Two Refineries and a Prayer: Australia's Fuel Security Gamble
Something extraordinary happened in December that most Australians probably missed. For the first time ever, electrified vehicles outsold petrol cars in this country. And while that milestone grabbed headlines, it obscured a far more uncomfortable question: what happens to the fuel supply chain that still keeps 97 percent of Australian cars on the road?
Because right now, that supply chain is hanging by a thread.
Down to Two
Australia has just two oil refineries left. Two. Ampol's Lytton facility near Brisbane and Viva Energy's plant in Geelong. A decade ago we had seven. BP shuttered Kwinana in Perth, ExxonMobil closed Altona in Melbourne, Shell pulled the plug on Clyde in Sydney, and Caltex wound down its Kurnell operation. Each closure was framed as a business decision. Taken together, they represent the slow dismantling of Australia's ability to refine its own fuel.
Both remaining refineries are being kept alive by taxpayer money. The federal government struck a $2.3 billion subsidy deal through the Fuel Security Services Payment to keep Ampol and Viva refining until at least 2027. Without that lifeline, both would almost certainly convert to import terminals, and Australia would become entirely dependent on overseas refined fuel.
Here's the kicker. Even with the subsidy, Ampol's chief executive Matt Halliday has publicly stated the company could close Lytton before 2027 if margins stay persistently low or a major incident hits. And margins have been brutal. Cyclone Alfred forced Lytton to shut for 10 days in March last year, damaging a crude tank and costing millions. Operational issues with the catalytic cracking unit slashed output further. A major turnaround scheduled for early 2026 will knock out another 300 million litres of production.
Viva Energy's Geelong refinery faces its own challenges. Competition from massive Asian mega refineries, which produce fuel far more cheaply thanks to scale, makes Australian refining look increasingly uneconomic.
The 90 Day Problem
Here's where it gets genuinely concerning. Australia has been non compliant with the International Energy Agency's 90 day oil stockholding obligation since 2012. We're the only IEA member nation that can't meet this basic requirement. Back in 2017, we held the equivalent of just 45 days of reserves. By 2022, that crept up to around 63 days. Still well short.
The government committed to reaching compliance by 2026. That's this year. And while the Minimum Stockholding Obligation introduced in July 2023 has helped (requiring fuel importers to hold baseline stock levels), the gap remains significant.
The MSO currently requires importers to hold 27 days of petrol and 32 days of diesel. Refiners must hold 24 days of petrol and 20 days of diesel. Industry compliance has been reasonable, with petrol stocks averaging 63 percent above the minimum and diesel stocks 19 percent above. But these are baseline levels, not the 90 day IEA target.
A war game exercise conducted by the government and later released under Freedom of Information revealed just how exposed we are. The scenario showed that a major supply disruption could lead to severe fuel shortages affecting essential services, transport, mining, agriculture, and defence. The exercise laid bare vulnerabilities that most Australians would find genuinely alarming.
To put this in perspective, most European nations comfortably exceed the 90 day threshold. Japan holds well over 100 days. The United States maintains a massive Strategic Petroleum Reserve. Australia struck a deal to store some oil in the US reserve, which technically counts toward our IEA compliance. But oil sitting in storage caverns in Louisiana isn't particularly useful if shipping lanes through Southeast Asia are disrupted.
The EV Twist Nobody Expected
Now layer on the electric vehicle revolution. In December 2025, electrified vehicles (battery electric, plug in hybrid, and hybrid combined) outsold petrol cars for the first time: 35,058 to 34,559. For the full year, petrol car sales dropped 10.2 percent. Diesel fell 1.1 percent. Electrified vehicles now account for nearly 30 percent of new car sales.
That's terrific for emissions. But it creates a fascinating paradox for fuel security planning.
As EV adoption accelerates, petrol demand falls. Lower demand means less revenue from fuel excise, which currently sits at 51.6 cents per litre. Treasury data shows fuel excise receipts have been in long term decline since 2005, dropping from around 1.8 percent of GDP to less than one percent. Yet Australia still spends about 1.8 percent of GDP on road construction and maintenance.
The CSIRO projects 97 percent of light passenger vehicles on Australian roads will be electric by 2050. Well before that point, Australia's two remaining refineries will become economically unviable without subsidies. And the subsidies themselves become harder to justify when fewer Australians are buying petrol.
We're heading toward a future where we'll be entirely dependent on imported refined fuel for a shrinking but still critical customer base: trucks, farming equipment, remote communities, emergency services, and the military. That's not a comfortable position for a country surrounded by ocean.
What This Actually Means For You
If you're still driving a petrol or diesel vehicle, and around 97 percent of cars on Australian roads still are, this matters more than you might think.
Australia imports about 90 percent of its refined fuel. Most of it comes through a handful of shipping routes in the Asia Pacific. Any disruption to those routes, whether from geopolitical tensions, natural disasters, or logistics bottlenecks, would hit Australian bowsers within weeks. The government's own war game confirmed this.
The practical upshot for your wallet is this: fuel prices in Australia aren't just driven by global oil markets. They're increasingly affected by our import dependency, our limited refining capacity, and the currency exchange rate. When the Australian dollar dropped below 65 US cents in early 2025, motorists immediately felt it at the pump despite relatively stable global oil prices.
For drivers in Sydney, Melbourne, and Brisbane, the NRMA has documented that petrol price cycles have stretched to four to seven weeks, compared to roughly seven days in Perth and 17 days in Adelaide. Sydney's gross margin (the gap between wholesale and retail) hit a record 19.1 cents per litre in 2024. That means even when wholesale prices drop, it takes longer for relief to reach the bowser.
Regional motorists face even tougher conditions. Drivers in places like Dubbo, Rockhampton, and Kalgoorlie consistently pay more due to transport costs and less competition. The ACCC's extended five year monitoring direction, announced in December 2025, acknowledges these ongoing concerns.
Where This Is All Heading
Australia is caught between two transitions happening at different speeds. The shift to electric vehicles is accelerating faster than almost anyone predicted. CommBank research suggests EV sales could eclipse petrol by 2027 on a permanent basis. But the fuel infrastructure that still underpins the economy is deteriorating. Two subsidised refineries. Inadequate strategic reserves. Near total import dependency.
The government knows this. The ACCC monitoring extension, the MSO, the FSSP, the US strategic reserve arrangement: these are all band aids on a structural problem. The real question is whether Australia can manage the transition smoothly enough that we don't end up in a crisis before EVs genuinely reduce our fuel dependency.
Because right now, we're running on two refineries and a prayer. And that should make every Australian motorist pay attention.
*Marcus Riley covers fuel industry policy and market trends for Petrolmate. Track real time fuel prices across Australia on our interactive fuel map.*
