26 February 2014, 1.58pm AEDT
Running on empty: Australia’s risky approach to oil supplies
AUTHOR
1.
Research Fellow, Griffith Asia Institute at Griffith University
DISCLOSURE STATEMENT
Vlado Vivoda receives funding from the ARC.
Australia only keeps an estimated 23 days' worth of fuel in the country. Bidgee/Wikimedia Commons
It might sound unlikely, but Australia’s fuel gauge is worryingly low. We’re one of the world’s top
energy exporters, but our stocks of liquid fuels – such as the oil on which almost the whole transport
sector depends – are far from healthy.
Australia’s worsening liquid fuel security problem was detailed this week in the latest instalment of a
report prepared for the National Roads and Motorists' Association.
A year after the issue was first raised, there has been no action to address the growing risks, both
logistical and financial, of keeping so little fuel in the tank.
Lack of refinement
According to the report, refinery closures coupled with growing demand for petroleum have
increased Australia’s dependency on imported refined petroleum products. As a result, oildependent sectors such as transport, mining and agriculture are vulnerable to supply-chain
interruptions or future oil-price spikes.
The situation is made worse by the fact that Australia is consistently the only International Energy
Agency (IEA) member state that fails to maintain the mandated stockpile of 90 days' worth of net oil
imports. Australia’s stockpiles stood at 57 daysas of November 2013. The NRMA report estimates
Australia’s in-country stockpile, which excludes shipments en route to Australia, at only 23 days.
With growing demand for liquid fuels and a continued “hands-off” approach from government, by
2030 Australia is on track to find itself with no refining capacity, less than 20 days' worth of liquid
fuel stocks, and entirely at the mercy of the international oil market.
The report’s author, retired Air Vice-Marshall John Blackburn, has called on the government to step
in. This year’s National Energy Security Assessment and Energy White Paper both offer
opportunities for public debate. The report also suggests making fuel stocks a matter of national
security risk analysis.
Hurting the hip pocket
Relying on imported oil isn’t just risky – it’s expensive too. In 2012, Australia’s net oil imports
were 561,000 barrels per day. At an average of US$109.08 a barrel for that year, the bill was
US$22.3 billion, or 1.7% of Australia’s gross domestic product.
At the same time, there are fears of a slowdown in Australia’s mineral export revenues as China’s
economy loses pace.
Are Australia’s LNG exports masking a problem with its oil
imports? Ken Hodge/Wikimedia Commons, CC BY
The government seems to be refusing to consider the potential threats to Australia’s coal, liquid
natural gas (LNG) and other mineral exports. Australian LNG, for example, costs more than its
competitors in North America and Africa – and Australia’s customers in Asia are increasingly critical
of the prices they are being charged. Without giving any consideration to potential threats to
Australia’s market share in Asia, industry minister Ian MacFarlane has hailed forecasts that assume
a continued increase in energy export revenues.
The back story
Australia’s complacency over oil imports can be traced back to the discovery in the mid-1960s of oil
in Bass Strait. While not large by world standards, these reserves increased Australia’s oil selfsufficiency from 10% to 70% in the years leading up to the 1973 oil crisis, when world prices rose
sharply.
Four decades later the picture is very different, although people don’t necessarily know it. Blinded
by positive headlines about energy exports, only 1% of Australians consider the energy crisis, petrol
prices and fossil-fuel supplies to be our most pressing issue.
Perhaps Australia’s good fortune during the 1970s has helped to entrench a free-market approach to
the oil market, while other nations that were more badly burned by OPEC’s price-gouging have taken
stronger steps towards oil independence.
The Hawke government’s free-market attitude continued through the Howard years, as evidenced in
Australia’s first ever Energy White Paper. Released in 2004, it openly acknowledged Australia’s oil
deficit. But instead of raising the issue as a significant energy security threat, it sought to reassure by
pointing to surpluses in gas, uranium and coal. The policy implication was clear: as long as Australia
remained a net energy exporter, its liquid fuel balance was nothing to worry about.
None of this changed with Labor’s return to power. The 2012 Energy White Paper also struck a
positive tone, based on Australia’s position as an energy producer and net exporter, which implied
overall energy security. And now the Abbott government, in preparing this year’s Energy White
Paper, seems to consider the international oil market so resilient that the supply of crude oil and
refined petroleum to Australia is guaranteed. However, it is worth noting that its recent issues
paper includes a reference to asking whether Australia needs to increase its stockpiles to meet
international obligations.
Real impacts
Energy security issues may impact ordinary Australians directly through high consumer prices, fuel
shortages and the environmental impacts associated with energy consumption. Given the
importance of energy to the Australian economy, it is vital that the government reevaluates its
approach to energy policy and engages in a systematic risk analysis regarding both Australia’s
growing liquid fuel import dependency and potential threats to demand for its energy exports.
While Australia remains faithful to the basic principles of free-market economics, if they are wrong
the consequences could be dire. A bipartisan “hands-off” approach and general public complacency
regarding Australia’s energy future may not serve the nation’s best interest in the long term.
In terms of practical solutions to our growing liquid fuels import dependency, meeting the IEA’s
mandated stockpile levels would be a first step in the right direction. The government should also
consider measures aimed at curbing the demand for liquid fuels in Australia. These might include
higher fuel-efficiency standards, improving public transport infrastructure, promoting carpooling, or
introducing congestion charges in the CBDs of major cities.