Australian fuel supply to get even tighter after refinery fire

A major fire at one of Australia’s only two oil refineries is set to curtail fuel production, raising additional concerns about supply in a market already strained by the war in the Middle East.

Viva Energy Group’s Geelong refinery in southeastern Australia is continuing to operate at reduced rates as it assesses damage from the “significant fire,” the company said in an exchange statement on Thursday. Viva Energy said gasoline and aviation gasoline output have been affected, but there is no immediate impact on fuel supply, and it plans to replace any lost production through imports.

Emergency services said the fire had been extinguished just after midday local time, but fire crews will remain in attendance.

The refinery, which can process about 120 000 barrels of crude oil a day, supplies about half of the state of Victoria’s fuel and roughly a 10th of national demand, amplifying concerns about shortages.

Australia’s petroleum product supplies have already come under severe pressure as the blockage of the Strait of Hormuz chokes oil flows. Prices at the pump have surged, and the government has been taking steps to reduce the impact for consumers. Any further disruption to Australian fuel supplies is likely to put additional upward pressure on prices.

“Gasoline production will be heavily impacted but won’t be zero,” Jefferies Financial Group Inc. analysts including Michael Simotas said in a note. “The risk of supply shortfall has increased, but gasoline supply is much less tight, and other importers should be able to help, minimizing impact on convenience retail.

Two of the refinery’s units have been taken offline, while the remaining units are still operating at minimum rates to maintain safety across the site, Viva Energy Chief Executive Officer Scott Wyatt said on Thursday.

“We’ll only start increasing production again once we’re confident that we can do that safely,” he said. The refinery will cover shortfalls in production with its import program, which “is quite full for the next couple of months,” Wyatt said.

The affected units turn liquefied petroleum gas into an ingredient that is blended into standard petrol, Bill Patterson, the refinery’s general manager, said on Thursday morning. Jet fuel production hasn’t been affected, he said.

Victoria, which includes the major city of Melbourne, consumes about 252 000 barrels of fuel a day — roughly a third is gasoline, 41% diesel and 22% jet fuel, with the remainder more specialized products, according to the Institute for Energy Economics and Financial Analysis.

If the refinery remains offline for a prolonged period, Viva Energy will have to procure more fuel from Asian refineries in a market that is already extremely tight due to the conflict in Iran, said Kevin Morrison, an analyst at IEEFA.

“This creates the conditions for higher prices, as it pushes up international demand for refined products when supply is massively constrained,” he said. “It could not happen at a worse time.”

The incident highlights a structural shift as Australia has significantly reduced refining capacity in recent decades, increasing reliance on international supply chains, said Hussein Dia at Swinburne University.

“While those systems are generally reliable, events like this show how limited redundancy exists when something goes wrong locally,” Dia said.

The fire was reported at around 11 p.m. local time on Wednesday, Fire Rescue Victoria said in a statement, following multiple calls to emergency services.

“Firefighters arrived on scene to find a significant fire impacting the refinery,” a spokesperson for Fire Rescue Victoria said early Thursday. They said that all refinery staff have been accounted for.

Yuan Chen, a professor at the University of Sydney, said the refinery’s age — it was built in the 1950s — and the high temperatures involved in processing crude increase the risk of incidents such as fires.

Viva Energy shares were placed in a trading halt until Monday, unless the company makes an announcement regarding the impact of the fire before then.

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