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Lytton refinery shut down until August at least, future unclear

Business

The coronavirus has hit Queensland’s oil refining, with Caltex Australia’s Lytton refinery to be shut down temporarily for maintenance and a decision on restarting it will occur only “when margin conditions have sufficiently recovered’’.

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The decision to restart will take in not only economic conditions but also the impact of COVID-19.

A meeting between management and the workforce will be held today and no decision has been made on stand downs.

The shutdown will last from May to August and when complete a decision on reopening will occur.

The company, which has been targeted for takeover by Alimentation Couche-Tard has also cut its capital spending by $50 million.

The decision to restart will take in not only economic conditions but also the impact of COVID-19. The decision to restart will take in not only economic conditions but also the impact of COVID-19. Caltex said it was seeing demand reductions for retail gasoline and diesel  in the ranges of 30-50 per cent and 10-30 per cent, respectively, while jet fuel demand had collapsed by 80 to 90 per cent.

Oil prices have also collapsed due to a production dispute between Saudi Arabia and Russia and COVID-19’s impact on global demand.

“The decision has been made for a combination of reasons. The current weak refiner margins are creating operating cash flow challenges at Lytton,’’ Caltex said in a statement to the ASX.

“Having the refinery offline for this period will reduce the costs related to the normal operations of the refinery.

“This approach will deliver a more capital efficient turnaround and inspection (maintenance shutdown) and enable a reduction in the cost of the shutdown, as well as further optimisation of the supply chain, including a reduction in working capital.

“This approach will also allow us to comply with COVID-19 requirements during the T&I to ensure the health and safety of all who work on our site.’’

Analysts said a shutdown would reduce volumes by 500 million litres a month and fuel margins are about 30 cents a litre.

“We expect this margin expansion to offset the declines in gasoline and diesel volumes,” RBC Capital Markets said.

Interim chief executive officer Matthew Halliday said the decision would result in an improved economic outcome and protect cash flows, while demonstrating our ongoing commitment to the Lytton refinery.

“At the same time, by taking this action now, we will continue to ensure the safe and reliable supply of high-quality transport fuels.’’

Caltex supplied more than 20 billion litres in 2019.

The company said that subject to market conditions, and any outcome from change of control discussions, Caltex was well-placed to implement the second half sale of a 49 per cent minority interest in Caltex’s core freehold retail sites.

 

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