Australia bets on a refinery the rest of the world is closing

Climate & Energy 4 min 15 sources

A new oil-refinery plan runs against a two-decade retreat, while solar quietly out-produces coal and a fresh El Nino loads the dice for a record-warm year.

Key takeaways

Australia wants to build its first new oil refinery since the 1960s, even as six have closed in twenty years and experts call refining uneconomic.
Across oil - Venezuela's rusting plants, cautious producer spending, low US stockpiles - the business is pulling back, while solar out-produced coal in the US in May.
A fast-developing El Nino is raising the odds of a record-warm 2026, with Europe now in its fourth heatwave of the summer.

Australia this week announced plans to build a large-scale oil refinery in Western Australia - its first new refinery since the 1960s [1]. The federal government and the state will jointly fund a A$4 million pre-feasibility study to ask whether the country needs one, and if so, where [1]. The trigger was pain at the pump: the prolonged US-Iran war sent petrol prices surging and exposed how much of the country’s fuel now comes from abroad [1].

The plan runs against a long retreat. Two decades ago Australia had eight refineries; today it has two, after ageing plants and rising costs made the rest uneconomic to run [1]. The former largest, Kwinana near Perth, shut in 2021 [1]. The country now imports about 90% of its petrol, jet fuel and diesel from Asia [1]. Energy experts told the Guardian the feasibility study will likely find the project uneconomic and dependent on subsidies, calling refining “dinosaur technology” in a country trying to cut emissions [2].

The oil business is quietly pulling back

Australia’s dilemma is one instance of a wider squeeze. In Venezuela, which sits on some of the world’s largest crude reserves, the giant Paraguana refining complex - rated at 955,000 barrels a day - now runs at a fraction of capacity [3]. A worker at its Amuay plant told Reuters everything looks “ugly and rusty” [3]. The decline is decades in the making, and reviving it would be enormously costly, even with President Trump promising $100 billion in foreign oil investment [3].

The pullback shows up in the numbers too. The oilfield-services firm Baker Hughes said it expects oil and gas producers to spend less in 2026 [4]. Oil prices fell about 5% to a two-week low after the US paused strikes on Iran, easing fears about supply through the Strait of Hormuz [6]. Yet US crude inventories have dropped to what the Financial Times called a “precariously low” level, strained by the same conflict [7]. Russia, meanwhile, moved to extend a ban on diesel exports.

A note on the North Sea, where Britain is again fighting over new drilling licences: getting a bit more gas out of a mature basin barely changes the climate maths, New Scientist argues [5]. Blocking new licences does not lower how much fuel the world burns - it mostly changes where that fuel comes from [5]. What lowers emissions is burning less, which means more electricity from clean sources and more cars and heating running on it [5].

Meanwhile, the cheap electrons keep winning

That shift is already visible in the data. In the US in May, solar generated more electricity than either coal or wind, according to new figures from the Energy Information Administration, the federal energy-statistics agency [8]. Across the first five months of the year, wind and solar together produced 57% more power than US coal plants and 26% more than its nuclear reactors [8].

The reason is a slow, compounding advantage. Batteries keep getting cheaper while gas gets pricier, and the mechanism is simple: we get better at building a technology the more of it we build [9]. Storage costs fall along that learning curve; a fuel you dig up and burn does not. Analysts expect the US clean-energy build-out to keep running hard to 2030 - a record 50 gigawatts of wind, solar and battery capacity went in during 2025 alone - before policy uncertainty clouds the picture [10].

A hotter year is loading

The physical backdrop is warming fast. A rapidly developing El Nino - the Pacific warming pattern that nudges global temperatures up - is raising the odds of a record-warm 2026, Carbon Brief reports [11]. Europe is in its fourth heatwave of the summer, with France and Spain fighting wildfires [12]. And a warning against a tempting shortcut: Carbon Brief’s factcheck finds no, Europe’s heatwaves are not being “caused” by cleaner air reducing pollution - greenhouse gases are the driver [13].

The under-covered corner

For all the noise about a Chinese solar juggernaut, its home market is set to shrink. China’s solar installations are heading for their first annual contraction since 2019, as subsidies wind down and the industry bleeds money [14]. It is a reminder that even a booming technology has a business cycle. Far from the factories, the bill for warming lands hardest on those who did least to cause it: a new estimate puts climate-fuelled damage to developing island states at 43 billion pounds, borne first by the Caribbean [15].

