Australia's liquid fuel stockholdings and supply chain
This chapter considers Australia's current liquid fuel supply chain,
stockholdings, IEA requirements, and market-based approach to fuel security. It
considers the fundamental question of whether Australia's current liquid fuel
supply system, stockholdings and domestic refining and storage capacity provide
Australia's liquid fuel supply is maintained by way of domestic
refineries, crude oil and refined product import terminals, as well as through
other stockholding facilities. The fuels are distributed through complex
transport system and retail supply arrangements. As retail prices are not
regulated, effective competition is the basis for securing the best price for
Australia's fuel stockholdings
Stocks of fuel can be expressed in either days of net imports or in
terms of historical average daily consumption.
As of December 2014 and based on the Australian Petroleum Statistics
(APS), Australia had 4,275 kilo tonnes crude oil equivalent in terms of stocks,
representing 52 days cover of daily net imports.
In terms of historical average daily consumption, the department informed the
committee that Australia has 34 days of fuel stocks. The 34 day figure is
calculated on the average daily consumption of fuel in Australia divided by
what is believed to be the volume of fuel available to the market.
The department informed the committee in an answer to a question on
notice that while the APS complies with IEA reporting obligations, the data
does not represent all fuel in the Australia fuel supply chain. It explained
Petroleum en route to Australia by ships is excluded whilst
fuel moving around the coast is included in the APS. In addition, all petroleum
in pipelines, in transit by tanker (road and rail) and held at retail fuel
sites and military stocks are excluded from the APS. These exclusions are
required as part of the IEA reporting requirements for any country.
Therefore, when taken together, Australia's stockholdings include:
IEA-eligible stocks which correspond to 34 days of consumption;
stocks on water in transit to Australia which amount to 15–20
days of consumption; and
stocks held at retail sites which equate to about 3 days of
According to Engineers Australia, at any one time, Australia's total
stockholding of oil and liquid fuel comprises of two weeks of stocks at sea, 5
to 12 days of supply at refineries, 10 days of refined stock at terminals and 3
days of stocks at service stations.
In terms of the types of stock available in the country, the 2013–14 APS
revealed that at the end of July 2014, monthly industry stocks were as follows:
20 days of automotive gasoline;
17 days of aviation turbine fuel; and
16 days of diesel oil (including automotive diesel oil,
industrial and marine diesel oil).
Noting these stockholding figures, NRMA suggested that Australia's total
stocks of fuel and oil held within the country were not only precariously low but
also set to decline.
However, the Australian Government does not mandate any minimum levels of fuel
stock to be held by industry in the country or mandate the reporting of the
actual industry fuel stockholding levels.
Therefore, fuel companies are not required to meet any fuel storage level but
rather, concentrate on fuel delivery for reliability. Their focus is on
just-in-time security of supply to keep their costs down.
For this reason, Australia is reliant on market forces to ensure secure access
to transport fuel.
The lack of mandated stockholdings was a concern raised by a number of
submitters, particularly in light of Australia's growing dependence on liquid
fuel imports and declining domestic refining capacity.
Some estimates suggested that, with further closures of domestic refineries,
Australia's reliance on imported transport fuels may shift towards 100 per cent
in the near future.
In terms of the accuracy and reliability of available stockholding
figures set out above, NRMA asserted that it was not known exactly how much
fuel is available within existing commercial stockholdings and where those
stocks are held, because the fuel companies are not mandated to report their
fuel stocks to the department.
The department informed the committee that, on a monthly basis, it
collects statistics through a voluntary data collection system which gives it a
'sense of how much fuel is in the system'.
Such data is used to make an assessment of how much fuel is coming into the
It further noted that, while data was provided by the four major companies (which
collectively provide up to 90 per cent of Australia's fuel supply), some
independent fuel companies do not report their stockholding.
A review of Australia's emergency response measures undertaken by the
IEA in February 2011 recommended that Australia take action to establish a
mandatory reporting regime for petroleum statistics.
