Preliminary pages
Chair’s foreword
Australia is a net exporter of energy and
has a positive energy future. As the world’s ninth-largest energy producer,
Australia is the largest coal exporter and third largest uranium producer in
the world. In future years, we are projected to be the world’s second largest
liquefied natural gas exporter, and are geographically well placed to cement
our role as a leading energy supplier to our regional neighbours.
The oil refining industry is not
experiencing the same growth as other areas of Australia’s energy sector. The
global oil refining industry is undergoing significant structural change.
Larger, more efficient refineries are being established in the Asian region
resulting in increased competitive pressures on refining operations in other
regions. The expansion of refining capacity in Asia has led to the
rationalisation of refining in established markets such as Europe and the
United States of America.
Australia’s domestic refining industry is
similarly facing competitive pressures. Evidence shows that Australian
refineries are not competitive when compared to the new and expanding mega
refineries in Asia. The domestic context of high operating costs, ageing
facilities, increasing sea miles for the transport of crude to the refineries,
shallow berths that are not suitable for large crude carriers, increasing
technical complexity needed for refining of the broad range of crude oil and
the high Australian dollar, put Australia at a competitive disadvantage,
resulting in the closure of some domestic refineries that are no longer
commercially competitive.
Following the closure of the Clyde and
Kurnell oil refineries, refinery capacity in Australia will decrease by about
28 per cent and leave five operating refineries. Domestic refiners will produce
just over half the fuel consumed in Australia with the remainder being
imported. Consequently, concerns have been raised about the viability of
Australia’s oil refinery industry, and the potential impacts of declining
domestic refinery capacity on the economy, energy security and employment in
the sector.
The most pessimistic view was that this is
the beginning of the end of Australian refining, and the most optimistic view
was that there is a future for Australian refining, albeit under increasing
competitive pressure. The committee noted that during the last decade the oil
industry has invested over $9 billion in its Australian refineries.
While Australia’s proximity to the Asian
region does pose some challenges for domestic refineries, it also provides
opportunities to take advantage of Asia’s surplus refining capacity and to
continue to strengthen supply chains in the region.
The energy industry is in a state of
change, both with the global rationalisation of the traditional liquid fuel
industry, and the growth in alternative and new types of energy sources.
Australia’s liquid fuel needs should be seen as one part of our energy future,
albeit an extremely important one. The market for liquid fuels is robust and,
from the available evidence, it is operating soundly. Australia is well
serviced by reliable and diverse supply chains.
The closure of the refineries will not lead
to negative price outcomes for consumers. Australian fuel prices reflect an
import parity price, which is the price in international markets. The
Australian Competition and Consumer Commission was clear in its advice to the
committee that as a result of import parity pricing, the retail price for
petrol is not impacted by refinery closures.
The changes in domestic refining capacity
to date will not impact on Australia meeting its liquid fuel requirements.
There are reliable, mature and highly diversified international fuel supply
chains, which provide Australia with economic security. The Australian
Institute of Petroleum and refiners were also confident about the reliability
of Australia’s supply chains and infrastructure to continue to meet local fuel
demands, as it has done over many decades.
It should be noted that while Australia has
both crude oil reserves and a refining capacity it is not self-sufficient. In
2010–11 Australia imported around 83 per cent of its crude oil and other
refinery feedstock. It has and continues to import both crude oil and refined
fuels. Following the closure of the Clyde and Kurnell refineries, Australia
will refine 50 per cent of its fuel needs onshore, predominantly from imported
crude.
The Energy White Paper (EWP) noted that
‘our lack of self-sufficiency and the prospect of further refinery
rationalisation does not in itself compromise or reduce our energy security’.
Energy security is fundamental to
Australia’s prosperity. It helps to deliver the economic and social outcomes we
expect. The National Energy Security Assessment (NESA) found that Australia’s
energy security situation is meeting Australia’s economic and social needs,
albeit with some emerging market policy uncertainties that could have
implications for managing our current level of energy security.
Our liquid fuel energy security remains
largely unchanged from 2009 and is assessed as high trending to moderate in the
long term. High energy security is when the economic and social needs of
Australia are being met. Long term trends reflect uncertainty in predicting
that far ahead, but also reflect the likelihood that crude will have to be
sourced from countries that are not geopolitically stable, and from
non-conventional sources, which will be more expensive to extract.
As part of considering the economic impacts
of refinery closures it is also essential and timely to note the importance of
fuel quality standards and their bearing on environmental and health outcomes.
The committee noted concerns by
stakeholders that the move towards imported refined fuel might reduce standards
both in terms of environmental outcomes and quality control. While the
committee is not in a position to assess the validity of the claims, it agrees
that rigorous monitoring is important to ensure that imported refined fuels are
meeting Australia’s fuel quality standards. It is also worth noting that fuel
standards are steadily improving in key oil refining countries from which
Australia sources its refined products.
In respect to any implications of domestic
refinery closures on Australia meeting its liquid fuel needs, evidence to the
committee indicated that diversity of supply is at the core of Australia’s
energy security. The key to our high energy security is our access to
well-functioning markets for liquid fuels and supply chains with a high degree
of resilience. This means that Australia can source its liquid fuel needs from
a diversity of sources so that if one source becomes unavailable other sources
can meet demand.
