Threats to Australia's liquid fuel security
Australia's growing dependence on oil imports and declining refining
capacity raised questions regarding the security of Australia's' fuel supply
and the continued feasibility of Australia's market-based approach. This
chapter considers the threats to Australia's liquid fuel security including
external threats to the international supply chain as well as internal supply,
storage and distribution considerations.
Caltex and other fuel suppliers argued that so long as Australia has
well established and secure flows of oil and petroleum products as a
consequence of multiple ports and shipping routes connecting the refineries, it
is not vulnerable to supply shortages.
Caltex noted in this regard that sources of crude oil are diverse and include
Australia, New Guinea, Malaysia, West Africa and Vietnam. Sources of petroleum
products are also diverse. While much of the bulk comes from Singapore, product
is also available from South Korea, Japan, India and if necessary, Europe.
Caltex estimated that 30,000 crude oil and product tanker voyagers are taken
globally each year through major shipping routes. Therefore, it argued that,
'we don't see that a terrorist attack on shipping routes would have any
material impact on Australian fuel supply'.
The 2011 NESA identified geopolitical risks and long global supply
chains as two areas of risk to our liquid fuel security. The liquid fuels shock
scenario considered disruptions to supply from our largest importing source for
refined petroleum products – Singapore. The modelling demonstrated that the
global market and international supply chain could provide Australia with
adequate and reliable supplies, albeit at higher prices. An immediate
interruption to the Singaporean supply chain is estimated to increase global
product prices by around 18 per cent on average in the first month, while
prices decline somewhat from this spike in the second and third months.
These views were supported by a 2011 liquid fuels vulnerability
assessment undertaken by ACIL Tasman. The study found that a shutdown of
Singapore for a period of 30 days would result in a short term rise in
petroleum product prices but that there would still be sufficient availability
of petroleum products to support economic activity.
The study did note, however, that the impact on affordability would be more
significant for sectors heavily dependent upon petroleum fuels or road
transport including agriculture, which would likely be worse off.
NRMA made the point that, even though the government has confidence in
the resilience of the fuel supply chain, it has not published any evidence that
there are sufficient Australian-controlled sources of fuel to support essential
needs in the event of overseas supply interruptions. It noted that the NESA, upon
which this confidence is based, only considered two scenarios in reaching that
assessment and none of them involved regional conflict or interruption of the
supply chain such as infrastructure failure.
NRMA concluded that:
Given the lack of publicly-owned fuel stocks, the lack of
mandated industry stocks, the lack of mandated reporting on industry stocks and
the very limited public analysis of supply chain risks, it is difficult to see
how Government could currently provide us with that evidence.
Many other submitters emphasised the potential impacts of Australia's
growing oil import dependence on the country's fuel security, future investment
and economic growth.
They highlighted the risks of geopolitical upheaval, including conflicts and
natural disasters in oil producing and refining countries as well as along
shipping routes, on the security of Australia's liquid fuel supply chains.
In this regard, the point was made that Australia's vulnerability has been
identified by terror group, Al Qaeda, which has published a map of critical
petroleum shipping routes.
NRMA noted that political instability in the Middle East, dwindling
domestic fuel stocks and Australia's capacity to produce specialist fuels for
its Defence Forces has been eroded. As a case in point, NRMA explained that
F44, which is a type of fuel required by the Australian Navy, will cease to be
produced in Australia when the planned closure of the BP refinery in Brisbane
According to Defence Magazine, in terms of securing a sustainable and
secure fuel supply, Defence is engaged in the development of an integrated
energy security policy in coordination with the public service. Defence
acknowledged the security challenges brought about by growing reliance on
commercial supply chains as well as the consequences for capability and
technology choices in the report. As the combined cost of Defence's liquid
fuels comprise the second largest component of its sustainment budget and is
set to increase, such reliance raised serious budgetary as well as security
NRMA noted that a significant supply disruption to Australia's shipping
lanes or trade routes such as a natural disaster, accident, commercial failure,
act of terror or war, could imperil Australia's ability to provide for
essential services and its military forces.
