Motorists could end up paying more money for petrol under a new government plan to pay oil companies up to $2.3 billion to bolster Australia’s fuel security.
Prime Minister Scott Morrison on Monday detailed how taxpayers will prop up the nation’s two remaining oil refineries, claiming production subsidies and infrastructure funding will improve national security and shield motorists from higher prices.
But experts said the plan, which is designed to ensure Australia doesn’t become totally reliant on imported fuel, won’t make petrol any cheaper and could even boost prices by disadvantaging cheaper imported product.
Richie Merzian, climate and energy director at progressive think tank The Australia Institute, called the scheme a “Band-Aid” solution.
“It’s entirely reasonable to consider this will have an impact on price,” Mr Merzian told TND.
“The whole reason why so much of our oil has been sourced bit by bit from overseas is because it’s more cost competitive.”
Oil package costs $2.39 billion
The production subsidies will be worth up to 1.8 cents per litre of petrol when profit margins are low, decreasing to zero when margins exceed $10.20.
An analysis of refinery margins at Viva Energy’s Victorian plant between 2010 and 2020 – conducted by The New Daily – suggests they will receive the maximum subsidy about 30 per cent of the time and no subsidies for about 45 per cent.
The government has earmarked a maximum of $2.04 billion for subsidies through to 2030.
An additional $302 million will be paid to foot half the infrastructure bill for upgrades to Viva’s refinery and Ampol’s Queensland plant, which will reduce the sulphur emissions at both facilities by 2024.
All up, the total taxpayer bill could be $2.39 billion, including about $83.5 million worth of interim subsidies already made available until July 1.
Energy Minister Angus Taylor believes that’s a price worth paying.
“Supporting our refineries will ensure we have the sovereign capability needed to prepare for any event,” he said in a statement on Monday.
ACCC chair Rod Sims, however, previously expressed concern that subsidies could increase bowser prices by leaving international importers, who supply the majority of petrol, relatively worse off.
“You don’t want to disadvantage [importers],” Mr Sims told TND.
“It could mean they’re not as aggressive in price as they normally are.”
The government planned to fund the subsidies through an industry levy (tax) but scrapped that plan amid warnings it would have had a larger impact on bowser prices than the current model.
‘Makes no sense’
Tony Wood, energy program director at the Grattan Institute, said it’s hard to tell if petrol prices would rise, adding that it would be a “long bow” to suggest importers will behave less competitively.
He said Mr Morrison was “kidding himself” if he thought the subsidies would reduce bowser prices though.
“The logic would suggest the best way to get cheaper fuel would be to encourage cheap imports and make sure we have strategic storage.”
The government has previously said petrol prices would rise by 1 cent a litre if all of Australia’s remaining oil refineries closed.
Mr Wood backs a minimum stock obligation created by the package and welcomed a decision to bring forward a review of fuel standards and help each refinery build infrastructure to produce better quality fuel.
But he said the policy was too late to deliver value for taxpayer money.
“By the time they have fuel standards in place we’ll have stopped using fuel cars,” Mr Wood said.
“Making sure our refineries can produce these quality fuels – they do have to spend money on it.
“But they’re only going to get a return on that investment for a limited period of time.”
Electric vehicle policy missing
Mr Taylor argues the fuel security package is necessary to maintain local petrol production, which has become a larger national security concern as oil refineries have closed one after the other over the past decade.
Australia would run out of petrol within a month if global supply chains ground to a halt, according to government figures from 2019 which exclude petrol used by our defence force.
But while subsidies will prop up refineries, Mr Merzian noted the government has opted for perhaps the least environmentally conscious way to address the issue of fuel security.
Reducing demand for petrol by improving uptake of electric vehicles, for example, would also increase Australia’s fuel security, Mr Merzian said.
“Spending over $2 billion on a stop-gap measure that does nothing to address Australia’s growing dependency on foreign oil is absurd,” he said.
“Australia needs demand-side solutions, including the electrification of vehicles which – notably – did not receive a single cent in this year’s budget.”
Australia is well behind the international eight ball on electric vehicles, with less than 10,000 on the road and no direct federal subsidies.
Electric vehicle sales increased just 2.7 per cent in 2020 to 6900, just 180 more than were sold in 2019, according to the Electric Vehicle Council.
Oil agreements remain secret
Both Ampol and Viva said on Monday they would keep their refineries operational until at least 2027, ending months of speculation about their future.
But the government did not release the agreements it signed with either company under the fuel security package, which also creates a minimum local stock holding obligation, costing taxpayers $50.7 million.
Ampol said it retained the right to close its refinery if a future government changed the subsidy, or if refinery margins were too low.
“Ampol retains the option to pursue conversion to an import terminal should the package not be successfully legislated or, in future, in the case of persistently low refinery margins or other adverse events,” the company said in a statement.
The government said it had required both companies to sign repayment provisions requiring them to hand back money if they shut before 2027, with an option to extend to 2030.
Ampol’s share price rose 6.7 per cent after the policy announcement, while Viva Energy’s share price rose 6.8 per cent.
The Australian government has not purchased equity in either company as part of the fuel security package, but believes the spending supports about 1250 existing refinery workers and 1750 new construction jobs.
That means taxpayers are paying about $667,000 per job.