Impact of different oil refinery scenarios

3.8Impact of different oil refinery scenarios

Table shows the production of various petroleum products with all seven refineries operating and with only four refineries operating (assuming the Clyde, Kurnell and Lytton refineries are shutdown).

Table Australian refinery production with seven and four refineries operating (ML per annum)

Scenario	LPG	Avgas	Petrol	Jet	Diesel	Fuel oil	Bitumen	Lubes	Other	Total
Seven refineries	1,467.4	98.3	16,642.8	5,463.7	12,858.7	951.7	476.0	170.3	377.1	38,506.0
Four refineries	894.6	98.3	9,734.5	2,972.3	8,858.0	597.4	322.8	0.0	186.9	23,664.8

Data source: DRET.

Prior closure of three Australian refineries would have several impacts on the economic modelling. However, the same changes in crude oil product prices would apply to both refinery scenarios. This is because crude and product prices in Australia are based on international prices. There may be transient departures from this for products in certain regions but overall import parity pricing would apply.

The key difference from the economic impact perspective is the fact that the relativities between imports of crude oil and product differ between the two refining capacity scenarios. The relative level of imports of crude oil and petroleum product for the two scenarios are summarised in (see Table ).⁵ With less refineries Australia would import more product and less crude oil. However under both scenarios total net imports of crude oil and petroleum products expressed in volume terms remain approximately the same even after allowing for crude oil used in the refining process.

Table Net imports of crude oil and product 2012-13

The bigger impact in economic terms is therefore likely to be on changes in the structure of the manufacturing sector. There will also be different exposures to sources of product between the scenarios.

According to ABS data the petroleum refining industry accounted for 0.2 per cent of GDP and directly employed around 2500 people in 2008⁶. The Shell oil refinery at Clyde employs around 310 people directly and the two Caltex refineries are understood to employ a total of 900 people directly and 550 contractors⁷.

The closure of these refineries would therefore represent a contraction of the oil refinery component of the manufacturing sector. There would be regional impacts on employment and incomes as a result of closure. However, because oil refinery margins are relatively low in Australia, closure in economic terms could have a positive economic impact for Australia as a whole if resources (labour and capital) are redeployed to higher margin areas of the economy. In any case, these transitional effects associated with the rationalisation of the oil refining sector are assumed to have already occurred prior to the disruption assumed to occur on 1 March 2012.

To model Scenario 2, Tasman Global was modified to reduce the size of the oil refining sector in Australia. The above-mentioned changes in the sector were incorporated into the reference for this scenario.

It is likely that the closure of Australian refineries would make Australia more dependent on products produced in Asian refineries some of which are more dependent on crude oil supplied from the Middle East than were the Australian refineries that closed. For example, refineries in Singapore and the Republic of Korea (two major suppliers of petroleum products to Australia) are heavily dependent on Middle Eastern feedstock.

On the other hand, Australian refineries import significant amounts of crude from non-Middle Eastern countries, particularly from Indonesia, Malaysia and Vietnam. Overall the closure of the three Australian refineries could increase Australia’s dependence on petroleum products refined from crude oil that passes through the Strait of Hormuz.

This does not mean however that the economic impact of closure of the Strait will be significantly different for the two scenarios. As discussed in Sections 4 and 5, the two week duration of the assumed shock, combined with prompt action by IEA countries to release stocks, means that the only impact is a rise in the price of crude oil and petroleum products worldwide, not a disruption in supplies in end markets.