The Commonwealth and Western Australian governments will fund a $4 million early-stage feasibility study into constructing what would be Australia's first new oil refinery in 60 years. The proposed facility, to be built in Western Australia, is part of the Albanese government's long-term strategy to shield the country from future global oil shocks.
Australia now imports about 90% of its liquid fuels after a series of refinery closures over the past 25 years. This vulnerability was exposed by the international oil crisis sparked by the US-Israel war on Iran.
Inflation and oil price warnings
Treasurer Jim Chalmers warned that the recent escalation of the Middle East conflict posed "a substantial threat to global inflation". Treasury officials, in a special weekend government briefing, said the collapse of the ceasefire meant oil prices were likely to remain high in the near future. "The oil market is now more vulnerable, with weaker buffers against future supply shocks," the officials said.
Petrol and diesel prices have risen by 25 cents and 50 cents a litre, respectively, this month. The rekindled conflict has boosted expectations that central banks will need to do more to bring inflation under control, piling more pressure on households. "The longer this drags out the more serious the consequences for inflation and growth here and around the world," Chalmers said.
Financial markets were pricing a one-in-three chance of a Reserve Bank rate hike on 11 August, down from an even chance on Friday after Brent crude tumbled more than US$10 a barrel to about US$87 on Monday.
Australia's refining industry
Australia's oil refining industry has struggled to compete with cheaper overseas providers. There are just two local refineries in operation: Ampol's Lytton refinery in Brisbane and Viva Energy's facility in Geelong. The proposed WA project, if it goes ahead, would be constructed by Perdaman, the multinational behind a $4.5 billion fertiliser plant in the Pilbara. Perdaman would privately fund the project but could be eligible for taxpayer-funded assistance, such as concessional loans. BP closed an oil refinery in Fremantle, just south of Perth, in 2021.
Government funding and support
Prime Minister Anthony Albanese and WA Premier Roger Cook will announce funding for the scoping study after visiting Perdaman's urea plant in Karratha. "The longer war in the Middle East goes on the greater the impact on Australia will be, and my government will continue to do everything we can to shield Australia from the worst effects – and set us up for the future," Albanese said in a statement.
The federal government's $10.7 billion fuel security package, announced in May, included $10 million to support feasibility studies into potential projects. It also funded a $7.5 billion facility to secure extra fuel and fertiliser shipments during the Middle East conflict, and $3.2 billion to build an extra 1 billion-litre reserve of diesel and jet fuel. Energy Minister Chris Bowen described plans to boost domestic refining capacity as "a sensible and prudent response to secure our energy security".
Environmental concerns
The early-stage support for a new oil refinery is likely to face push-back from environmentalists, who have criticised the federal government for doubling down on petrol and diesel rather than using the oil shock to reduce Australia's reliance on fossil fuels.
