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Time to take stock of Australia’s fuel security

Opinion Piece

Date : 07 May 2018

Author: The Hon. Josh Frydenberg MP

Publication: The Age & The Sydney Morning Herald

As the world’s eighth largest energy producer, Australia’s fuel supplies have proved to be remarkably reliable and resilient over the last four decades. The last significant disruption was in the 1970s with the OPEC oil crisis. But since then, much has changed both domestically and internationally, requiring a reassessment of Australia’s liquid fuel security.

Liquid fuel includes petrol, diesel and jet fuel and accounts for 37 per cent of Australia’s energy use and 98 per cent of our transport needs.

Led by the Department of the Environment and Energy, the Turnbull government will undertake a review to examine how fuel is supplied and used in Australia and our ability to withstand significant disruptions to the supply chain. The findings will be provided to government before year’s end and in turn be part of a more comprehensive national energy security assessment in 2019, which will also take into account the gas and electricity sectors.

In the last 10 years, three of Australia’s seven domestic refineries have closed and our domestic production of liquid fuels has declined by a third as existing fields become exhausted. As a result Australia’s reliance on imported fuel has increased.

Today, we import 75 per cent of our crude and 55 per cent of our refined product, with imports of crude oil sourced from 21 countries and refined product coming from 47. No one nation provides more than 20 per cent of our total petroleum imports, with Malaysia our largest crude supplier and South Korea our most significant source of imported refined product. On any one day, there are up to 45 oil tankers en route to Australia, with more than 20 days’ worth of supplies on board.

As our domestic production levels and refining capacity have reduced, so too has the level of our domestic oil holdings, as required by the International Energy Agency (IEA). Australia became a member of the IEA in 1979 and as one of its 30 members is required to hold the equivalent of 90 days of the previous year’s average daily net oil imports.

The rationale being that in the event of a major disruption of the global fuel supply chain, members’ stocks should not only be sufficient for domestic use, but also to contribute to a collective effort to plug the gaps in the global supply. Such action has been triggered only three times, including in 1991 during the Iraq conflict, in 2005 after Hurricane Katrina and in 2011 with the turmoil in Libya.

While only nine countries have been non-compliant with the IEA 90 day requirement since 2002, Australia has been one of them. Australia has been non-compliant since 2012, with our current holdings around 49.6 days of net imports. This is less than where we and the IEA would like us to be.

It is why the Turnbull government has announced its intention to get back to full compliance by 2026 and is why we enacted a mandatory reporting scheme for the production, refining, consumption and stock levels of fuel, with the passage of the Petroleum and Other Fuels Reporting Act 2017.

It is also why we established in the budget two years ago the Energy Security Office and allocated $23 million for new ticketing arrangements that enable Australia to enter into supply arrangements with other countries. These legal arrangements, which have treaty level status, provide Australia with the ability to participate in a collective action, if required. Such ticketing arrangements have been used in the past by a number of other countries, and over the last 12 months Australia has entered into a binding agreement with the United States and the United Kingdom, with discussions also under way with other nations.

While Australia’s plan to return to compliance has been “commended” by the IEA in its country review released earlier this year, the IEA did highlight Australia’s vulnerability to “unexpected changes in Asian regional demand patterns and to any disruptions to the main supplies from the Middle East”.

It is a point that has also been made by the NRMA, the Australian Strategic Policy Institute and by other independent analysis of Australia’s fuel security, including the 2013 Blackburn Report and most recently a report by the parliamentary joint committee on intelligence and security.

With the supply and demand dynamics of global energy markets changing rapidly and nearly a decade since the last national energy security assessment, the time is right to relook at and rethink Australia’s fuel security. There is no room for complacency and this review, which will bring together key stakeholders, will detail the steps necessary to ensure Australia continues to enjoy an affordable and reliable fuel supply.

Josh Frydenberg is the Minister for the Environment and Energy.

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