An October 2011 ACIL Tasman assessment of liquid fuel vulnerability commissioned
by the Australian Government supported the recommendation to introduce a
mandatory reporting mechanism for APS.
Furthermore, in its 2012 review of Australia, the IEA stated the following in
relation to oil and gas data:
Oil and gas data are collected on a voluntary basis. However,
in common with other IEA countries, data quality needs to be improved markedly.
Australia is to become a growing oil importer; therefore, better data
collection should be encouraged so that market participants are able to take
informed decisions and so as to provide a sound platform for public policy development
BP Australia noted its support for the introduction of a mandatory
reporting regime to ensure that Australia's stockholdings are reported
However, in February 2015, the department informed the committee that a
process was underway to improve fuel stock data collection through the use of
existing mandatorily collected data obtained by the Australian Tax Office (ATO)
and the Australian Customs and Border Protection Service (Customs).
The department also noted that the Office of the Chief Economist considered the
APS to be 'accurate within a five per cent margin of error'.
The department explained that, while work had initially been carried out
to set up a discrete mandatory data collection scheme, the decision was later
made to 'reduce the burden on industry' by sharing existing data across
Dr Ross Lambie, Acting General Manager, Resources and Energy Economics Branch, informed
the committee that the department had taken an approach of using existing
arrangements through the ATO and Customs rather than introduce a regulatory
reporting regime on industry. He explained the approach:
At the moment, what we have chosen to do is draw upon the
data provided by the Australian Taxation Office, Customs and Border Protection
and the national offshore petroleum titles management to give us data based on
fuel excise and imports and exports of liquid fuels at the firm level and also
production of oil and gas offshore. Because they require mandatory reporting,
if we can tap into their data, we think we are going to achieve some very
robust data figures compared to the basis we have been using up till now, which
has been largely based on voluntary reporting.
In April 2015, Mr John Ryan, Associate Secretary informed the committee
that the IEA had expressed satisfaction with the way in which the department
was now reporting on stockholdings to the international body.
International Energy Agency 90 day stockholdings requirement
The IEA regulations were created in 1974 following the Organisation of
the Petroleum Exporting Countries (OPEC) oil embargo. The agreement commits IEA
members to hold stocks and contribute oil to the global market during declared
IEA emergency action. In instances of oil supply disruption likely to cause
considerable economic damage, member nations can make their stocks available to
offset the oil shortage. According to the IEA, the most common reasons for the
release of stockpiled fuel included unforseen technical problems, weather and
In terms of membership obligations, the IEA noted that member states
...all committed to taking joint measures in the event of oil
supply emergencies in order to avoid economic damage to their countries. They
have all agreed to share energy information, co-ordinate their energy policies
and co-operate in the development of rational energy programmes. Each of the
IEA's 28 member countries is also required to hold oil stocks equivalent to 90
days of its prior year's net imports.
Therefore, in addition to stocks for domestic use, as a member of the
IEA, Australia is required to hold oil reserves that can be used to respond to
a global oil supply emergency.
Australia is obliged to maintain reserves of crude oil and/or product
equivalent to sustain consumption for 90 days, based on the prior year's
average net oil imports which the government could access in a national
emergency. IEA put the 90 day requirement in place to assist member nations in
ameliorating global oil shocks.
At a 2014 Asia-Pacific Economic Cooperation (APEC) Energy Ministers Meeting,
Executive Director of the IEA, Ms Maria van der Hoeven stated that APEC
economies 'must be well-prepared for supply crises'.
The IEA explains the requirement upon Australia and other IEA member
nations as follows:
The 90-day commitment of each IEA member country is based on
average daily net imports of the previous calendar year. This commitment can be
met through both stocks held exclusively for emergency purposes and stocks held
for commercial or operational use, including stocks held at refineries, at port
facilities, and in tankers in ports.
