Refineries cry poor on profits

04oct00

AUSTRALIA'S entire oil refining industry is under threat, according to an Ernst and Young survey.

Despite high petrol prices and a consumer perception that oil companies are making windfall profits, yesterday's report says the industry is in crisis. The survey, conducted for the Australian Institute of Petroleum, found that in 1999 the industry's net profit fell 54 per cent to $221 million. The survey found that BP, Shell, Caltex and Mobil made a $61 million loss from refining activities in 1999, although they achieved a $282 million profit from marketing activities. Refining and marketing businesses combined only achieved a return on total assets of 2.6 per cent with the underlying net profit after tax less than 0.5 cents a litre.

On its own and ignoring soaring valuations on stockpiles, the refining side of the business represented a negative return on assets of 6.6 per cent. The report blamed an oversupply of product from large Asian refineries, razor thin refining margins and new retail entrants.

AIP executive director Bryan Nye said the survey showed that the petroleum sector was in a similar position to the steel industry in the early 1980s and required urgent deregulation.

He said up to five of Australia's eight refineries could be forced to close this decade as the industry was forced to invest $1.3 billion to meet cleaner fuel standards.

Mr Nye said the survey showed that the sort of refining and retail restructuring that had been blocked by the ACCC on competition grounds was urgently needed.

Mr Nye said if the refinery business was not allowed to restructure to become more efficient, the end result could be a total loss of refining capacity in Australia with a savage effect on the balance of payments and on self-reliance.

http://theadvertiser.com.au/common/story_page/0,4511,1273292%255E913,00.html

-- Martin Thompson (mthom1927@aol.com), October 03, 2000