Shell courts buyers for refinery

Oil major Royal Dutch Shell has been given little hope of finding a buyer for its struggling oil refinery at Geelong, which was dramatically thrust into the shop window on Thursday.

In a continuation of the trend that has seen two small and ageing refineries in Sydney converted into fuel import terminals over recent years, Shell said its Geelong refinery could no longer compete for investment against the company's bigger and more efficient refineries overseas.

Shell's vice-president of downstream operations Andrew Smith insisted that a sale was possible despite the gloom surrounding an industry that has been hamstrung by the consistently high Australian dollar, and the larger, more efficient refineries that have emerged in Asia in recent years.

"Shell will be seeking a buyer who will show due care for employees, provide reliable supply for the company and its customers, and run the facility safely with respect for the environment and the Geelong community," he said.

"If a sale on agreeable terms cannot be reached there are options available, this could include converting the refinery into an import terminal."

Deutsche analyst John Hirjee said Shell would struggle to find interest for the asset in the market place unless its network of petrol stations were part of the deal.

"If you are going to buy a refinery you would want the distribution channel and it doesn't appear the distribution channel comes along with that," he said. "This just gives you a refining presence, it doesn't give you the marketing presence which is what companies would want to do to set up a brand ... Our thinking would be there may not be a huge amount of interest."

Australian Workers Union spokesman Ben Davis agreed, saying he did not expect his imminent crisis meeting with Shell could reverse the tide.

"I would be pessimistic about the chances of a sale but I would welcome any sale," he said.

The sale process will revive debate over whether Australia is facing an energy security problem, given it is now reliant on foreign imports for close to half its fuel needs.

A Senate inquiry into the subject was completed in February, and while it was largely sanguine about relying on foreign nations - particularly Singapore - for Australia's fuel supplies, it did note that maintaining some domestic supply was preferable.

The government's recent energy white paper made similar noises, but conceded: "A domestic refining capacity presence provides Australia with a limited ability to process domestically produced crude in-country, and a degree of supply flexibility and reliability."

Following the recent announcements of planned closures of the Clyde and Kurnell oil refineries in Sydney, refinery capacity in Australia will decrease about 28 per cent and leave five operating refineries. Domestic refiners will produce just over half the fuel consumed in Australia with the rest imported.

The government has dismissed opposition claims that Shell's Geelong refinery sale plans are linked to its economic management.

Federal Resources and Energy Minister Gary Gray says opposition industry spokeswoman Sophie Mirabella is engaging in misinformation by saying Shell's announcement follows business warnings about economic instability and a lack of confidence due to Labor's bad decisions.