Bills Digest no. 18, 2017–18
PDF version [592KB]
Sophie Power
Science, Technology, Environment and Resources Section
14
August 2017
Contents
Purpose of the Bill
Background
Oil stocks
Australia’s situation
Graph 1: Australian production and
consumption of oil, 1965–2015
Government response
Committee consideration
Senate Selection of Bills Committee
Senate Standing Committee for the
Scrutiny of Bills
Policy position of non-government
parties/independents
Position of major interest groups
Financial implications
Statement of Compatibility with Human
Rights
Parliamentary Joint Committee on
Human Rights
Key issues and provisions
Legislative authority to spend funds
on oil stockholding contracts
Other amendments
Extended exemption from civil
proceedings
Delegation powers
Definitions
Concluding comments
Date introduced: 15
June 2017
House: House of
Representatives
Portfolio: Environment
and Energy
Commencement: 1
January 2018
Links: The links to the Bill,
its Explanatory Memorandum and second reading speech can be found on the
Bill’s home page, or through the Australian
Parliament website.
When Bills have been passed and have received Royal Assent,
they become Acts, which can be found at the Federal Register of Legislation
website.
All hyperlinks in this Bills Digest are correct as
at August 2017.
Purpose of
the Bill
The purpose of the Liquid Fuel Emergency Amendment Bill
2017 (the Bill) is to amend the Liquid Fuel
Emergency Act 1984 (the Act) to enable the Australian Government to enter
into commercial oil stock ticket contracts, in order to assist Australia return
to compliance with its obligations as a member of the International Energy
Agency to maintain a stockpile equivalent to 90 days’ worth of oil imports.
Note that a separate but related Bill, the Petroleum
and Other Fuels Reporting Bill 2017, is also currently before Parliament.
That Bill aims to improve the quality and completeness of information on
Australia’s fuel holdings through mandatory reporting.[1]
Background
Australia is a member of the International Energy Agency
(IEA), and a signatory to the Agreement
on an International Energy Program (which created the IEA).[2] That agreement was concluded in response to the oil shock of 1973–4, in which
the Organisation of Arab Petroleum Exporting Countries heavily restricted oil
exports in response to geopolitical events, which had significant ramifications
for the global economy.[3] The agreement (and the IEA) seeks to ameliorate the impacts of further
interruptions to oil supply, and encourage members to work collectively to ensure
security of energy supplies (particularly oil).[4]
A key requirement of IEA membership, and the Agreement
on an International Energy Program, is that countries that are net
importers of oil maintain a stockpile equivalent to 90 days’ worth of imports.[5] This obligation is designed to enable the IEA and its member countries to
respond to a severe oil supply disruption in the global market through what is
known as ‘collective action’, in which:
... the IEA may need to coordinate a specific drawdown of stock
from the emergency reserves of its members. Demand restraint, fuel switching
measures and use of spare production capacity may also be utilised. A release
of oil in a collective action event aims to diminish any economic damage
associated with a severe disruption of oil supply in the global market. There
have only been three collective actions in the past 40 years. The most recent
event involved a response to the disruption of oil being supplied from Libya in
2011. The other collective actions triggers were from the aftermath of
Hurricanes Rita and Katrina in 2005, and prior to the Gulf War in 1991.[6]
Oil stocks
Oil stocks held by industry and government-owned stocks generally
both count towards meeting a country’s IEA stockholding commitment. Many IEA
member countries have opted to meet all or part of their oil stockholding
obligation by placing a requirement on industry to hold a minimum number of
days of stocks.[7]
The stockholding obligation can also be met in two ways:
oil stocks can be held as physical stocks in storage facilities dedicated to
holding emergency stocks. Alternatively, emergency stocks can be held through
contracts referred to as ‘tickets’:
Tickets are stockholding arrangements under which the seller
agrees to hold (or reserve) an amount of oil on behalf of the buyer, in return
for an agreed fee. The buyer of the ticket (or reservation) effectively owns
the option to take delivery of physical stocks in times of crisis, according to
conditions specified in the contract.[8]
Tickets can be either domestic contracts or contracts
between countries (under a bilateral government agreement).[9] Some IEA member countries, such as New Zealand, use stockholding tickets to
help meet their 90-day oil stockholding obligation.[10]
Australia’s
situation
In the time Australia has been an IEA member, particularly
between 1985 and 2000, Australia’s oil production and consumption have been
comparable. This meant Australia was essentially self-sufficient in oil, and
exempt from the requirements to keep a 90-day reserve. However, Australia’s oil
production peaked in 2000, and since then the widening gap between consumption
and production has been met by imports (see graph 1).[11] Despite this increased reliance on imports, the Government admits that
Australia has not maintained a 90-day stockpile and has been in breach of its
obligations since March 2012.[12] As at April 2017, Australia had only 51 days’ worth of imports—the only IEA
member country to be in breach of its obligations.[13]
Graph 1: Australian production and consumption of oil,
1965–2015
Source: British Petroleum (BP), BP statistical review of
world energy June 2016, BP, London, 2016.