02 · Lesson · why it matters

The barrel that costs a barrel to lift

The number that decides whether an energy source is worth having is never how much comes out, but how much is left after you subtract what it took to get it.

A country that wants what it keeps closing

Australia has shut six oil refineries in twenty years, down to two, and now wants to build a new one. On paper it makes no sense. There is demand. There is a government willing to spend. There is a security scare about relying on imports. Yet every study of the idea keeps returning the same verdict: uneconomic, needs subsidies, dinosaur technology.

Something keeps saying no even when everyone in the room wants to say yes. To see it, you have to stop counting barrels and start counting a ratio.

Gross is what you see; net is what you get

Getting energy costs energy. You burn diesel to run the rigs, steel to build the platform, power to heat and pump and refine. So the real question about any source is not how much it produces. It is how much it produces compared with how much it swallowed getting there.

Call it the energy return: units out, divided by units spent. Early last century, a well might return twenty-five or thirty units of oil for every one it took to lift. That surplus is what built the modern world - the roads, the food system, the spare energy to do everything that is not getting energy. A source like that runs a civilisation and has plenty left over.

Now imagine a source that returns three to one. It still produces. The gross number still looks big. But for every three units you lift, one goes straight back into lifting the next batch. And a source that returns barely more than one to one is a machine that exists only to feed itself. The gross output can stay impressive while the net - the part that reaches the world - quietly drains toward nothing.

Why the ratio only falls

Nobody drills the hard oil first. You take the easy, shallow, close, light crude - the high-return stuff - because it is cheapest in every sense. As that runs down, you move to what is left: deeper water, heavier and dirtier crude, remoter fields, plants that need rebuilding.

Each step down that ladder is a step down in return. And here is the trap: gross output can hold steady, or even rise, while the ratio falls underneath it. The barrels keep coming. The surplus inside them shrinks.

You can read the whole day’s oil news as one story about that ratio. Venezuela sits on some of the largest reserves on Earth, yet its refineries run at a fraction of capacity and would cost a fortune to revive - enormous reserves, thin net return. Australia’s own crude is declining, so a new refinery would run on imported oil anyway; the net gain for the country is slim. Producers worldwide are planning to spend less next year, not because the oil ran out, but because the return on chasing the next barrel keeps thinning. The reserves are real. The surplus in them is not what it was.

The number they show you, and the one that governs

Notice which figure makes the headlines. Reserves. Output. Barrels per day. Those are gross numbers, and they are the ones governments and companies quote, because a big reserve makes an asset look valuable and a country look powerful. They read like plain fact.

The ratio almost never gets quoted. Yet it is the number actually deciding which projects live and die - the silent judge behind every “uneconomic” verdict. When a figure that governs everything stays out of sight while a flattering one takes the stage, it is worth asking who the visible number serves. A reserve on paper is an asset on a balance sheet. The energy you can actually get out of it is a different, smaller, quieter thing.

We are living on an inheritance

Here is the part that should make anyone hold their conclusions loosely. The comfort of modern life was not paid for by our cleverness. It was paid for by a one-time inheritance of absurdly high-return oil - energy so cheap to get that the surplus felt like a law of nature. It was a windfall, and windfalls are spent once.

That is also the deeper reason the balance is tipping toward sun and wind. As fossil returns fall, the return on solar and storage has been climbing - cheaper every year, because we get better at making a thing the more we make it. In May, US solar out-produced coal. The ratio is the current pulling underneath the visible fight over prices and licences.

None of us stands outside this - not the driver at the pump, not the minister announcing a refinery, not the oil executive quietly cutting next year’s budget. We are all downstream of the same shrinking surplus, and the barrel that costs a barrel to lift is one none of us can wish back into being cheap.

03 · Lab · your turn

The Net-Energy Squeeze

Draw energy from sources with different returns and feel how much you must pump, and waste, as the cheap oil runs out.

04 · Hope · carry this

The oil gets harder to lift with every passing year. The sunlight does not, and every panel we build teaches us to catch it a little more cheaply than the last.