The closure of some domestic refineries
poses little threat in a market of rapid expansion in Asia leading to an
oversupply that is likely to last for some time. It is less easy to predict
whether maintaining a strong ability to refine crude, including our own, will
be a necessary part of the energy security mix 20 years from now and, if so,
whether Australia’s aging refineries will be suitable and for how long and at
what cost.
We do know that Australia is blessed with
energy options and that energy security is enhanced by diversifying options, as
long as the market is able to supply those options in an affordable and reliable
way.
NESA provides a positive assessment about
Australia meeting its energy security needs. In addition, there is an emergency
response capacity to deal with the impact of a sudden oil supply shortage. At
the national level, the Liquid Fuel Emergency Act 1984 provides the
Australian Government with the authority to prepare for, and manage, a national
liquid fuel emergency. In addition, Australia is a member of the International
Energy Association (IEA), which can provide coordinated measures by IEA member
countries to increase supply and reduce demand.
As a net oil importer, Australia is
obligated to maintain reserves of crude oil and/or product equivalent to 90
days of the prior year’s average net oil imports. While Australia is not currently
meeting this obligation, the Australian Government has acknowledged this issue
and is already investigating options to address Australia’s non-compliance.
While it is anticipated that domestic
refinery closures will not impact negatively on price outcomes for Australians
or on our energy security, unfortunately closures have, and will, result in job
losses at specific refineries. Evidence presented showed that the people
employed in the oil refinery industry are highly skilled, productive and, as is
indicated by the average length of service, loyal.
The energy sector is a major employer
providing work directly and indirectly for over 100 000 Australians, with jobs
in the sector to grow by 3.9 per cent annually, for the next five years.
However, employment in the oil refining sector diverges from the wider energy
sector. At present, 5 500 people are directly employed in the sector with
growth declining because of reducing refining capacity.
Where closures are inevitable, reducing
undue stress and assisting workers to adjust to changing employment
circumstances should be a priority for both industry and government. This can
only occur when there is a level of certainty for workers and targeted support.
To date, structural changes have occurred in a relatively orderly manner, with
long lead times between closures being announced and workforce having to
adjust. Efforts to redeploy and reskill displaced workers must remain a
priority.
Despite the changes over the last decade
and recent closures, evidence to the committee suggests that going forward
there is a role for the Australian oil refinery industry, with groups
acknowledging that some domestic refining capacity is a worthwhile complement
to imports as part of having reliable, mature and diverse supply chains for
liquid fuels.
Julie Owens MP
Chair
Membership of the
Committee
Chair
|
Ms Julie Owens MP
|
Deputy Chair
|
Mr Steven Ciobo
MP
|
Members
|
Mr Scott Buchholz MP
|
|
The Hon Joel Fitzgibbon MP
|
|
Mr Stephen
Jones MP
|
|
Dr Andrew
Leigh MP
|
|
Ms Kelly
O'Dwyer MP
|
|
Mr Craig
Thomson MP |
Committee Secretariat
Secretary
|
Mr Stephen Boyd
|
Inquiry Secretary
|
Ms Samantha Mannette
|
Senior Research Officer
|
Ms Zoë Smith
|
Administrative Officers
|
Ms Natasha Petrovic
|
|
Ms Carissa Skinner |
Terms of reference
On 1 November 2012 the Minister
for Resources and Energy, the Hon Martin Ferguson AM MP, referred the following
terms of reference for inquiry and report by 5 February 2013.
1. Identify the current international and domestic
trends and pressures impacting on the competitiveness of Australia's domestic
oil refineries.
2. Investigate the impact of declining refinery
capacity in Australia on the economy. This should include analysis of:
a) current supply chains and their effectiveness in
meeting Australia’s liquid fuel requirements;
b) import
price outcomes for consumers from the current arrangements;
c) direct
and indirect employment impacts;
d) any relevant information on the impact of the
closure of Australian refineries, including on downstream activities.
3. Identify any potential issues for Australia's
energy security from possible further closures of oil refinery capacity, noting
the findings of the National Energy Security Assessment (December 2011).
4. Consider the implication of refinery
closures on the associated workforce, including age profile, alternative
employment opportunities and labour force mobility.
List of abbreviations
ACCC
|
Australian
Competition and Consumer Commission
|
ACPMA
|
Australasian Convenience and
Petroleum Marketers Association
|
AIP
|
Australian
Institute of Petroleum
|
AMWU
|
Australian
Manufacturing Workers’ Union
|
AWU
|
Australian
Workers’ Union
|
CERM
|
Co-ordinated
Emergency Response Measures
|
CFMEU
|
Construction,
Forestry, Mining and Energy Union
|
EWP
|
Energy
White Paper
|
IEA
|
International
Energy Agency
|
IPP
|
import
price parity
|
LFE Act
|
Liquid
Fuel Emergency Act 1984
|
LFVA
|
Liquid
fuels vulnerability assessment
|
NESA
|
National
Energy Security Assessment
|
NOSEC
|
National
Oil Supplies Emergency Committee
|
RET
|
Department
of Resources, Energy and Tourism
|