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Shell shutdown a rational move, but it will cost jobs

LAST week Treasurer Wayne Swan rejected the concept of Singaporean control of Australia’s stock exchange, but it seems fuel supply is a different matter. Shell’s decision yesterday to close its Sydney refinery means more Australian fuels will be imported from the likes of Singapore.

It is by no means as black and white as painted above, but the contrast is worth noting as Australia moves further into a trade deficit for liquid fuels.

Resources Minister Martin Ferguson predicts the deficit will hit $30 billion in 2015, double the level two years ago.

The reality is the Indian giant Reliance has a refinery in Jamnagur which is double the size of Australia’s entire industry.

That puts some context around Shell’s decision to shut its Clyde refinery in Sydney. Shell was careful to say yesterday it was just talking to its staff now and had yet to make a final decision on shutting Clyde, but the reality is it will go and Australia will have just six refineries.

Clyde has been a basket case for some time and was shut for several months back in 2009.

Petrol refineries were big political issues not so long ago, but with Woolies and Coles now dominating petrol retailing and Big Oil like Shell going upstream, the pressure has diminished, for the moment.

Back in the 1990s the big companies tried several times to create joint ventures by merging local refineries to compete with Asia but were rejected by the ACCC at the time.

They no longer bother to ask, and are making alternate arrangements.

The concerns now apply more to control of terminal space, and Shell has ensured it will maintain its presence, so the ACCC needs to ensure independents are not locked out.

At some point the political concerns will grow because jobs are at risk, and more will ask what happens when the China-led resources boom subsidies.

Goodman Fielder’s retiring boss Peter Margin asks the same question about food production in Australia.

The Australian Petroleum Institute has long championed the cause of downstream refining and, based on its figures, the Clyde shutdown will cut 0.05 per cent from GDP.

Its latest report from KPMG said the refinery industry contributed 0.5 per cent to GDP or $6.5bn and was vital to the supply chain of many industries.

It has faced the litany of problems that have confronted manufacturing industry, not the least being the push to carbon pricing.

The industry reported a profit of $7.8bn in 2008, the latest available figures, representing a return of just 1.2 per cent, and on the back of investment averaging $1.2bn a year for the last decade.

These are not great returns, and the fact is fuel security is a more complex question now given the diversity of supply: LNG, diesel and someway down the track, maybe even batteries.

The Clyde refinery is not a big loss, but expect the cries to grow larger when the next refinery goes and the sector heads into shutdown, representing the loss of another industry.

Elsewhere yesterday, Parliamentary Secretary to the Treasurer David Bradbury, in a speech, went into bat for the big supermarkets, noting “we will not countenance a return to a policy framework that fails to meet the threshold test of delivering more choice and lower prices for consumers”.

The same policy must apply to industry protection and the reality is Shell is simply, albeit belatedly, making a rational business decision in shutting a refinery which has long outlived its usefulness.

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