As a fierce blaze engulfed one of Australia’s two oil refineries amid an ongoing energy crisis, a pressing question emerged: how did the situation escalate to this point?

The significant fire erupted at the Viva Energy oil refinery located in Geelong, Victoria, late Wednesday evening. Firefighters managed to extinguish it by Thursday morning after it continued to burn through the night, according to emergency service reports.

Michelle Cowling, deputy commissioner of Fire Rescue Victoria, explained on ABC Radio Melbourne that the fire was ignited by an equipment failure, which subsequently caused a leak.

Both Energy Minister Chris Bowen and Viva CEO Scott Wyatt acknowledged that the incident would disrupt petrol production.

Wyatt noted that while the refinery continues to process fuel, it is only operating at a minimal capacity due to the unclear extent of the damage.

According to Viva Energy’s website, the Geelong facility has been operational since 1954 and is responsible for supplying 10 percent of the country’s fuel. It has the capacity to process 120,000 barrels of oil each day, producing various fuels such as petrol, diesel, LPG, and jet fuel.

Australia consumes roughly 1.15 million barrels of oil per day.

The other remaining oil refinery, Ampol’s Lytton facility, is located in Brisbane. The two facilities account for roughly 10 to 20 per cent of the country’s fuel supply.

Just over two decades ago, Australia had eight oil refineries capable of meeting most of the nation’s fuel demand.

So what happened?

From eight refineries to two

Most of Australia’s oil refineries were built in the 1950s and 60s, amid surging use of road vehicles and thus demand for fuel.

While the country was not entirely self-sufficient, the majority of supply came from domestically extracted and refined oil.

But from the 1990s, the rise of mega-refineries across Asia — combined with a range of other pressures — eroded the viability of the more costly domestic facilities.

“There’s the economics of scale, plus we weren’t producing so much oil,” Kevin Morrison, energy analyst at the Institute for Energy Economics and Financial Analysis, told SBS News.

“Also, the type of oil product we were consuming was changing. We were becoming much more of a diesel-driving nation than petrol.

“We would have to invest in a lot to change that, so it was just sort of economically unsustainable.”

The sector shrank dramatically from 2003, when ExxonMobil closed its Port Stanvac refinery in Adelaide.

That was followed by the closures of five more refineries between 2013 and 2021, when BP shuttered the nation’s largest oil refinery, Kwinana, in Perth.

What role do domestic refineries play?

The Geelong refinery supplies more than 50 per cent of Victoria’s fuel, according to Viva Energy’s website, with Morrison saying that was where the impact of the fire was “going to be felt the most acute”.

Peter Anderson, director of APCO, which operates dozens of service stations across Victoria, told ABC Radio Melbourne that Viva Energy provides about 60 per cent of his supplies.

However, he said that, during previous supply disruptions due to maintenance issues, “they’ve always been able to come through with other suppliers from elsewhere, just bring it in by ship”.

Victoria’s energy minister, Lily D’Ambrosio, said the fire had not impacted diesel or jet fuel, and noted that petrol is easier to source replacements for than diesel.

Together with Brisbane’s Ampol refinery, the domestic facilities account for roughly a third of Australia’s petrol consumption, with the rest imported.

“They’re very small by world standards, and they’re very old,” said Alison Reeve, energy and climate change program director at the Grattan Institute.

“The government has underwritten [the refineries] in order to get them to stay open,” she told SBS News.

“Part of that was so that they could produce fuel that can be used in modern cars, because the fuel quality that we use has changed over the years, and part of it was for fuel-security reasons.”

Almost 90 per cent of Australia’s daily fuel consumption is imported, much of it brought in as refined product from South Korea, Japan, Singapore, Malaysia and Taiwan.

Hussein Dia, professor of future urban mobility at Swinburne University of Technology, said that while supply would continue through international markets, the incident “adds pressure to an already tight and globally exposed fuel system”.

“This doesn’t mean people will run out of fuel tomorrow, but it does narrow the buffer we have to absorb shocks.”

‘A structural issue’

The war in the Middle East has driven unprecedented global oil shocks due to Iran’s effective closure of the Strait of Hormuz and the subsequent US blockade of the critical shipping lane.

It’s also renewed scrutiny of Australia’s dependence on imported fuel and international supply chains.

“From a broader perspective, this highlights a structural issue,” Dia said of the fire.

“Australia has significantly reduced its refining capacity over recent decades, increasing reliance on long international supply chains,” he added.

“While those systems are generally reliable, events like this show how limited redundancy exists when something goes wrong locally.”

Morrison said Australia needs to accelerate its shift away from liquid fuels, with electrification of transport offering a pathway to greater energy security.

However, Reeve noted, much of electric vehicle and solar panel manufacturing also occurs overseas.

“Everyone’s energy systems are linked to each other,” she said, adding that the key challenge will be how to build stronger buffers into Australia’s energy system.

For the latest from SBS News, download our app and subscribe to our newsletter.