Government
response
In the 2013–14 Budget, the Gillard Government announced
that it would provide the then-Department of Resources, Energy and Tourism
(RET) with $5.1 million to study a return to compliance with Australia’s IEA
obligations.[14] The Government then announced in the 2016–17 Budget that it would provide $23.8
million to the Department of Industry, Innovation and Science (then responsible
for energy policy) over four years to work towards returning to compliance with
the IEA requirements.[15] The Government also provided a plan to the IEA to return to compliance by 2026.
Part of this plan was the purchase of 400 kilotonnes of oil tickets in 2018–19
and 2019–20 to enable Australia to contribute to an IEA collective action if
needed.[16] As noted earlier, a related measure, mandatory reporting of petroleum
statistics, is the subject of separate legislation, also currently before Parliament.[17]
In addition, the Senate Standing Committee on Rural and
Regional Affairs and Transport (the Committee) conducted an inquiry in early
2015 into Australia’s
Transport Energy Resilience and Sustainability, which examined Australia’s
compliance with its IEA obligations.[18] That report recommended:
- the
Government conduct a comprehensive risk assessment of Australia’s fuel supply,
availability and vulnerability
- that
monthly mandatory fuel reporting be introduced and
- that
the Government should develop a comprehensive Transport Energy Plan.[19]
The Government issued its response to the Committee’s
report in November 2016, outlining relevant parts of the plan to return to
compliance.[20] The response confirmed:
The Government has allocated $23.8 million to the first phase
of returning to compliance. This funding is largely to be used to purchase 400
kilotonnes of oil ‘tickets’ ... This will ensure that Australia can effectively
contribute to a ‘collective action’, the IEA’s emergency response mechanism, as
required while Australia implements longer-term measures. The framework to
purchase tickets will be in place by 2018.[21]
Committee
consideration
Senate
Selection of Bills Committee
At its meeting on 21 June 2017, the Senate Selection of
Bills Committee recommended that the Bill not be referred to any committee for inquiry
and report.[22]
Senate
Standing Committee for the Scrutiny of Bills
The Senate Scrutiny of Bills Committee had no comment on
the Bill.[23]
Policy
position of non-government parties/independents
At the time of writing, non-government parties and
independents do not appear to have commented on the Bill.
Position of
major interest groups
At the time of writing, no major interest groups appear to
have publicly commented on this Bill.
