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UK supermajor BP plc (BP - Analyst Report) intends to terminate operations at its Bulwer Island refinery in Brisbane, Australia by mid 2015. The main reason behind this structural change within the fuels supplies chain in Australia is increasing competition from new mega-refineries in Asia that are cheaper to control.

A higher local dollar, strict fuel quality standards as well as the introduction of super-sized refineries in Asia has rendered several oil majors – Royal Dutch Shell plc (RDS.A - Analyst Report), ExxonMobil Corp. (XOM - Analyst Report) and Caltex Australia Ltd. –with refineries in Australia uncompetitive. As a result, these have booked losses over several years rather than spend money on upgrading them. BP along with other majors has been on a lookout to either sell or turn these refineries into fuel import depots.

The Bulwer Island refinery, which dates back to the 1960s has a capacity of 102,000 barrels of fuel per day. It employs 380 staff and 300 contractors and produces petrol, diesel, kerosene, aviation fuel, heating oil and LPG. The refinery is being considered for conversion into a multi-product import terminal.

To avoid any interruption to customers, alternate supply arrangements have been made. A long-term agreement with Caltex for the supply of motor spirit and diesel from the close-by Lytton refinery and imports of jet fuel are examples of such arrangements.

An estimated period of 12 months is required to carry out the changes necessary to maintain supply and safely shut down the process units. The import jetty, aviation fuel tanks and related pipelines will remain functional even after processing is stopped. Other storage tanks and pipelines will be placed on a care-and-maintenance basis until a decision to convert the site to a multi-product import terminal is taken.

The processing units will be abandoned and made secure while plans for their eventual removal and environmental remediation are developed.

BP carries a Zacks Rank #3 (Hold). However, a stock worth adding to ones investment portfolio is Zacks Ranked #1 (Strong Buy) Valero Energy Corp. (VLO - Analyst Report).

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