8 May 2020
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Science, Technology, Environment
This quick guide is designed to answer
some of the common questions regarding liquid fuel security in Australia. It
also contains a list of key resources to provide context and assist understanding
of this long-running issue.
This paper updates and adds to the 2018 Parliamentary
Library research paper entitled Liquid
fuel security: a quick guide.
Background and recent developments
Liquid fuel security is a topic of long-standing debate in
Australia. Most recently, it has been raised in relation to the Government’s
plan to store crude oil in the United States’ Strategic Petroleum Reserve (SPR),
as well as how the ongoing pandemic is impacting liquid fuel supply and
Australia, as a member of the International Energy Agency
(IEA), is a party to the International
Energy Program and treaty that
requires all member states maintain oil stocks equivalent to at least 90 days of
the previous year’s daily net oil imports. The purpose of this requirement is
to ensure that oil-importing countries can withstand disruptions to supply by
releasing stockpiled oil. It enables member countries to take collective action
to release such oil stocks to counter the risk of oil price shocks due to
significant supply disruptions.
The IEA 90 day net import stockholding
obligation is therefore not solely about providing a secure reserve of oil
within a specific country. It is important to note that calculation of the IEA obligation
is different to the calculation of the number of consumption days of oil stocks
that a country may hold.
At the time of joining the IEA in 1979, Australia was a net
exporter of oil and was therefore exempt from the stockpiling requirement.
Since then, Australia’s oil production has peaked and is currently in decline.
Combined with a reduction in oil refining capacity and an increasing reliance
on imported oil products, Australia became non-compliant with the
stockholding obligation in 2012. The following section notes major actions being
taken to address this non-compliance.
The approach taken to meeting the IEA obligation varies
between member countries. Approaches
include having government-owned stocks, establishing a separate agency (which
could be on behalf of government or industry) to manage stocks, or implementing
obligations on industry to meet a government requirement. Many countries use a
combination of these approaches.
Many of the issues around liquid fuel security have been an
ongoing challenge. The first oil shock in 1973–74 helped precipitate the
foundation of the IEA in 1974. Immediately following the second oil shock in
1979, Australia’s National
Energy Advisory Committee recommended:
With regard to supply insecurity ... Consideration be given
as a matter of high priority to the specific form and location of strategic
stockpiles[,] the timing of their purchase, the methods of their release and
their relationship to those required as a result of Australia’s IEA membership.
Methods of financing or of providing incentives for such stockholdings should
also be examined.
During 1986, the Energy
2000 Policy Review for petroleum recognised:
With a growing dependence on imports, Australia would also
become more vulnerable to supply disruptions. The disadvantages of this
vulnerability will never be easy to quantify and consequently it will be
extremely difficult for Governments to decide what level of insurance against
disruption would be appropriate.
In a 2013 report on
Australia’s fuel security commissioned by the National Roads and Motorists’
Association (NRMA), retired Air Vice Marshall John Blackburn detailed
Australia’s long maritime supply chains for liquid fuels, running from or
through a number of conflict zones and the resulting vulnerabilities to trading
systems, shipping, ports and refineries. Liquid fuel supply routes to Australia
and flexible. Figure 1 shows the origins and diversity in the supply chain
for refined liquid fuels in Australia based on 2018 data.
Figure 1: Source flows for Australia’s refined liquid
fuel, crude oil and other refinery feedstock (ORF) supply
Source: Department of the Environment and Energy, Liquid
fuel security review: interim report, 2019, p. 23.
Around the world, many types of crude oil are produced with
differing quality characteristics—the two most important being density (from
heavy to light) and sulfur content (from sweet crude with low sulfur content to
sour). Much of Australia’s domestic crude oil production is extracted from
offshore north-west Western Australia—and much of it is light, sweet crude (or
condensate—a very light crude and by-product of national gas production). This
oil often doesn’t suit the requirements of our domestic
refineries and the products they are refining.
