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Viva Energy expects its Geelong refinery in Australia to return to more than 90% of normal operating capacity this week following repairs to a key processing unit damaged in a fire earlier this year. While production is set to recover, the refinery's alkylation unit remains offline and is expected to stay out of service through 2027. The outage is likely to affect the refinery's ability to convert LPG into gasoline, impacting refining margins. Investors reacted negatively to the update, with the company's shares declining during trading.
Viva Energy has said its Geelong refinery is expected to return to more than 90% of normal operating capacity this week after completing repair work on a major processing unit that was damaged in a fire earlier this year.
The Australian fuel retailer stated that repairs to the refinery's Residue Catalytic Cracking Unit (RCCU) have been completed and operations are set to resume at high utilisation levels. The RCCU is one of the refinery's most important processing units and plays a key role in converting heavier petroleum products into higher-value fuels.
The unit had remained shut for more than two months following a fire that disrupted petrol production at the Geelong refinery, one of Australia's largest fuel manufacturing facilities.
However, the company said its alkylation unit has been isolated from refining operations and will remain offline while options for repair or replacement are assessed. Viva expects the refinery to continue operating without the unit throughout 2027.
According to preliminary findings, the fire was caused by a failure in a section of piping within the alkylation unit. The failure led to a fuel release that ignited and resulted in the shutdown of key refining operations.
The outage is expected to affect the refinery's ability to convert liquefied petroleum gas (LPG) by-products into gasoline. Market analysts noted that the disruption could reduce profitability because the refinery will need to source alkylate externally rather than producing it internally as a by-product.
Analysts at Jefferies said the outage would create pressure on refining margins. They noted that Viva Energy would need to purchase alkylate for use in premium gasoline and aviation gasoline production, adding costs that were previously avoided through in-house production.
The company also disclosed that refining margins at the Geelong refinery averaged USD 23.9 per barrel during April and May. This was below market expectations, with Visible Alpha consensus estimates standing at USD 29.7 per barrel for the quarter ending June 30.
Viva Energy said the weaker margin performance reflected lower production levels following the fire-related disruption, as well as higher crude oil premiums during the period. The company indicated that these factors affected both refinery output and overall margin yields.
Investor sentiment remained cautious following the update. Viva Energy shares fell by as much as 3.8% during trading in Sydney, underperforming the broader Australian market, where the benchmark ASX200 index recorded only a marginal decline.
The Geelong refinery remains a strategically important asset for Australia's fuel supply chain, and the restoration of RCCU operations is expected to improve production levels. However, the prolonged absence of the alkylation unit means the company will continue facing operational and margin-related challenges over the coming year.
Source Reuters
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