Estimated reading time: 13 minutes
Australia has enormous energy resources. Yet we remain heavily dependent on overseas oil and imported fuel.
If international shipping were interrupted, Australia could not simply replace those imports overnight. Diesel is needed for trucks, farms, mines, construction equipment and emergency services. Jet fuel keeps aircraft moving. Fuel security affects almost every part of the economy.
The Latrobe Valley may offer part of the answer.
Brown coal could potentially be converted into synthetic oil using Australian-developed Cat-HTR technology. The oil would be refined into diesel, petrol and jet fuel. The process would also produce an upgraded carbon product that may be suitable for sale as PCI coal for steelmaking.
If it works commercially at the expected scale, a Commonwealth-owned project could:
- Potentially produce Australia’s present lquid fuel requirements.
- Reduce Australia’s Potential on impoerted fuel.
- Create a major new industry in the Larobe Valley.
- Produce fuel at a competitive price.
- Earn enough money to pay its construction costs; and
- Eventually contribute billions of dollars a year to the federal budget.
This is not yet a bankable project. The technology, product yields, construction costs and carbon market must first be independently proven.
But the potential prize is large enough that Australia should investigate it seriously.
Jump to
- The proposal
- How Cat-HTR works
- What producing half our fuel means
- The estimated construction cost
- What the fuel could cost
- How quickly the investment could be repaid
- The possible federal budget contribution
- The risks that cannot be ignored
- Build one first
The proposal
Australia currently uses approximately 59 billion litres of diesel, petrol and jet fuel each year.
A long-term Latrobe Valley project producing half this amount would therefore supply approximately:
29.5 billion litres of finished fuel each year.
The proposal would have four main parts:
- A brown-coal mining and preparation operation.
- A group of Cat-HTR conversion plants.
- A refinery producing diesel, petrol and jet fuel.
- Carbon dioxide pipelines and storage beneath Bass Strait.
The project could be owned by the Commonwealth but designed, built and operated by experienced private companies under commercial contracts.
That distinction matters.
Private contractors would be paid to deliver results. But the Australian public would own the major assets and receive the long-term earnings.
How Cat-HTR works
Cat-HTR stands for Catalytic Hydrothermal Reactor.
In simple terms, it uses hot, pressurised water to break down brown coal and separate it into more valuable products.
Publicly available estimates suggest that one dry tonne of Latrobe Valley brown coal could produce approximately:
- Two barrels of synthetic crude oil, and
- 0.6 tonnes of upgraded carbon.
The synthetic crude would be sent to a refinery and converted into diesel, petrol and jet fuel.
The upgraded carbon could potentially be sold as a PCI-type product. PCI coal is finely ground coal injected into blast furnaces during steelmaking.
This second product is important. Revenue from its sale could substantially reduce the net cost of producing the synthetic oil.
However, the upgraded carbon has not yet been proven as a large-scale replacement for established PCI coal. Steelmakers would need to test and certify it before its full value could be relied upon.
What producing half our fuel means
Producing 29.5 billion litres of finished fuel each year would be an enormous undertaking.
Our central estimate indicates the project could require:
| Requirement | Approximate scale |
|---|---|
| Finished fuel production | 29.5 billion litres a year |
| Average refinery output | 509,000 barrels a day |
| Refinery nameplate capacity | 600,000–650,000 barrels a day |
| Dry brown coal | 103 million tonnes a year |
| Wet brown coal | About 295 million tonnes a year |
| Cat-HTR plants | Approximately 35 large modules |
| Upgraded carbon product | About 62 million tonnes a year |
| Process carbon dioxide | Potentially 35–45 million tonnes a year |
The refinery alone would be approximately five times the capacity of the present Geelong refinery.
This is why the proposal cannot sensibly begin as one giant national project. It would have to be developed in stages.
The estimated construction cost
Our preliminary estimate is:
| Project component | Estimated capital cost |
|---|---|
| Cat-HTR conversion plants | A$40–55 billion |
| Refinery and hydrogen facilities | A$20–30 billion |
| Mine expansion | A$5–10 billion |
| Power, water and common services | A$5–10 billion |
| Pipelines, terminals and fuel distribution | A$5–10 billion |
| Carbon capture and storage expansion | A$10–20 billion |
| Engineering, contingency and construction finance | A$15–25 billion |
| Estimated total | A$100–140 billion |
“Like the Geelong and Lytton refineries, the proposed refinery would produce hydrogen by reforming the naphtha fraction of its synthetic crude and recovering hydrogen-rich process gases. Additional hydrogen production would only be required if this internal supply was insufficient.”
A reasonable central planning figure is therefore:
Approximately A$120 billion.
