Better quality fuel to bring more advanced cars, engines

The inclusion of about $300 million for oil refinery infrastructure upgrades allowing production of low-sulphur petrol as part of the federal government’s $2 billion fuel security plan will lead to higher-tech vehicles and powertrains, says the Australian car industry.

The unprecedented investment in Australia’s dwindling domestic liquid fuel production capacity was announced in recent days, but now the Morrison government has also confirmed it will include subsidies for the nation’s two remaining refiners to finally produce petrol with 10 parts per million of sulphur.

The change had been scheduled to coincide with the belated introduction of Euro 6 emissions regulations in 2027 – 13 years behind Europe – but the subsidies will allow local refineries to be ready to deliver 10ppm unleaded petrol to bowsers in 2024.

The Federal Chamber of Automotive Industries (FCAI) today welcomed the earlier than expected availability of low-sulphur petrol, which is required by many latest-generation powertrains fitted with a petrol particulate filter, saying the move will benefit motorsists and the environment.

“The poor fuel standards in Australia relative to regions such as Europe and Asia have meant that some car companies have been unable to introduce some of the world’s best fuel efficient and environmentally friendly technologies to the Australian market,” said FCAI chief executive Tony Weber in a statement.

“We now have an excellent opportunity to align Australian fuel quality with the rest of the world, encourage the delivery of the latest engine technology and take further steps on the road to reducing CO2 emissions.

“We will continue to work with the Federal Government to deal with RON, aromatics and other parameters to remove the technical barriers that will allow us to ultimately align with the highest fuel quality standards in the world and bring the best engine technology to Australia,” he said.  

Volkswagen Group Australia, the importer of vehicles produced by Europe’s largest car-maker, has been one of the most vocal critics of local fuel quality, which it has long cited as the reason many of its models lack the latest engine tech.

These include the all-new Volkswagen Golf, which arrives in June with carryover four-cylinder petrol engines and won’t be available here with Europe’s new entry-level mild-hybrid eTSI powertrain – one of five hybrid powertrains now available overseas in the new Golf 8, including two plug-in hybrid versions.

VGA managing director Michael Bartsch said today’s announcement was a “major development in aligning Australia with first-world fuel standards”.  

“Volkswagen was the first and remains the foremost voice to call for the cleaning up of Australia’s highly sulfurous petrol,” he said.

“[Federal energy] Minister [Angus] Taylor’s announcement this morning is potentially a big step forward to enabling Volkswagen to introduce the world’s most advanced and efficient conventional engines.

“Though VGA is examining the details, we are eager to discuss this new direction with our factory.”

Just two oil refineries will remain in Australia – down from seven as recently as 2012 and four in 2020 – following the closure of a further two this year, and both of them will benefit from the federal government’s $2 billion plan to ensure domestic fuel security.

Under the package, the Viva Energy refinery in Geelong, Victoria and the Ampol refinery in Lytton, Queensland will receive up to two cents per litre of fuel they produce until 2030, protecting hundreds of jobs and ongoing domestic fuel production for the next decade.

“This is a key plank of our plan to secure Australia's recovery from the pandemic and to prepare against any future crises,” said prime minister Scott Morrison.

“Shoring up our fuel security means protecting 1250 jobs, giving certainty to key industries and bolstering our national security.”

The refineries in Brisbane and Geelong are the only two remaining, following the closure of BP’s Kwinana facility in West Australia in April and the imminent closure of the ExxonMobil refinery at Altona, Victoria.

The government’s Fuel Security Service Payment, which is scheduled to commence in July after legislation is tabled in parliament in coming weeks, will be linked to refining margins so that refineries will only be supported during down-time.

Refineries will receive a maximum of 1.8 cents per litre when the margin they make per barrel of oil falls to $7.30. The payment will reduce to zero if margins increase to $10.20 per barrel.

The government said the measure has been costed at up to $2 billion to 2030 “in a worst-case scenario” assuming both refineries are paid at the highest rate for the entire nine years.

“Fuel is what keeps us and the economy moving. That is why we are backing our refineries,” said federal energy minister Taylor.

“Supporting our refineries will ensure we have the sovereign capability needed to prepare for any event, protect families and businesses from higher prices at the bowser, and keep Australia moving as we secure our recovery from COVID19.”

Details of the federal government’s $2 billion Fuel Security Service Payment and its $300 million fuel quality infrastructure spend were announced today after being left out of last week’s federal budget, which included an extension of the instant asset write-off for businesses but no subsidies for EVs.

The government has said it will not introduce new taxes in the lead up to the next federal election, leading to fears this package will be paid for by motorists via higher prices at the bowser, because 95 RON premium unleaded could become the minimum fuel standard.

Currently, Australian legislation allows 91 RON regular unleaded petrol to contain up to 150ppm of sulphur (50ppm for premium unleaded), making our petrol among the cheapest in the world. The diesel fuel standard was upgraded to 10ppm in 2009.

However, more than 90 per cent of Australia’s refined petrol, diesel and aviation fuel supplies are now imported – mostly from Singapore, South Korea, Japan, China and the US.

This has helped reduce domestic fuel storage from 90 days of supplies to just 21 for diesel and led to fears the nation could grind to a halt if maritime supply chains are disrupted by a conflict or natural disaster.

Earlier this year the government pledged $200 million to increase Australia’s fuel reserve by 10 days, and last year it bought $94 million worth of crude oil from the USA’s Strategic Petroleum Reserve to increase its unrefined oil stockpile, which currently stands at 68 days – less than the 90-day minimum required by International Energy Agency member countries.