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Australia's Ampol may shut oil refinery despite national security push

10/8/2020

Ampol Ltd is considering closing its Lytton oil refinery, one of Australia's four refineries, as it has racked up big losses because of a coronavirus-driven slump in fuel demand and competition from huge Asian plants.

Ampol, formerly known as Caltex Australia, may close Lytton despite a recent offer from the Australian government of incentives worth A$2.3 billion ($1.6 billion) to the industry to keep the country’s refineries open for the sake of national security.

Ampol's shares rose as much as 2.3% after flagging the refinery review, outpacing gains in the broader market.

“We really appreciate the government recognizing with its proposed package the challenges that the refining sector is facing,...but we need to be realistic about the extreme structural pressures that Lytton is facing,” Ampol chief executive Matt Halliday said in an interview.

Ampol on Thursday reported a A$141 million loss at the plant so far this year, worse than analysts’ expectations.

“That demand destruction and the oversupply that we’ve seen ... presents a very challenging outlook for margins,” Halliday told Reuters.

“That’s on top of the pressures that we face in the international context. The (Australian) refineries are relatively small and relatively old.”

Ampol said it would review the future of the Lytton plant, located in Queensland state, by the second quarter of 2021, weighing up whether to close it, turn it into a fuel import terminal as it did with its Kurnell refinery in 2014, continue existing operations or try other models of operation.

“Lytton’s larger than expected loss for Q3 reflects a combination of weak refining margins and the structural aspect of its relatively high fixed cost base,” RBC analysts said in a note.

Energy Minister Angus Taylor said in emailed comments the government was working closely with Ampol and the industry on its fuel security package.

Analysts have expected Ampol, which fended off a takeover offer earlier this year, to shut Lytton to boost returns.

Rival Viva Energy Group Ltd last month also warned it might shut its refinery in Geelong, near Melbourne.