Don’t panic, the Geelong fire shouldn’t spike Australian fuel prices

Scenes of thick smoke rising from the Geelong oil refinery are not what anyone wanted to see on Thursday morning — especially not when Australia is drifting dangerously closer to the largest energy shock in its history. As the war in the Middle East chokes off much of the world’s oil supply and deepens worries about how much petrol and diesel we have left, the flames raised one immediate question: how bad could this be for the already-precarious state of our fuel security?

Rystad Energy, a global research firm, says it raises the likelihood of the government moving to the next stage of its fuel-saving strategy, including directing fuel to priority areas, promoting voluntary measures like car-pooling or working for home, and further releases from strategic reserves.

“Australia carries the unenviable distinction of being one of the most import-dependent nations in the world for refined fuel products, while simultaneously holding some of the lowest strategic reserves of any developed economy,” it said. “You can be heavily reliant on imports, or you can hold minimal reserves — but you cannot be both.”

But while reduced domestic refining capacity could put pressure on supplies long term, that doesn’t mean that motorists will immediately feel more pain. Australia has about a month’s supply of fuel on hand, and dozens of tankers booked to deliver more over coming weeks. With Viva Energy’s refinery on the shores of Corio Bay operating at “minimum rates” in the aftermath of the fire overnight, those supplies may be consumed slightly faster. Yet, the refinery does not produce much in the scheme of Australia’s fuel market – which is overwhelmingly reliant on foreign supplies – and is not entirely out of action. When the facility is deemed safe, much of its production will likely resume while the fire-damaged areas are repaired. That will mute the immediate impact of the fire.

What is immediately clear, is that it could have been much more catastrophic.

Internal reports from the refinery confirmed that two of the plant’s petrol-production units have been hit by fire damage impacting the refining operations, which will compromise overall production volumes. On Thursday morning, personnel from Viva Energy were yet to conduct a full damage assessment.

But what is immediately clear is that it could have been much more catastrophic.

Since the war in Iran began on February 28, the refinery has been pushed to its absolute limit. Running at maximum capacity and processing 120,000 barrels of crude oil a day, it has been reliably supplying enough petrol, diesel and jet fuel to cover 50 per cent of Victoria’s demand, and 10 per cent of Australia’s.

Thankfully, much of the facility continues to operate, and Viva Energy’s management is privately confident it will have “options to restore production” volumes once the extent of the losses are known.

The site also has strong flows of fuel imports arriving well into May, and strong flows of crude oil deliveries heading into June.

“Clearly we have lost a couple of units,” said a company source who asked not to be named while the incident was still unfolding. “There will be some impact. But we are still running and we can still make what we can.”

Fuel importers including Viva have been diversifying supply chains to secure fuel from other parts of the world, while the Albanese government is holding bilateral talks with Asian neighbours to shore up future deliveries. The 10 per cent of national fuel typically supplied by Geelong will also not disappear entirely.

While Australian petrol prices have risen 30 per cent since the war began, and are currently averaging $2.24 for regular unleaded, those increases have not been driven by any local fuel supply crunch. They’ve been triggered by higher global prices of crude oil. So far, Australian supplies have remained steady, and the industry remains confident in the outlook until at least mid-year.

“The one big unknown now is how long this war goes on for,” another fuel industry executive said.

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