Australia Bets $1.1 Billion on Biofuels While Its Last Two Refineries Face an Uncertain Future

Something significant shifted in Australia's fuel landscape over the past few months, and it's going to affect every motorist whether they realise it or not. While most of us were focused on the price at the bowser, the federal government quietly committed $1.1 billion to building a domestic biofuel industry, BP pulled the plug on what was supposed to be Australia's first large scale biofuel refinery, and our last two operating refineries started negotiating their survival beyond 2027.

The timing couldn't be more critical. Australia currently imports roughly 80 percent of its liquid fuel needs. We're the only International Energy Agency member that hasn't met the standard of holding 90 days of oil stock, sitting at just 52 days as of late 2025. Put simply, if something disrupted our fuel supply chain tomorrow, we'd be in serious trouble within weeks.

What Actually Happened

Let's start with the good news. In late 2025, Treasurer Jim Chalmers announced the Cleaner Fuels Program, a 10 year, $1.1 billion investment designed to kickstart a domestic biofuel industry. The idea is straightforward enough: instead of shipping raw canola oil and animal tallow overseas (we export nearly $4 billion worth of these feedstocks annually), we'd process them here into renewable diesel and sustainable aviation fuel.

The Clean Energy Finance Corporation reckons a domestic low carbon fuels sector could be worth $36 billion by 2050 and cut 230 million tonnes of emissions. Grants will be awarded competitively, with the first locally produced 'drop in' fuels expected by 2029.

Now for the complication. BP had been planning to retrofit its former Kwinana oil refinery in Western Australia into Australia's first biofuel production facility. The company received environmental approval from the WA government for the project in mid 2024. At 10,000 barrels per day, it would have been the country's pioneer biofuel operation.

Then in early 2025, BP hit the brakes. The company announced it was 'rephasing' the Kwinana Renewable Fuels project, industry speak for shelving it indefinitely. A spokesperson cited 'improving capital efficiency' and 'better alignment with government policies' but the real reasons ran deeper.

BP has been eliminating thousands of positions globally and has stopped or paused 30 projects since June 2024. Biofuel margins worldwide have been weak, and crucially, Australia lacks any mandate requiring airlines or trucking companies to actually use sustainable fuels. Without guaranteed demand, the economics didn't stack up.

The Last Two Standing

To understand why this matters, you need to know that Australia once had eight major oil refineries. Today, just two remain: Ampol's Lytton facility in Brisbane and Viva Energy's Geelong refinery in Victoria.

Both have survived on life support. The federal government's Fuel Security Services Payment essentially pays them to keep operating during periods when refining margins make running the plants unprofitable. That support runs through 2027, and then?

Ampol is already in discussions with Canberra about what happens after that date. The company has indicated it might incorporate biofuels, like renewable diesel and sustainable aviation fuel, before recommitting to keeping Lytton operational. In other words, the pivot to biofuels isn't just about climate goals. It's potentially the only way these refineries stay open at all.

The Lytton project actually looks more promising than Kwinana did. Ampol has partnered with GrainCorp and IFM Investors to assess the feasibility of a Brisbane Renewable Fuels facility. The proposed plant would have capacity to produce over 750 million litres of renewable fuels annually, with operations targeted for before 2030. GrainCorp is already a key supplier of tallow and used cooking oil, and they're exploring a large scale canola crushing facility to ensure steady feedstock supply.

Unlike BP's standalone project, this one would integrate with existing refinery infrastructure. It's also got government backing through the Australian Renewable Energy Agency's Sustainable Aviation Fuel Initiative.

Why Motorists Should Care

You might be wondering what sustainable aviation fuel has to do with filling up your car at the local servo. Fair question.

First, there's the security angle. Liquid fuels power 98 percent of our transport sector, 83 percent of coalmining operations, and essentially all Defence Force operations. A fuel supply disruption would cripple food distribution, emergency services, and medical logistics almost immediately.

Australia held just 48 days of oil import coverage in July 2025, making us the worst positioned of the 27 net oil importing IEA member countries. Based on normal consumption rates, we had just 20 days of jet fuel, 24 days of diesel, and 28 days of petrol supplies on hand. When industry types talk about fuel security, this is what they mean.

Domestic biofuel production would help. Renewable diesel works as a direct substitute in existing vehicles, no modifications required. It would reduce our import dependence and keep refinery jobs in places like Brisbane and Geelong.

Second, there's the price question. Biofuels have traditionally cost more than conventional petrol and diesel, which is partly why they've struggled commercially. But the economics are changing. As production scales up globally and carbon pricing tightens, the gap narrows. Government incentives through the Cleaner Fuels Program are specifically designed to bridge that gap during the transition.

Third, regional motorists could see significant benefits. A domestic biofuel industry would need feedstock from regional farms, primarily canola and other oilseeds. The National Farmers Federation has been pushing for this, arguing it would diversify market opportunities for producers while supporting rural communities.

The Global Context

Australia isn't acting in isolation here. The European Union has had biofuel mandates for over a decade. The United States offers production tax credits that have spawned a massive renewable diesel industry. Even Singapore is positioning itself as a sustainable aviation fuel hub for the Asia Pacific.

Compared to these markets, Australia is late to the party. But our natural advantages in feedstock production, tonnes of canola, plenty of agricultural waste, and sunshine for potential green hydrogen, mean we could catch up quickly with the right policy settings.

The problem, as BP discovered, is that production incentives alone aren't enough. Without demand mandates, or a guarantee that someone will actually buy Australian biofuels at a price that makes the investment worthwhile, companies remain hesitant to commit billions in capital.

The government's response has been to layer incentives. Beyond the production linked payments in the Cleaner Fuels Program, there's $250 million from the Future Made in Australia Fund specifically for low carbon liquid fuels. Consultations on demand side mechanisms are ongoing.

What Happens Next

The critical dates to watch are 2027 and 2029.

By 2027, the Fuel Security Services Payment that keeps our remaining refineries operating will need to be renegotiated. Ampol has signalled that biofuel production could be part of its pitch for continued support. If the Brisbane Renewable Fuels project proceeds, it would represent a fundamental shift in how we think about domestic refining, from fossil fuel processing to renewable fuel production.

By 2029, we should see the first domestically produced biofuels hitting the market under the Cleaner Fuels Program. Whether that's at Lytton, through some resurrected version of the Kwinana project, or at a completely new facility remains to be seen.

In the meantime, consultations on the new domestic gas reservation scheme begin this year, with LNG exporters required to keep 15 to 25 percent of production for domestic use from 2027. It's part of a broader government push to secure Australian energy supplies, liquid and gaseous, against global market volatility.

The Practical Takeaway

For motorists in Sydney, Melbourne, Perth, and everywhere in between, the immediate impact is limited. You'll still be filling up with conventional petrol and diesel for the foreseeable future, and prices will continue to follow international oil markets and the familiar cycles we've all learned to navigate.

But the decisions being made now will shape what's available at the bowser in five to ten years. If the Brisbane project succeeds and others follow, renewable diesel could become a regular sight at Australian servos. If not, we'll remain dependent on whatever fuel we can import, from wherever it's cheapest, hoping nothing disrupts the supply chain.

The $1.1 billion question is whether Australia's bet on biofuels will pay off, or whether we'll keep exporting our feedstocks and importing our fuel. After watching eight refineries close and the ninth put on ice, the answer matters more than most people realise.

Keep an eye on this space. The fuel industry rarely makes headlines until prices spike, but understanding these shifts now puts you ahead of the curve when they do.