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UPDATE 1-Australia's Viva Energy warns it may shut refinery on demand plunge

* Coronavirus lockdowns depress fuel demand in Australia

* Viva Energy in talks with govt; to provide update in Oct (Recasts with CEO comment, adds background, shares, graphic)

Sept 7 (Reuters) - Australia’s Viva Energy Group said on Monday it may be able to resume full output at its Victorian refinery if coronavirus lockdown curbs are eased, but warned a full shutdown is still on the cards given the dire long-term outlook for the industry.

A virus-driven demand slump has battered Australia’s oil refiners and sparked threats of closures, prompting the government to launch talks with the industry on how to shore up the sector.

Viva, which has already reduced production at its Geelong refinery, said if COVID-19 restrictions are relaxed as foreshadowed and fuel demand recovers, the refinery could return to full production in November 2020.

However, the longer-term outlook for the refining business remains very challenging and continues to weigh on regional margins, Chief Executive Scott Wyatt said in a statement.

While the company was encouraged by the government review of the sector, it was looking at other ways to address operating losses, including a full shutdown.

It expected to provide an update in October.

On Sunday, coronavirus hotspot Victoria state extended a hard lockdown in its capital Melbourne until Sept. 28 and outlined a staged plan for easing curbs, due to a slower than hoped decline in infection rates.

Viva said it has invested more than A$600 million ($437.04 million) at the refinery since buying it in late 2014.

Australia’s biggest fuel supplier Ampol Ltd earlier said it planned to restart its Lytton oil refinery in September after five months of shutdown, saying refining was still a better alternative than importing products.

In August, global oil major Royal Dutch Shell was forced to shut its 110,000-barrel-per-day refinery unit in the Philippines as a demand slump hurt margins.

Viva’s shares fell as much as 5% on Monday to their lowest since mid-June. ($1 = 1.3729 Australian dollars) (Reporting by Rashmi Ashok and Sameer Manekar in Bengaluru and by Florence Tan in Singapore; Editing by Richard Pullin)

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