Similarly, Engineers Australia argued that:
Liquid fuel in transit to Australia through some of the
world's geopolitical hotspots is not fuel security, it is wishful thinking.
Another concern raised in evidence in relation to the supply chain was
that of the growing dominance of national oil companies such as Petro China and
Saudi Aramco over both the production and refining of oil at the expense of
private oil companies.
Engineers Australia noted that national oil companies or their host governments
control almost 80 per cent of the world's proven-plus-probable reserves of
convention and unconventional oil.
Engineers Australia explained the potential consequences of these global
dynamics for Australia:
Australia's persistent faith in global supply chain stability
could be sorely tested in the future if such national oil companies make
decisions based on national energy security interests rather than commercial
Contaminated fuel and internal fuel supply disruptions
In terms of fuel supply, the attention of the committee was drawn to the
consequences of contaminated fuel supply. On 30 May 2014, Perth experienced a
temporary diesel shortage when BP received a shipment of imported diesel that
had slight discolouration.
According to Mr Graham Blight, NRMA Fuel Security and Alternate Fuel
Ambassador, the fuel shortage that eventuated 'upset the running of the
transport industry' until another shipment arrived. Mr Blight further noted
that more recently, aircraft at Melbourne Airport had to be rescheduled and
refuelled at another airport as a consequence of the late arrival (by three
days) of fuel ships.
The committee was informed of two other incidents in Victoria whereby
motorists and the trucking industry ran out of fuel within a week. The Truck
Industry Council (TIC) explained the circumstances:
Firstly in December 2012, when the refinery at Altona was
closed for scheduled maintenance, while at the same time the state's second
refinery in Geelong was unexpectedly shut down due to electrical problems
arising from a storm. Then in October 2013 issues surrounding safety grounded
many fuel delivery tankers. In both cases many retail outlets in regional
Victoria ran out of fuel quickly and were without diesel for up to a week, as
well many Melbourne outlets were similarly affected.
BAA made the point that such disruptions are likely to worsen as
Australia's reliance on the import supply chain grows.
It further noted that the combined effect of Australia's reliance on imports
coupled with a lack of local liquid fuel storage infrastructure revealed the
depth of Australia's vulnerability to supply disruptions.
In states and territories with no refineries (South Australia, Northern
Territory, Tasmania and NSW (by 2014) all liquid fuels must be imported. However,
ports can be subject to disruption from a range of incidents including
accidents, equipment failures, industrial action, natural disasters and terrorist
NRMA also raised questions about fuel supply in the event of a container
ship running aground. Air Vice Marshal Blackburn (Retired) informed the
committee that government analysis of the Port of Adelaide revealed that were a
container ship to run aground at the entry to the port, off-loading the ship
and its removal would take up to 14 weeks. The port retains up to 12 days of
fuel stocks. The report revealed that, while the port remained blocked, only 10
per cent of Adelaide's fuel demand would reach Adelaide City after the first
two weeks of supply ran out. Therefore, the state would have to survive on 10
per cent of its demand for up to 10 weeks.
Air Vice Marshal Blackburn (Retired) explained the consequences:
If you lose 90 per cent of your fuel to a capital city for
eight to 10 weeks, I have got to tell you that that is absolute chaos. It is
not war. That is because there are single points of failure through our supply
Mr Mark McKenzie, CEO of the Australasian Convenience and Petroleum
Marketers Association (ACAPMA) highlighted the flow-on consequences of supply
disruptions. He informed the committee that recently, a large transport fleet
was grounded because of safety concerns. Mr McKenzie explained the
That resulted in short supply in a number of regional areas,
because they are effectively a virtual pipeline. So, when you consider supply
from port to pump, you have actually got rolling pipelines that are there all
the time. Therefore, issues associated with how that fleet is managed and the
controls in and interruption to that fleet can interrupt supply. In some areas,
it can be fewer than five days that we are talking about where you then get to
the situation where you run very short of product.
According to Caltex, where supply disruptions have been experienced they
have generally been related to refinery failures or natural events such as
cyclones. It argued, however, that market forces ensure reliability, as a fuel
supplier who can't assure supply will lose business to local or overseas
Despite acknowledging the occurrence of recent disruptions, Caltex concluded
that Australia does not have a fuel security or fuel reliability problem.
