How does a business whose sole purpose is refining and selling fossil fuel products embrace a low-carbon future?
That’s a challenge Viva Energy boss Scott Wyatt is tackling by building the country’s largest retail convenience business, rolling out EV chargers, refining waste cooking oil into diesel, and processing waste plastics.
Under a strategy outlined to investors last week, Wyatt is backing the fuel refiner’s rapidly transforming retail convenience business – a national network of service stations – to grow Viva’s share of earnings from non-fuel products and is dabbling in producing lower carbon fuels using existing refining infrastructure to help its customers reduce their carbon emissions.
Viva bought out 700 Coles Express outlets in a $300 million deal in May and is waiting on competition approval for its takeover of Adelaide-based On The Run’s (OTR) network of 205 company-owned and leasehold stores.
“It’s very much about shifting from being a retail fuels supplier that happens to have a convenience business previously operated by Coles, to being primarily a convenience business that happens to sell energy, which includes fuel but also will include electric vehicle charging time,” Wyatt said.
The Coles Express deal added about 7000 people to Viva’s head count, a figure that will jump to 14,000 once OTR boosts its network.
Its head count will rise further, up to 18,000, as the OTR brand – which sells a blend of traditional convenience items, coffee, juices, hot food, ready meals and actively promotes prepaid fuel and food sales through its app with loyalty discounts – is rolled out across the country, making it one of the country’s top 20 employers outside of government.
Non-fuel sales have already grown to about 36 per cent of revenue, from 15 per cent last year, and the refiner expects earnings to jump 150 per cent in its convenience and fuels retailing business over the next five years.
The division averaged $224 million in earnings before interest, tax, depreciation and amortisation over the past three years, a figure likely to rise to $550 million within five years.
Wyatt has previously extolled the competitive advantages of OTR’s sophisticated retail model, which generates about 70 per cent of revenue from convenience sales, an inversion of Coles Express where convenience accounts for just 30 per cent, saying it will “reshape the company”.
The refiner expects about 80 per cent of its network to be branded OTR by 2029.
The remainder, mostly small footprint stores that can’t be easily converted, with trade as Reddy Express – a brand it launched in September.
With OTR, the company aims to become the largest single-branded, company-operated fuel and convenience retailer in the country, a position Scott says will allow Viva to cater for the expected rapid uptake in electric vehicles over the next decade and offset declining fuel sales.
“We believe having a really strong convenience offer with a good environment and good recharging facilities is going to be key to successfully servicing customers who want to charge their electric vehicles,” he said.
“We want customers to leave their vehicle while it’s charging, come and have a coffee, something to eat, sit down in the store … as opposed to having electric charges stuck on a car park at the back of the service station.”
Although the company’s stores currently have few existing electric charge points, they will be rolled out in parallel with its rebranding effort over the next five years.
“Expect to see more and more charging stations arriving at convenience stores over time,” Wyatt says.
However, there’s no easy way to decarbonise the company’s vast fuels business.
Fuel and refining contributes about 64 per cent of gross profits and Viva’s Geelong refinery pumps out more than a million tonnes of carbon emissions each year putting it among Australia’s top 215 polluters who must reduce their baseline emissions by 5 per cent annually under the Albanese government’s safeguard mechanism.
Viva is upgrading the Geelong refinery to roll out ultra-low sulphur gasoline through its bowser network by 2025 and meet federally legislated fuel quality standards that will be introduced next year to enable lower-emission vehicle technologies.
“We see lower carbon fuels being important for the future,” Wyatt says.
Other investments in the facility will allow Viva to inject feedstocks such as tallow and used cooking oil into the refining processes to make lower carbon fuels. Injecting about 50,000 tonnes of alternative feedstocks a year will make 60 million litres of renewable fuel.
“You’re still producing exactly the same fuels, but the carbon content of those fuels has reduced.”
“We’re also investing in capability to take synthetic crude from processing waste plastics to use in our plastics facility,” a process that will encourage a “circular economy for waste,” he said.
But the low-carbon fuel output will be a drop of oil in the barrel for a refinery that churns out 60 billion litres of fuel a year. “They’re early steps,” Wyatt acknowledges.
“It will be the first reasonable scale production of those sorts of fuels in Australia,” he said, and it will enable Viva to experiment with different feedstocks and perhaps give it confidence to build a dedicated processing facility by the end of the decade.
Low-carbon aviation fuel made from plant sources will require a much bigger investment in new infrastructure at the refinery and is years away, he says.
But he’s optimistic the company can limit scope one and two emissions – carbon generated directly by doing business or indirectly by purchasing energy – and says Viva has a clear transition path for each of them.
“If, in five years’ time once we’ve delivered on our strategies, we’re less of an energy company than we are today, that would be success, that would be a good outcome for us,” he said
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