Australia's Viva Energy weighs importing LNG as refinery spills red ink

6/17/2020

Viva Energy Group is considering joining the race to build Australia’s first gas import terminal as it looks to diversify away from a difficult refining market, its chief executive said.

The move comes as Viva reported a first-half loss in refining, hit by a slump in fuel demand due to coronavirus curbs, although it flagged a better than expected first-half core profit, shored up by retail margins.

The owner of Australia’s second-largest refinery also said it would revive a stalled A$680 million ($473 million) share buyback, helping to send its shares up as much 20%, despite a warning that fuel demand would take some time to recover.

“The retail side is pretty strong, doing quite well despite volumes being soft. They’ve done really well on the margin front,” said Andy Forster, senior investment officer at Argo Investments.

Looking ahead to a clean energy transition, Viva said it wanted to diversify earnings at its refinery site in Geelong, Victoria, looking first at a liquefied natural gas (LNG) import terminal, then at possible solar power, gas-fired generation and hydrogen manufacturing.

“It’s born out of the fact that refining is challenging,” Chief Executive Scott Wyatt told Reuters in an interview.

“We see a looming shortfall of gas supply in Victoria... and the broader southern states generally, and a facility like ours can provide a way of filling that gap,” he said.

Viva would be competing with four other projects, all looking to fill a forecast supply hole from 2024, but had the advantage of an industrial site with its own gas needs situated near an easily expandable port, he said.

“We have some confidence that the fundamentals are pretty robust,” Wyatt said.

Viva will shortly seek expressions of interest in the LNG import terminal, which could supply up to 30% of demand in the southern states. It plans to talk to gas producers, companies that need gas, and potential technical partners.

Due to the refining slump, Viva said it would reschedule maintenance work to cut costs, and forecast a fall of about 8% for its underlying earnings on a replacement cost basis for the six months to June 30, due largely to an expected refining loss.

Refinery margins could remain weaker than historical levels through the remainder of 2020 and possibly into 2021, it added.

Reporting by Shashwat Awasthi in Bengaluru and Sonali Paul in Melbourne; Editing by Devika Syamnath and Richard Pullin