Different product types generally require different types or
quality of crude oil. For example, heavier crude oils are needed to produce
heavier petroleum products like bitumen or lubricating oils. Australia has four
are located in Geelong and Altona (Victoria), Lytton (Queensland) and Kwinana
(Western Australia). The relatively remote location of much of Australia’s
domestic oil extraction industry, combined with the location of the refineries,
means that much of Australia’s domestic oil production is exported and crude
oils that best suit refinery requirements are imported.
In relation to emergency stockholdings, crude oil can be
stored for long periods, while refined products such as petrol and jet fuel
have a shorter shelf life. As quality is likely to change depending on
temperature and other storage conditions, stored products can require monitoring.
Other considerations include costs associated with turnover of stored product
to maintain quality specifications, the type of storage and physical security
at the site.
can be held underground (in rock or salt caverns, like the SPR), above
ground (in large tanks) or on the water (in floating storage systems or
tankers). Due to quality requirements, only crude oil would generally be stored
in underground caverns. Proximity of crude oil storage to shipping, import
terminals and refineries also needs to be considered. Many of these issues have
been explored in previous inquiries and reports (see the relevant section below).
Petroleum Statistics provide extensive data on liquid fuels in Australia. During
2018–19, Australian refineries used both indigenous (about 19%) and imported
crude and other feedstock (the remaining 81%) to produce a range of products,
predominantly automotive gasoline (petrol), diesel oil and aviation turbine
fuel. They produced about 29,000 megalitres (ML) of petroleum-based products,
while total sales of both domestic production and imports exceeded
Imports are sourced from many countries and vary depending
on the product type. For example, during the same period, automotive gasoline
was imported from South Korea (27%), Singapore (23%) and the Netherlands (16%),
while diesel oil came from Singapore (31%), Japan (20%), China and South Korea
(both about 14%). Crude oil and other refinery feedstocks also come from a
variety of countries, with the highest proportion from Malaysia (31%) and the
United Arab Emirates (17%). The balance of imports came from several other
countries. Australia also exports some refined products as well as crude oil.
In 2018–19, around 6,500 ML of refined products were exported (equivalent
to about 20% of refinery production).
Statistics on ‘days of consumption cover’ are also provided
for each major product type. These calculations assume there is no change in
consumption level, no domestic production of crude oil, no refinery production
and no imports or exports. At the end of February 2020, this consumption cover
equated to 25 days for automotive gasoline, 20 days for diesel oil and 143 days
for aviation gasoline.
As noted above, the IEA stockholding requirement is based on
days of net import coverage and uses different methodology—it is a different
measure to consumption cover. At the end of January 2020, Australia had
55 days of net import
cover or ‘IEA days’. This comprised 52 days held by industry (held
domestically by the industry) and 3 days of government-owned stocks (held overseas
under ticket contracts).
In contrast to many other IEA members, Australia has not previously
maintained a public (or government-owned) stockpile of oil and has instead
relied on commercially held stocks—this approach is in the process of changing.
Indeed, the first publicly held Australian stocks (equivalent to two days net
imports) were reported
in the IEA data for October 2018.
The Government has committed
to return to full compliance with the IEA 90 day stockholding obligation by
2026, with the full strategy still
being developed. Part of the strategy has involved changes to key
legislation and the introduction of new reporting requirements for liquid fuels—these
changes are already in effect (see further details below).
As detailed in the IEA’s
in-depth analysis of Australia’s energy policies published in 2018:
The government is commended for presenting a compliance plan
in 2016 which is expected to lead to full compliance with its international
obligations by 2026 over two phases. First, the government aims at purchasing
“ticket” contracts with oil stockholders abroad and has introduced mandatory
petroleum and other fuel data reporting. During a second phase (2020-26), the
government aims to build the necessary stocks based on an implementation plan
to be issued by 2020.
