderly transition to enable the uptake of EVs.”

Such a transition would contribute to emissions reduction at Ampol’s retail sites, which is where the heavy lifting is expected to be done.

Ampol’s retail sites are expected to do the heavy lifting in emissions reduction for the company.

“Certainly in the first instance it enables us to reduce our scope two emissions and is part of that program to get to net zero within our operations by 2040,” says Halliday.

“This infrastructure and concept has the long-term potential to accelerate the development of electric vehicle charging to our customers across our network and potentially to generate new earnings opportunities by trading electricity to third parties.”

The other two partnerships involve hydrogen.

Nasdaq-listed Fusion Fuel will develop a green hydrogen plant at Lytton, to be commissioned over the next 12 months.

Hydrogen use both at the refinery and in transport will be explored.

“There is access to the skills and the existing hydrogen onsite that we need through the refining process,” says Halliday.

“It is a very strong site to look at trialling what is very interesting green hydrogen technology with Fusion Fuel.

“We have the perfect location: available land, expertise at the refinery and we have access to the distribution channels out of Lytton that enable us to tie in to key utilities.”

The final partner is an early stage Australian developer of grid hydrogen-based microgeneration and storage on the edge of the grid.

“It is a technology that can allow Ampol to go to its customers and provide a low carbon alternative to remote diesel generation and ultimately could have much broader application in other parts of the economy” Halliday says.

This week’s news on Ampol has been delivered in two distinct chunks. The first, led by the government on security, left analysts marvelling at the refinery support that wiped away earnings volatility and left critics asking why the public were better off with a $2bn taxpayer bailout versus a closure of Australia’s last two refineries and a 1 cent a litre increase at the bowser.

Prime Minister Scott Morrison walks through the Ampol Lytton Refinery meeting staff and viewing the machinery. Picture: John Gass

Had the government not come to the rescue of Lytton, Ampol’s last refinery would certainly have been closed and probably replaced by an LNG import terminal. This strategy would also have removed earnings volatility.

Halliday argues the $2bn figure is a worst-case scenario and assumes refiner margins never recover.

“That is pretty unlikely. The mechanism designed is one that will only provide support during periods of weakness and then will fall away as margins recover.

“The government is looking to address a fuel security requirement and that is part of that overall strategy, which is fuel security connected to longer-term energy transition.”

There is no doubt that COVID and China tensions raised the energy security imperative which now favours Ampol.

Taylor wants to shift government oil stocks back from US storage and is now requiring the fuel industry to hold minimum levels of stock onshore. Ampol can count crude at the refinery as stock and has storage potential at Kurnell and elsewhere.

The connection Halliday wants the market and customers to make is energy security and transition. “Repurposing our existing asset base and those capabilities is the important part of building our company for the future but also our country for the future.”