The obligation specifies several types of stocks that cannot
be counted toward the commitment, including military stocks, volumes in tankers
at sea, in pipelines or at service stations, or amounts held by end-consumers
(tertiary stocks). It also does not include crude oil not yet produced.
In September 2014, the Energy Green Paper explained that, in terms of
trying to meet its treaty obligations, Australia 'relies solely on the
commercial stockholdings of the industry, which currently stands at less than
60 days of net imports'.
As noted earlier, Australia now has 52 days.
The point was made in evidence that the continual decline in domestic
production and increased demand for liquid fuel has placed pressure on
Australia's IEA commitments. The department noted that Australia has not met
its 90 day obligations since March 2012 while, according to current
projections, Australia may average below 45 days of reserves by 2024.
The department explained in its submission that Australia's plan to
'participate in an IEA collective action' has always relied on market responses
to price changes in the first instance, and industry mechanisms such as:
'bulk allocation' – a form of contractual wholesale rationing;
voluntary demand restraint; and
use of the strong regulatory powers available under the Liquid
Fuel Emergency Act 1984 (LFE Act), including possible rationing and
redirection of commercial cargoes.
A number of submitters raised concern about Australia's declining
stockholdings and non-compliance with the 90 day liquid fuel stockholdings
obligations under the IEA agreements.
NRMA and UQ noted that Australia is the only country amongst the 28 member
states that fails to meet its IEA net oil import stockholding level
NRMA expressed the view that, while Australia is a member of a number of
multi-lateral organisations with energy security/energy resilience as a focal
area, it is out of step with the IEA position regarding member countries and
In its 2014 assessment of Australia, the IEA noted that:
Australia does not impose minimum stockholding requirements
on oil companies, nor does it have public stocks; all oil stocks in Australia
are held by industry on a commercial basis. Until 2000, the year in which its
domestic crude production peaked, Australia was either a relatively marginal
oil importer or an occasional net oil exporter. As such, Australia's commercial
stockholdings more than adequately met the requirement of the International
Energy Agency (IEA). Since 2000, declining domestic oil production coupled with
oil demand growth has resulted in a steady rise in net imports, and thus the
amount of oil stocks necessary to meet Australia’s IEA obligation.
Evidence to the committee suggested that when the supply chain is broken
down further into specific fuel types, the supply risks become more apparent.
As a case in point:
Australia currently imports 38 per cent of diesel as a
refined product. The remaining 62 per cent is produced domestically and depends
largely on imported oil; only 12 per cent of diesel is sourced from Australian
oil processed in Australian refineries. By 2014, domestic production of diesel
could reduce to only 45 per cent of domestic demand.
Achieving IEA compliance
AIP argued that IEA stockholding obligations relate to international
emergencies and therefore focus on balancing 'global supply' rather than
specific supply imbalances or disruptions in individual countries.
Mr Andrew Warrell, Chairman of the AIP and Director of ExxonMobil Australia explained
So if you we were holding stocks here in accordance with that
treaty then those stocks could be used for each of the member countries within
a global environment and it would be done in a coordinated fashion. So when we
are sitting here talking about Australian fuel supply security, do not think
that that suddenly gives us access to this overwhelming pool of international
stocks to draw from if there is an Australia-specific issue that comes up.
AIP further noted that when the IEA treaty was drafted, the Asian region
was not the extensive trading hub that it has now become. As a case in point,
Australia's primary source of fuel – Singapore – is not a member of the IEA.
AIP explained that the treaty was signed at a time when the global market was
heavily centralised in Europe and came about under a different set of economic
circumstances. It further noted that the supply chains into Europe are not as
diverse as those coming into Australia, which is on the doorstep of Asia with
ships arriving almost daily.
ACIL Tasman also made the point in its 2011 assessment that a high
proportion of crude oil and product is being shipped to Australia at any one
time. These stocks are fully committed to the Australian market for commercial
and shipping logistics reasons. It emphasised that this situation differs with
that in Europe where cargoes can be destined for more than one country.
