Australia plans first domestic oil refinery in 60 years to boost fuel security

Australia will consider building its first new oil refinery in more than 60 years, Prime Minister Anthony Albanese said on Tuesday, as war in the Middle East squeezes supplies from overseas and underscores the urgency to improve energy security.

Albanese said the project will help build Australia's resilience and sovereign capability on fuel, potentially helping shield the country from future supply shocks.

If the project proves feasible, the new large-scale oil refinery will be built by industrial chemical producer Perdaman in Western Australia, Albanese said.

"The war in the Middle East ... is having an impact here, like it's having an impact right around the world," Albanese told reporters from Karratha in Western Australia's Pilbara region.

"One of the things that building national resilience does is it makes Australia less vulnerable to the impact of events around the world."

Albanese said his government and the Western Australia state government will jointly spend A$4 million ($2.8 million) on a feasibility study for the refinery.

"We want to make sure that we get the right location but we want to make sure as well that it's a project that stacks up, that can go forward," Albanese added.

Australia depends on imports for about 80% of its fuel needs and has been racing to secure supplies amid the Iran war.

The government's push to cut its import dependence on oil comes after an Australian Treasury report warned that the global oil market has become more vulnerable "with weaker buffers against supply shocks".

Global oil inventory levels have dropped since conflict in the Middle East intensified, while refined fuel markets are now at risk of tightening further, the treasury said in a briefing provided to Treasurer Jim Chalmers over the weekend.

Most of Australia's domestic oil refineries were built during the 1950s and 1960s, but high operating costs and the emergence of large refineries across Asia forced many to shut down over the past three decades.

Ampol's ALD.AX Queensland refinery and the Viva Energy VEA.AX facility in Victoria – both on the country's east – are the only two operational now, compared to eight in 2000.

Western Australia's only refinery was shut down in 2021 after BP BP.L decided to convert its 146,000 barrels per day Kwinana plant into a fuel import terminal.