Downstream Petroleum

DOWNSTREAM PETROLEUM DOWNSTREAM PETROLEUM CONTENTS } AIP mission and objectives } Message from the AIP Chairman } Australian liquid fuel supply and demand } International and Asian refining } Financial performance of AIP Members } Economic contribution of the Industry } Australian refinery competitiveness } National fuel quality standards } Biofuels and alternative fuel } Reducing greenhouse gas emissions } Maintaining supply security and reliability } The international crude oil and product markets } The Australian wholesale fuels market and prices } The Australian retail fuels market } Environment health and safety DOWNSTREAM PETROLEUM AIP MISSION AND OBJECTIVES AIP was formed in 1976 to promote effective dialogue between the oil industry, government and the community. It replaced a number of other organisations such as the Petroleum Information Bureau that had been operating in Australia since the early 1950s. AIP has gained national and worldwide recognition as a key representative body of Australia’s downstream petroleum industry. AIP’s mission is to promote and assist in As well as its policy development and the development of a strong, internationally advocacy role, AIP also runs the Australian competitive Australian downstream Marine Oil Spill Centre (AMOSC) in Geelong petroleum industry, operating safely, and Perth to support oil spill preparedness efficiently, economically, and in harmony with and response by the broader petroleum the environment and community expecations. industry. AIP also manages or sponsors important industry environmental and health Through the active involvement of its member programs, including CRC Care and Health companies, AIP provides responsible and Watch. The Cooperative Research Centre for principled representation of the industry Contamination Assessment and Remediation along with factual and informed discussion of the Environment (CRC CARE) undertakes of downstream petroleum sector issues. innovative, cutting edge research aimed This includes through AIP representation at preventing, assessing and remediating on key government advisory bodies and contamination of soil, water and air. For statutory committees. AIP and member over 35 years, AIP has also sponsored the companies advocate government policies independent Health Watch study which that are harmonised across all Australian tracks the health of over 20 000 past jurisdictions, apply equally to all industry and present employees of the Australian participants and are based on sound petroleum industry. science supported by comprehensive economic analysis. DOWNSTREAM PETROLEUM MEMBERS • BP AUSTRALIA PTY LTD • MOBIL OIL AUSTRALIA PTY LTD • CALTEX AUSTRALIA LIMITED • VIVA ENERGY AUSTRALIA PTY LTD ASSOCIATE MEMBERS • AFTON CHEMICAL ASIA PACIFIC LLC • PTTEP AUSTRALASIA PTY LTD • BEACH ENERGY • RIO TINTO SHIPPING PTY LTD • BHP BILLITON PTY LTD • SANTOS LTD • CHEVRON AUSTRALIA PTY LTD • SAPURAOMV • CONOCOPHILLIPS • SGH ENERGY PTY LTD • COOPER ENERGY LIMITED • SHELL AUSTRALIA PTY LTD • ENI AUSTRALIA • TERMINALS PTY LTD • EQUINOR • TRIANGLE ENERGY LTD • INPEX BROWSE LTD • VERMILION OIL AND GAS AUSTRALIA • JADESTONE ENERGY LTD PTY LTD • NORTHERN OIL & GAS PTY LTD • WOODSIDE ENERGY LTD • PAPUAN OIL SEARCH LTD • WOOLWORTHS LTD • PETRO DIAMOND AUSTRALIA PTY LTD DOWNSTREAM PETROLEUM MESSAGE FROM THE AIP CHAIRMAN Downstream Petroleum outlines the key facts and issues impacting Australia’s downstream petroleum industry. Australia’s downstream petroleum industry Challenging global economic conditions is a critical component of the Australian have also weakened crude and product economy, safely and reliably providing high demand. Despite closure of refineries in quality competitively priced liquid fuels to mature markets in Europe and Japan (and support a range of other sectors including four in Australia since 2003), there has been mining, agriculture and transport. a recent large-scale expansion of refining capacity particularly in the Middle East and The industry is currently confronted with Asia. These new mega-refineries, often built a sustained period of uncertainty and with direct government financial support, global and domestic structural change. have both scale and cost advantages over Global megatrends, geopolitical forces and Australian refineries. dynamic markets require Australian refiners, wholesalers and retailers to be nimble and creative to remain competitive. While the Australian industry has a long, demonstrated track record of responding to uncertainty, decisions by governments can have a profound impact on operations and viability. Internationally, geopolitical factors including trade wars and unrest in the Middle East, is driving significant market volatility, which reverberate through to price volatility at the pump. As OPEC