However, some made relevant comments in submissions to the
2015 Senate Committee inquiry into Australia’s transport energy resilience and
sustainability. For example, during the Senate inquiry, both the Australian
Trucking Association and Australian Institute of Petroleum (AIP) argued that
the IEA should review the 90-day stockholding requirement given that it was
originally set in 1974, and the global oil markets have evolved significantly
since that time.[24] The AIP also questioned the logic of investing in oil stockholdings, suggesting
that ‘there is no evidence that the substantial cost of an emergency stockpile
is justified on energy security grounds’, noting that Australian fuel supplies
have not been disrupted even during global supply disruptions.[25]
Caltex similarly argued that increasing Australia’s stocks
to 90 days of net imports would make ‘very little difference’ to Australia’s
fuel security, and suggested that the high cost of investing in strategic
reserve fuel stocks would need to be ‘met by either increased fuel prices or the
diversion of public funds’.[26]
During the same inquiry, the National Roads and Motorists’
Association (NRMA) expressed concern that Australia is the ‘only oil/fuel
importing developed country in the world that has no mandated industry
stockholdings, no government owned stockholdings or Government control over any
part of the oil / fuel infrastructure’.[27] However, the NRMA considered that ‘the issue of liquid fuel security is far
more complex than increasing stockholding’ and that even if Australia met the
IEA stockholding requirements, this would provide only a slight improvement in
Australia’s fuel security.[28]
In a submission to a consultation
process undertaken in 2016 by the Department of the Environment and Energy
in relation to mandatory reporting of petroleum statistics,[29] the Australian Automobile Association (AAA) supported the Government’s efforts
to ensure Australia meets its 90-day stockholding obligation. The AAA suggested
that compliance ‘would ensure Australia has a buffer that would prevent sharp
fuel price increases or rationing in response to short term liquid fuel supply
disruptions’. However, the AAA considered that ‘any costs associated with
complying with Australia’s international obligations should be funded by the
Government, not by an increase in costs to motorists’.[30]
Financial
implications
The Financial Impact Statement in the Explanatory
Memorandum states:
The Australian Government has provided funding of $23.8
million over four years to support the International Energy Agency’s oil
stockholding requirement measure, which includes the measures of establishing
the Energy Security Office in the Department of the Environment and Energy,
re-establishing an Energy Advisor posting in Paris, funding for the Collective
Action Response Measures and implementing the mandatory reporting of petroleum
statistics. A procurement process will be held to ensure value for money is
achieved when acquiring ticketing contracts.[31]
The Explanatory Memorandum also indicates:
The Australian Government plans to purchase 400 kilotonnes of
offshore tickets in the 2018-19 and 2019-20 financial years. This initial
purchase of tickets is part of the first phase of Australia’s return to
compliance with the IEA’s 90-day oil stockholding obligation. The ticketing
contracts will be supported by government-to-government level arrangements or
treaties with the host country, a requirement of the IEA.[32]
However, the Explanatory Memorandum does not state the
actual likely cost of these specific planned purchases. Nor is there any
indication as to how far the proposed purchases will go towards meeting the
requirement for the 90-day stockholding requirement. This issue is discussed
further in the ‘Key issues and provisions’ section of this Digest.
Statement of Compatibility with Human Rights
As required under Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the
Bill’s compatibility with the human rights and freedoms recognised or declared
in the international instruments listed in section 3 of that Act. The
Government considers that the Bill is compatible.[33]
Parliamentary
Joint Committee on Human Rights
The Parliamentary Joint Committee on Human Rights had no
comment on the Bill.[34]
Key issues
and provisions
Legislative
authority to spend funds on oil stockholding contracts
The key provision in the Bill is item 4, which
inserts a new Part IVA into the Act, which will provide powers to
reserve or purchase oil stocks. New section 40A (the only section in
Part IVA) will provide that, for the purpose of giving effect to the International
Energy Agreement, the Secretary may, on behalf of the Commonwealth, enter into
a contract (including a ticketing contract) with an Australian or foreign
entity for:
- the
reservation for the Commonwealth of oil stocks owned by the Australian or
foreign entity or
- the
purchase of oil stocks by the Commonwealth from the Australian or foreign
entity.
Proposed subsection 40A(2) provides that this does
not impliedly limit the executive power of the Commonwealth to enter into
agreements.
