Australia May Build First Oil Refinery in Decades

The Australian government this week announced plans to construct a new large-scale oil refinery in Western Australia. If approved, it would be the first refinery to be built since the 1960s.

The federal government initially touted the idea of a government-backed oil refinery in April . In the months since, Australians have grappled with surging petrol prices triggered by the prolonged US-Iran war.

The federal government, with Western Australia, has now announced it will jointly fund a A$4 million pre-feasibility study into a proposed large-scale oil refinery. This study will assess if Australia needs a new large-scale refinery and, if so, where it should go and how it should be operated.

This announcement raises several crucial questions: what is the government proposing? Could it shore up Australia's fuel supplies? And what does it mean for emissions reduction?

A country exposed

The prolonged US-Iran war has revealed just how vulnerable Australia's liquid fuel supply is.

Two decades ago, Australia had eight oil refineries. That number has dwindled to two - Queensland's Ampol refinery and Victoria's Viva energy plant - as ageing infrastructure and rising costs made these facilities uneconomical. For these reasons the Kwinana refinery - formerly Australia's largest oil refinery located just south of Perth - shut down in 2021.

These closures have made Australia extremely reliant on liquid fossil fuel imports. We currently import 90% of our petrol, jet fuel and diesel from Asia. The remaining 10% of liquid fuels come from Australia's two remaining refineries. Both refineries are remnants of the oil boom of the 1950s and 60s, when several major oil companies scrambled to take advantage of newly discovered Bass Strait oil and a wave of government investment.

But our research shows Australia needed more refineries, even before the US-Iran conflict erupted. This was made clear by the refinery fire at Victoria's Viva plant in April, which temporarily halted domestic production. However, several factors - including high construction costs, declining domestic crude oil supply and intense competition from Asian mega-refineries - have stopped Australia from building new plants .

All about location

The $4 million pre-feasibility study will determine where a new refinery should be built. The government has identified Western Australia as the most suitable state. But it is yet to confirm exactly where the proposed refinery will go.

There are two main contenders. One is Kwinana, which is close to Perth's urban energy market and the now-closed Kwinana refinery. However, it's unlikely to win out given the former refinery site is earmarked for redevelopment as a biofuels hub .

The other option is Karratha in WA's Pilbara region. This fast-growing city is suitable for two reasons. It's close to the North West Shelf project , Australia's largest operating oil and gas development. It's also where Perdaman, the company slated to construct the proposed refinery, is already building a $6.5 billion fertiliser plant .

Feeding the refinery

For the proposed refinery to work, it requires a steady supply of oil.

Australia produces around 250,000 barrels of light crude oil each day. Most of this oil is exported to Asian refineries, and returns to Australia as liquid fuel .

WA's northwest shelf region primarily produces gas. This means it offers only limited feedstock - the raw or processed oil needed to make fuels, chemicals or plastics - for a proposed refinery.

It's possible to redirect northwest shelf oil so it goes to the refinery, instead of being exported. However, Australia's existing export contracts could make this difficult, and negotiations may be necessary.

An alternative oil source is the Bass Strait. In 2026, the federal government started showing interest in Victoria's Gippsland basin and the Bass basin , in the waters between Victoria's southern tip and northern Tasmania. The government is now exploring these basins as potential offshore petroleum sites to gauge if there's appetite for future exploration licences among petroleum companies .

Looking ahead

If approved, it would take between five to ten years to build a facility of this size, subject to whether approvals are fast-tracked.

If the proposal does go ahead, a new refinery would provide much-needed liquid fuel security in a world of surging energy prices and volatile oil supplies . Depending on its size, the new refinery may exceed the former Kwinana refinery's daily production of 146,000 barrels of oil. This would reduce Australia's reliance on imported fuel, and ease the petrol pump pain of all Australians.

But it also begs the question, should Australia keep producing conventional liquid fuels? Our rapidly warming climate demands we shift away from these polluting energy sources. Low-carbon biofuels - renewable fuels made from plants, algae or animal waste - may be one alternative.

Another possible path forward is designing any new refineries so that biofuels can be produced alongside traditional liquid fuels. However, this must be viable from both an environmental and fuel security perspective, and should be a focus of the government's pre-feasibility study.

Tina Soliman-Hunter does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.