Interview with Neil Mitchell, 3AW
17 May 2021
Subject: Government support for Australia's refining sector
NEIL MITCHELL: The Federal Government is announcing today a huge, massive rescue package for two oil refineries. We've talked about this before. Viva Refinery near Geelong and the AMPOL Refinery up near Brisbane -$2.4 billion supposedly going to keep a cap on petrol prices, shore up domestic production. By geez, it'd want to at $2.4 billion. On the line, Minister for Energy and Emissions Reduction, Angus Taylor. Good morning.
ANGUS TAYLOR: Good morning, Neil. Thanks for having me.
NEIL MITCHELL: That's okay. Hey - what sort of car do you drive?
ANGUS TAYLOR: I drive a Ford Everest, Neil, a five-cylinder, 3.2 litre.
NEIL MITCHELL: Five-cylinder, three point - I remember talking to one of your Opposition members who was all very green but was driving something similar. I thought you might've been reducing emissions and driving an electric car?
ANGUS TAYLOR: No. I'm, not driving an electric car. I live in regional New South Wales and drive huge distances each year – 60,000 or 70,000 kilometres. So, I need something that can handle the hard roads and the distances.
NEIL MITCHELL: Okay. $2.4 billion for these two refineries. That's one hell of a lot of money. What do we get in return?
ANGUS TAYLOR: Well, look, this is all about shoring up our fuel security, making sure the fuel is there when we need it. Fuel powers and moves our economy. And whether you're a truckie or trader, a farmer or an essential service worker, emergency service worker, having access to the fuel every day when you need it is absolutely crucial. We live in a far less certain world than we did a few years ago, even a few short years ago, and that means having the fuel we need in the worst possible circumstance. This is a package which ensures that that fuel is there. That means having refineries that can produce their own crude oil, having minimum stock obligations so we've got enough stock to meet our needs, and having enough onshore storage as well.
NEIL MITCHELL: Okay. How much local production can there be? How much our local suppliers and local refining can there be in a year?
ANGUS TAYLOR: Yeah. So, right now, it's sitting on, with the two refineries, it'll sit on a little under a quarter of our total.
NEIL MITCHELL: Yep.
ANGUS TAYLOR: Now, in a worst-case scenario, those refineries can be directed towards our core needs and can meet our core needs.
NEIL MITCHELL: [Talks over] At what percentage?
ANGUS TAYLOR: That's not a scenario any of us - that'd be around a quarter of our total requirements.
NEIL MITCHELL: So-
ANGUS TAYLOR: So, what you're doing in that worst case scenario is you're paring back to your core requirements to move food and, you know, this is an extreme scenario, the most extreme scenario. So, having those refineries there that can process our own crude oil means there's no limit on our potential to produce for those absolute core activities. But more broadly, Neil, you know, in a less onerous scenario, this is about making sure we've got enough fuel even when there's disruptions like we often see in the Middle East. I mean, you only have to look at what's going on there. You look at the cyber-attack on the pipeline in the United States. Having that fuel there, having those refineries that could process their own crude oil means that we can go on with confidence in those essential services and goods.
NEIL MITCHELL: So, both refineries were likely to close if you didn't put this money in?
ANGUS TAYLOR: Yeah, look, it was a very, very real prospect. I mean, we've been losing a number of refineries over the years. We lost two back in 2012-13. And, you know, we are in a situation where they do need to be shored up if we're going to have that crucial supply that we need in the worst circumstance.
NEIL MITCHELL: We've been through this with the vehicle manufacturing industry. We supported, supported, subsidised, subsidised, then gave up and said, no, too expensive, off you go and off they've gone. How can you be sure that won't happen with the oil refineries?
ANGUS TAYLOR: Well, because they're required to commit.
NEIL MITCHELL: How long?
ANGUS TAYLOR: They've got to commit for at least the next seven years, but given the commitment they've got to make to capital investment as part of this package, we expect it will be well beyond that. So, they are required, as part of this package, to make significant investments in upgrading their refineries and reducing the pollution from those refineries and from the fuel in particular. So, they'll have to reduce the sulfur levels in the fuel. That makes for cleaner fuel. It means we can bring in cleaner engines as part of our broader policy. And that ultimately means the refineries are fit for purpose for a longer period of time.
NEIL MITCHELL: I can understand the security issue. But will we, in fact, be producing or refining more product in Australia or not? Or just about, just maintain the same?
ANGUS TAYLOR: Well, you know, yes. The reality is that if we hadn't have done this, we faced a situation where we wouldn't be refining fuel in Australia.
NEIL MITCHELL: So, we're actually subsidising, we're subsidising the status quo, are we?
ANGUS TAYLOR: Well, no. We're maintaining our national security.
NEIL MITCHELL: No, no, no. I know.
ANGUS TAYLOR: I mean that, at the end of the day, Neil, what it comes down to is if we don't do this, we lose our refineries, we can't process our own crude oil, and we put ourselves in a situation where, as I say, in the worst possible situation, we are left without fuel to serve our essential needs.
NEIL MITCHELL: Yes.
ANGUS TAYLOR: So, that was the prospect we've been facing.
NEIL MITCHELL: No. I understand that. But that won't increase local production, it'll protect it. Is that right?
ANGUS TAYLOR: It'll, it'll protect our local production at a level that we need for that worst possible scenario.
NEIL MITCHELL: So, is that increasing the local production? Or not?
