Refining is to continue at Australia’s remaining two refineries – Ampol’s Lytton refinery in Queensland and Viva Energy’s Geelong refinery in Victoria – following the Australian federal government’s announcement of a support package.
Whilst refining will continue, both Ampol and Viva have committed to investment for decarbonisation and the energy transition at the sites. The Lytton refinery site will host a demonstrator plant to produce green hydrogen, installed by Irish company Fusion Fuel Green, while Viva Energy continues to develop plans for its Geelong Energy Hub, for energy provision beyond refining.
The Fuel Security Package (FSP), which still requires legislative approval, was announced as part of the Australian government’s 2021 budget. The plans include a variable Fuel Security Service Payment (FSSP), expected to cost a total of A$2.047 billion (€1.3 billion), which the government says ‘recognises the fuel security benefits refineries provide to all Australians’, and up to A$302 million in support for refinery upgrades to produce better quality fuels such as ultra-low sulphur gasoline. There will also be A$50.7 million available to implement the FSSP and implement a new minimum stockholding obligation (MSO).
To qualify, Ampol and Viva have committed to keeping their refineries open until at least 2027, thought the support could continue to 2030. FSSP payments are linked to refining margins, so will only be made when the refineries are struggling, at present with the margin marker is below A$10.20. If the Fuel Security Bill is passed by the Australian Parliament, FSSP payments will begin on 1 July 2021.
The future of Ampol’s Lytton refinery had been in doubt due to low refining margins, but the company now says that with the support, it intends to continue refining operations. It expects to receive up to A$108 million per year with the support package.
‘Ampol is pleased that today’s outcome delivers value for shareholders and provides clarity and a path forward for our valued employees at Lytton, supporting the continued employment of 550 Australian manufacturing jobs and the indirect employment of hundreds more. The outcome will also allow Ampol to progress alternative future energy uses for this strategic site, preserving manufacturing skills that will be critical for success in the energy transition,’ says Matt Halliday, Ampol’s managing director and CEO.
The company has subsequently announced its Future Energy and Decarbonisation Strategy, including the use of 40% equivalent net renewables by 2025 and 50% by 2030, and to produce net zero emissions from operations by 2040. The strategy also includes investment of at least A$100 million on Future Energy projects up to 2025, and the company has announced industry collaborations, including with Tesla and Enervan to develop a virtual power plant using Tesla batteries, and with an unnamed early-stage Australian developer of hydrogen-based microgeneration and storage technology.
There is also, of course, the collaboration with Fusion Fuel Green. Ampol has signed a heads of agreement (HoA) with the company for the green hydrogen plant at Lytton, which will run on Fusion Fuel’s proprietary HEVO-SOLAR technology, which combines concentrating photovoltaic technology with a microelectrolyser. The HoA will also form a framework for the companies to enter a 50:50 joint venture to pursue other green hydrogen opportunities in the region.
Brent Merrick, Ampol’s executive general manager, commercial, says that the partnership ‘demonstrates the key role our strategic infrastructure will play in our strategy, with the Lytton site providing a perfect location given available land, existing skills and expertise at the refinery, access to distribution channels and the ability to tie into key utilities. Over the long-term, this technology could also provide the opportunity to introduce green energy into the refinery to help support our commitments to reduce carbon emissions across our operations.’
Viva Energy has also welcomed the news of the FSP, saying it ‘acknowledges the importance of refining to the country’s broader energy security and enhances the long-term viability of the domestic refining sector’. In 2020, the Geelong refinery made a cash loss of more than A$200 million, and Viva says that without government support, operations would not have been sustainable.
‘Critically, the structure of the FSP allows us to commit to the necessary and significant capital program through the package’s life cycle. The structure of the FSSP is not designed to underpin or support profits of Geelong, but rather to mitigate some of the downside risk of low refining margin cycles, to which Australian refineries are exposed outside of their control. Reducing this risk allows us to proceed with greater confidence, as we seek to invest in the future of the Geelong site,’ says Viva CEO and managing director Scott Wyatt.
The company is forging ahead with plans for diversification at the site, turning it into an Energy Hub. This includes establishing an LNG regasification terminal, for which memoranda of understanding were signed with two consortia in December 2020, and a hydrogen refuelling station. The Geelong Energy Hub is part of Viva’s energy transition plans.
‘We now look forward to a period of substantial investment in Geelong, providing an exciting period in the site’s history. The investment in capital upgrades needed for ultra-low sulphur gasoline, together with our normal capital investments and major maintenance turnarounds, and our plans for Energy Hub projects,’ says Wyatt.