BP to shut Australian Kwinana refinery, convert it into fuel import terminal - S&P Global

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Highlights

Refinery closure to take six months

BP eyes role in Western Australia's decarbonization drive

Assessing viability of hydrogen export plan

Singapore — BP Australia plans to shut its 146,000 b/d Kwinana refinery in Western Australia and convert it into a fuel import terminal, the company said Oct. 30.

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The continued growth of large scale, export-oriented refineries throughout Asia and the Middle East has structurally changed the Australian market, BP said, adding that regional oversupply and sustained low refining margins mean the Kwinana refinery is no longer economically viable.

Converting the refinery into an import terminal will help ensure ongoing security of fuel supply for Western Australia, the company said.

Related podcast: Energy Transition in the time of COVID-19

Refining activities will wind down through the next six months, and conversion works will continue up to 2022.

Australia is expected to become even more reliant on Asian oil products as the recent slew of refinery closures across multiple Australian states would significantly derail the country's ability to produce its own fuel, industry sources and refinery officials said.

Australia imported 3.81 million barrels of gasoline in August, up 8.8% from 3.51 million barrels it received in the same period a year earlier, according to latest data from the Department of Industry, Science, Energy and Resources.

Australia was estimated to have imported 10.2 million barrels of gasoline in the third quarter, up 36% from 7.49 million barrels received in the second quarter, and the shipments could increase to about 11 million barrels in the fourth quarter and 12.4 million barrels in first quarter 2021, according to Singapore-based light and middle distillate traders and Australian fuel distributors surveyed by S&P Global Platts.

Multiple Asian fuel exporters, including Malaysia's Petronas, South Korea's SK Energy and GS Caltex said they aim to boost oil product exports to consumers in Oceania.

"Asian market is struggling with high stockpiles of fuel. South Korean suppliers will help ensure steady supply of transportation and industrial fuels to Australian consumers," said a Seoul-based gasoline and diesel marketing manager at GS Caltex.

South Korea exported close to 6 million barrels of gasoline to Australia in January-September, placing it in Australia's top three motor fuel suppliers list.

CLEAN ENERGY FOCUS

"BP is committed to playing a leading role in growing Australia's future prosperity, making significant investments in natural gas production, as well as in convenience and mobility businesses," said Australia Head of Country Frederic Baudry.

"We are particularly excited by the shared ambitions with Western Australia to [achieve] net zero [greenhouse gas emissions] by 2050 and the opportunities this can offer," he added.

This include building on its position in the North West Shelf joint venture through gas exploration at Ironbark and investing in retail growth, as well as progressing low carbon projects with Lightsource BP. It is also assessing the feasibility of a large scale hydrogen export plant in Geraldton, Western Australia, in partnership with the federal government.

In addition to investing in an import terminal at Kwinana, BP is also exploring future options for the site, including a potential clean energy hub to harness the existing and emerging technologies required for the decarbonization of the Western Australian economy, it said, adding that a multiuse clean energy hub could produce and store lower carbon fuels, including sustainable aviation and marine fuels, and waste-to-energy solutions like renewable diesel.

The decision to shut down the Kwinana oil refining operation is in line with BP's strategy of transitioning from an integrated hydrocarbons producer to becoming a global energy company.

The company in its Energy Outlook 2020 published Sept. 14. said that demand for oil will be the biggest casualty in the coming three decades as weaker economic growth and a faster shift to renewable energy accelerate the demise of oil-based transport fuels.

In its "Rapid" transition scenario, it expects demand for liquid fuels to almost halve to less than 55 million b/d by 2050, when oil's share of the global energy mix will slip to just 14% from about a third currently. Even under a more conservative "Business as Usual" scenario, BP now sees global oil demand peaking within a few years at just more than the 100 million b/d level seen in 2019.

BP expects to sell off about 600,000 b/d of oil equivalent capacity over the next five years as it prepares for this transition, and expects to divest at least 200,000 b/d of refining capacity by 2025, when its refining portfolio will be less than 1.5 million b/d. By 2030, its refining assets are expected to fall to 1.2 million b/d.

The company is targeting to reach a 50 GW target in global renewables by 2030. It had 2.5 GW net renewable capacity as of end 2019.

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