Australia’s biggest oil refinery is struggling as profit sinks
Petrol station owner Ampol is headed for a $100 million profit hit after the margin it earns for processing crude oil into road fuels collapsed by a worse-than-feared 83 percent.
The Lytton refinery in Brisbane – one of just two oil refineries left in Australia and the nation’s largest – has been struggling from a sharp deterioration in global refining margins, partly driven by sluggish economic activity in China denting demand. Prolonged maintenance problems at the refinery this year have also reduced production volumes and weighed on earnings.
In a trading update on Tuesday, Ampol revealed the refining margin collapsed to just $US1.48 ($2.20) a barrel in the September quarter, down from $US20 a barrel a year earlier.
The company plans to take advantage of the environment of weak refining margins to bring forward another planned maintenance outage for one of the refinery’s units, which would reduce the plant’s fuel output for November.
It would also embark on plans to slash $50 million of costs from the business next year.
Analysts described Ampol’s update on Tuesday as a “material miss” that would likely trigger earnings downgrades.
“In our view, the key factor behind the miss was a sharply lower Lytton refiner margin,” RBC Capital Markets analyst Gordon Ramsay said.
Lytton’s margin of $US1.48 was 77 percent lower than the investment bank had anticipated, Ramsay added, due to the unforeseen length of production problems.
“The lower-than-expected Lytton refiner margin was a result of extended Lytton refinery maintenance … over the quarter that had 10 days of extra downtime, followed by a slower-than-expected ramp-up after it was fixed,” he said.
Ampol estimated that the impact of weaker margins, maintenance downtime, and reduced supply would amount to a $100 million hit to its benchmark underlying earnings.
Ampol chief executive Matt Halliday said the global refining market and Lytton’s operational performance had both been “challenging” across the September quarter. But he expressed confidence in the company’s ability to improve the refinery’s performance next year, while global refining margins were expected to strengthen.
“We are confident in the steps we are taking at Lytton to enable stronger operational performance in 2025 which should coincide with the refiner margin impact of production run-cuts currently being taken across the world,” Halliday said.
In response to weak refining margins globally, several refiners in northern Asia and Europe have been cutting production, leading to a “modest recovery” in Singapore refining margins since the start of October, Ampol said.
The future of the Lytton refinery and the 550 people it employs in Brisbane has regularly been in doubt, as Australian plants struggle to compete against the vastly cheaper-to-run mega-refineries of Southeast Asia.
Lytton faced potential closure as recently as 2021, when lockdowns to arrest the spread of COVID-19 infections wiped out demand for fuels, hammered profits, and prompted Ampol to launch a review of the refinery’s future.
Two other refineries – ExxonMobil’s Altona plant in Victoria and BP’s in Perth – decided to shut down for good.
But after reaching a rescue deal with the federal government, Ampol and rival fuel supplier Viva Energy, which owns the Geelong oil refinery, agreed to keep their plants open until at least mid-2027.
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