Transcript generated automatically by AI and may contain errors.
Chapter 1: What is the main topic discussed in this episode?
This is an ABC podcast. Hello, I'm Annabelle Crabb. Now, I wouldn't say I'm a hoarder exactly, but I do hang on to things. It's not just you and me. Australia's oldest library is crammed with stuff that isn't books. Terrible paintings, old menus, human hair. Is this history or hoarding? Come and have a rummage through the story of us told by our stuff.
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Alan Collar here with That's Business, part of the ABC Business Daily feed. And this week we've got Scott Wyatt, the CEO of Viva Energy, owner of the Geelong Oil Refinery and a network of Shell service stations and convenience stores, and also owner of Australia's most poorly timed fire.
The refinery caught fire last Wednesday night in the midst of a war that's closed the Persian Gulf, the Strait of Hormuz, and sent fuel prices soaring. So the question now is, what will be the long-term impact of both the fire and, more importantly, the war? And also, how did Australia end up with two refineries down from 10? Should we have more of them?
Or will we end up with none, as we did with car manufacturers? Let's ask Scott Wyatt, the CEO of Viva Energy. Welcome to That's Business, Scott Wyatt. Thanks for joining us. Thanks, Alan. Thanks very much for having me. Let's start with the fire last week. You mustn't have been able to believe it when they told you that you had a fire at Geelong. I mean, how did you find out? What were you doing?
Were you asleep at the time?
No, no. It was 11.15 at night. I was actually talking to...
our general manager refinery um bill patterson at the time um we were working through the final details of the cargos for the first two cargos that the government um was asking us to to acquire on their behalf um and obviously at that point shortly as limp 15 the call came through um about the fire at the refinery yeah i got in the car and drove to the site and uh Oh, straight away.
You went down there straight away? Yeah, straight away. I got there about three o'clock. Obviously, by that stage, the response teams were all in place. Incident was being managed. And as you need to do at that point is obviously to start preparing for... I mean, as the CEO, there's not much you really can do in the response.
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Chapter 2: What was the impact of the fire at the Geelong refinery?
It's had a big impact on on people. It's a confronting thing to be through, but look, I'm super proud of the way the team has managed it. I think there's just, as I said at the beginning, just textbook response has certainly kept people safe and certainly put us in the best position to recover from this.
So an excellent job right across the board, including all the response agencies that turned up and have been there ever since. It's been a tremendous community effort, actually.
Do you know what happened yet and what went wrong?
No, we won't. We don't know. We won't know for some time. Obviously, the focus since the fire was really managing the incident and making the area safe. And this was a top priority for now.
You've got no idea? Haven't you got any idea what happened?
The time for investigating the cause of the incident is obviously ahead of us, as for now the focus has been on keeping people safe and getting the area under control and safely restoring operations as well so that we can maintain production. So that's been the work the team's done over the last week. It's nearly been a week since the incident.
Obviously, an incident like this, a fire in a refinery, is something we work incredibly hard to ensure doesn't occur. And that covers the design of the plants, the way we maintain them, the inspection programs we have, including how we operate the plants. So
It is something that we put a lot of attention to and a lot of investment in, so it's pretty disappointing for everybody involved when something like this happens, as well as quite confronting as well. So that's been a key focus of just responding to that.
Our safety programs are obviously also designed to, if something like this does happen, our response is absolutely critical because the most impactful thing you can do in the event you do have an incident like this, is obviously respond well, contain the fire, protect people and protect assets.
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Chapter 3: How did the CEO of Viva Energy respond to the refinery fire?
We don't know how long that will take. That's obviously subject to further inspection, but to bring that unit back online and ultimately get back to full production. This unit that has been affected largely makes alkylate, which is used in high-octane fuels, so it largely affects our production of premium fuel, so 95, 98, and also 95. which is used in small engine aircraft around the country.
So the majority of what we produce at Geelong will continue unaffected once we've brought all the units back up to their normal capacity.
Okay, let's talk about the update, the trading update you put out on Monday as well. You revealed in that that your margin, your refinery margin, margin had increased from $7.9 per barrel to $22. So can you explain how that came about? Because you get to charge import parity price for the product, right? But didn't the cost of doing business, the cost of crude oil, also go up?
It just didn't go up as much. Is that what happened?
Yeah, it didn't go up as much, Alan. I think obviously the world is short crude at the moment, and that crude is normally processed by the crude that comes out of the Middle East is, you know, an important part of the crude diet for refineries within our region where we, you know, as it were, Australia sources a lot of its refined fuel. So those refineries are short crude.
And as a result, they're making less refined products than they would normally make. So the cost of both crude oil and refined products have both gone up as a result of this conflict. To put it in context in terms of where the oil price sits today, it's gone up about $30 a barrel since the end of February.
