What does the Geelong refinery fire reveal about Australia’s fuel supplies?

Late on Wednesday, Victorian firefighters were called to a large fire at Viva Energy Group’s oil refinery in Corio, a suburb of Geelong. The blaze is believed to have been an equipment failure. Thankfully, no-one was injured.

Viva is one of two refineries left in Australia, and supplies more than 50% of fuel in Victoria, and 10% of fuel in Australia. At the time of writing, the company was in a trading halt on the Australian sharemarket, pending an announcement regarding the impact of the fire.

In normal circumstances, Viva says the refinery can process up to 120,000 barrels of oil per day. The impact of the fire has been primarily to the production of petrol. The overall refinery will have to be assessed before it becomes clear whether diesel and aviation fuel production have been impacted.

In the immediate and short term, Viva’s supply of petrol will likely be met from storage, both on site and from other terminals. The fire will mean even greater pressure on securing supply from overseas. It is possible price changes may be no more than we have already seen, as they are currently being driven by the cost of imports.

So what does this mean for the supply and price of fuel in Victoria, and Australia?

Remind me, what do refineries do?

Using crude oil, refineries like Geelong produce liquid fuels for transport, including petrol for small cars, diesel for big cars and trucks, and aviation fuel for planes.

Crude oil is a hydrocarbon, created underground over millions of years from decaying organic matter. The chemical process of refining crude oil is highly sophisticated, and refineries are complex machines.

In Australia, almost 60 per cent of the fuel we consume is diesel. This is followed by petrol, and then aviation fuel. We consume more diesel per head of population than almost every other major economy, including the USA. This is because Australia has a large mining sector, and depends on long-distance road transport to move goods.

So what’s going to happen now?

Refinery fires are nasty because the fuels burn rapidly and the blaze can be difficult to extinguish.

This fire broke out in the plant’s primary petrol-production units, in an area of about 30 metres by 30 metres. The company has temporarily cut its output of petrol, diesel and jet fuel down to “minimum rates”, adding pressure on Australian fuel stocks. Although other parts of the refinery will still produce diesel and aviation fuel, and maybe some petrol, the overall volumes will be reduced.

In the short term, Viva will have a lot of product stored. But while it looks like diesel and aviation fuels might not heavily affected, the picture is less clear for petrol. They could still import petrol that has been refined elsewhere into Geelong to supply customers, which most refineries do. But this petrol is refined in countries like Singapore and Malaysia, which are already under since they source much or their crude oil from the Middle East and have their own domestic demand.

This is an undoubtedly frustrating turn of events in the current energy supply crunch. Optimistically, the damage will be repaired quickly and it won’t be too long until that part of the refinery is back on line. We must await a full assessment from Viva.

Even if the refinery is able to start production relatively quickly, this fire prompts us to consider the future role of liquid fuels in Australia.

Should we be building more refineries?

Firstly, to run a refinery you need crude oil. Where is that going to come from? At the moment, Australia sends most of the oil it extracts from the north-west shelf in Western Australia to nearby countries like Singapore and Malaysia.

In recent years, the Gippsland basin, offshore Victoria, has entered the depletion stage of its oil extraction after more than 50 years. While the north-west shelf remains a significant source of oil, very few other oil resources have been identified in Australia. Recently, there has been speculation about extracting it from the Taroom Trough, about 300 kilometres west of Brisbane. But that resource is speculative at present, being technologically challenging, and economically questionable.

Sometimes, bad things come in waves: the US-Iran war, Cyclone Narelle, and now the Geelong refinery fire. They underline the need to decrease our reliance on fossil fuels. And people are responding, which is good. For example we are seeing record numbers of people buying electric vehicles. In ten years from now, half of all car sales should be will be electric.

There’s other signs of rapid electrification. If you travel around Sydney or Melbourne you’ll notice electric buses and trucks have become more popular for short-haul trips. It was assumed it would take far longer for long-haul freight to electrify, but there’s now a company set up to run a fleet of 20 trucks between Sydney and Canberra.

The Geelong refinery fire adds another major challenge to Australia’s fuel crisis. It increases the urgency for a longer-term plan to rapidly electrify transport, more focus on biofuel production and, possibly, greater strategic onshore storage. This will be good for energy security and climate change.