Australia might invest in a new oil refinery! Nah - here's a few bucks off your fuel bill instead!
Australia has spent $3 billion on fuel excise relief that built nothing. Now it's spending $4 million to study whether to fix the actual problem.
The federal and WA governments will this week announce a $4 million pre-feasibility study into building Australia's first new oil refinery in decades. It is a small number relative to the scale of the problem, but it is at least aimed at the problem. The contrast with what the government has been doing in the meantime is instructive.
Australia has 42 days of petrol reserves — and has spent $3 billion on a policy that does nothing to change that
Australia is down to two oil refineries, in Brisbane and Geelong. A decade ago there were eight. BP closed its Kwinana refinery south of Perth in 2021, the country's largest, after the economics stopped working. The government's response to tightening fuel supply since then has been to chip a few cents off the excise at the bowser, a measure that addresses the price of fuel rather than its availability. As of last week, the country had 42 days of petrol reserves, 38 days of diesel, and 32 days of jet fuel. Those numbers move in one direction when supply chains are stressed.
The excise discount has been covered in detail here before. The short version: it costs around $400 million a month, it has been rolling since the original cut, and every extension is legislated with just enough fanfare to remind voters the government is doing something about fuel prices. The cumulative bill is north of $3 billion. That money has left the budget, produced a small and temporary reduction in bowser prices, and built no infrastructure, secured no supply chain, and added not a single barrel of domestic refining capacity. It is money spent on the appearance of action.
It is money spent on the appearance of action.
The refinery announcement is a genuine step — but a pre-feasibility study is not a refinery
The refinery announcement is different in kind. A pre-feasibility study is not a refinery, and $4 million is a rounding error against what a large-scale facility would actually cost. But it is the first step in a process that could produce something real, and it is framed as part of a broader $15 billion federal package aimed at energy sovereignty. Perdaman is a credible proponent: it runs major fertiliser operations in the Pilbara and understands the industrial logistics of northwest WA, which is exactly where a new refinery would need to sit.
The strategic case is not hard to make. The Middle East conflict has been threading through Australia's fuel supply picture since early this year. WA's government appointed a Fuel Supply State Controller in March, and last month invoked emergency powers to force fuel companies to share supply chain information. These are not the actions of a government confident in its supply position. Regional WA runs on diesel. So do the iron ore and gas operations that underwrite a substantial share of federal revenue. The Kwinana closure left a gap in the supply chain for the entire western half of the continent, and that gap has not closed.
Any viable refinery will need ongoing government support — and that should be an explicit choice
The economic question is harder. Australian refineries have closed because they cannot compete with the massive, highly integrated Asian refineries that supply most of the country's imported fuel. That structural disadvantage does not disappear because a new facility is built. Any new refinery will likely require ongoing government support to remain viable, which raises legitimate questions about whether the economics work or whether the country is simply subsidising an asset for strategic reasons. The answer to that second question might well be yes, but it should be an explicit choice, costed and debated on its merits, not dressed up as a market-driven outcome.
There is also a question of opportunity cost that has not received enough attention. The $3 billion-plus spent on excise relief since the cuts began is a real number. It is roughly the cost of a significant portion of a pre-feasibility-to-financial-close process for a project of this scale. Spent differently, over the same period, it could have materially accelerated the timeline on the refinery now being studied, or funded strategic fuel reserves, or both. Instead it funded a discount at the pump that evaporated with each tank.
The opposition has its own version of this argument. The coalition announced in April that a coalition government would designate the Taroom refinery project as a National Strategic Priority to accelerate approvals. The details of that commitment are thin, but the underlying diagnosis, that Australia needs more refining capacity and that approvals processes are a bottleneck, is correct regardless of who makes it.
The excise relief was never going to fix Australia's fuel vulnerability. It was never designed to. It was designed to be visible, deliverable before the next news cycle, and politically cost-free to extend. A refinery, if it ever gets built, will take years and cost billions. But it would still be there when the next supply shock arrives. The excise discount will be gone before the tank is empty.
Sources
ABC News — Australia's first new oil refinery in decades touted for WA
The Bearing — Politics at the Fuel Pump: New Legislation Every Month
The Bearing — Fuel Crisis the Sequel: This time, it's the same
The Bearing — Setting fuel price in a crisis is risky business
Frequently Asked Questions
How many oil refineries does Australia have left?
Australia currently operates two oil refineries — one in Brisbane and one in Geelong. A decade ago there were eight. The most recent major closure was BP's Kwinana refinery south of Perth in 2021, which was the country's largest.
How much has Australia's fuel excise discount cost?
The rolling fuel excise discount has cost around $400 million per month and has accumulated to more than $3 billion in total. Every extension requires new legislation, and the measure has produced no improvement in domestic refining capacity or fuel supply security.
Why can't Australia build a competitive oil refinery?
Australian refineries struggle to compete with the massive, highly integrated Asian refineries that supply most of the country's imported fuel. That structural cost disadvantage means any new domestic refinery would likely require ongoing government support to remain viable — making it a strategic investment decision rather than a straightforward commercial one.
What are Australia's current fuel reserve levels?
Australia currently holds around 42 days of petrol reserves, 38 days of diesel, and 32 days of jet fuel. These figures are well below the 90-day minimum that the International Energy Agency recommends for member states, and they fall further when global supply chains come under pressure.
Who is Perdaman and why are they proposing an oil refinery?
Perdaman is a Perth-headquartered company that already operates major fertiliser facilities in the Pilbara region of Western Australia. Its existing industrial presence in northwest WA — the same region where a new refinery would logically be sited — makes it a credible proponent for a project of this scale.