But the cost of buying diesel and jet fuel from the region has gone up by about $120 a barrel, so significantly higher, just representing the huge demand for those products. Petrol's gone up by about $50 a barrel, so gone up less, just reflecting that the
The demand for gasoline is not as strong as it is for jet fuel and diesel, which is the fuels of the engine room of the economy, really, within the Asia-Pacific region.
Yeah, but that's a tripling of margin. Did you consider not taking it all as margin and perhaps keeping the price down for consumers in Australia who are dealing with a problem of cost of living?
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Chapter 4: What are the long-term effects of the fuel crisis on Australia?
So just to be clear about margin price then, so you're saying you supply 20%, the imports are 80%. So are you saying there wouldn't be much point you keeping your price down for just that 20% or whatever it is, 10% in fact for Geelong Refinery because it's being sort of swamped by the import fuel. Is that right?
Yeah, I mean the majority of the cost of fuel is represented by the 80% of fuel that's being imported. I think we all want
refineries to continue to be part of the Australian energy security mix and to do that the refineries need to be profitable and they need to make money to obviously continue to run sustainably and make the investments that we need both in running a safe and efficient operation but also continue to invest for the future and we've just come out of a program late last year of upgrading the refinery to produce low sulphur fuel so much cleaner fuel for
For the environment in Australia, all those investments are not possible without, obviously, a profitable business and also the support that we get from government from time to time through the fuel security services payment.
Are you saying, when you said before about that support that you're getting from the government, are you saying that the last two refineries at Lytton and Geelong would have actually closed without that support?
It was absolutely on the, that was the challenge we faced during the pandemic. I mean, running... Running refineries during the pandemic was an incredibly difficult thing to do because people were not traveling, so no one was buying petrol. We were still selling diesel, but of course no one was flying either, so we weren't selling jet fuel.
And the reality of refining is that when you are processing a barrel of oil, no matter what, you can't just process a barrel of oil and make diesel. You also make jet fuel and you also make petrol. And if you've got nowhere to sell it, it becomes very difficult to to run a refinery.
We had to impair the operations of Geelong significantly just to be able to run a feasible operation that made the minimum amount of petrol and jet that we could through that period of time. It lost an awful lot of money.
And that environment, we didn't know at the time how long that was going to continue for, but it was unsustainable for us to continue operations, particularly coming out of a period of time that was already quite a challenging period for refining leading into the pandemic. And You know, we went into the pandemic with four refineries. We came out of it with two. So we did lose two.
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Chapter 5: How has Australia's refining capacity changed over the years?
So there was enough refineries to meet all of the requirements of Australia. And of course, you've got to remember at that time, we also had significant reserves of oil that those refineries were able to process. And as a country, we were relatively self-sufficient. Since that time, the amount of oil that's been produced has steadily fallen.
There's been an emergence of large-scale modern refineries being built in our region. As I said before, not just refineries, but refinery complexes that are often 10 times the size of the refineries here in Australia. They're using more modern technology. They're more flexible. They're more efficient, therefore more effective to run.
And that's been the challenge for our refineries here in Australia. So that's been obviously the headwinds we've faced. That's why refineries have progressively closed as well as the significant geopolitical challenges. challenge we faced with the pandemic. But we are where we are. We have two refiners that are playing a really important role today.
Making 20% of Australia's requirements is not insignificant. This is still material. At this time, we'd love, obviously, probably it would be a great thing to have more and to be more independent, but we don't. And I think that'll be
Obviously, one of the important conversations we come out of this is I don't think anyone wants to live through this again and have the level of insecurity that we feel at the moment. So there'll be, I imagine, close examination of what are the options to improve the level of energy security we have in Australia as we go forward from here.
Yeah, well, you haven't really answered the question. I mean, are you prepared to tell me how many you think we should have? I mean, is there a number?
Well, it's always a balance, Alan. I think many countries have obviously more refining capacity than we do, but they also have more strategic storage than we do here in Australia as well. So I think it's a combination of both refining capacity and storage to give you a longer period of time to sustain if supply is interrupted.
And I think ultimately the solution is a combination of the two things. We are where we are in terms of what we have as from a refining capacity in Australia doesn't mean we can't build more from here. And obviously if you build new, you'll be building more modern refineries. We can also add capacity to the refineries we have, but we can also build storage.
And storage is probably, given where we are, is probably the fastest and quickest way to build more robustness into our position here in Australia.
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Chapter 6: What are the implications of the conflict in the Strait of Hormuz?
And it's a question for government about what is the right level above the normal commercial needs of the country that the country needs to hold in order to weather these sorts of events more successfully than we might feel we've weathered at the moment.
Would you be inclined to build another refinery?
They're expensive, Alan. Look, we're a long way from the markets, and they take a long time to build. The modern refineries are big investments. They can take five to ten years to build, and then they have to deliver a return to whoever invests in them.