Notwithstanding this point, NRMA emphasised that Australia remained at the end
of a long supply chain.
According to ACIL Tasman, the method of calculating deductions for
unrecoverable petroleum in storage tanks is not appropriate to the Australian
situation. It argued that if these 'inconsistencies' were recognised in the
calculation, the resulting stock cover would have exceeded 90 days in 2011.
Stocks at sea
The Australian Trucking Association (ATA) and AIP argued that Australia
should recommend that the IEA review the 90 day requirement given that it was
originally set in 1974 and does not allow the inclusion of 'stocks at sea'
which account for more than a quarter of Australia's oil stocks.
While acknowledging that inclusion of stocks at sea would not be adequate to
achieve compliance with the 90 day requirement, AIP stated that stocks at sea
represent more than 30 per cent of the stock in the supply chain of the four
AIP member companies, who together provide 90 per cent of the transport fuel
supply into the Australian market.
However, Engineers Australia argued that such an approach was tantamount
to one of 'the cheque's in the mail'.
Furthermore, NRMA noted that the IEA has warned that a 'high risk of supply
disruption could have greater economic consequences for IEA member countries',
and that Australia has no government control over oil/fuel infrastructure,
mandated industry stockholdings or government-owned stocks.
The 2013 Energy White Paper – Issues Paper noted that the costs involved
in investing in strategic reserve stocks of fuel to protect against the long
run risk of severe disruption in the global trade would be high.
It suggested that building strategic reserve stock to maintain compliance with
the IEA treaty would add around 40 extra days of forecast daily consumption
cover over the next decade. However:
A build program for this significant level of stockholding
via either Government-funded stockholding, Government-funded ticketing for
overseas stocks, or legislated mandatory industry stockholdings (funded by
passing costs onto consumers) requires an estimated $6.8 billion investment to
provide both stock and storage infrastructure.
AIP questioned the logic of a substantial investment of $6.8 billion
when there was no evidence of disruption to the market – despite the fact that
the market has been tested by a number of global events – and there have never
been any significant widespread outages.
Mr Warrell suggested that:
It becomes a judgement of a perceived risk rather than any
kind of demonstration of actual risk that people can point to in the
marketplace over the last several decades.
Caltex indicated that the $6.8 billion outlay required for strategic
reserve fuel stocks would be met by either increased fuel prices or the
diversion of public funds.
It was suggested in the Energy White Paper – Issues Paper that there were
opportunities to grow Australia's liquid fuel supplies with new oil discoveries
in proven areas and in under-explored frontier basins including the deep-water
Great Australian Bight.
The department highlighted the following three options to address
Australia's non-compliance with the IEA treaty stockholding obligation:
government-owned strategic stocks – estimated to cost $5.7
billion over nine years and funded via a direct levy on fuel users or
indirectly from government revenue via the taxation system;
government purchased oil/product 'ticket' contracts sourced from
the international market and equivalent to the total treaty compliance gap –
estimated to cost $2 billion to 2020; or
industry-obligated stockholdings maintained by way of building
physical stocks and holding stocks through ticket contracts – estimated to cost
$6.6 billion to 2027.
However, a number of submitters made the point that consideration of
whether to increase Australia's oil stocks should take into account the costs
and effectiveness in improving Australia's liquid fuel security compared to
other options, rather than simply meeting IEA obligations as an end in itself.
UQ suggested that actual strategic stocks need to be determined from risk
assessments and supply interruption scenarios.
NRMA, the Truck Industry Council (TIC) and Engineers Australia warned
that while increased stockholdings were part of the solution, it did not amount
to fuel security as it would not address Australia's supply chain
NRMA held the view that fuel security could be achieved if part of the supply
chain was controlled from the source, whether it is Australian oil, biofuels,
gas, liquids or coal.
However, AIP emphasised that, as a significant widespread outage has not
taken place in Australia despite a number of global events that have tested the
supply chain, the matter came down to a judgement of the likelihood of an
extreme economic event.