The ‘pilot phase of the 2 stage compliance plan’ will
include the purchase of up to 400 kilotonnes of oil tickets in both
the 2018–19 and 2019–20 financial years. Oil stock tickets, which provide a
contractual right to purchase or release a certain amount of oil during the
contract period, are one approach being taken to address compliance with IEA
obligations. These tickets can be used in a collective action and enable
Australia to purchase the reserved oil outright or release it to the market. To
be clear, stock tickets do not mean that the oil is physically in Australia.
During May 2018, the Government confirmed that
a third National Energy Security Assessment (NESA) would be undertaken
(originally for completion by mid-2019). One component of the NESA is an assessment
of liquid fuel security—this commenced in mid–2018 with an interim
report released for consultation in April 2019. Submissions to that process
here. Information provided during March
2020 Additional Estimates indicates that the review was provided to the
Government in December 2019, with a question
on notice regarding an expected release date.
for up to 400 kilotonnes of oil stock tickets for quarters between 1 July
2020 and 30 June 2021 is underway. Registration to take part in the
request for tender process is open to entities offering to hold stock in
Australia or in a country that has appropriate government-to-government
arrangements in place. These arrangements are in place with the Netherlands and
Hungary (under treaty arrangements—see section below), the United States,
United Kingdom, Germany, Denmark and Spain (under memorandum of understanding
arrangements). As of April
2019, another treaty and two MOUs were being negotiated.
In the 2019–20 mid-year economic and fiscal outlook (December
2019 MYEFO), the Government provided an additional $10 million in
2020–21 for up to 280 kilotonnes of oil stock tickets.
Beyond these developments in ticketed stockholding, Australia
has negotiated to hold physical oil stocks in the United States. In March 2020,
the Minister for Energy and Emissions Reduction and the US Energy Secretary signed
an agreement that will allow Australia to lease space in the US
Strategic Petroleum Reserve to store and access Australian-owned oil. The
Minister has indicated
the cost to lease space in the SPR is commercial-in-confidence.
On 22 April 2020, the Minister announced
the Government would spend $94 million on oil to store in the US SPR for
an initial period of 10 years. The recent drop in demand
for oil due to the COVID‑19 pandemic has resulted in a significant fall
in oil prices. The futures contract price for the US benchmark, West Texas
Intermediate crude, even became negative for
a short period on 20 April 2020. It is not clear what volume of oil will
be purchased under the announcement. The Minister has not
specified how much oil will be purchased, but did expect it to buy ‘many
millions of barrels’. Some commentators have estimated it could purchase between
2.7 to 3.8 million barrels to more than 5 million
barrels of crude.
It was also
reported that moving the storage reserve to Australia was a priority, with
work to expand domestic storage capacity to be done as soon as possible. The
that work to identify the best options for further strengthening fuel security
would be launched shortly. He indicated this would focus on investment options,
supporting the refining sector and assessing the most effective stimulatory
Storing crude oil in the US and having tickets in other
countries does help Australia meet its IEA treaty obligation. The extent to
which it assists Australia’s physical or strategic oil reserve is less clear,
considering the time delay and shipping requirements to bring such stock to
Australia as well as the challenges in refining it once here. Balancing these
factors with potential supply chain risks in the industry remains the ongoing
Also in April 2020, the Australian Competition and Consumer
interim authorisation to oil refiners and the Australian Institute of
Petroleum ‘to discuss and put in place measures so fuel supplies remain
available during the COVID-19 pandemic, and after the economic shutdown ends’. This
will enable fuel companies to coordinate on fuel imports, storage and
distribution to minimise the risk of shortages. It will also enable fuel
companies to discuss the coordination of refining and storage capacity to keep
refineries operating—changes in fuel demand related to COVID-19 (such as demand
for jet fuel and the suite of fuels currently required) have changed the
operating environment for local refineries.
The Minister has also
stated that the Government is working on a temporary change to fuel
standards that will give refiners more flexibility to adapt their operations
while they manage these changes in demand (while also ensuring that motorists
and the environment are protected).