attempts to manage the volume of supply provided by its members, this is being offset by ever increasing new supplies of crude oil, notably from the US. Notwithstanding the challenges associated with this volatility, this has in part provided a benefit to Australian refiners through access to an increasingly diverse source of crude oil refinery feedstock to better manage risk. DOWNSTREAM PETROLEUM This additional refinery capacity, coupled with lower than anticipated demand, has resulted in an oversupply of petroleum products in the region, leading to extremely low refiner margins in the first half of 2019, which continue to remain unsustainably low. The Australian refining industry has in recent years responded to these cyclical market pressures through stringent cost control, operational efficiencies, and integration into the Asian fuels market. Complementing the critical role played by domestic refineries, reduce the impacts from its own operations, Asian integration provides additional diversity the industry is developing cleaner traditional and flexibility of supply arrangements that fuels and alternative fuels such as biofuels underpin secure supply into Australia, as and hydrogen, while assessing the confirmed over many years by numerous implications and opportunities of vehicle Government and independent reviews. electrification in the coming decades. The petroleum industry also supports other sectors’ efforts to reduce emissions, such SIGNIFICANT INVESTMENT I N as the shipping industry’s compliance with DOMESTIC STORAGE, REFINERY IMO regulations around lower sulfur bunker RELIABILITY AND PRODUCTIVITY fuels in 2020. Each of these activities require AND PIPELINE INFRASTRUCTURE substantial investment by the industry at HAS FURTHER ENHANCED SUPPLY all levels of the supply chain and must be SECURITY. underpinned by robust technology, market and risk assessment. The industry also plays its role in responding Structural change is also occurring at the to community expectations in relation to the retail level, including through considerable environment and climate change. Along with changes in retail site ownership. Although a program of continuous improvement to major brands are highly prominent in the DOWNSTREAM PETROLEUM Australian market, fuel majors directly operate and set the price for less than fifteen percent ULTIMATELY, INDUSTRY SUCCESS of sites. Government intervention, including IS ACHIEVED THOUGH CLEAR AND mandates on forecourt fuel offerings, can STABLE LONGER-TERM POLICY impact site viability. FRAMEWORKS BASED ON SOUND MARKET-BASED PRINCIPLES. Despite these challenges, actions by Australia’s petroleum companies support consumers paying some of the lowest retail Government and industry can achieve prices in the OECD. mutually beneficial outcomes, evidenced by the agreement to transition to low sulfur gasoline. The announced timeline THE ACCC CONTINUES TO CONFIRM for implementation provides the best THAT AROUND 85 PERCENT OF balance between delivering environmental RETAIL PRICES ARE DETERMINED improvements and minimising any impacts on BY INTERNATIONAL REFINED FUEL consumers, whilst also providing long term PRICES, THE EXCHANGE RATE AND policy certainty to the local refining industry GOVERNMENT TAXES. to facilitate potential investment and business decisions. Australia will continue to be a high cost The Australian petroleum industry remains operating environment. The key role for fully committed to ensuring ongoing reliable governments therefore is to ensure a supply of affordable and quality fuels to competitive open market and a level playing the Australian market, through continued field for local market operators, whilst investments and tough decisions to improve ensuring that the domestic industry is not productivity and ensure economic viability. competitively disadvantaged to our regional counterparts and that innovation continues to Andy Holmes be fostered. Chairman, AIP DOWNSTREAM PETROLEUM Australian liquid fuel supply and demand KEY MESSAGES • The Australian refining industry is a price • Growth in imports reflects the gap taker in the Asian region, and there is a between fuel demand and production direct relationship between Australian and from Australia’s four oil refineries which Asian fuel prices. must compete with imports from Asian refineries. • Industry profitability is largely determined by supply and demand in the Asian • Australian refineries meet around 64% of refining market. petrol demand in Australia and 48% of overall fuels demand. • There is currently significant surplus of supply of petroleum products in the Asian • With a diverse source of supply from region. both domestic production and imports, the Australian downstream petroleum • Demand for petroleum

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