ExxonMobil vows to maintain refinery

Matt Chambers
The Australian
May 28, 2012

EXXONMOBIL says it is on track to turn around a 2011 loss at its Altona refinery and is flagging potential expansion in the face of strong headwinds that continue to pressure the shrinking industry in Australia.

But the company’s new head of Australian and New Zealand refining, Andrew Warrell, said that while there were no plans to close the Melbourne refinery, threats to the industry were real and the Gillard government’s carbon tax would bring further strain.

“We’re making money this year (at Altona),” Mr Warrell, who took over as head of refining in January, told The Australian.

“I don’t think that’s what my competitors are saying. So despite the very tough conditions, we’re managing to make money and we have a very good improvement program at the site that makes me confident we can grow profitability.”

The number of Australia’s remaining oil refineries is expected to drop from seven to five or less in the next couple of years as a combination of giant, cheaper refineries in Asia, a high dollar, high crude prices and local inflation means many are running at a loss and have suffered big writedowns.

Some of the refineries in Asia can individually produce the same amount of refined products as all of Australia’s seven refineries combined — about 780,000 barrels per day.

Shell plans to shut its Clyde refinery — now the nation’s smallest — in Sydney next year and Caltex has hinted at the closure of the Kurnell refinery, also in Sydney, after it completes a review of its two refineries.

Shell and Caltex have also written down the value of their refineries and reported 2011 refinery losses.

Exxon yesterday confirmed Altona had also logged a 2011 loss because of poor margins and a big investment program but would not reveal the size of the loss. But the company’s 2011 Australian accounts show no writedowns were taken on Altona.

Mr Warrell said profit margins this year were not large. “It’s not great money and we are burdened by some pretty tough government programs, not the least of which would be the carbon tax,” he said. “Some of the policies and taxes have piled a few rocks on our back, but we think we will climb the hill anyway — we believe we will find ways to thrive and survive regardless.”

While Shell and Caltex have been careful not to blame the government for their made, or coming, decisions on refineries, Mr Warrell said the carbon tax was putting structural pressure on the industry at a time when it was already struggling.

The disadvantage would grow as the government’s compensation shrank to 1.3 per cent a year, he said.

“We can’t blame all of that (the refinery closures and reviews) on the carbon tax, but we can certainly say the environment that has been established hasn’t been conducive to those ongoing businesses,” Mr Warrell said.

Altona is one of the nation’s smallest refineries, and because Exxon closed its Port Stanvac refinery near Adelaide in 2003, speculation has grown that it will also close Altona.

But Mr Warrell said there were no plans to shut the refinery and that improvements under his predecessor Glenn Henson, who retired in January, and other bosses had left the plant in a strong position.

The strength of the 70-year-old Altona refinery, through a mixture of luck and strategy, was that it was suited to the crude oil the region was now producing and that it had built better add-ons, or “pots and pans”, than some other Australian refineries, he said.

In 1997, the refinery, which supplies half of Victoria’s fuel and employs 350 people, added a $250 million fluid catalytic cracker that allows it to handle heavier crude oils.

Industry sources said this was the last big improvement to an Australian refinery not spurred by government fuel specification changes. “Some of my competitors have over-invested in some pots and pans that aren’t giving them the value they’d hoped to get,” Mr Warrell said.

“If you over-invest in some of those units, you end up with operating costs and if you’re not making a margin, its like a dead weight.”

Altona has also focused on producing more higher-value fuels, like diesel and jet fuels, that attract a higher premium than petrol.

Mr Warrell, who began his career with Mobil 21 years ago in Melbourne and was most recently head of Exxon’s global supply and transport planning based in Virginia, said Altona would continue to supply the Victorian market, where it had a location advantage.

“We will look for opportunities to grow the business over time, but we’re competitive within this Victorian marketplace,” he said.

Rather than boost Altona’s 80,000 barrels per day capacity, growth is more likely to come from areas such as extra storage capacity for jet fuels as it focuses more on higher-margin products.

A spokesman for the nation’s other refinery operator, BP, which owns refineries in Western Australia and Queensland, said the company had not written down the values of its refineries in 2011.

He said there was no ongoing review of BP’s Australian refining capacity, but he would not say whether the operations were profitable.

ExxonMobil Australia, which includes Altona, petroleum marketing, the Bass Strait oil and gas joint venture with BHP Billiton and a 25 per cent stake in the Gorgon LNG project in Western Australia, posted a 19 per cent drop in full-year net profit.