National Fuel Quality Standards Regulation Impact Statement 1 ...

As it is proposed that the Commonwealth fund enforcement and monitoring costs for
national fuel quality standards, it is envisaged that these costs in the jurisdictions would
be reduced once the Commonwealth legislation was introduced. States and Territories
would no longer incur this expenditure for their State-specific standards and it is likely
that the assistance provided by them for the Commonwealth process would be
reimbursed.
There is concern in the jurisdictions that Commonwealth standards will result in the
closure of some refineries. The impact of tighter standards on the refining industry is
discussed below.
5.5.2 IMPACT ON THE REFINING INDUSTRY
The Downstream Petroleum Action Agenda acknowledges that the Australian petroleum
refinery industry is in crisis. As currently structured, its high costs make it internationally
uncompetitive. The industry’s profitability is currently low and declining, having more
than halved in recent years, and yet it urgently needs to be able to fund investment to
meet the Government’s timetable for new fuel specifications. Significant restructuring
and investment is also required to enable industry to compete with large scale, low cost
refineries in Asia.
The Action Agenda acknowledge that even though the industry currently faces many
challenges, the oil industry is committed to improving air quality, particularly in
Australian capital cities.
Significant investment will be required by the refining industry to meet tighter fuel
standards. Australia’s eight major refineries have different configurations as a result of
different investment decisions and, therefore, different capacities to meet the fuel
specifications. The major investment costs are associated with reducing the fuel sulfur
content of diesel and the benzene content of petrol, and increasing the octane rating of
petrol while reducing its aromatic content.
The cost to the industry will vary depending on the timing of the introduction of the
standards and the combination of parameter levels proposed. The final costs to industry
will be known when the actual fuel standards are finalised later in 2000, and individual
refinery strategies to meet the standards are decided.
Depending on the final fuel standards implemented under Commonwealth regulation, and
given the current world downturn in the refining industry, one or more refineries may
contemplate closure. Shell has already announced that its Clyde refinery in NSW may
close before 2006, when the production of Euro 4 diesel (with 50 ppm sulfur content)
becomes mandatory. Shell is currently considering its position in the light of the
Government’s proposed fuel standards.
A comprehensive analysis of the potential costs to the refining industry of a number of
fuel quality scenarios was undertaken by the Fuel Quality Review. The fuel quality
standards proposed for discussion by the Commonwealth include a slightly different
timetable for the introduction of Euro 3 and Euro 4 for some parameters, compared to