So the challenge at the moment and the challenge right around the world is if you're facing into a future that's 10, 20 years out, and obviously... in the midst of an energy transition with renewables and playing an increasingly important role, is the case there to build a new refinery with that longer term outlook, just from a pure economic sense.
And that's why you're not seeing the level of new refineries being built around the world at the moment, because everyone knows in 10, 20 years time, the demand for hydrocarbons is going to reduce. So from a pure commercial point of view, Alan, you probably wouldn't build one, but obviously we're dealing with different sets of issues at the moment.
I was just wondering whether you think that given what's going on with the price of oil and so on, but also the cost of renewable power transition, I mean, yeah, the energy transition is going on, but data centres are driving up the price of electricity. Do you think it's possible that oil makes a comeback?
I think hydrocarbons will have a much longer role to play in some of these hard-to-abate sectors. So aviation, mining, road transport, they're all heavy users of diesel and jet fuel. And yes, there are renewable fuel options to play a role, but they're
they will take a lot longer to commercialise in the quantities that we need to continue to enjoy the economic lifestyle that we have and the ability to continue to fly around the world. So I think, you know, those hard to evade sectors will take some time. Obviously, road transport or particularly light vehicles clearly will progress more quickly.
And EVs are here and they are a very effective way of moving to renewables and reducing the, you know, the dependency we have on hydrocarbons for that mode of transport. And you can see that with petrol demand in Australia. Year on year, it is declining. It's declining up until this point, probably primarily just through more efficient petrol vehicles being deployed in the fleet.
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Chapter 7: How do refinery margins affect fuel prices for consumers?
So we're into June now. Every week we're able to do that. It's another good week. It gives us another week to to see a resolution to the conflict and then a resolution to the normal flows of oil and refined products that we all rely on. So that's our role. That's what we continue to do.
And obviously at a local level, continue to run our refinery and support the supply through refined products here in Australia is also an important role we play.
So what are your suppliers, the refineries in Asia, telling you about when they're going to run out
Look, as I said, every week we are rolling forward our import program. So we're into June and we're continuing to secure the cargoes that we need. We haven't been unable to find fuel. We haven't had any cargoes cancelled. So we're still having good success in that. And part of the reason for that is, look, there's still oil flowing out of the Middle East.
Some of it's coming up by pipeline and there are still maybe less now that the US blockade's in place, but there's still been oil coming out of the Middle East. We have some countries that are drawing down on oil reserves. So China's doing that, for example. So that reduces the demand on traditional oil out of the Middle East. We're seeing some demand destruction, certainly.
Obviously the high prices just does impact demand. There are certainly consumers and segments that can't afford necessarily to buy as much high fuel as they ordinarily would. So the region is reducing demand and we're dragging in fuel from places that we ordinarily wouldn't be sourcing it from, such as the US, much further away, more expensive, but still able to get to Australia.
We are continuing to find ways to fill gaps and ensure that we have got continued supply. Demand in the region is coming down. So the system is balancing somewhat. It doesn't mean it doesn't become more challenging the longer this goes on, but we are having good success in keeping the country in supply. And I think I just would also say, and obviously the government's going further now and also
acquiring cargoes through companies like ours to build greater contingency if we need it in the later months of this conflict, if it continues.
I'm just trying to get a sense of when, if this thing drags on, at what point does the crunch happen where there's a real problem?
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Chapter 8: What role does government support play in the refinery industry?
it's not like there's a cliff out there that we're sailing into. It's a period potentially where we won't be able to acquire as much fuel as we would like. And, and, demand will need to be reduced to support that. But we're not at that point at this time, Alan.
Yeah, but the energy, the International Energy Agency has been saying it's the biggest disruption to oil supplies in history, worse than the oil shocks of the 70s. Yeah. So that is alarming.
It is. It's alarming in one sense, but as I said, there's It doesn't mean there's no oil. It doesn't mean there's no fuel. It means we might at some point have to make some difficult choices as a country in terms of what we can continue to do and what we can't continue to do. And governments are no doubt planning for that at the moment, but we're not at that point.
And while the fuel continues to flow and we continue to meet demand requirements in the short term, the best thing we can do is keep doing what we're doing because that means, you know, It reduces the impact on people, ensures we continue to run a robust economy, but be ready to take more difficult actions at the point that we need to. But we're not there yet.
And just by the way, did the Prime Minister's visits to around Asia over the past few weeks make a difference?
Yeah, it's important. They are the countries that we source fuel from. They operate refineries that are an important part of the Australian supply chain. We're important trading partners with them. We're important customers as well. They do have fuel to sell. Obviously, there's a lot of demand out there and it's important we step up as customers and ensure that we're being heard and
That helps us when we go into the market and talk through our trading operations to acquire fuel. The fact that we've got that government-to-government relationship is an important part of seeing Australia maintain supply.
That's great. Well, thanks very much for talking to us, Scott Wyatt. Thanks, Alan. Appreciate the opportunity. on Monday.
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