Would not surprise me if they closed down manufacturing in Australia all together & ended up importing from Singapore
Troubled times spark Caltex oil-refining review
August 23, 201112:00AM
CALTEX has become the second oil major in recent months to review the future of its underperforming refining business as the strong Australian dollar, high oil prices and mounting regional competition eat into the sector's thin margins.
Caltex Australia chief executive Julian Segal said yesterday the review would include the long-term operations of the company's Kurnell refinery in Sydney and Lytton refinery in Brisbane.
The two plants account for about one-third of Australia's oil refining capacity.
Mr Segal's comments came as Caltex said a 24 per cent slump in first-half net profit to $113 million had been caused by low refining margins.
The result was in line with market expectations.
"With the review, we are not looking short-term; this is a complex issue," Mr Segal said.
"There is quite a bit of serious work to be done and we won't be making a decision in a rush simply because of the current volatility.
"We are doing it with a steady hand and a cool head."
Mr Segal could not guarantee the longer-term future of the refineries, but he played down the significance of the review.
"That's what we do from time to time," he said. "Even in the two years I have been here, we have already undertaken one review."
The review comes after global petroleum giant Royal Dutch Shell said in April it would stop refining at its Clyde facility in Sydney and convert the operation into a regional import terminal.
Shell cited the emergence of "mega-refineries" in Asia for eroding Clyde's competitiveness.
Deutsche Bank analyst John Hirjee said yesterday the Caltex review underlined the challenges to petroleum refining in Australia.
The high Australian dollar, weak regional margins and competitors choosing to reduce capacity in Australia all pointed to a difficult outlook, he said.
"We expect the review will result in a shift in capital spend towards the marketing business rather than wholesale refinery mothballing, given the strategic benefits of an integrated position remain," he said in a client note.
UBS analyst Gordon Ramsay said the outlook for Caltex would remain muted because of currency issues, the high oil price and concerns about regional net capacity additions.
Mr Segal said preliminary estimates had shown that the Gillard government's carbon tax would hit Caltex's earnings by $5m-$10m from next year.
Caltex's two oil refineries will qualify for free permits representing 94.5 per cent of carbon costs as part of transitional assistance under the tax.
Transport fuels were excluded altogether from the tax, which he described as "a good outcome".
"It is still $5m-$10m that will impact on our business, but the magnitude, of course, has been significantly reduced."
Mr Segal said the carbon tax "won't come into play" when Caltex considers the future of its refineries.
A resolution of the six-month conflict in Libya could be positive for Caltex's refining business as it would reduce the price of light sweet crude oil.
Caltex's marketing division performed well, with first-half sales rising 4.3 per cent, driven by jet fuel and diesel.
Caltex shares were unchanged at $9.84.