Mr Nathan Dickens, General Manager – Policy for AIP further explained that
economic modelling estimated that the economic impact on Australia of the total
closure of the Singapore market over a 30-day period was 0.1 per cent of GDP.
AIP held the view that, while Australia's compliance position had fallen
below 90 days because of a decline in domestic crude production, commercial
stocks of fuel held in the domestic supply chain (that is, stocks of petrol,
diesel and jet fuel) had increased as a response to demand growth and
increasing product imports following refinery closure. It suggested that as a
consequence, the decline in the 90 day requirement did not raise the supply
risk for the domestic fuels market or for fuel users. AIP concluded that:
Indeed, there is a strong case that significant commercial
stocks plus a robust, dynamic supply chain and competitive and efficient market
obviate the need for any mandatory stockholding.
AIP argued that the National Energy Security Assessment (NESA) and other
reviews have found current levels of commercial stockholdings and their
management by industry to be fundamentally sound. According to AIP, such
reviews have upheld the view that Australia has adequate commercial stocks in
the supply chain for supply security and that this situation will continue into
the future with recent and planned increases in overall storage capacity in key
locations and demand centres.AIP
There is no evidence that the substantial cost of an
emergency stockpile is justified on energy security grounds, given industry's
efficient and reliable performance to date with no widespread or prolonged fuel
shortages being experienced in Australia for decades. Even during international
crude oil and petroleum product supply disruptions, such as in the aftermath of
Hurricane Katrina in 2005, Australian fuel supplies have not been disrupted.
ASEAN regional energy framework
NRMA informed the committee that while Australia sources the majority of
its refined fuel from Singapore and other Asian countries, the Association of
Southeast Asian Nations (ASEAN) itself has been moving towards a regional
energy framework which is expected to include a voluntary oil stockpiling. In
2008, the ASEAN +3 group including Japan, China and South Korea agreed to
jointly prepare a regional oil-stockpiling plan to prevent shortages and reduce
the impact of future oil price surges.
According to the IEA, energy ministers of the +3 group recognised the
necessity of oil stockpiling initiatives in light of the persistent risk of
supply disruptions and highly volatile oil markets. The IEA further noted that,
while most ASEAN countries rely on industry stockholding obligations, Myanmar
and Vietnam hold a certain amount of government oil stocks. Thailand, Lao PDR
and Indonesia have also been discussing the possibility of establishing
government held stocks.
NRMA suggested that the Australian Government play an activist and
interventionist role akin to that of G7 governments and ASEAN +3 groupings to
ensure energy security for Australia. The three areas it identified for
consideration in this regard – energy policy, agriculture/food supply, and
refinery capability are examined further in the following chapter.
In terms of regional initiatives, Australia is also a signatory to the Cebu
Declaration on East Asian Energy Security 2007 which commits member nations
to a range of measures to ensure energy security for the region. One of the key
areas of ASEAN engagement is that of renewables and to intensify the search for
new and renewable energy sources and technologies. However, the NRMA questioned
Australia's commitment to renewables transport fuels, which it argued must be
part of any agenda for Australia's future energy security and resilience.
NRMA also upheld the view that Australia lacks an energy security
framework and would appear to be content with outsourcing the country's energy
security to the market and thereby contributing to the degradation of
Australia's domestic refining capacity. Under such circumstances, NRMA
suggested that it was difficult to understand how Australia could assist less
developed nations of the region to address their energy security needs.
Gas Energy Australia expressed the view that Australia's membership of
various multilateral bodies including the IEA should entail clear objectives
which are underpinned by an assessment of whether those objectives could be
achieved more effectively in other ways.
Reliance on market forces
As previously noted, Australia currently relies on market forces to
deliver fuel security. This approach has come into sharp focus in recent years
in light of Australia's growing dependence upon fuel imports. In fact, while
some submitters including the department, AIP and oil companies, provided
evidence which supported the view that this approach remains viable, others
including NRMA, Engineers Australia and the Queensland Government contended
that changes to the way in which Australia meets its fuel demands required, at
the very least, an examination of the appropriateness of such a policy.
