8.1.1 Market profile
8.1.2 Liquid fuel demand and production
8.1.3 Wholesale, distribution and retail markets
8.1.4 Prices
Australia’s liquid fuel market is a critical component of our energy system, fuelling our transport system, feeding industrial processes and supplying electricity generation, particularly in remote areas of Australia.
Products in this market include a wide range of feedstock and fuels, including crude oil, condensate, liquefied petroleum gas (LPG), refined petroleum products used as fuels, petroleum-based feedstocks, and alternative transport fuels such as biofuels (ethanol, biodiesel and advanced biofuels), compressed natural gas (CNG), liquefied natural gas (LNG), synthetic fuels such as gas-to-liquids and coal-to-liquids products, and hydrogen.
This chapter builds on the upstream petroleum exploration and development issues discussed in Chapter 5: Energy resources and the broad energy market policies and objectives presented in Chapter 7: Energy markets: overview. It outlines the structure of Australia’s liquid fuels market, key trends and regulatory frameworks, discusses likely future pressures in the market and outlines the Australian Government’s approach to addressing these challenges. Issues specifically related to our ongoing energy security, such as potential supply disruption, are addressed in Chapter 4: Energy security.
8.1.1 Market profile
The key elements of the Australian liquid fuel market are shown in Figure 8.1, which illustrates petrol flows in Australia from source to end use. The liquid fuel market encompasses the supply of Australian-produced and imported crude oil and liquefied gases; Australian production and importation of refined petroleum products (including alternative fuels); liquid fuel infrastructure (including storage and import facilities); wholesale, distribution and retail markets; and demand from end users (industrial and individual consumers).
8.1.2 Liquid fuel demand and production
Australian demand for liquid fuels has risen steadily over the past decade, and consumption of refined petroleum products is projected to grow. The transport sector is the largest final consumer of liquid fuels, accounting for around three-quarters of Australia’s final fuel use. The remainder is used in industrial processes, electricity generation and other non-transport applications.
Australia’s liquid fuels are largely supplied through a mix of crude oil imports, domestic crude production, imports of refined products and alternative fuel production.
In 2010–11, Australia imported around 83% of its crude oil and other refinery feedstock, much of it from Malaysia, Indonesia and the United Arab Emirates (BREE 2012a). Bulk fuel terminals for refined products are located throughout Australia, servicing geographical regions where the demand for fuel is concentrated.
In 2010–11, around 79% of Australia’s crude oil and condensate production was exported due to its physical characteristics (which make it more suitable for higher-value products elsewhere) and the proximity of sources to export markets (BREE 2012a).
Source: Australian Institute of Petroleum (2011).
In 2010–11, seven major petroleum refineries were operating in Australia, producing 38 395 ML or around 74% of the refined petroleum products consumed domestically (RET 2011b). To meet total demand, Australia also imported around 17 030 ML of refined product, much of it from Singapore and South Korea.
In June 2012, Shell announced that refining operations at its Clyde refinery would cease on 30 September 2012, and that it would convert the Clyde refinery and Gore Bay terminal into fuel import facilities by mid-2013. In July 2012, Caltex announced the closure of the Kurnell refinery and its conversion to a major import terminal. It also announced further investment in the Lytton refinery to improve its competitiveness.
Australia’s maximum refinery capacity will decline by around 28% to 32 620 ML. Following these closures, BREE forecasts that domestic refiners will produce just over half the fuel consumed in Australia; the remainder will be imported.
Australia’s storage capacity was reported as 6693 ML in August 2009. Since that time, an additional 588 ML of storage has become operational or is under construction. In addition to the port facilities at the seven refineries, Australia has 64 refined product import terminals. Of those, 11 are major deepwater ports.
Alternative transport fuels supplied approximately 5% of the liquid fuel market in 2010–11. Most of this was LPG, along with a smaller amount of biofuels, LNG and CNG (BREE 2012a).
8.1.3 Wholesale, distribution and retail markets
The four refiner-marketers (BP Australia, Caltex, Mobil and Shell Australia) account for most of the wholesale market in Australia. The most prominent independent wholesalers are United, Neumann, Gull and Liberty; while they account for a small part of the wholesale market, they have continued to increase their share of wholesale sales, reaching 7% in 2010–11 (ACCC 2011).1
The liquid fuel retail sector has undergone significant structural change in the past decade, including the rationalisation of retail sites, a scaling down of retail activities by refiner-marketers and an increasing presence of specialist retailers. Two supermarket chains are in the retail fuels market, operating co-branded retail fuel outlets: Woolworths with Caltex and Coles with Shell. Mobil sold its retail business to 7-Eleven in 2010, thereby exiting the retail fuel market in Australia. While the refiner-marketers and the supermarket chains account for most of the retail fuel market, a number of independents with a growing share of sales volumes also operate in this area (see Figure 8.3).
8.1.4 Prices
Australia’s liquid fuel market has operated on the principle of import price parity since 1977, which means that domestic fuel prices are closely linked to international events. Monitoring by the Australian Competition and Consumer Commission (ACCC) confirms that the international benchmark price is the largest component of domestic petrol, diesel and automotive LPG prices (Figure 8.4).
The international benchmark price, which differs for each fuel, is a base price for Australian suppliers. The benchmarks for each fuel are:
- petrol—Singapore Mogas 95 Unleaded
- diesel—Singapore Gas Oil 10 parts per million (ppm)
- LPG—Saudi Contract Prices (Saudi CP)
As these benchmarks are priced in US dollars, changes in the value of the Australian dollar also affect the domestic price of fuel.
The final domestic price also includes the wholesale and retail margins and costs such as freight, wharfage and insurance. In the case of petrol and diesel, a quality premium to reflect Australia’s higher fuel quality standards is added. Petrol price cycles also influence the daily price of fuel.
Liquid fuels (mostly diesel) are also used for electricity generation, particularly in remote parts of Australia as they are practical and reliable sources of power for industrial, agricultural and residential users. These supplies are largely sourced directly from overseas through import facilities in major regional ports. Off-grid power is discussed further in Chapter 6: Clean energy.
1 Only firms monitored by the ACCC are included in this figure.