In short, this provision is designed to ensure that the
requirements spelt out by the High Court in Williams v Commonwealth (No. 2) are met. In that decision, it was held that generally before the Commonwealth
could spend appropriated money, specific legislation—other than an
Appropriation Act—authorising such payments is required.[35] Item 4 aims to provide this legislative authority for the spending of
funds on oil stockholding contracts.[36] However, there is little further detail as to the framework for purchasing oil
tickets. As the Explanatory Memorandum notes ‘it is not the intention for
subsection 40A(1) to regulate the terms of the commercial contracts’.[37]
The amendments proposed by the Bill do not require the
Government to purchase any particular amount of oil stockholding contracts.
However, as noted earlier in this Digest, the Explanatory Memorandum states that
the Australian Government plans to purchase 400 kilotonnes of offshore tickets
in the 2018–19 and 2019–20 financial years, as ‘part of the first phase of
Australia’s return to compliance with the IEA’s 90-day oil stockholding
obligation’.[38] However, there is no indication as to how far the purchase of 400 kilotonnes will
go towards meeting the requirement for the 90-day stockholding requirement.
According to the Australian
Petroleum Statistics for May 2017,[39] at the end of that month Australia held 4,897 kilotonnes of crude oil
equivalent, representing 50 days of net imports coverage. This would suggest
that 98 kilotonnes represents around one day of imports. In turn, the purchase
of 400 kilotonnes would seem to represent an increase of four days to 54
days, leaving Australia still well short of the 90-day obligation. At the same
time, the government is also making efforts to improve the quality and
completeness of information on Australia’s fuel holdings through mandatory
reporting under the Petroleum
and Other Fuels Reporting Bill 2017, which may result in more accurate statistics
on the status of Australia’s compliance with the IEA stockholding obligation.[40]
Nevertheless, as noted earlier in this Digest, there is no
indication in the Explanatory Memorandum, nor the Minister’s second reading
speech, as to the likely cost of these planned purchases, or how much it might
cost to fully meet Australia’s obligation through the purchase of oil tickets. In
2015, the then Department of Industry and Science estimated that the cumulative
cost of government purchase of oil tickets to cover the total compliance gap
over the period to 2020 would be $2 billion.[41] Although prices may have changed since that time, this seems to be potentially a
considerable expense for government, although the Minister did state in his
second reading speech:
The Government is committed to ensuring it achieves value for
money when it purchases tickets. Extensive engagement with the International
Energy Agency and our international partners is underway to expand the ticket
market to increase competitiveness.[42]
Other
amendments
Extended
exemption from civil proceedings
Section 46A of the Act currently provides an exemption
from civil law proceedings for the Minister and his or her delegates in
relation to the exercise of powers or functions under the Act (provided they
are exercised reasonably and in good faith).
Items 5 and 6 of the Bill would amend section
46A to extend this exemption to the Departmental Secretary. It also extends the
exemption to the Secretary’s delegate in relation to the use of powers under
section 40A to enter into oil stockholding contracts.
Delegation
powers
Section 49 of the Act currently provides the Minister with
the power to delegate certain powers or functions under the Act to ‘a person’.
Item 7 of the Bill amends section 49 to insert a new
subsection 49(6) which would enable the Secretary to delegate, in writing,
the powers under proposed subsection 40A to enter into oil stockholding
contracts to a Senior Executive Service (SES) employee, or acting SES employee,
in the Department of the Environment and Energy. Under proposed subsection
49(7), the delegate must comply with any directions of the Secretary in
exercising any powers under that delegation.
Definitions
Items 2 and 3 of the Bill amend section 3 of the
Act, which contains various definitions relevant to the Act. Item 2 replaces the existing definition of ‘Agreement’ (that is, the Agreement on
an International Energy Program) to add a reference to the Agreement ‘as in
force from time to time’, instead of the Agreement ‘that was signed’ in 1974.
The proposed definition will encompass any amendments to the treaty text,
eliminating the need to amend the Act if the treaty changes. Item 2 also
adds a reference the Australian Treaty Library on the AustLII website,
consistent with current legislative drafting practices where legislation
involves international conventions.