The department stated in its submission that:
The Australian liquid fuel market is well served by current
commercial market arrangements and international supply chains, and existing
national liquid fuel emergency management arrangements. This is supported by
observed experience over the past two decades of the performance of oil markets
in the face of specific disruptions. A report commissioned by the department
found that there is no evidence to suggest crude oil and refined product
markets would not swiftly respond to unexpected interruptions to supply.
However, NRMA highlighted that Australia's market-driven approach stood
in direct contrast to 74 other fuel importing countries which mandate stockholdings.
It noted that Australia is the only 'developed' oil/fuel importing country in
the world that has no mandated industry stockholdings, no government-owned
stocks or government control over any part of the oil/fuel infrastructure.
Other countries mandate industry stocks and/or government stocks as detailed in
the graph below.
Diagram 3.1: Government-mandated
stockholdings of fuel/oil 
Government-mandated industry stocks
The lack of mandatory oil stockholdings in Australia was questioned by a
number of submitters.
Gas Energy Australia suggested that the options before the government for
introducing such a system included:
encouraging or mandating the private sector to increase its
stockholdings of refined fuel;
establishing a state-owned oil stockpile similar to the Strategic
Petroleum Reserve in the United States; and/or
mitigating the size of the required oil holdings by ensuring
greater substitution of imported oil through domestically-sourced alternative
UQ made the point that, while the government cannot create reserves, it
can facilitate the release of acreage, undertake precompetitive exploration and
incentivise new private-sector oil exploration.
It argued that the government must intervene to assure transport energy
resilience through mitigation and contingency strategies.
While supporting consideration of mandatory stockholdings, the
Queensland Government made the point that any such enforcement on international
fuel companies would be problematic:
Refinery closures in Queensland could result in additional
fuel product being sourced from overseas refineries, with the largest being
located at Singapore, in which case attempting to impose production and supply
conditions onto overseas countries is likely to be problematic. For example,
should the companies currently involved in oil refining in Queensland choose to
close, then the possibility of compelling international companies to commit to
mandatory stockholdings is difficult under international trade agreements
(Australia has a Free Trade Agreement with Singapore).
In contrast, Mobil Oil Australia warned that any unnecessary regulation
of the fuels industry for national security or other reasons would adversely
impact industry competiveness and the commercial viability of fuel supply
activities in Australia. It argued that mandatory stockholdings were not
justified given the 'efficient and reliable performance of the industry and
continued investment in supply infrastructure'. Mobil Oil Australia continued:
We oppose any future requirement to fund and hold additional
stockholding to meet Australia’s international compliance obligations,
especially a scheme which imposed further (unjustified) cost on local industry.
If stockholdings were to be mandated, the system should be structured in such a
way as to ensure (a) zero or minimal cost to local industry, and (b) any
unrecoverable costs to industry are equally borne by all market operators
(including refiners, manufacturers and importers).
Similarly, Viva Energy Australia argued that any additional
stockholdings over and above what is required for commercial reasons would come
at a working capital cost.
Furthermore, Qantas suggested that mandatory stockholdings were only effective
for immediate supply reliability. It suggested that a re-supply capability was
required in order to provide security in the event of a short or longer term
disruption of supply from overseas. In addition, Qantas emphasised the
diversity of supply as a critical consideration in delivery fuel security and
supported the development of alternative fuels.
Risks and vulnerabilities
Australia has transitioned from operating as a major producer of
transport fuels to become a major importer of transport fuels. The argument was
repeatedly put to the committee that this change has exposed Australia to a
range of risks emanating from its oil dependence including interruptions in the
importation of its fuel supply. The point was made by Engineers Australia
that, despite apparent and growing oil dependence, there are no current alternatives
to substitute fossil liquid fuels used for transportation.