ANGUS TAYLOR: Well, it's keeping our production at a level necessary to be able to meet our essential needs. And that is-
NEIL MITCHELL: Yeah. But is that, is that level what we're producing now? Or is it more? Or is it less?
ANGUS TAYLOR: Well, you know, it depends on what we're producing month to month. But, the threshold we set-
NEIL MITCHELL: Well, we must know what we're producing in a year. What do we produce in a year?
ANGUS TAYLOR: Yeah. Well, their threshold we've set with keeping two refineries in the country is being in a position where we can meet our essential services.
NEIL MITCHELL: I understand that. I understand.
ANGUS TAYLOR: So what we've seen in the last-
NEIL MITCHELL: I understand that entirely. But what I'm getting at, we're producing X at the moment. Does this deal mean we produce X plus one? Or, does it mean we maintain X in a more secure way?
ANGUS TAYLOR: Well, it depends, depends on the month you want to pick for X. Because we've gone through a pandemic where production…
NEIL MITCHELL: Well let's, let's pick for year?
ANGUS TAYLOR: Production has fluctuated.
NEIL MITCHELL: Let's pick for year.
ANGUS TAYLOR: And we're losing - let's be frank, we're losing the Altona Refinery now in Victoria. I mean, that is a reality we're facing which is-
NEIL MITCHELL: Aren't we avoiding this point for some reason? Why can't we, I'm just trying to get to the bottom. I think it's a good idea to maintain the security of the supply - no argument, I think that's an excellent idea. What I'm trying to get at is whether this deal means we produce more, less or the same?
ANGUS TAYLOR: The point I was making when you interrupted was that we are losing, we're losing the Altona Refinery.
NEIL MITCHELL: Yeah.
ANGUS TAYLOR: Alright? That is a reality we're facing right now.
NEIL MITCHELL: Yep. Yep.
ANGUS TAYLOR: Now, if we hadn't have shored up these remaining two refineries - one in Geelong and one in Brisbane-
NEIL MITCHELL: Yes.
ANGUS TAYLOR: We would've been facing the prospect of not being able to produce our own fuel from our own crude oil. Now, that, that would have put us in a situation where, if there was a serious disruption, we couldn't meet essential needs. And as a Government facing a world that's far less certain than the world we faced, as I say, a few short years ago, we really have no choice but to do this.
NEIL MITCHELL: No, I understand. But, so, it's a silly question I'm asking, is it?
ANGUS TAYLOR: Well, no. I'm just saying that, you know, the question that really counts here is, can we meet, can we meet our needs in the worst possible scenario? And that's what this is doing.
NEIL MITCHELL: Okay. Righto. Okay. Well, we'll move on to something else. What about the price of fuel? How does it work? You just say here's $2.5 billion or do you link it to the production? What do you do?
ANGUS TAYLOR: No. No. The point here is we are only going to make any payment to a refinery if it is needed, because the margins are unusually low. So what we have is, is an industry which sometimes margins can be high, sometimes they're low, it's very hard to predict.
NEIL MITCHELL: Yep.
ANGUS TAYLOR: We don't want to pay any money to refineries when they're doing well - and we don't under this arrangement. So, the arrangement only applies when refining margins fall below a certain threshold. And that means that if they're doing well, they don't get any Government support at all. The numbers you quoted are only the very worst case scenario.
NEIL MITCHELL: I see. Okay, fair enough.
ANGUS TAYLOR: And so we would expect that much of the time they're not at a level where they need any support. Now, that's very hard to predict because this is a commodity industry where prices fluctuate regularly, and we see that even at the bowser. So, the arrangement is very carefully put together so we only provide support when we really need to.
NEIL MITCHELL: Right. And I wanted to get to the bowser point. Is there a quid pro quo here? You could be getting, you and the refineries could be getting, could be getting up to $2.4 billion. Quid pro quo, keep the price as low as you can?
ANGUS TAYLOR: We know having more supply in the market, more competition in the market, and local refining has the potential to keep prices down. We've actually done some work on this, and it is worth hundreds of millions of dollars a year to motorists in having a refining capacity in this country, so that, that is part of it. But ultimately, the thing that would hurt us most is if we lost our refining capability.
NEIL MITCHELL: I understand this, but will it have an effect on prices? Or not?
ANGUS TAYLOR: Yes. I mean, there's no question. It is very clear from the work we've done in working through this package that if we lost our refineries it would have an impact on prices. No question at all.
NEIL MITCHELL: Yeah, I know. But given that's sort of, in a sense that's the sort of the putting the cart before the horse. If we give them this money, you're saying it'll keep prices down that otherwise would have gone up. Will it take prices down? Is there any guarantee that-
ANGUS TAYLOR: No. Look, it'll contain prices. Look, having competition-
NEIL MITCHELL: It'll contain prices. Okay.
ANGUS TAYLOR: Having competition contains prices, and that's the purpose of the exercise. But the, you know, part of the purpose of the exercise. The broader purpose, of course, is just having that fuel when we need it. Look, you know, I'm old enough now to remember that period we had during the 70s where we had odds one day, and evens the other day in terms of your plates when you could get fuel. You know, we've lived through situations where there were shortages of fuel and we've seen how crippling that can be for the economy. This is about making sure we've got that absolute bare minimum of supply when we really need it.
NEIL MITCHELL: Thank you very much for your time, I appreciate your time. Angus Taylor, Minister for Energy and Emissions Reduction.