It suggested that, to ensure that the fuel supply chain suffers least impact
from an extreme event, adequate flows of oil, not stocks, was required. Caltex
Robustness would be maximised by many alternative shipping
routes from many sources. If international trade on fuel was disrupted by
military action, having a strong domestic supply chain of this kind would be an
important safeguard. We are fortunate that Australia has well-developed
domestic supply chains and supporting emergency response plans. These supply
chains work very well in normal commercial circumstances and can cope with a
variety of disruptions such as refinery breakdowns, cyclones, product
contamination and global incidents (such as Libyan supply disruption).
However, NRMA argued that fuel security could be achieved if Australia
controlled part of its supply from the source through to that of refining and
processing, with some storage. Noting that Australia is at the end of long
supply chains, Air Vice Marshal Blackburn (Retired) explained that:
Fuel security is when you have a problem you have a
percentage of your supply from the start to the end that you can control in
Australia. That is security. Just one week extra or two weeks extra storage of
your fuel means you are going to starve or your crops are going to fail two
weeks later than was going to happen. That is what the whole argument misses.
It is not storage; it is about end-to-end supply continuity.
Furthermore, while much of the evidence to the committee focused on
suggested vulnerabilities and risks in relation to Australia's supply chain
from producer to port, ACAPMA made the point that there were also
vulnerabilities in relation to Australia's internal fuel supply from port to
ACAPMA noted that there were eight importers and providers beyond the
four major oil companies which import fuel into Australia. However, it
suggested that the current ownership and access structures serve as a barrier
to independent importers from importing fuel into Australia at reasonable cost.
ACAPMA argued that this situation should change and that the market should be
opened up as:
The only opportunity to bring fuel into this country, unless
you are servicing United, is to actually utilise the Holden dock here at Port
Melbourne. But that dock is not sufficient to bring in large-scale vessels to
be able to offload fuel. So, in that first instance, we have got a situation
where we do not have a key piece of gateway infrastructure to be able to
offload seaside and then put in a pipeline and put the storage in place.
ACAPMA further suggested that there are various factors blocking
investment in internal supply and storage. Mr Mark McKenzie, CEO of ACAPMA
noted in this regard that the current infrastructure for receiving imported
fuel supplies in Australia is limited, particularly in capital cities. He
Therefore someone looking to actually create an investment in
storage not only has to invest in the storage but they have got to invest in
the terminal receiving—that is, the seaside infrastructure designed to receive
those volumes. As a result, there are very significant barriers at the moment
to investment in that area. It becomes uneconomic for someone who is,
effectively, concentrating in terminal facilities to then also start to look at
developing port facilities.
ACAPMA made the point that meeting IEA obligations would imply bringing
about an increase in Australia's oil storage and terminal infrastructure. It
noted, however, that any decision to expand existing fuel storage and terminal
infrastructure should not be premised on extending national storage volumes to
the point of IEA compliance but rather on opportunities to reduce current
vulnerabilities in the internal supply chain.
In this regard, ACAPMA noted that:
The absence of a comprehensive audit of the architecture and
performance of Australia's internal fuel supply chain makes it difficult to
draw definitive conclusions about the nature and extent of current
vulnerabilities in the supply of transport fuel between Australia’s fuel
storage terminals and the more than 6400 retail fuel outlets that operate in
In calling for such an audit, ACAPMA argued that the exercise should
consider the resilience of supply in the face of potential interruption by
various events including the deferral of oil tanker delivery, grounding of road
transport fleets, and repair of critical oil transmission and storage
Australia's domestic refining capacity
The 2011 NESA acknowledged that increased competition from large-scale
Asian refineries will continue to pose a risk of further rationalisation in the
domestic refinery sector. However, it suggested that access to regional markets
for refined products is expected to provide ample supply to meet any domestic
refinery shortfall and concluded that:
Therefore, over the long term, Australia is likely to have a
greater reliance on imported oil and long global supply chains, a decrease in
diversity of supply (due to the decline in domestic production of crude oil)
and increased exposure to international factors such as geopolitical tensions
and events, and the investment decisions of international and state-owned oil
This view was echoed in the 2012 Energy White Paper which stated that:
Our lack of oil self-sufficiency and the prospect of further
refinery rationalisation does not in itself compromise or reduce our energy
security. Our liquid fuel security is expected to remain high because of our
access to reliable, mature and highly diversified international liquid fuel
However, UQ argued that such statements appear not to consider the
crucial role of resilient infrastructure. It further argued that to achieve
sustainability and resilience of Australia's liquid fuel supplies required
consideration and address of the supply risks across all parts of the supply
chain from upstream production to shipping, refining, storage and distribution.