Item 3 inserts two new definitions, both of
which refer to definitions in the Agreement. A new definition of ‘oil stocks’
will be defined to mean oil stocks under Article 1 of the Annex to the
Agreement which can be credited towards Australia’s emergency reserve
commitment in accordance with the Agreement. Article 1 of the Annex, provides
for ‘crude oil, major products and unfinished oils’ to be counted. The
Explanatory Memorandum suggests that, by referring to the definition of oil
stocks in the Agreement, ‘oil stocks can be interpreted to include new types of
fuels that are recognised by the IEA’, such as biofuels and hydrogen.[43]
A new definition of ‘emergency reserve commitment’ is also
inserted by item 3 and is defined to have the meaning given by Article 2
of the Agreement (that is, the 90-day oil stockholding obligation).
Concluding comments
This Bill aims to give the Australian Government legislative
authority to purchase oil stock and oil stock ticket contracts, in order to
assist Australia to return to compliance with its IEA obligations to maintain a
stockpile equivalent to 90 days’ worth of oil imports.
The Australian Government has stated that it plans an
initial purchase 400 kilotonnes of offshore tickets. However, little indication
has been given as to how far that purchase will go towards meeting Australia’s oil
stockholding obligation, nor the likely cost of purchasing oil tickets in order
to meet that obligation.
Members, Senators and Parliamentary staff can obtain
further information from the Parliamentary Library on (02) 6277 2500.
[1]. Parliament
of Australia, ‘Petroleum
and Other Fuels Reporting Bill 2017 homepage’, Parliament of Australia
website; and Parliament of Australia, ‘Petroleum
and Other Fuels Reporting (Consequential Amendments and Transitional
Provisions) Bill 2017 homepage’, Parliament of Australia website. For
further information on these Bills, see A St John and S Power, Petroleum
and Other Fuels Reporting Bill 2017 [and] Petroleum and Other Fuels Reporting
(Consequential Amendments and Transitional Provisions) Bill 2017, Bills
digest, 118, 2016–17, Parliamentary Library, Canberra, 2017.
[2]. Agreement
on an International Energy Program, done in Paris on 18 November 1974,
[1979] ATS 7 (entered into force for Australia on 27 May 1979).
[3]. AF
Alhajji, ‘The 1973 oil
embargo: its history, motives and consequences’, Oil and Gas Journal,
103(17), 2 May 2005, p. 24, ProQuest database.
[4]. International
Energy Agency (IEA), ‘History’,
IEA website.
[5]. Agreement
on an International Energy Program, op. cit., Article 2.
[6]. Explanatory
Memorandum, Liquid Fuel Emergency Amendment Bill 2017, p. 7. For further
information on ‘collective action’, see the IEA, ‘How does
the IEA respond to energy security emergencies?’, IEA website.
[7]. See
further IEA, ‘Stockholding
structure’, IEA website.
[8]. IEA,
‘Explanation
of stockholding tickets’, IEA website; see also Hale & Twomey, National
Energy Security Assessment (NESA) identified issues: Australia's international
energy oil obligation, report prepared for the Department of Resources,
Energy and Tourism (RET), Canberra, 30 July 2012, p. i.
[9]. IEA,
‘Explanation
of stockholding tickets’, op. cit.; see also Explanatory Memorandum, op.
cit., pp 6–7.
[10]. Department
of the Environment and Energy (DEE), ‘IEA
international energy program treaty’, DEE website; IEA, ‘Oil
stocks: New Zealand’, IEA website.
[11]. Data
source: British Petroleum (BP), BP
statistical review of world energy June 2016, BP, London, June 2016.
[12]. DEE,
‘IEA
international energy program treaty’, op. cit.
[13]. IEA,
‘Closing oil stock levels in days of
net imports’, IEA website, 13 July 2017.
[14]. A
St John, ‘Mining
and resources changes’, Budget review 2013–14, Research paper
series, 2012–13, Parliamentary Library, Canberra, 2013.
