The to and fro of the markets is noise, or operational noise in military terms. What’s the strategy? And what’s at stake?
Well, despite a shocking few days in the Aussie share market, there are plenty of growth trends in the world. But Australian oil refining is obviously not one of them. Royal Dutch Shell let everybody know that this week.
Australia is rapidly losing the ability to produce its own refined fuels. That means higher imports and a larger trade deficit.
On the other hand, there are other opportunities in energy in Australia. One comes down to a few key firms in the Cooper Basin and a few key drilling results, the most important of which is due out in the next 30 days.
It’s all part of the dynamic energy landscape. Energy, especially oil and gas, has been the key industry of the last 100 years. That’s unlikely to change anytime soon.
Technology will fuel future growth. But the world still runs on energy that has to be extracted, refined and used. It’s certainly extracted in Australia. But will it continue to be refined here?
It probably surprised no one when Royal Dutch Shell announced this week that it wants to sell its refinery down in Geelong, Victoria. The company says it hopes to find a willing buyer that will continue running the site. Those odds don’t look great to your editor. In January, the government released a report on Australia’s oil refining industry.
In short: it’s not pretty. Here’s a snippet: ‘The domestic context of high operating costs, ageing facilities, increasing sea miles for the transport of crude to the refineries, shallow berths that are not suitable for large crude carriers, increasing technical complexity needed for refining of the broad range of crude oil and the high Australian dollar, put Australia at a competitive disadvantage.’
To be clear, Australia is not a big player in this industry. Our refineries are small by current world standards. Here’s a snapshot of Australian refining capability as of 2011. We couldn’t find an updated map.
Don’t forget to count out the Clyde, Kurnell and Geelong sites. By mid-2015, Australia will be down to four. So, is Australia leaving a gaping hole in its energy security? Would Sun Tzu be turning in his grave?
According to the Australian Institute of Petroleum, at least, the answer in the short term is no, because of reliable and diverse supply chains close by in Asia. Of course, you could say it’s another value-adding industry being destroyed while Australia obliviously ships off bulk commodities without a thought to the end of the bull market.
But there’s also the prospect of alternative energy markets developing. Australia is a big energy player in uranium, coal and natural gas. It’s the last one that might develop different products to fuel Australia’s transport industry. According to the report,
‘The EWP anticipates that rising oil prices will spur developments in indigenous alternative fuels and market opportunities will emerge for gaseous transport fuels, such as LNG and compressed natural gas. The EWP noted CSIRO predictions of a transformation of Australia’s transport energy sector, which would see:
“By 2050 there will be significant growth in transport fuels and technologies that have little or no presence in the market today. Biodiesel could contribute around 13% of total transport fuel consumption, natural gas 12%, bio-derived jet fuel 8%, electricity for transport 5%, and synthetic diesels 2%”.’
Developments like that get Dan Denning excited about the prospects for shale gas. He sees it as a potential game changer for Australia (and investors). Even more! As Dan said in his recent report, ‘game-changer is an overused term. But it’s an understatement when describing the impact of shale gas on energy and world politics. Energy is the life-blood of an economy. Australia is no different.’
He’s backing natural gas to fuel more and more of Australia’s energy needs as the future unfolds.
Callum Newman
Editor, Money Weekend
PS. Don’t forget if you want to keep track of the latest things we’re reading and brief commentary on events that happen through the day, check out our Google+ page and Kris Sayce’s as well.
From the Port Phillip Publishing Library
Special Report: Australia’s Energy Stock BLOWOUT
Daily Reckoning: The Moment of Explosion
Money Morning: Only Lunatics Need Apply for This Stock Market Rally
Pursuit of Happiness: <a href="http://www.pursuitofhappiness.com.au/index.php/opportunity/why-a-playstation-and-mining-technology-have-more-in-common-than-you-think/4307/"