CRUDE OIL MARKETING DEREGULATION

Abstract

The Australian Government's decision to deregulate indigenous crude oil marketing from 1 January 1988 brings to an end the period of the Government's involvement in this area of the petroleum industry. The determination of price, the development and monitoring of administrative procedures to ensure equitable allocation of indigenous crude, and the resolution of differing views between producers, refiners and marketers were all areas where Government was actively involved. While the extent of future involvement is uncertain, the policy changes put a different dimension on exploration and production efforts for all companies and on their relationship with the marketplace, both locally and overseas.

The move to deregulation widens the available options for all parties - producers, refiner/ marketers and international traders. WTiile these options exist, the most probable situation in 1988 is not expected to be greatly different from that which has existed in the last couple of years. No refineries will be shut down; product imports will increase slightly but not significantly enough to affect total demand on Australian refineries. A reduced level of indigenous crude should be run to enable greater flexibility in crude/feedstock selection for optimising refinery profitability. However, at least 75 per cent of indigenous production should be continued to be absorbed within Australia with the bulk of the exports being made from Gippsland and Jabiru areas.

The change in emphasis towards product excise has ensured that the Australian Government has the mechanism to sustain revenue, essentially independent of the prices obtained for indigenous crude. As such, the Government's involvement in crude oil marketing, if at all, will be significantly reduced.

Factors affecting negotiations between producers and other interested parties have been explored. It is considered that, although it is highly unlikely that firm markets will have been established by early 1988, a workable set of arrangements will have been developed to ensure that crude oil production is moved. As many uncertainties will exist on the validity of these arrangements for the long term, there will be a tendency towards spot or short-term sales agreements so that the options are left open. The key pricing points are seen to be the value BP Australia is prepared to pay for Western Australia and Queensland production, at Kwinana and Brisbane respectively, and the prices being obtained by Esso/BHP for Gippsland crude in the export market.