Caltex revealed this morning it would close the 57-year-old Sydney refinery, converting it into a fuel import terminal after 2014.
The move will put 330 permanent workers out of work and is expected to also cost the jobs of more than 300 contractors.
Caltex said a one-year review of its ailing refinery business had been unable to come up with a solution to rising costs, falling margins, a higher dollar and competition from giant new refineries in Asia.
At the same time, Caltex rejected claims petrol prices would spike as a result of the refinery closure, saying market forces dictate the cost of fuel.
Australian Workers Union national secretary Paul Howes attacked the decision as "outrageous" and accused Caltex of lying to its workers and the government.
Mr Howes said he held Woolworths partly responsible for the move, saying the food and fuel retail giant could have prevented the closure by placing pressure on Caltex.
He said Woolworths, which claimed to be Australia's "fresh food people", should be known as "the foreign fuel people".
"But by allowing Caltex to go ahead with this decision, by allowing Caltex to put foreign fuel into Woolworths petrol bowsers, they are lying to the Australian people, and their advertising is misleading," Mr Howes said.
"And I'll urging all consumers to watch where they are sourcing their fuel from. Because after all, Caltex market themselves through Woolworths.
"And Woolworths do have a level of responsibility here, and if they want to be a good Australian ... they've actually got to deliver and put their money where their mouth is."
Woolworths Petrol general manager James Aylen said the company had nothing to do with the Caltex decision.
''Any decision on refining processes at Kurnell is a matter for Caltex. We have been assured that our petrol supply will not be impacted in any way,'' he said.
Mr Aylen said Woolworths sold less than one third of Kurnell's total output, and that 84 per cent of crude oil refined in Australia was imported.
''We also note the Prime Minister's comments this morning that this event has been largely unavoidable for Caltex due to the economic pressures on an ageing and small facility,'' he said.
Mr Howes also said the announcement had led to fears that consumers would be slugged with higher fuel costs, and warned that drivers would suffer.
''Caltex's announcement of closure of Kurnell is a kick in the guts to every motorist,'' Mr Howes wrote on Twitter following the announcement.
However, Caltex managing director Julian Segal has dismissed those concerns during a press conference outlining the company's plans.
Asked whether the closure would result in petrol prices going up, Mr Segal replied: ''The answer is 'no'. There will be no impact.''
The company said the decision to close the refinery had been a difficult one, but all other options had been exhausted.
Julia Gillard said while was a tough day for the refinery's workers, the refinery had been old and uneconomic.
"By the standards of the world it's really quite a small refinery so not at an efficient scale," she said.
"Obviously the higher dollar has paid a role as well."
Ms Gillard said Australia's economy was in good shape forces of change, including the high dollar and the resources boom, were impacting on certain industries.
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