This would make it one of the largest industrial projects Australia has undertaken.
The figure is a planning estimate, not a contractor’s fixed-price quotation. A proper front-end engineering and design study would be needed before any final investment decision.
What the fuel could cost
Our earlier estimate for a first commercial Cat-HTR operation produced a central synthetic-crude cost of approximately A$41 per barrel, after allowing for revenue from the upgraded carbon.
That estimate included:
- Around A$79 per barrel of processing and capital costs.
- A carbon-product credit of approximately A$48 per barrel.
- Around A$10 per barrel for carbon capture and storage.
After refining, transport, distribution, retail costs, fuel excise and GST, this suggested a diesel price near A$1.27 per litre.
The much larger national project would require additional mines, pipelines, storage, refinery capacity, ports and carbon storage. Allowing for that national infrastructure, a more prudent cost-recovery estimate is approximately:
A$1.40 per litre at the pump.
This remains an early estimate. Hydrogen costs, refinery yields, finance costs, carbon-product prices and construction overruns could all change the result.
The Commonwealth would also face a policy choice.
It could sell the fuel cheaply and take longer to recover the public investment. Alternatively, it could initially sell near the normal market price, repay the investment more quickly and reduce prices after the capital had been recovered.
How quickly the investment could be repaid
At full production, our central operating estimate is:
| Annual item | Central estimate |
|---|---|
| Mining, conversion, refining, hydrogen, CCS and distribution | A$16 billion |
| Revenue from upgraded carbon | A$5 billion |
| Net operating cost after carbon revenue | A$11 billion |
The A$5 billion carbon estimate assumes an average plant-gate value of only about A$80 per tonne.
This is deliberately cautious. Selling 62 million tonnes a year would place a great deal of new carbon into the international market. It would be unsafe to assume that every tonne could be sold at premium PCI prices.
The following scenarios show how the retail fuel price could affect investment recovery:
| Diesel-equivalent retail case | Annual cash available to repay capital | Simple payback after full production |
|---|---|---|
| A$1.27 per litre | A$7.2 billion | About 17 years |
| A$1.40 per litre | A$10.7 billion | About 11 years |
| A$1.80 per litre | A$21.4 billion | About 6 years |
| A$2.10 per litre | A$29.5 billion | About 4 years |
These are simplified planning cases. Petrol, diesel and jet fuel have different wholesale prices and tax arrangements. The table should not be mistaken for a detailed financial model.
The most commercially realistic result may be:
About six to eight full operating years to repay the investment if fuel is initially sold near normal market prices.
Allowing for financing costs would probably extend this to approximately seven to nine years.
Because the complete project could take 12–15 years to construct, the original investment might be fully recovered around 15–20 years after the program began.
The possible federal budget contribution
The project would not immediately provide billions of dollars for general government spending.
During its early operating years, most of its cash earnings should be used to repay the construction investment.
Once the investment had been recovered, the position would change.
At a diesel-equivalent market price of approximately A$1.80 per litre, the completed project could produce around A$21 billion a year in operating cash, after the assumed carbon revenue and operating costs.
After allowing for future plant replacement, expansion, unexpected costs and a prudent financial reserve, a possible Commonwealth dividend could be:
Approximately A$15–20 billion a year.
For comparison, the Australian Government’s forecast underlying cash deficit for 2026–27 is A$31.5 billion, with total receipts of A$798.1 billion.
A mature Latrobe Valley fuel project could therefore generate an amount equivalent to roughly half to almost two-thirds of the present annual federal deficit.
It would not automatically balance the budget. Future deficits, fuel prices, operating costs and government decisions will change.
But it would be a significant new source of public revenue—roughly 2% to 2.5% of present Commonwealth receipts.
This calculation does not count fuel excise and GST as new project revenue. The Commonwealth already collects those taxes on imported fuel. Claiming them as an additional benefit would be misleading.
Employment taxes, company activity, lower imports and regional development may provide further economic benefits, but those have not been included in this estimate.
Why public ownership matters
If taxpayers carry the risk, taxpayers should receive the long-term reward.
A Commonwealth-owned project company could:
- Own the mines, conversion plants, refinery and major infrastructure.
- Contract experienced businesses to design, build and operate the facilities.
- Sell fuel commercially.
- Repay the project investment from operating earnings.
- Pay future dividends to the federal budget.
- Publish its costs, contracts and performance.
- Operate through an independent commercial board.
The project should not become a political slush fund or an excuse for hidden subsidies.
Its accounts should be public. Its board should be professionally appointed. Major construction contracts should be independently reviewed. Governments should not be able to disguise losses or direct spending for short-term political purposes.
Public ownership can work—but only with strong commercial discipline and transparent reporting.
