Melbourne: Oil giant Royal Dutch Shell plans to close the smaller of its two refineries in Australia and turn it into a fuel terminal before mid-2013 as it can no longer compete with Asia’s mega-refineries.
The company said on Tuesday the proposal had nothing to do with Australia’s proposed carbon tax, any other government policies, or labour costs.
“This proposal is the result of increased competition from new mega-refineries in Asia, supply and demand in our region and Clyde Refinery’s small size,” said Andrew Smith, Shell’s vice president of the company’s local downstream business.
The company also said it was not retreating from Australia, despite the recent $3.3 billion sale of nearly one-third of its stake in Australian oil and gas producer Woodside Petroleum.
“Shell remains committed to growth and investment in Australia. Along with significant investments in our LNG (liquefied natural gas) business across the country, Shell plans to further strengthen the downstream business in line with our strategy,” Smith told reporters.
The 75,000 barrels per day Clyde Refinery in Sydney, which accounts for about 10 percent of Australia’s operating refining capacity, would need a large investment, including major maintenance in mid-2013, if it were to continue running.
“There’s been a number of new, very large refineries built in the region in the past few years, and, indeed, we see more being built in the future,” Smith said, pointing to huge plants in India and Korea.
“That is creating an overcapacity in refining. And recent predictions on the outlook for refinery margins remain weak.”
The plan to shut Clyde marks the second refinery closure in Australia in the face of a refinery margin crunch and stricter fuel standards. ExxonMobil mothballed its Port Stanvac plant in Adelaide in 2003.
Smith said now that other Asian refineries make fuel that meets Australian standards, it would be able to import product to supply its customers in Sydney and the state of New South Wales, where Shell supplies 40% of the market.
Clyde runs crude oil mainly from Malaysia, Indonesia and Vietnam. The company plans to import products mainly from refineries around Asia, including its own, to replace the plant’s output.
Decision in Weeks
Shell will be consulting with the 310 workers at Clyde before the board makes a final decision on the plan, a process which is expected to take “weeks rather than months,” Smith said.
He declined to be more specific about when refining at Clyde would stop, except to say if approved, it would close before a maintenance turnaround scheduled for mid-2013.
Tuesday’s announcement follows Shell’s sale last year of its 200 petrol stations, pipes and storage and a 17% stake in New Zealand Refining Company for $490 million.
Shell and its peers have also been selling refineries in Europe, due to overcapacity, weak refining margins and falling European fuel demand.
Last week, Shell agreed to sell its Stanlow refinery in England for $350 million to India’s Essar Energy .
“These companies find better value for money in the upstream, in particular in gas E&P (exploration and production) because oil is becoming harder to get for geological and political reasons,” said Tilak Doshi, principal fellow at National University of Singapore’s Energy Studies Institute.
Shell’s Clyde and Geelong refineries supply about a quarter of Australia’s petroleum product needs, according to the company’s web site.
Geelong is not affected by the proposal. Smith pointed to recent investments at the refinery near Melbourne as evidence of the company’s commitment to keeping it open at least for now.
The company’s downstream portfolio in Australian includes more than 800 Shell branded service stations, a lubricants blending plant and 16 terminals.