Australia's First New Refinery in 60 Years Won't Cut Your Petrol Bill
Last Tuesday the Prime Minister stood in Karratha, roughly 1,500 kilometres north of Perth, and announced something this country hasn't attempted since Robert Menzies was in The Lodge. Australia is going to look at building an oil refinery.
Look at building one. Not build one. That distinction matters more than the headlines suggested, and I'll come back to it.
What was actually announced
On 28 July, Anthony Albanese and WA Premier Roger Cook committed $4 million in joint federal and state funding to a study into a large scale crude oil refinery at Karratha, proposed by the Perth based Perdaman Group. If it proceeds, it would be the first major fuel refinery built in Australia since the 1960s. The pitch runs to about 2,500 construction jobs, roughly 200 ongoing positions, and a domestic source of diesel for the mining and freight operations that keep the Pilbara moving.
Energy Minister Chris Bowen described onshore refining capability as "a sensible and prudent response". In Canberra speak, that means nobody is promising anything yet.
Because four million dollars is not a refinery. It's a study about whether a refinery stacks up. Projects of this scale move through prefeasibility, then engineering design, then a final investment decision, and only then does anyone pour concrete. Be realistic and you're looking at the back half of next decade before a single litre of Karratha petrol reaches a bowser, assuming it clears every one of those gates.
So why does a study warrant a prime ministerial visit to the Pilbara?
How we went from eight refineries to two
Here's the backstory most people have never heard. Around the turn of the century Australia ran eight working refineries. Today we run two: Ampol's Lytton plant in Brisbane at about 109,000 barrels a day, and Viva Energy's Geelong refinery at roughly 128,000 barrels a day. Between them they cover something like 10 to 20 per cent of national fuel demand. Everything else arrives on a ship.
Five closed between 2013 and 2021. The big one was BP's Kwinana plant, shut in 2020 and converted into an import terminal. At 146,000 barrels a day it was the largest refinery in the country. ExxonMobil's Altona refinery, 90,000 barrels a day, followed in early 2021 and became a terminal too.
Sit with the Kwinana Beach story for a second, because it's genuinely remarkable. Western Australia ships extraordinary volumes of crude oil and LNG to the rest of the world. It is one of the great energy exporting regions on the planet. And it refines almost none of its own petrol. Every litre burned between Kwinana and Port Hedland has been refined somewhere else, usually Singapore, South Korea or Malaysia, and sailed here. The state that fuels half of Asia can't fuel itself.
Both remaining refineries sit on the eastern seaboard. That's the strategic hole the Karratha proposal is aimed at.
The part nobody says out loud
Now the question that actually matters to you. Would a new refinery make petrol cheaper?
Almost certainly not, and understanding why tells you more about Australian fuel pricing than any politician's press release.
Australia prices fuel on what's called import parity. Wholesale prices here are set by reference to the landed cost of buying that fuel on the international market, with the Singapore benchmark accounting for something like 95 per cent of the calculation. There's typically a lag of one to two weeks before moves in Singapore show up at your local servo, which is why pump prices seem to react to world events a fortnight late.
Critically, this applies to locally refined fuel too. Around 80 to 85 per cent of our unleaded is produced domestically, and it's still priced against the imported alternative. The logic is brutally simple. If Australian refiners sold below the Singapore price, they'd make more money exporting the stuff than selling it here. So they don't.
A refinery at Karratha would produce fuel that gets priced exactly the same way. The barrels would be Australian. The price tag would still be written in Singapore.
Anyone telling you a new refinery means cheaper unleaded petrol prices is selling you something.
What it does buy, and it isn't nothing
What a refinery buys is resilience, and that's a different product entirely.
Federal data released on 21 July showed Australia holding 42 days of petrol, 38 days of diesel and 32 days of jet fuel. Those numbers are healthier than they've been at points this year, largely thanks to emergency measures, but they sit well short of the 90 day stockholding benchmark that International Energy Agency members are supposed to maintain. Australia has been under that line for well over a decade.
The government's response, announced in May and now worth more than $10 billion, includes a permanent government owned fuel reserve of around a billion litres and an increase to the minimum volumes that refiners and importers must keep in tanks. Simultaneously, the obligation has been temporarily relaxed by 20 per cent for petrol and diesel until 30 September, in exchange for suppliers committing more fuel into the domestic and regional market. Loosening the rules and tightening them at the same time sounds contradictory until you realise the Middle East conflict has been squeezing supply chains since March, and the government is managing a shortage while trying to build a buffer.
The NRMA's Peter Khoury called the package a step in the right direction while pointing out the obvious: two refinery sites nationally is not a lot of margin for error.
That's the honest case for Karratha. Not cheaper fuel. Fewer weeks where the country is one shipping disruption away from a genuine problem, and diesel security for the mining regions that generate a serious chunk of national export income.
What's happening at the bowser right now
Meanwhile, back in the real world, prices have gone up sharply. The ACCC's report for the week to 29 July put capital city petrol at 193.6 cents a litre and diesel at 232.8 cents. Excise returned to its full rate of 53.7 cents from 3 August, and international refined product costs have climbed on the back of the ongoing conflict.
One thing worth watching this month: Ampol has a major maintenance programme scheduled at Lytton starting in August. When one of two national refineries goes down for planned work, the eastern states lean harder on imports. It rarely produces a dramatic spike on its own, but it's the sort of thing that adds a cent or two to diesel prices in Queensland and northern NSW while it's happening.
The practical upshot
- A new refinery is a security measure, not a price measure. Australian fuel is priced against Singapore whether it's refined in Karratha or Korea.
- The $4 million announced is for a study. Treat any talk of construction dates with caution until there's a final investment decision.
- Watch Lytton's August maintenance if you buy diesel on the east coast. Reduced local refining tends to firm up wholesale prices for a few weeks.
- Excise is back at 53.7 cents a litre from 3 August, so the tax component of your fill is permanently higher than it was in July. Adjust your budget accordingly rather than waiting for it to come back down.
- The single most reliable saving available to you is still local, not national. The gap between the cheapest and dearest servo in most suburbs is bigger than anything a refinery will ever deliver. Check price trends before you fill, not after.
Australia spent twenty years letting its refining capacity quietly disappear because imported fuel was cheaper and nobody was thinking about shipping lanes. That calculation looks different now. Whether Karratha ever gets built is a question for the end of the decade, but the fact that a government is seriously asking it tells you the mood has shifted.
Just don't expect it to show up on your receipt.