Its view that Australia's liquid fuel supply 'poses an enduring risk to
Australia's economic security, national security, food security, and social
stability' was supported by other submitters.
The Australian Automobile Association (AAA) made the point that a major
disruption to transport fuel supplies would be felt across society and in every
sector of the economy.
It was suggested that even a 20 or 40 per cent cut in the fuel supply, brought
about by factors such as conflict, would quickly lead to a situation whereby
the country would start running out of food and medicines while the economy
would start to shut down.
Evidence to the committee from the Biofuels Association of Australia (BAA)
highlighted that, as Australia's agricultural and transport sectors are almost
totally reliant on liquid fuels, they would be particularly vulnerable in the
event of supply disruption.
NRMA argued that without an adequate supply of liquid fuels, Australians
would not be able to access health services while food production and
distribution would be curtailed, many businesses and the transport system would
cease to function, and the Defence Forces would not be able to operate.
It was noted that the food supply chain, Australia's retail pharmacy supplies
and utilities are all potentially vulnerable to large-scale events such as a
national fuel shortage. It provided the following estimates of Australia's
stockholdings at the point of sale to make the point:
Chilled/frozen goods – 7 days' supply;
Dry goods – 9 days' supply;
Hospital pharmacy supplies – 3 days' supply;
Retail pharmacy supplies – 7 days' supply; and
Petrol stations – 3 days' supply.
A number of submitters raised concern that one month's supply of fuel
should be regarded as an absolute minimum requirement. Noting Australia's
reliance on imported refined fuel, Mr Ken Grundy, who supported this view,
questioned how long it would take to bring tanker loads of fuel to suitable
points around Australia during a crisis period.
Similarly, in highlighting the need to build up a stockpile of emergency fuel,
Mr David Lamb suggested that a minimum level of self-sufficiency for each type
of liquid fuel should be established.
However, in direct contrast to these views, AIP argued that a month's
disruption of all fuel supplies would be an unprecedented circumstance. Mr
Warrell emphasised to the committee that the fuel supply market actually
constituted a large number of separate markets rather than one homogenous one.
So the coincident disruption of all fuel supplies to every
capital city in Australia, and then the distribution through the vast network
that goes out to supply fuel to the rest of the country given our geographic
scale—to say that we would then be without a fuel supply to all those locations
and all those shipping lanes would be disrupted, resulting in a month of a
complete stock-out in Australia—I think is a very, very extreme case.
Caltex suggested that Australia does not have a fuel security problem
and that fuel suppliers have demonstrated the capability to optimise
stockholdings so as to minimise costs (and therefore consumer prices) while
ensuring a high level of supply reliability.
This view was supported by a 2011 ACIL Tasman assessment which found that the
declining ratio of stocks to net imports was not a concern for supply security
reasons in the short to medium term. According to ACIL Tasman:
This is because of the nature of the petroleum market in the
Asia-Pacific region, where supply security depends on being able to source
product from a diverse range of refineries that can meet Australian standards,
and the fact that a high proportion of cargoes bound for Australia are pre
committed and under contract to Australian buyers.
AIP's Mr Warrell informed the committee that, in terms of supply
security, integration into the Asian product trading market was more important
than self-sufficiency. He emphasised the importance of ensuring supply
diversity given that there was no path to 100 per cent self-sufficiency.
This position was also supported by the 2011 ACIL Tasman assessment which noted
that, in the longer term, the adequacy of Australian stocks will depend on the
structure and operation of the Asian market, and in particular the role of the
Singapore trading hub. However, the assessment did note that, while this
structure was not expected to change in the longer term (2020–25), 'any change
would justify a re-evaluation of this conclusion'.
The department informed the committee that, in terms of assessing fuel
security risks, it assessed how much storage was available in Australia
together with the country's supply lines before assessing the risks associated
with any disruption that might be encountered.
This evidence raised the question of how accurate these assessments have been
in light of the fact that the department was not provided data from independent
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