A fire at the Viva Energy refinery in Geelong has temporarily reduced Australia's domestic jet fuel production, adding to the challenges faced by Qantas, Jetstar, and Virgin Australia as they contend with a global fuel price surge and supply disruptions stemming from geopolitical conflicts and export limitations in Asia.
A fire at the Viva Energy refinery in Geelong has temporarily reduced Australia's domestic production of jet fuel , exacerbating existing concerns for airlines like Qantas , Jetstar, and Virgin Australia as they navigate a volatile global fuel market.
Energy Minister Chris Bowen confirmed that while jet fuel and diesel production continues at the Geelong plant, it is operating at reduced capacity due to safety measures implemented in the wake of the incident. This reduction in domestic supply is particularly significant given that the Geelong refinery is estimated to supply approximately 19 percent of the nation's jet fuel requirements, with the remaining volume being imported.
Fortunately, the aviation fuel section of the refinery is not believed to have sustained damage from the fire itself, but the overall reduction in operations inevitably impacts its output. This development adds another layer of complexity for Australian airlines, which are already grappling with a global fuel shock stemming from geopolitical tensions.
Qantas, for instance, has highlighted its significant reliance on imported jet fuel, with 90 percent of its supply sourced from overseas. While the airline has implemented hedging strategies to mitigate the impact of crude oil price fluctuations, covering approximately 90 percent of its exposure for the latter half of 2026, this protection does not extend to refining margins.
These margins, which represent the cost of transforming crude oil into usable aviation fuel, have seen a dramatic increase, soaring from around $US20 per barrel in February to a peak of approximately $US120. This exposure to refining margins leaves Qantas vulnerable to further cost increases. Virgin Australia, on the other hand, has taken a more comprehensive hedging approach, securing both crude oil and refining margin protection.
The airline anticipates that rising fuel costs will add an estimated $30-$40 million to its expenses in the latter half of 2026. Looking ahead, Virgin Australia has hedged 92 percent of its Brent Crude Oil exposure and 71 percent of its refining margins for the remainder of the second half of 2026. However, for the first half of 2027, while Brent crude hedging remains robust at 93 percent, refining margin coverage drops significantly to only 15 percent, indicating potential future cost pressures.
The current global fuel price surge was ignited in March following military actions involving the US, Israel, and Iran, which led to Iran retaliating by closing the Strait of Hormuz. This critical shipping lane is a primary conduit for oil exports to Asian nations that supply a substantial portion of Australia's refined fuel. The retaliatory strikes extended to other energy assets in the region, further destabilizing supply chains.
Hugh Dive from Atlas Funds Management underscored the impact of the Geelong fire, estimating that the refinery produces around 1.9 billion litres of jet fuel annually for a market that consumes approximately 10 billion litres. The temporary reduction in its refining capacity will undoubtedly tighten jet fuel availability in Australia, with Dive noting that airlines are currently facing a competitive scramble for supply, raising concerns about the potential for physical shortages.
Beyond the direct disruption caused by the Strait of Hormuz closure and the Geelong fire, global jet fuel supply is also being impacted by export limitations imposed by Asian refiners. Consultancy Oxford Economics reports that refiners in China, South Korea, and Thailand are conserving inventories by restricting exports, while Japanese and Indian refiners are similarly reluctant to sell abroad.
This broader constraint on jet fuel availability is beginning to limit aviation capacity, with airlines prioritizing higher-yield long-haul services and potentially reducing short-haul routes. Consequently, tourism-dependent economies and regional aviation hubs may experience a decline in transit volumes and associated service activities.
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