Australia cements its position as petroleum products importer

Sydney (Platts)--3Jun2004

The Australian petroleum market has cemented its position as a structural
importer following the mid-2003 closure of ExxonMobil's 78,000 b/d Port
Stanvac refinery, according to a report released this week by the Australian
Institute of Petroleum. The AIP represents the four oil refining majors--BP,
Caltex, ExxonMobil and Shell--currently operating in Australia. The report
said the downstream market was undergoing a significant change from the past
decade, when it suffered from overcapacity. The retail sector was also seeing
a rapid transformation due to the entry into the market of the major local
supermarket chains and the spread of discounting, according to the report. In
the 2002-03 financial year, Australia consumed 45,000 megaliters of petroleum
products and produced 42,500 ML. Exports for the year totaled 3,100 ML while
imports were 5,200 ML, accounting for 11.6% of total consumption. Domestic
refineries supply Australia with almost 90% of its demand for products, which
is retailed through a network of over 8,000 service stations.

Prices for petroleum products in Australia are determined by the Asia Pacific
market, and domestic refiners have to price their output to compete with
imports. Australia has no tariff protection and all major capitals have fuel
import terminals. "If Asian prices drop, Australian refiners must also drop
prices regardless of the cost of importing and refining crude oil, or lose
market share to imports," the report said. "Profitability of the Australian
refining industry is therefore largely determined by refining margins in Asia,
and by our competitiveness with Asian refiners. In future, structural imports
will meet the growing demand in Australia, further strengthening the price
relationship with Asian product prices." Although Australia has substantial
crude oil production, which totaled 25,816 ML in 2002-03, almost 60% of this
is exported. The crude oil required to meet the product demand mix in
Australia is imported by domestic refiners, mainly from Asia and the Middle
East.

The introduction of new clean fuel regulations, which match European
standards, are expected to require investments totaling A$2-bil ($1.4-bil) at
Australia's seven remaining refineries over the period 2000-2010. "The exact
figure is uncertain as there may be further structural reform of the industry
and the requirements for each refinery will be highly variable," the report
said. The first tranche of fuel standards being introduced to 2006 is expected
to require a total investment by the industry of up to A$1-bil. "Australian
government reports on the fuel standards identified that implementation would
lead to a A$0.01-0.02/liter structural rise in the price of fuel," the report
added. "However, prices are determined by the market and if sufficient
quantities of cleaner fuels are not available, then the price will rise above
this level."

AIP chairman Gerry Hueston said the downstream petroleum industry's financial
results in 2002 and 2003 were much improved from the "disastrous" situation in
2001. "These improved results were achieved by a focus on cost reduction in
the domestic industry combined with some improvement in international refining
margins," Hueston said. "Given its history of poor profitability, the
[Australian] industry will need to see sustained improvement in financial
results to support future investments in the clean fuel standards and other
improvements, and to provide an adequate return to shareholders."

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