The security of petrol and diesel supplies in Western Australia

Nearly all the petrol and diesel used in Western Australia comes from the refinery at Kwinana. And more than half the crude oil that feeds that refinery comes from South East Asia and the Middle East.

Which can lead you to wonder what would happen to our mobility -- not to say food shopping -- if some of the overseas crude oil suddenly stopped.

by Jim Heath

The BP refinery at Kwinana

There is only one oil refinery in Western Australia: the BP refinery at Kwinana. It pumps out most of the fuels used for WA cars, trucks, farm machinery, aircraft that refuel here, ships. Nearly any machine that moves from place to place.

The rest of our petrol and diesel (less than a tenth) is imported. It arrives by ship. Much of it comes from Singapore, where they have large new refineries, good prices and plenty to sell.

When you first visit the BP refinery at Kwinana, two things make you stare. First it's sprawling. Much bigger than you're prepared for. Pipes and cities of equipment cover 250 hectares. The second thing is that many panoramas of equipment look old, but are mixed with bright-metal areas that might have been installed yesterday. It's like Subiaco, where you see 80-year-old houses next to eye-catching new ones.

The crude oil comes into Kwinana. About 90% arrives by ship. That includes some oil from WA's North West Shelf. Other WA oil is trucked from oil fields near Geraldton and Dongara.

The North West Shelf contributes 32% of the refinery's crude oil, 12% comes from other WA fields, 29% comes from Malaysia, Vietnam, Papua New Guinea, Indonesia, West Africa, and 27% from the Middle East. (That's the situation in April 2005.) Many different types of crude oil -- from black and sticky, to light brown and easy-flowing.

A typical oil ship floats in, carrying 100,000 tonnes (about 730,000 barrels of oil). Sixty-nine ships like that per year (or others that add up to the same capacity) are needed to feed the refinery. It sucks in and refines up to 138,000 barrels of crude oil per day.

When all of BP's storage tanks at Kwinana are full, they hold enough crude oil to supply the refinery for two weeks.

The different types of incoming crude oils are blended and then refined into petrol, diesel, aviation fuel, some LPG, bitumen, and a few chemicals. This can take a month and may need ten stages. (Details about that: distillation, reforming, catalytic cracking, alkylation, polymerisation, sulphur recovery.)

The whole refinery is controlled by half a dozen engineers. They work 12-hour shifts in a single open-plan room with numerous computers and some large projection screens that they can all see. The atmosphere is like an air-traffic control room. Intense, wide awake. It all happens in a bunker-like concrete building with no windows.

The products that can be pumped (petrol, diesel, jet fuel, avgas and fuel oil) leave the refinery through pipelines. These fill storage tanks at fuel-distribution terminals: at Kwinana, Fremantle and Kewdale. Tanker trucks fill up there -- the rounded tankers you see on the road, or unloading at service stations. BP also sells to Caltex, Shell, and Mobil, but reserve their highest octane car petrol (BP Ultimate) for BP service stations.

Note: the LPG from the refinery is only part of what WA needs. In 2007 in WA, 93,000 tonnes of LPG were used for autogas and 75,000 for domestic heating and cooking (gas bottles, used by people not on the natural gas grid). That totals 168,000 tonnes. The BP Refinery produced 67,000 tonnes that year. The balance of 101,000 tonnes came from using a tenth of the 1,043,000 tonnes per year of LPG routinely produced as a by-product of the North West Shelf gas fields. It means that when the BP Refinery needs to shut for routine maintenance from time to time, there's no danger of WA running short of LPG. For as much detail as you're likely to want about LPG and autogas in Australia and WA, see this LPG report by The Allen Consulting Group. The report includes penetrating insight about the way LPG is priced in Australia -- a matter not understood by more than one in a thousand (including me, before I read the Allen report).

Some of the Kwinana refinery's petrol and diesel is sent by ship to WA coastal ports: Broome, Port Hedland, Geraldton, Esperance, for example. It's used in those towns, and beyond.

Other petrol and diesel supplies to Western Australia

Any petrol or diesel not produced by the BP refinery has to be imported. It may be imported by one of the "majors" -- Caltex, Shell, Mobil, or even BP itself -- or by an independent retailer like Gull. These imports keep the competition hot and partly explain the dismal profits of Australian refineries.

The biggest WA independent, Gull, buys from Mobil Singapore. Mainly diesel. A shipment comes about every two weeks, between 4 and 5 million litres. Gull also buys from BP's Kwinana refinery (diesel, unleaded petrol, and premium.) They buy anywhere that they can get the best price.

Which leads to: why Australian refineries barely make money

The refinery in South Australia closed. Why? Strange, you might think -- a money-printing machine like a refinery.

It turns out that refineries in Australia tend to shred money, not print it:

"The Australian petroleum refining industry provides the fuel without which our economy and society could not function. It is an industry in trouble. It is fragmented and badly structured. It makes a totally inadequate return for its investors. In this weak state it operates in a completely open Australian market, competing with the best of the overseas refineries. These are often several times the size of the biggest Australian refineries. In addition they often enjoy more favourable tax regimes, have a growing excess capacity and generate surplus gasoline for sale in our region, including Australia." From Petroleum Refining: Rationalization or Atrophy? by Jim Hoggett.