- The Liquid Fuels
Emergency Act 1984 provides the legislative basis for contingency
planning and the management of liquid fuel emergencies in Australia, including
the power to control industry-held stocks, production by Australian refineries
and fuel sales. This Act was amended through the Liquid Fuel
Emergency Amendment Act 2017 to enable the government to enter
into commercial oil stock ticket contracts (see this Bills
Digest). Current agreements include:
Netherlands: an agreement was signed on 13 June 2018 to enable oil stocks
held in the Netherlands under oil stock reservation contracts (tickets) to be
counted towards Australia’s 90 day IEA obligation. Details of this treaty with
the Netherlands are available on the Joint Standing Committee on Treaties webpage and
the associated National
Interest Analysis. The Committee recommended the treaty action be taken and
it entered into force on 19 October 2018.
an agreement was signed on 30 October 2018 for similar purposes. The Joint
Standing Committee on Treaties noted the proposed agreement followed a similar
format to that with the Netherlands and that the National Interest Analysis was
almost identical. Details of the treaty are available on the Committee
webpage and the associated National
Interest Analysis. The Committee recommended the treaty action be taken and
it entered into force on 11 December 2019.
Mandatory reporting requirements for the production and
stockholdings of liquid fuels, including petroleum, biofuels and other products,
commenced from 1 January 2018 under the Petroleum and Other
Fuels Reporting Act 2017 and associated Petroleum and Other
Fuels Reporting Rules 2017. The associated Bills
Digest provides additional information.
Department of Industry, Science,
Energy and Resources
- The Australian
Petroleum Statistics is a monthly report that provides data on
‘petroleum products, exports and imports of petroleum products and crude oil,
production of crude oil and condensate, refinery input and output, and stocks
of petroleum products’. These statistics are collected at the national and
state level. They provide data on days of consumption cover for each fuel type
(Table 7), days of net import cover (‘IEA days’; Table 7A) and
additional information on stocks intended for consumption in Australia (such as
those overseas or on-board vessels; Table 7B).
- The mandatory
reporting of selected fuel data commenced on 1 January 2018. These
statistics are incorporated into the Australian Petroleum Statistics.
Energy Statistics provides the overall production, consumption and
trade statistics for energy in Australia, including the transport sector.
The Department supports the Energy
Sector Group of the Trusted
Information Sharing Network (TISN) for Critical Infrastructure Resilience.
This group shares information on ‘security issues and practical measures to
improve the resilience of energy infrastructure to all hazards’.
The Department is responsible for the Liquid
Fuels Emergency Act 1984 and the government response to any national
liquid fuel emergency, including the National Oil Supplies Emergency
within the COAG Energy Council) and the National Liquid Fuel Emergency Response
Plan that details the agreement between the Commonwealth and the states and
territories relating to the declaration and management of any liquid fuel
- The Resources
and Energy Quarterly from the Office of the Chief Economist provides
details on both global and domestic oil production, consumption and forecasts.
The Office also published the Australian
Energy Projections to 2049–50 (last updated November 2014) with
longer-term projections of energy consumption, production and trade for
economic sectors, including transport.
- The Australian
Liquid Fuels Technology Assessment (October 2014) provides an overview
of current and potential liquid fuel production technologies, as well as
levelised cost estimates to 2050. In addition to an overview of 18 different
production technologies, information is provided on the potential of the
technology in the Australian context, and barriers and opportunities associated
with each technology.
- The Department supports the development and investment in
Australia's petroleum resources (for example, see their offshore
petroleum exploration webpage). The Offshore
Petroleum Exploration Acreage Release is used by the government to
promote petroleum exploration in offshore waters. The Australian
Petroleum News is an occasional newsletter on matters relating to offshore
oil and gas in Australian waters.
- The Australian Energy
Resources Assessment (last updated in 2018), provides details on
Australia’s identified and prospective oil resources, production statistics and
outlook. Several maps are available that provide summaries for liquid petroleum
resources across Australia.
