(The opinions expressed here are those of the author, acolumnist for Reuters.)
--Clyde Russell is a Reuters market analyst. The viewsexpressed are his own.--
By Clyde Russell
LAUNCESTON, Australia, April 3 (Reuters) - That Australia'soil refining industry is uncompetitive in the face of the new,complex plants in Asia is obvious. What isn't so obvious is whatshould be done about this.
So far two solutions have presented themselves.
The more common one is that the oil majors runningAustralia's ageing and relatively unsophisticated refineriesshut them down and convert the facilities to import terminalsfor refined fuels, sourced mainly from Asia.
BP became the latest in this trend, announcing onWednesday that it was closing its 102,000 barrels per day (bpd)plant in Brisbane by 2015, and possibly converting it to animport terminal.
It joins Royal Dutch Shell, Chevron unit CaltexAustralia and Exxon Mobil in closing refineriesin Australia.
However, Shell has also shown that a second path ispossible.
While the Anglo-Dutch major closed its Clyde refinery inSydney, which was the nation's oldest, it found a buyer for itsplant at Geelong, outside Melbourne.
Swiss-based commodities trader Vitol SA agreedin February to buy the 120,000 bpd refinery, associated fuelterminals and 870 service stations for about $2.6 billion.
This came after Shell had flagged it would close the Geelongfacility by next year if it was unable to find a buyer.
While Vitol has said it intends to keep operating, andinvest in improving, the Geelong refinery, it's believed thatthe real prize for the trader was the import, storage anddistribution network that came with the deal.
This will allow Vitol to gain a foothold in a growingmarket, one that was previously dominated by the internationaloil majors.
BP's statement on closing its Brisbane refinery made nomention of whether any attempt was made to find a buyer for thefacility, rather simply stating that it was a commercialdecision that will improve the company's position.
The idling of BP's Brisbane plant means only four refinerieswill be left in Australia, BP's other unit at Kwinana in WesternAustralia, Caltex's Lytton plant in Brisbane, Exxon Mobil'sAltona facility in Melbourne and Vitol's Geelong facility.
These have a combined capacity of around 448,500 bpd, whileBP's Statistical Review of World Energy pegged Australia's oilconsumption at about 1.02 million bpd in 2012.
IMPORT DEPENDENCY RISING
This means that more than half of the country's fuel needswill have to be sourced from overseas, a figure that's likely torise as the remaining refineries have to be seen as under threatof closure as well.
The youngest of Australia's refineries are the two inBrisbane, and both are coming up for the 50th birthdays.
While the nation's plants have been upgraded over time, theyare still too small and unable to match the new, mega-refineriesspringing up across Asia and the Middle East, many of which arefocused on exports.
Up to now, the focus in discussing refining in Australia hasbeen more about the political impact of job losses, especiallywhen seen against the broader backdrop of mounting manufacturingclosures, most notably the motor vehicle industry, which willcease building cars locally by 2018.
Concerns over the security of fuel supply are generallydismissed by pointing to the surplus of refining capacity in theregion and the competitive nature of the market.
This is all very well in times of peace, but it's notinconceivable to imagine a scenario where fuel shipments toAustralia could be threatened.
Conflict between China and Southeast Asian nations overterritory in the South China Sea, a political showdown withIndonesia over any one of a myriad of issues, a terrorist attackin the Straits of Malacca are all possibilities that couldendanger the movement of fuels by tanker.
At such a time, Australia would have limited options andcould easily run short of fuel if a crisis was sustained for anylonger than a few days.
Neither the previous Labor Party government, or the LiberalParty which replaced it after last September's election, appearto have any cohesive policy toward energy security, or refining.
The Labor government probably hastened the demise ofAustralian refining with its carbon tax, which added to the costof doing business.
The Liberal government wishes to repeal that tax, but thereis much more it could do to ensure the future of refining, withmeasures that wouldn't add to the pressures on an alreadystretched federal budget.
These include carrots, such as offering tax breaks forupgrading refineries or imposing a tariff on imported fuels. Astick approach could be to tighten environmental regulations forany company closing a facility, thereby raising the cost ofmothballing a refinery.
But the future of refining isn't as yet a priority issue forthe government, which makes it all the more likely thatAustralia's plants will be allowed to drift into oblivion. (Editing by Himani Sarkar)
