Viva Energy boss defends fuel price surge, says more refineries needed for secure supply

Viva Energy’s chief executive, Scott Wyatt, has defended a massive jump in the company’s refining profit margins amid surging fuel prices.

Earlier this week, Viva reported a Geelong refining margin of $US22 a barrel over the first quarter, only one month of which was affected by the spike in oil prices associated with the Iran conflict.

Those margins were almost three times higher than the $US7.90 a barrel recorded in the first quarter of last year, and come on top of the rise in crude oil prices, which are up about $US30 a barrel since the beginning of the Iran war on February 28.

Mr Wyatt acknowledged that the company is now making big profit margins from its Geelong refinery, but said the firm had faced a tough operating environment for years before that.

“I mean, the majority of the cost of fuel is represented by the 80 per cent of [oil] that’s being imported,” he told Alan Kohler’s That’s Business podcast.

“I think we all want refineries to continue to be part of the Australian energy security mix, and to do that, the refineries need to be profitable, and they need to make money to obviously continue to run sustainably and make the investments that we need, both in running a safe and efficient operation, but also continue to invest for the future.

“We’ve just come out of a program late last year of upgrading the refinery to produce low-sulphur fuel; so, much cleaner fuel for the environment in Australia.

Viva is far from the only refinery making hay while the sun shines, with refining margins surging across the Asian refineries where Australia sources most of its fuel.

The cost of buying diesel and jet fuel from the region has gone up by about $US120 a barrel, representing the huge demand for those products.

Petrol has gone up by about $US50 a barrel.

“[It reflects] the demand for gasoline is not as strong as it is for jet fuel and diesel, which are the engine room of the economy, really within the Asia-Pacific region,” Mr Wyatt said.

Oil prices have gone up about $30 a barrel since the beginning of the Iran war on February 28.

The cost of buying diesel and jet fuel from the region has gone up by about $120 a barrel, representing the huge demand for those products.

Petrol has gone up by about $50 a barrel.

The night the refinery caught fire

Mr Wyatt recalls he was on the phone with the fuel refinery’s general manager when disaster struck late at night last Wednesday.

“We were working through the final details of the cargoes for the first two cargoes the government was asking us to acquire on their behalf,” the Viva Energy boss said.

The fire at one of the two remaining oil refineries in Australia raged for more than 12 hours.

By the time it was extinguished, the flames had left Geelong’s Viva Energy site looking like a “war zone”, one bystander noted.

Up to 50 staff were working when the blaze broke out.

All escaped unharmed, but nearby residents were ordered to shelter indoors as firefighters worked to tame the fire.

“I got in the car and drove to the site,” Mr Wyatt said.

“I got there about 3 o’clock [in the morning] and then … obviously, by that stage, the response teams were all in place, the incident was being managed, and you know, as you need to do at that point, is obviously start preparing … communications and starting to engage stakeholders.”

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Mr Wyatt described the response to the fire as “textbook”, but said he would not know “for some time” what caused the fire.

The blaze at the refinery, which is 500 metres from the nearest residential area, was finally extinguished at around noon on Thursday last week.

The Viva refinery and the Ampol-owned Lytton refinery in Brisbane each provide about 10 per cent of Australia’s fuel.

The remainder is imported from overseas.

The Geelong refinery, according to Viva Energy, can process up to 120,000 barrels of oil per day — manufacturing petrol, diesel, LPG, jet fuel and more.

Refinery down to 60 per cent

The fire has impaired production capacity at the refinery, now operating at 60 per cent for petrol and 80 per cent for the production of diesel and jet fuel.

“It allows us to minimise the number of units in operation, particularly around where the incident occurred,” Mr Wyatt said.

“As we get access to the area, we have to inspect the units that will allow us to restart and get close to over 90 per cent of our production capability.”

Inspection of areas potentially indirectly affected is still needed to ensure they are safe to restart, he said, adding that the process would happen over the next few weeks.

Mr Wyatt said he did not expect the fire to cause any long-term damage to the refinery’s output, including premium fuel.

More refineries needed for secure supply

The fire at Viva’s Geelong refinery highlighted threats to Australia’s fuel security, which Mr Wyatt said had been adequate until now.

“We have two refineries that are playing a really important role today,” he said.

“Making 20 per cent of Australia’s requirements is not insignificant.”

But more would be good, he said.

“I don’t think … anyone wants to live through this again … [to] have the level of insecurity that we feel at the moment,” he said.

“And obviously if you build new, you’ll be building more modern refineries.

Strait of Hormuz

Australia’s refining capacity would not be in the headlines if not for the closure of the Strait of Hormuz.

Mr Wyatt considers the crisis a week-by-week situation.

“[We’re typically] buying fuel six weeks in advance, so we’re into June now [and] every week we’re able to do that is another good week,” he said.

“It gives us another week to see a resolution to the conflict and then a resolution to the normal flows of oil and refined products that we all rely on.”

But a crunch point for fuel supply remains a risk.

“There’s still 80-85 per cent of the oil that’s still flowing, and refineries are still operating, and there is still fuel available, so it’s not like there’s a cliff out there that we’re sailing into,’ Mr Wyatt said.

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