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Here are a few facts on the Australian Crude Oil market-
“Only 18% of the refinery feedstock is domestically produced, remaining is imported”
“Almost two thirds of the Australian Crude and condensate production comes from the Carnarvon basin “
Australia is heavily dependent on imported refined products and feedstock for their refineries. Let's have a look at the supply-demand dynamics of the Australian market amid the global uncertainties over Coronavirus epidemic.
Australian Oil and Condensate Production – Focussing on the adding newer assets
The Petroleum Industry in Australia is divided among the crude oil, condensates, and liquified petroleum gas segments. In 2018–19, the total value of Australian exports rose almost 31 per cent to $9.0 billion. The major reason for the higher crude oil and condensates exports during 2019, is accounted to the higher prices and the weakness in the Australian dollar.
The outlook for the year 2019-20 was earlier set to increase by 436,000 barrels a day but is expected to lower down due to weaker demand and lower crude oil prices following the onset of coronavirus.
As for the condensates, 2018-19 proved to be a mega year, with more supply to the market from the new offshore projects. The hike in the condensate supply in 2018-19 has further strengthened the Oil & Gas portfolio for Australia.
Source: Resources and Energy Quarterly December 2019
Though the coronavirus and other factors have transiently affected the crude oil demand, the annual earnings for the oil & condensate exports is expected to increase in 2020, contingent on the recovery from current low crude oil prices and longevity of coronavirus impact.
Australia’s crude oil production to recover from low levels
The Australian crude oil production averaged around 108,000 barrels a day in 2018-19, which is also the lowest level in the last 49 years. It has the capability of rebound with the ramping up of Woodside’s mega Greater Enfield project, which started its production in August 2019.
Source: Australian Petroleum Statistics
Located in the Browse Basin, the Train 1 at the INPEX's Ichthys facility has ramped up quickly to achieve the full capacity production rate with an output of 70,000 barrels per day during the first half of 2019.
Royal Dutch Shell has also commenced the operations at its Prelude facility and with the ramp-up is expected to further increase the LPG production. Another major change during 2019, is the return to normal operations of the Esso's Gippsland Basin in the Bass Strait.
Exploration in the oil industry reached the lowest levels in 6 years following the weak crude prices. The exploration activities increased in 2019 noticeably, especially in the Western Australia region.
Refinery Output observes steady Growth
The largest growth in demand came from the fuel oil sector with anticipation of increased request from the shipping industry on the implementation of the IMO 2020 which amended capping on the sulphur content in the marine fuel. The fuel oil production increased to 932.3 Million Litres experiencing a 19.88% increase during the year.
Source: Australian Petroleum Statistics
The share of the imported refinery product has increased over time and was anticipated to reach ~61% in 2019. As for the automotive Gasoline product, the imported product share was expected at 36% during 2019.
Oil economics, How is it Refinery sector impacted by the complexity factor?: Must Read
How is the liquid fuel priced in Australia?
Australia is not a price setter but a price taker when it comes to Crude oil and the liquid fuel sector.
Daily prices for Unleaded petrol -Australian national average Source: Australian Petroleum Institute
Gasoline which is one of the most widely used liquid fuel trades, is traded on the derived prices from the Singapore benchmark price of petrol (MOGAS95 Petrol). The Australian petrol prices depend on the MOGAS95 Petrol prices, shipping costs and Australian taxes. The pricing difference between the retail and the wholesale is hardly 5-10% of the wholesale prices.
Looking at each of the individual components would help us build a better understanding of the pricing mechanism-
- Singapore benchmark price of petrol (MOGAS95 Petrol): The Singapore prices for 95 Octane Petrol is received by the Australian Petroleum Institute, upon which they conduct their own analysis and releases their own calculations and comments.
- Shipping costs: The Shipping costs is based on the estimation of different sources of crude oil. Cost is dependent on whether and from where Australia imports its crude oil or produces locally and on the basis of the weighted average estimation of the volume supplied and the per unit shipping cost attributable to each barrel of crude oil and then adjusted in Gasoline terms .
- Taxes: The fuel excise duty and the Goods & services tax (GST) of each state, weighted by the consumption of gasoline consumed in each state would give the average Australian national taxes implied on the product
- National Average Prices: The fuel volume consumed in each state and the prices of petrol in the capital city is used to calculate the Average National retail prices.
The tax component continues to be one of the lowest among the OECD countries.
To sum up: We have gained an overview of the market drivers and dynamics of the mineral rich Australia. Australia is expected to observe a steady growth in the unexplored and underexplored basin thereby boosting its domestic crude oil production. The global Oil industry has been adversely impacted by the Coronavirus epidemic and the recovery from it would provide a boost to the Australian Oil Industry.
