Concerns over how long Australia’s fuel supplies would last in an emergency | 7.30

Key Concepts

• Oil Refinery: An industrial process plant where crude oil is transformed and refined into more useful products such as petroleum naphtha, gasoline, diesel fuel, asphalt base, heating oil, kerosene, and liquefied petroleum gas.
• Fuel Security: The reliable and uninterrupted availability of fuel at an affordable price, crucial for national defense, economic stability, and daily life.
• Liquid Fuel Demand: The total consumption of fuels in liquid form, primarily gasoline, diesel, and jet fuel.
• International Energy Agency (IEA) Obligation: A requirement for member countries to hold emergency oil stocks equivalent to at least 90 days of their net oil imports.
• Net Imports: The total amount of a commodity imported by a country minus the total amount exported.
• Fuel Security Services Payment: A subsidy program introduced by the Australian government to support the economic viability of domestic oil refineries during periods of low profitability.
• Boosting Australia's Diesel Storage Program: A federal government initiative to increase the country's strategic diesel fuel reserves.
• Economic Viability: The ability of a business or project to generate sufficient revenue to cover its costs and achieve profitability without external subsidies.

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Australia's Shrinking Refining Landscape and Its Implications

Australia's domestic oil refining capacity has significantly diminished over the past two decades. Currently, only two refineries remain: Viva Energy's refinery in Geelong (Jalong) and Ampol's Lytton refinery near Brisbane. Bill Patterson, General Manager of Viva Energy's Geelong refinery, highlights its critical role, stating it pumps approximately 40% of Victoria's fuel demand and supplies about 10% of Australia's total liquid fuel demand, including gasoline, diesel, and jet fuel. This domestic capability is deemed crucial for meeting onshore needs rather than relying solely on imports.

Historically, just over 20 years ago, Australia boasted eight oil refineries that met most of the country's refined fuel demand. However, one by one, these facilities were deemed economically unviable and subsequently closed. This decline means that only 20% of Australia's liquid fuel demand is now refined domestically, with the remaining 80% being imported.

Critical Concerns Regarding Fuel Security

The heavy reliance on imported fuel has raised significant national security concerns. The Chief of Navy has warned that this situation makes Australia vulnerable. John Blackburn, former Deputy Chief of the Royal Australian Air Force, concurs, emphasizing the particular vulnerability concerning diesel fuel. He states, "Our whole logistics systems and our way of life depends on diesel," as it powers trucks for transport and delivery. Alarmingly, as of July this year, Australia held only 24 days of diesel stocks.

Furthermore, Blackburn points out Australia's failure to meet its international commitments. As a member country of the International Energy Agency (IEA), Australia is obligated to maintain 90 days of net oil import coverage. The last time Australia met this obligation was in 2011, and it is currently the only IEA member country that consistently fails to do so. In September, Australia had only 53 days of net import coverage for oil, significantly below the 90-day requirement.

Queensland MP Bob Katter has been a persistent and outspoken voice warning about Australia's fuel security for years. He paints a dire scenario, suggesting that if Australia were to run out of fuel for two or three months, a "very diabolical situation will arise," potentially leading to food shortages as transport trucks would be unable to deliver supplies to supermarkets. Katter advocates for alternative fuels like ethanol, which could be produced domestically, and criticizes past governments for allowing refineries to close. He proposes building "three giant refineries that are economically viable" to secure future fuel supply.

Government Interventions and Support Mechanisms

In response to the economic challenges faced by the remaining refineries, particularly during the COVID-19 pandemic when world oil prices plummeted, the previous coalition government launched a rescue package in 2021. This package included the Fuel Security Services Payment, a subsidy designed to support refineries during loss-making periods. Viva Energy's Geelong refinery has, to date, received nearly $40 million from this payment.

Bill Patterson explains that the Geelong refinery processes approximately 100,000 to 120,000 barrels per day, which is significantly smaller than some "mega refineries" offshore that are almost ten times the size and operate in much lower-cost environments, a condition not present in Australia. The refineries and the federal government are currently in discussions to extend this crucial support beyond its scheduled end in 2027.

Measures to Enhance Fuel Security

Despite the ongoing concerns, a government spokesperson stated that "Australia is fuel secure," asserting that the country now holds more stocks of aviation fuel, petrol, and diesel on land and in ports than at any time in the last 15 years. The Energy Minister, speaking at the Lytton refinery, underscored the government's commitment to maintaining domestic refining capability, expressing a desire to see both the Lytton and Geelong refineries operate for another 60 years and create more Australian jobs.

The federal government has also contributed over $100 million to the Boosting Australia's Diesel Storage Program. As part of this initiative, new tanks in Geelong now store 90 million liters of diesel fuel, an amount estimated to supply Victoria for a week. This additional storage is intended to provide "that little bit of extra fuel in case of interruptions to supply chain or other events."

Economic Realities of Domestic Refining

The economic viability of Australia's remaining refineries without government assistance remains a critical issue. When directly asked if the Geelong refinery could operate without government support, Bill Patterson's answer was unequivocal: "Yes. Short answer. Yeah, it's a very short answer," confirming that without government assistance, the refinery would be economically unviable.

Conclusion

Australia faces a significant challenge in ensuring its long-term fuel security due to the drastic reduction in domestic refining capacity and a persistent failure to meet international stockholding obligations. While the government has implemented support mechanisms like the Fuel Security Services Payment and invested in increased diesel storage, the economic viability of the remaining refineries is heavily dependent on ongoing government assistance. The debate continues between relying on imports and investing in a robust, albeit costly, domestic refining and alternative fuel production capability to mitigate the severe risks associated with potential supply chain disruptions. The current situation highlights a delicate balance between economic realities and national security imperatives.