A staged shutdown of the facility was completed in December 2011, in line with Caltexs announcement made in December 2009, the company stated in a fact sheet. Two of the four refinery units were taken offline earlier in 2011, with the other two units operating until later in the year. The hydrotreating unit was the last brought offline when operations ceased there earlier this month. Post-shutdown work, mostly involving cleaning, will continue through mid-2012.

The refinerys closure will affect about 70 people, the company said, and about half will be redeployed within the Caltex business.

Caltex Australia noted in the fact sheet that the countrys lubricating oil market has changed and that theres now substantial demand for higher quality engine oils that operate at higher temperatures and last longer between oil changes. The Kurnell refinery did not produce base oils to this level. Other Australian facilities of this type have closed as this market shift has occurred over several years. Caltex Lubricating Oil Refinery was not economically viable, with financial projections indicating it would operate at a loss. The facilitys capacity was well below the level required to operate viably, and the feedstock needed was difficult to source and prohibitively expensive.

According to Caltex, the closure will not affect the supply of lubricating oil and other products to Caltex customers. Long-term import arrangements are in place to supply finished products to the market, the company stated. The [propane de-asphalting unit] is a related unit that was commissioned in 1963. It is used to separate some of the heaviest components of crude oil. This process produces fuel oil, bitumen and products that can be further refined into lubricating oils. The PDU will be closed by the end of 2012.

Stephen Ames, principal of SBA Consulting, Pepper Pike, Ohio, said that while upgrading the Kurnell base oil plant to Group II was possible, that would not have changed its adverse impact on the mothership fuels refinery.

With only one crude unit, Kurnell still required a good lube crude that did not fit in with a more profitable slate for the fuels side of the refinery, Ames told Lube Report. Fuels refining margins have been and are very depressed, especially Europe, U.S. East Coast and Asia, and forecast to remain so over the next five or so years. It is really a matter of survival for the mothership refinery. Operating expenses are as high or higher for a retrofitted Group I, given the additional hydrotreating step. The large capital expenditure for a hydrotreater would have required Caltex Australia to commit to at least another five years of operation, he said, adding, I doubt they were willing to do so, especially if the fuel refinery is also on the cusp.

Australia had about 790,000 metric tons per year base oil capacity from four refineries in 2002, but all have now closed.

Ames pointed out that Australia had some formidable challenges for indigenous base oil producers. Firstly, all of the refineries in Australia are/were relatively small in size – none considered to be world scale, he said. Hence the impact of a base oil plant on the entire refinery is ‘outsized, whether good or bad. Secondly, the automotive lubricants sector, comprising over 55 percent of demand, generally conforms to European Automobile Manufacturers’ Association (ACEA) specifications and hence requires Group II and higher quality base oils in their formulations. None of Australia’s four base oil plants that closed since 2002 produced such quality, and that had to be imported.

He noted that most of Australias base oils are imported from Singapore, Korea and the United States. Caltex, being part of Chevron, is supplied from both Chevrons Richmond Lubricating Oil Plant in Richmond, California, and from Chevron’s 50 percent equity in the GS Caltex Group II facility at Yeosu, Korea, Ames said. ExxonMobil Jurong in Singapore supplies a great deal of Group II to Australia. And the Korean Group III producers have terminals/distributors in Australia.

Another trend in Australia that has gained speed in recent years is importing finished lubricants rather than the component base oil and additives. ExxonMobil closed their Yarraville blend plant in 2011 and now totally relies on supply from other locations, mainly their large, integrated Singapore operation, Ames said. The other major lubricant marketers – Shell, BP, and Chevron – similarly have increased imports from their large regional facilities, and all three have large blend plants in Singapore.

Ames said logistics are also a major hurdle in Australia – both from the large distances involved as well as cabotage rules that limit domestic marine shipments to only expensive Australia owned, flagged and crewed vessels. Freight from Singapore or Korea in foreign flag/crewed vessels is often less to major Australian ports than it was from Kurnell, he pointed out. Lastly, Australia’s remote location meant that netbacks on exports of surplus production suffered due to high vessel diversion costs.