[15]. Australian
Government, ‘Part
2: expense measures’, Budget measures: budget paper no. 2: 2016–17, p.
128.
[16]. DEE,
‘IEA
international energy program treaty’, op. cit.
[17]. Parliament
of Australia, ‘Petroleum
and Other Fuels Reporting Bill 2017 homepage’, op. cit.; and Parliament of
Australia, ‘Petroleum
and Other Fuels Reporting (Consequential Amendments and Transitional
Provisions) Bill 2017’, op. cit. For further information on these Bills,
see St John and Power, op. cit.
[18]. Senate
Standing Committee on Rural and Regional Affairs and Transport, Australia's
transport energy resilience and sustainability, The Senate, Canberra,
June 2015.
[19]. Ibid.,
pp. 62–63.
[20]. Australian
Government, Australian
Government response to the Senate Rural and Regional Affairs and Transport
References Committee report: Australia’s transport energy resilience and
sustainability, Australian Government, Canberra, November 2016.
[21]. Ibid.,
p. 4.
[22]. Selection
of Bills Committee, Report,
7, 2017, The Senate, 22 June 2017.
[23]. Senate
Scrutiny of Bills Committee, Scrutiny
digest, 7, 2017, The Senate, 21 June 2017, p. 28.
[24]. Australian
Trucking Association (ATA), Submission to the Senate Standing Committee on Rural and Regional Affairs and Transport, Inquiry
into Australia’s transport energy resilience and sustainability, 10 November
2014, pp. 3 and 5; Australian Institute of Petroleum (AIP), Submission to the Senate Standing Committee on Rural and Regional Affairs and Transport, Inquiry
into Australia’s transport energy resilience and sustainability, November
2014, p. 18.
[25]. AIP,
op. cit., p. 12.
[26]. Caltex, Submission to the Senate Standing Committee on Rural and Regional Affairs and Transport, Inquiry
into Australia’s transport energy resilience and sustainability, November
2014, p. 2.
[27]. NRMA, Submission to the Senate Standing Committee on Rural and Regional Affairs and Transport, Inquiry
into Australia’s transport energy resilience and sustainability, 10 November
2014, p. 8.
[28]. Ibid.
[29]. DEE, ‘Mandatory reporting of petroleum statistics: public consultation’, DEE website, 28 October 2016. For further information on mandatory
reporting, see St John and Power, Petroleum
and Other Fuels Reporting Bill 2017, op. cit.
[30]. AAA, Submission to the DEE, Public
consultation into the mandatory reporting of petroleum statistics,
28 October 2016.
[31]. Explanatory
Memorandum, op. cit., p. 2.
[32]. Ibid.
[33]. The
Statement of Compatibility with Human Rights can be found at pages 3–4 of the
Explanatory Memorandum to the Bill.
[34]. Parliamentary
Joint Committee on Human Rights, Report,
6, 2017, 20 June 2017, p. 26.
[35]. Williams
v Commonwealth [No. 2] (2014) 252 CLR 416, [2014] HCA 23;
see also Williams v Commonwealth [No. 1] (2012) 248 CLR 156, [2012] HCA
23.
[36]. Explanatory
Memorandum, op. cit., p. 2.
[37]. Ibid.,
p. 7.
[38]. Ibid.,
p. 2.
[39]. DEE, Australian
petroleum statistics, iss. 250, DEE, Canberra, May 2017, pp. 34–35.
[40]. See
further St John and Power, Petroleum
and Other Fuels Reporting Bill 2017, op. cit.
[41]. Department
of Industry and Science, Submission to Senate Standing Committee on Rural and Regional Affairs and Transport, Inquiry
into Australia’s transport energy resilience and sustainability, April
2015, p. 9.
[42]. J
Frydenberg, ‘Second
reading speech: Liquid Fuel Emergency Amendment Bill 2017’, House of
Representatives, Debates, 15 June 2017, p. 6602.
[43]. Explanatory
Memorandum, op. cit., p. 6.
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