TOKYO/SYDNEY -- American and European oil majors look to shut refining facilities in Australia amid an influx of cheaper petroleum products from China, raising concerns in Canberra about the growing dependence on imports.
ExxonMobil said in February it will close the Altona refinery near Melbourne, citing factors including "the competitive supply of products into Australia." The company will convert the site into an import terminal for petroleum products, though no time frame was given for the transition.
This came after BP in October announced the planned closure of its Kwinana refinery in Western Australia after 65 years.
"The continued growth of large-scale, export-oriented refineries throughout Asia and the Middle East has structurally changed the Australian market," the company said, calling the plant "no longer economically viable."
Kwinana will be shut in April and converted to an import terminal, with staff slashed to 60 from the current 650.
These moves will leave Australia with just two refineries, run by local companies, down from eight in the early 2000s, sparking concerns in Canberra about energy security at a time of heightened trade tensions with China.
Australian refineries face mounting competitive pressure from China and the Middle East. China's refining capacity has been growing since around 2015, propelled by players such as state-owned PetroChina and China Petroleum & Chemical, known as Sinopec. The International Energy Agency expects the country's daily capacity to rise by 1.8 million barrels between 2019 and 2025.
Chinese exports to Asia-Pacific buyers have grown with the rise of mega-refineries that can process 300,000 to 400,000 barrels of crude oil daily -- two to four times as much as the facilities closing in Australia. These plants refine oil at a lower cost, letting suppliers sell at prices that Australian refineries cannot match. China is projected to supply more than half the region's petroleum products this year.
With Australia's population growing thanks to immigration, demand for products such as gasoline and jet fuel continues to expand. Consumption averaged 1.05 million barrels per day in fiscal 2018, up 16% from fiscal 2010, government data shows.
Yet American and European oil companies are steering away from crude-derived products amid climate change worries -- another factor in the refinery shutdowns -- and investing in liquefied natural gas, a less carbon-intensive fuel. Royal Dutch Shell, Chevron and Total have signed on to major LNG projects in Australia.
Australia's two remaining oil refineries are not secure. Viva Energy warned in September and Ampol in October that they would consider the future of their respective facilities, including the possibility of shutting them. An alarmed Canberra put into effect a planned subsidy for domestically produced petroleum products in January, six months early, but the impact remains unclear.
The refinery closures in recent years have steadily increased Australia's reliance on imported petroleum products. Imports accounted for 65% of consumption in fiscal 2019, and the figure is expected to reach 79% in fiscal 2021.
This trend has benefited China in particular.
Singapore was Australia's top source of petroleum products by value in fiscal 2019 with 26% of the total, followed by South Korea at 18% and Japan and China tied at 14%. But while the shares for Singapore and South Korea declined 8 and 9 percentage points, respectively, from five years earlier, China gained 9 points over the same period.
"It is possible that China will surpass Singapore at some point," said Alexander Yap, senior analyst at S&P Global Platts Analytics.
That prospect raises security concerns.
"It is a great threat to supply chain confidence and continuity if there are tensions in the South China Sea and in other maritime supply chains that increase the time it takes for shipments of refined fuel to get to Australia," said Paul Barnes, a senior fellow at the Australian Strategic Policy Institute.
An import stoppage would hinder not only daily life for the public, but also Australia's defense, such as by depriving the military of fuel for fighter jets.
This is especially worrying for Canberra as its relationship with Beijing has frayed. China halted or restricted imports of many Australian products last year, and it could use export regulations to throttle fuel shipments.
Australia faces the difficult task of ensuring its security in an unfriendly business environment for the companies it would need to bring on board.