The risks that cannot be ignored
The project has substantial risks.
The technology is not yet proven at this scale
Cat-HTR has a real technical history, but there is no operating Latrobe Valley complex producing hundreds of thousands of barrels of finished fuel each day.
Public estimates are not the same as a bankable performance guarantee.
The PCI carbon market may be too small
Producing 62 million tonnes of upgraded carbon each year would be comparable with Australia’s existing PCI export trade.
The project cannot assume that all of this product will sell quickly or at premium prices. Binding steelmaker offtake agreements would be essential.
Carbon storage would require major expansion
The current CarbonNet proposal describes storage of at least 188 million tonnes and an injection rate of approximately 7.5 million tonnes a year.
A national-scale fuel project may need to store 35–45 million tonnes of process carbon dioxide every year.
CarbonNet, as presently proposed, would therefore be far too small. New storage areas, pipelines, injection wells and monitoring systems would be required.
The project would not be emissions-free
Capturing the concentrated carbon dioxide created at the plant would greatly improve the result, but the finished fuel would still release carbon dioxide when used.
The upgraded carbon would also create emissions if used in steelmaking.
This is a fuel-security and industrial project—not a zero-emissions energy source.
Construction costs could rise
Large Australian industrial projects regularly face labour shortages, delays and cost overruns.
This is why the Commonwealth should never approve the full A$120 billion program in one decision.
Build one first
The sensible approach is simple:
One plant first. Prove it. Then scale it.
The first commercial module should process approximately three million tonnes of dry brown coal each year.
Before further plants are approved, it should demonstrate:
- Reliable continuous operation.
- The promised synthetic-oil yield.
- Competitive fuel-production costs.
- Successful refining into road and aviation fuels.
- A verified market for the upgraded carbon.
- Safe carbon capture, transport and storage.
- Compliance with environmental and water requirements.
- Construction costs that support the national business case.
If the first plant fails, the program stops before the Commonwealth commits another hundred billion dollars.
If it succeeds, identical or improved modules can be added progressively.
Each expansion stage should have an independent investment test.
The bottom line
Australia has a public problem: we depend heavily on imported fuel for transport, farming, mining, aviation and national defence.
The Latrobe Valley may offer a profitable public response.
A national Cat-HTR and refinery program could potentially:
- Supply half of Australia’s present fuel needs.
- Produce competitive diesel, petrol and jet fuel.
- Support a major new Latrobe Valley industry.
- Reduce exposure to overseas fuel disruptions.
- Repay approximately A$120 billion of public investment.
- Eventually contribute A$15–20 billion a year to the federal budget.
None of this is guaranteed.
The first task is not to announce a A$120 billion megaproject. It is to establish the facts through independent testing, engineering design, refinery trials, carbon-product certification and a properly governed first commercial plant.
But if those tests succeed, Australia may have something rare:
A nation-building public project that strengthens fuel security, pays for itself and produces a lasting return for the Australian people.
Sources and material reviewed
- Australian Government, Australian Petroleum Statistics and Minimum Stockholding Obligation statistics. Used to estimate national fuel consumption.
- Australian Government, Budget Paper No. 1, 2026–27. Used for the federal deficit and receipts comparison.
- IEA Clean Coal Centre, The Direct Injection Carbon Engine. Used for historic Cat-HTR product yields and energy data.
- Geological Survey of Victoria, Dr Len Humphreys—Latrobe Valley brown-coal development. Reviewed for the early Cat-HTR proposal and commercial estimates.
- Licella, What is Cat-HTR technology?. Reviewed for the technology description.
- Cat-HTR patent US20130276361A1. Reviewed for process information; it does not provide bankable commercial economics.
- Victorian Government, CarbonNet project information. Used for current storage capacity and timetable information.
- IEAGHG, Relative costs of a CarbonNet transport and storage service. Reviewed for carbon transport and storage costs.
- Australian Taxation Office, Fuel tax rates from July 2026. Used for the current diesel excise rate.
- ACCC, Weekly fuel price monitoring. Reviewed for retail-fuel context.
- Reserve Bank of Australia, Exchange-rate statistics. Used when converting international coal prices.
- Viva Energy, Geelong refinery. Used as an Australian refinery-capacity comparison.
- Public reports of a proposed three-million-tonne Latrobe Valley Cat-HTR plant were also reviewed. These reports contain useful claims, but detailed engineering and commercial evidence was not publicly available. Their cost and production figures have therefore not been treated as independently verified.
Important limitation: The calculations on this page are preliminary estimates constructed from public information. They are intended to show the possible scale and economics of the proposal. They are not a feasibility study, investment prospectus or government cost estimate.