The Albanese government has announced a $4 million feasibility study into building Australia's first new oil refinery in 60 years, located in Western Australia, as part of a long-term strategy to protect the country from global oil shocks.
The Commonwealth and Western Australian governments will jointly fund the early-stage study for what would become the nation's third large-scale petrol refinery. The announcement comes as Treasurer Jim Chalmers warned that the escalation of the Middle East conflict poses "a substantial threat to global inflation."
Fuel vulnerability exposed by Middle East tensions
Australia now imports approximately 90% of its liquid fuels after a series of refinery closures over the past 25 years. This vulnerability has been highlighted by the international oil crisis sparked by the US-Israel war on Iran.
Treasury officials, during a special weekend government briefing, warned that the collapse of the ceasefire means oil prices are likely to remain high. "The oil market is now more vulnerable, with weaker buffers against future supply shocks," the officials stated.
Petrol and diesel prices have risen by 25 cents and 50 cents per litre respectively this month. The rekindled conflict has also increased expectations that central banks will need to take further action to control inflation, putting additional pressure on households.
Economic impact and rate hike concerns
"The longer this drags out the more serious the consequences for inflation and growth here and around the world," Chalmers said. Financial markets are pricing a one-in-three chance of a Reserve Bank rate hike on 11 August, down from an even chance on Friday after Brent crude fell more than US$10 a barrel to about US$87 following a pause in fighting.
Australia's oil refining industry has struggled to compete with cheaper overseas providers. Only two local refineries remain operational: Ampol's Lytton refinery in Brisbane and Viva Energy's facility in Geelong.
Proposed project and funding
Building a new refinery would cost billions of dollars and would likely require ongoing government support to remain competitive. The proposed WA project, if it proceeds, would be constructed by Perdaman, the multinational behind a $4.5 billion fertiliser plant in the Pilbara. Perdaman would privately fund the project but could be eligible for taxpayer-funded assistance such as concessional loans.
BP closed an oil refinery in Fremantle, just south of Perth, in 2021. Prime Minister Anthony Albanese and WA Premier Roger Cook will announce the funding for the scoping study after visiting Perdaman's urea plant in Karratha.
"The longer war in the Middle East goes on the greater the impact on Australia will be, and my government will continue to do everything we can to shield Australia from the worst effects – and set us up for the future," Albanese said in a statement.
Fuel security package and environmental concerns
The federal government's $10.7 billion fuel security package, announced in May, included $10 million to support feasibility studies into potential projects. The package also funded a $7.5 billion facility to secure extra fuel and fertiliser shipments during the Middle East conflict, and $3.2 billion to build an extra 1 billion-litre reserve of diesel and jet fuel.
Energy Minister Chris Bowen described plans to boost domestic refining capacity as "a sensible and prudent response to secure our energy security." However, the early-stage support for a new oil refinery will likely face pushback from environmentalists, who have criticised the government for doubling down on petrol and diesel rather than using the oil shock to reduce Australia's reliance on fossil fuels.