The South Australian refinery shut in 2003 because it no longer paid.

What if Middle East crude oil stops coming?

What happens if the crude oil supplies stop coming from the Middle East? That's about a quarter of Western Australia's needs. I asked BP that, on a tour of the refinery. "We'd try to buy extra supplies elsewhere. But it wouldn't necessarily be easy, or cheap, because everyone else would be bidding for whatever crude oil was left in the world."

If the BP refinery couldn't get enough crude oil for full production, they could slow down. The refinery could still be run at any rate down to 40% of normal output. But no slower than that.

Here's the most revealing link I found: Supply Security, the oil industry's behind-the-scenes plan for dealing with supply disruptions to Australia. It considers accidents at refineries, industrial unrest, and disrupted supply from overseas.

In a totally menacing shutdown case, where Australia wasn't getting any crude oil or refined fuels from outside the country, the oil industry could still manage for a while using only Australian crude oil. Those oils don't give the right range of products we need (no lubricating oils, for example). And some of the tight specs on our fuels might need to be eased. So we'd be running on poorer-quality petrol and diesel. Total refinery production would drop by 30%, but there'd be almost enough petrol this way. But not enough diesel.

That link was dated March 2003, and when I asked AIP if it still applied, they said:

Australia's slumping output of crude oil

I started researching all this to find out what would happen if war stopped our imports of crude oil from the Middle East. But even if that doesn't happen, we'll suffer a slower type of oil drought. Because Australia's production of crude oil is falling (with an temporary uptick now and then).

Production rose from 1980 and peaked in 2000 at 805,000 barrels per day. In 2003, that was down to 630,522. By 2009 it had dropped to 272,600. For 2010, there should be an uptick: BHP Billiton's Pyrenees oilfield and Apache's Van Gogh field (both off Western Australia's NW coast) will give a short-term boost. The long-term trend is for production to keep falling.

Not to mention that Australian demand just keeps growing. More demand, but less crude oil. Demand in 2010 will be around 900,000 barrels per day.

Australia and global peak oil

You may or may not believe global peak oil is imminent. But world oil production will some day stand at the mid-point of global reserves. (Which leaves a lot of oil, but the production rate slowly falls. Exactly as it did for the great diversity of oil fields in the US since 1970, despite all efforts and technology.) Then Australia may not be able to import enough crude oil. Not enough left to go around. What then?

We can get a clue from calculations by Robert Hirsch and associates. Their numbers for the US show that unless the country anticipates the oil peak by ten years and makes almost supernatural efforts to get ready for it, the nation will be pretty stuffed.

In the ten years before the peak, cars and other vehicles need to be replaced by more efficient ones. The whole vehicle fleet! That's one reason why a ten-year lead time is needed.

That's not all. A great volume of synthetic diesel and petrol needs to be made from coal and natural gas. Because more efficient cars and trucks can only solve about 10% of the problem. They'll still need a lot of fuel.

In Sept 2007, the Australian Senate published an interim report that includes a lot of comments about the way the Hirsch analysis applies to our bustling continent: Australia's future oil supply and alternative transport fuels - Interim report. Wide-ranging, cool-headed, and welcome. The report includes:

* Future oil demand and supply: World oil production and consumption, 'Peak oil' critique of official predictions, oil production and consumption in Australia.

* Economic and social impact of high fuel prices: The effects of recent price increases, long-term effects of a scenario of rising oil prices, the risk of supply side disruptions, and avoiding adverse impacts.

* Supply side responses: Searching for more oil in Australia, biofuels, non-conventional petroleum, and gaseous fuels - natural gas, LPG and hydrogen.

* Demand side responses: Increasing the fuel efficiency of vehicles, more use of rail for long distance freight, and encouraging walking, cycling and public transport in cities.

And on 7 Feb 2007, they published all their findings and recommendations: Australia's future oil supply and alternative transport fuels

Other links

Peaking of World Oil Production: Impacts, Mitigation & Risk Management. Paper by Robert Hirsch and others. They don't claim to know when the global peak will happen. But they're very clear on what needs to be done to prepare. Not everyone will be happy about the conclusions, but they seem realistic and need only existing technology. And here's an update on it.

Petroleum Refining: Rationalization or Atrophy? Paper by Jim Hoggert. Why the Australian refining industry has trouble making profits. Makes it clear what sort of pressures led the South Australian refinery to close. (It seems that we may need the refineries more than they need us.)

Petroleum Refining and Marketing in Australia - Changes Ahead. Government survey. Lots of background, particularly on pricing and competition. "Australia's refineries presently supply around 95 per cent of petroleum product required by the Australian retail market. The remaining five per cent is imported and purchased largely by the growing number of independent retailers. The independents have introduced a new level of competition into the petrol and diesel retailing markets and use the ready availability of imported product as a bargaining tool to secure bulk supplies from the Australian refiners."

Fuel industry background for Western Australia. By Fuelwatch. Describes how the distribution system works in WA. Which companies have what share.

Petroleum Fact Sheet: Refining of Petroleum. Nothing to do with supply, but I put this link in here in case students are prowling this page, looking for answers to homework assignments about refining.

Energy Western Australia. Another one for students, or the comprehensively curious. A government survey of all the energy sources in Western Australia, from LNG to wood. A little out of date, but they say a new one will be published shortly.

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