- General information on Australia’s petroleum
- A map of the major petroleum resources
and pipelines (as at December 2018). This link also has a map of the
proposed 2019 offshore petroleum exploration acreage release areas and existing
Major industry representatives
- The Australian Institute
of Petroleum (AIP) represents the downstream petroleum industry that
is involved in the refining, wholesaling and retailing of petroleum products.
Details on the state of the industry and recent developments in the region are
provided in their latest Downstream
Petroleum report. Several other resources and factsheets, including
those on Australia refineries, fuel pricing and supply security and reliability
are available on the AIP website.
- The Australian Petroleum
Production & Exploration Association (APPEA) represents
Australia’s oil and gas exploration and production industry.
- The Australian Pipelines
& Gas Association (APGA) represents the pipeline infrastructure
sector, particularly gas pipelines, but also oil.
- The National Roads and
Motorists’ Association (NRMA) commissioned Retired Air Vice Marshall
John Blackburn to provide advice on Australia’s fuel security in 2013 and these
reports formed part of the NRMA’s submission to the 2015 Senate inquiry (see
below). The reports can be found as the two attachments to Submission
Previous inquiries and reports
The Parliamentary Joint Committee on Intelligence and
Security recommended that
measures be taken to ensure a continuous fuel supply to meet national security
priorities in their report of March 2018 on the Security of Critical
Infrastructure Bill 2017.
The Senate Standing Committee on Rural and Regional Affairs
and Transport held an inquiry into Australia’s
transport energy resilience and sustainability and reported in June
2015. Among other topics, the report covered
Australia’s liquid fuel stockholdings and supply chain, threats to liquid fuel
security and the role of government in fuel security. Submissions to
the inquiry were received from many key stakeholders.
The House of Representatives Standing Committee on Economics
held an inquiry into Australia’s
oil refinery industry (report tabled
in 2013). Chapter 3 provides background and impacts of declining refinery
capacity in Australia. Chapter 4 covers these issues in relation to energy
security, self-sufficiency and stockholdings (among other topics).
Energy Security Assessments were released in 2009 and 2011.
The third assessment is in progress. The Liquid
Fuel Security Review will contribute to this assessment. The assessments
consider ‘human and environmental threats to the adequate, reliable and
affordable delivery of liquid fuel, gas and electricity to the Australian
consumer’. They have typically examined the likely effects of a ‘shock
scenario’ that results in disruption to the global supply chain and the effect
this would have on Australia’s liquid fuel supply.
fuels vulnerability assessment provides an overview of the liquid
fuel situation, world oil outlook and an overview of oil shock vulnerabilities.
This includes an analysis of a hypothetical major supply shock scenario
(Singapore petroleum outage for 30 days). The adequacy and vulnerability of
Australia’s liquid fuel stockholdings, including in relation to the IEA
requirements, is also considered. This report by ACIL Tasman was published in
October 2011 and was an update to their 2008 review.
Several reports have been commissioned to inform the
government and assist in the development of policy on fuel stockholdings.
Costings and other underlying assumptions were correct at the time of reporting
but may have changed.
Oil Market – a review paper by Cape Otway Associates (November
2016) provides a comprehensive review of the oil market from the early 1970s
onwards, plus an outlook for future developments and new challenges that the
oil market may face in the next few decades.
market responses to crises: an historical survey by ACIL Allen
Consulting (June 2014) provides a review of oil markets and oil shocks and
their effects, including effects on Australian policy.
of market resilience to oil supply disruptions by Hale &
Twomey (June 2014) is focussed on market disruptions that introduce significant
pressure but don’t disrupt the market’s ability to function. This provides a
review of the mechanisms available in the supply chain that promote resilience
to disruption and how these are used by companies in Australia to manage
maritime petroleum supply chain by Hale & Twomey (June 2013)
provides an overview of how the maritime supply chain for oil operates in
Australia. It also describes how the petroleum market interacts with the
shipping supply chain and petroleum tanker dynamics.
on the water analysis by Hale & Twomey (February 2013) reports
on the typical quantity of liquid fuel that Australia and New Zealand have in
the ‘tankers at sea’ category (known as ‘stock on the water’). This includes
where the stock is typically located based on an assessment of the route
between the source location and the destination for import tankers. Stock that
is held in tankers at sea cannot be counted towards the IEA stockholding
obligation; however, due to the long supply chain for liquid fuels to
Australia, they can comprise a significant volume of fuel.
