By ROSS KELLY
SYDNEY -- Australia's biggest city will be without an oil refinery from the second half of 2014 after Caltex Australia on Thursday said it will close its Kurnell facility in Sydney and convert it to a fuel import terminal.
Australia's aging refineries are small compared to new facilities being built in China and India, making it tough for local operators to compete on costs.
An oversupply of fuel into the Asia Pacific market has also put pressure on regional refiner margins, making life tougher for companies like Caltex, which is 50%-owned by Chevron.
The closure of Kurnell, involving the loss of 330 jobs, will bring the number of refineries operating in Australia down to five from seven at the start of this year as Royal Dutch Shell is also due to close its Clyde refinery in Sydney next month.
Kurnell's nameplate capacity is 135,000 bpd, according to Caltex's most recent annual report.
"Caltex's refineries are relatively small and, in their current configuration, are disadvantaged when compared to the modern, larger scale, more efficient refineries in the Asian region against which we compete," Caltex CEO Julian Segal said in a statement.
Even so, Caltex said it will continue to operate its other refinery, Lytton in Brisbane, with a focus on operational improvements.
Australia's remaining four refineries are the Altona and Geelong facilities in Melbourne owned by ExxonMobil and Shell respectively; and BPs Kwinana and Bulmer Island refineries in Perth and Brisbane.
Martin Ferguson, Australia's resources and energy minister, said the latest closure won't jeopardize Australia's energy security because the country already imports large amounts of crude and oil products.
Ferguson said Australian plants are small compared to the "mega refineries" in Asia, with the Jamnagar refinery in India having a larger total capacity than Australia's current six combined.
To ensure it has a reliable supply of refined products to sell through its marketing division, Caltex said it has an agreement with Chevron for the supply of transport fuels into Australia.
Kurnell's closure will come at a financial cost for the company, which now expects to make provisions in 2012 of about 450 million Australian dollars ($463.6 million) to cover employment benefits, dismantling and remediation expenses.
It will also invest about A$250 million converting the Kurnell operation into an import terminal.
Dow Jones Newswires