Running on nearly empty: fool's gamble with fuel reserves
Since the revelation in March last year that Australia’s national security could be threatened by the fact that the country has fuel reserves of just 43 days’ supply, (see also: “Steam rail backup could get us out of hot water”, News Weekly, July 28, 2018) the Federal Government has dragged its feet on rectifying this untenable situation.
Last year, the Australian Parliamentary Joint Committee on Intelligence and Security (PJCIS) and the International Energy Agency (IEA) both expressed concern that Australia was the only country not to comply with the IEA international energy program treaty that requires member countries to hold “crude oil and/or product reserves equivalent to 90 days of the previous year’s net imports”. In fact, Australia had been non-compliant since March 2012.
Thirty countries are signatories to the treaty, 23 of which are in Europe. As of September 2018, Australia’s fuel stocks sat at 52 days. By comparison, Denmark had 23,205 days’ fuel supply.
A PJCIS review of the Security of Critical Infrastructure Bill 2017 said: “The Committee recommends that the Department of Home Affairs, in consultation with the Department of Defence and the Department of the Environment and Energy, review and develop measures to ensure that Australia has a continuous supply of fuel to meet its national security priorities”.
It also urged that “the Department should consider whether critical fuel assets should be subject to the Security of Critical Infrastructure Bill 2017”.
That bill, enacted in 2018, led to the formation of the Critical Infrastructure Centre, aimed at scrutinising foreign investment in critical infrastructure assets and directing electricity, gas, ports and water entities not to act in ways that risk national security.
Responding to warnings about fuel security, the Government announced last May a Liquid Fuel Security Review but inexplicably stated that this “should not be construed as Australia having a fuel security problem”. Perhaps this befuddled thinking was the reason why the review has faltered, even though it was supposed to be completed last year. In relation to critical fuel assets being subject to the Security of Critical Infrastructure Act 2018, we await the Government’s response to the review.
The Government then announced it would purchase up to 400 kilotonnes of oil tickets from the Netherlands in 2018–19 and 2019–20 at a cost of $23.8 million to comply with the IEA mandate by 2026. This, however, is now estimated to add only 3.8 days to our fuel stockholding because our ever-increasing domestic demand raises the amount that is mandated.
In any case, the 90-day mandate is meaningless because all that Australia has is a promise of fuel, meaning that Australia has bought oil stock tickets from another IEA member country.
A “ticket” “is a contractual right to purchase or release oil, where the seller agrees to reserve a predetermined quantity of oil for the period of the contract, in return for an agreed fee”.
In other words, it assumes that the oil will be available and supply lines will be open during a global oil emergency.
Liberal MP and chairman of the PJCIS, Andrew Hastie, views fuel stocks as part of national security. “You can have the best military in the world but it’s futile if you can’t fuel it,” he said.
Conversely, the Energy Department has kept its head in the sand, saying low supplies were not a serious concern as there had never been a serious interruption to Australia’s supply.
The Department has a short memory. Petrol rationing was government policy between 1940–50 as a result of World War II. China’s aggressive moves in reclaiming land in the South China Sea and conflict in the Middle East must shed some light on how easily freedom of navigation affecting supply lines can be threatened.
“Fifty per cent of our imported diesel and 60 per cent of our jet fuel comes through the South China Sea,” said Mr Hastie.
Given the facile position of the Energy Department, retired Air Vice-Marshal John Blackburn believes an independent reviewer should be conducting the Liquid Fuel Security Review, especially as the Government views energy security through a “market lens”.
We can see the catastrophic results of letting the international market decide in an under and unemployment rate over 23 per cent and disappearing manufacturing. Australian manufacturing as a percentage of gross domestic product (GDP) has fallen from 30 per cent in 1957 to under 6 per cent today, below that of Greece, as a result of successive governments removing protections for our domestic economy. We should expect a direr outcome if we trust market forces to dictate national fuel security.
The BP Statistical Review of World Energy 2018 shows that Australia produced 14.8 million tonnes of oil in 2017, down from 24.5 million in 2010. Oil consumption in 2017 was 52.4 million tonnes, rising from 45.7 million in 2010. Clearly, there is a shortfall in our production versus consumption.
However, according to the BP Review, we currently possess 400 million tonnes of oil reserves in the ground, which has not shrunk since 1997 despite constant extraction. Resources Minister Matt Canavan told The Australian on January 9, 2019, that increasing Australia’s oil supply by extraction in the Great Australian Bight and Beetaloo Basin in northern Australia was the best way to secure our fuel reserves.
We need 90 days’ of fuel here in the country. We need to increase our oil extraction, maintain a domestic reserve for emergencies and ensure our four remaining oil refineries continue to operate so that the nation can function in times of crisis.