Energy Security Assessment (NESA) identified issues: competitive pressures on
domestic refining report by Hale & Twomey (June 2012) provides
a review of Australia’s refining outlook in relation to regional developments
and modelled the impact that structural changes to refining may have on
Australian supply chains. This followed the 2011 NESA that recognised the
significant competitive pressures being felt by Australia’s domestic refining
identified issues: Strait of Hormuz by ACIL Tasman (July 2012)
provides an economic assessment of a significant disruption to shipping in the
Strait of Hormuz, at the mouth of the Persian Gulf. The economic modelling was
based on a relatively short disruption (full capacity was restored by the third
week) that didn’t result in a physical disruption to liquid fuel supply in
emergency liquid fuel stockholding update 2013: Australia's International
Energy Agency oil obligation ‘main report’ by Hale & Twomey
(October 2013) provides an overview of Australia’s compliance under the IEA
stockholding obligations and some cost options for returning to compliance. It
analyses four emergency stockholding options and provides some estimates of the
stockholding compliance gap going forward to 2033. This was an update on the
July 2012 report National
Energy Security Assessment (NESA) identified issues: Australia’s international
energy oil obligation that examines options for holding emergency
stock to meet Australia’s oil IEA obligations. It reviews global stockholding
models that may be suitable for Australia and the likely costs to implement.
emergency liquid fuel stockholding update 2013: oil storage options & costs by
Hale & Twomey (October 2013) provides an update to their earlier work on
Australia’s oil stockholding obligations. It updates the options and costs
associated with large scale emergency stock holdings, including the facility,
stock and operational costs.
emergency liquid fuel stockholding update 2013: ticket markets by
Hale & Twomey (October 2013) provides an expanded discussion of a ticket
market in Australia and associated costs. It analyses using a non-IEA country
as provider of the ticket stocks and the creation of a domestic ticket market.
This was updated in the Ticket
market pricing update report (April 2014) to reflect new pricing
in the international ticket market. Further information on ticket markets and
options for developing ticket markets was provided in Additional
advice: ticket markets (June 2014).
International Energy Agency (IEA)
The IEA provides a monthly report on oil stock levels in days of net
imports for member countries.
Energy Outlook provides a global perspective to demand and supply
projections to 2040 and discussion of major global trends in the energy sector.
Supply Security 2014 report provides an overview of Australia’s
policies and industry context in relation to energy security for oil and gas.
The IEA published an in-depth review of
Australia’s energy policies in 2018. Chapter 1 provides an overview of
Australia’s energy statistics and policies. Chapters 2 to 5 cover oil, natural
gas, electricity and the integration of renewables into the energy system. Part
II of the report (Chapters 6 to 8) discusses transformation in the Australian
energy system in relation to climate change policies, energy efficiency and
The IEA oil
website contains information on global oil trends and links to other
relevant reports and data. This includes their annual analysis and forecast for
global oil demand, supply refining, and trade, in the Oil Market Report
The IEA is reported
to have agreed with member countries to reform and modernise the oil
stockholding mechanism. It remains to be seen whether or how this may change
the way the 90 day oil stockholding obligation is calculated—particularly in
relation to stocks that are intended for consumption in Australia and are held
on board vessels at overseas ports or at sea (which are not currently counted) . In December
2019, the IEA Governing Board requested
that the Secretariat:
... bolster global oil security by continuing to assess the
potential of the IEA stockholding system and working closely with Members to
assure each country’s ability to effectively contribute to a collective
emergency oil response and by further enhancing cooperation with Association
countries in responding to oil disruptions.
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