In response, Caltex argued against market intervention to either
subsidise or protect the manufacturing industry, including oil refining, on the
grounds that local manufacturing was not necessary for supply security or
As an alternative, Caltex suggested that Australia should pursue competitive
markets in Australia and overseas and promote a free trade agenda. While
recognising that manufacturing is under pressure from global forces and the
resultant transformation of the Australian market, Caltex argued that a better
approach would be to ensure that the economic settings for manufacturing were
as favourable as possible, consistent with deregulated markets and free trade.
Australia's declining domestic refining capability reflects the growth
of large, more cost-efficient refineries in the Asia-Pacific region and the
comparative disadvantages of Australian refineries including age, size, labour
and construction costs.
Viva Energy Australia noted that prior to its closure in 2012, the Clyde
Refinery, (which produced 70,000 barrels a day), was not able to compete with
regional refineries which produce 1.2 million barrels a day.
According to Engineers Australia, the cost pressures on Australia's refineries
are likely to continue as Asia expands its oil refining capacity and super
refineries are developed in the Middle East. Engineers Australia concluded
Without renewal, Australia's aging refineries cannot compete
effectively against these newer, more technically advanced and large scale
refineries. The ongoing decline in domestic refining capability will continue
to increase Australia's reliance on imported refined products.
Caltex noted that, based on its own analysis regarding the closure of
its Kurnell refinery in late 2014, the factors which disadvantage Australian
small scale due to population and geographically dispersed
technology that is oriented towards the wrong fuel (petrol,
rather than diesel);
inability to use substantial amounts of lower cost, high sulfur
increased shipping costs associated with more distant crude oil
distance from markets, so exports are generally not competitive;
high capital and operating costs; and
a high Australian dollar in recent years.
Mobil Oil Australia made the point that Australian refineries are also
subject to generally higher (and growing) levels of environmental and OH&S
regulation than competing refineries in the region. In some cases, such as that
of Altona, local refineries may face additional pressures from continuing
encroachment of residential and other higher value land use close to their site
Mobil Oil noted that, in light of the commercial challenges face by Australian
refineries, policy settings must strike the right balance in addressing
environmental and community needs without adding unnecessary costs, such as
port fees and major input costs such as utilities, which threaten the long term
viability of the industry. To this end, it argued that governments should guard
against the introduction of any regulatory requirement that imposes additional
cost on local refineries which is not borne by international competitors.
A 2011 study by ACIL Tasman on liquid fuel vulnerability acknowledged
that the potential closure of refinery capacity in Australia 'reduces the
diversity of supply options for the Australian market'.
Yet, the point was made by Viva Energy Australia that as Australian domestic
crude production (including condensates) is clearly in decline (with only 14.9
per cent of the crude diet met by local Australian crude in 2012–13), and most
local refineries are now reliant on a large percentage of imported crude oil,
it is 'difficult to argue that local refineries reduce exposure to disruption
to import supply chains'.
The department informed the committee that there is no government policy
directed at maintaining any onshore refining capacity for Australia's oil
production. When asked whether a lack of an onshore refining capacity would
leave the country at risk, the department's Mr Ryan informed the committee
We assess the risk in terms of where we are going to get our
supply of refined oil from and that is a mixture of imports and refining that
we do locally. At this point in time, we have a mixture of both and we continue
to do our assessments on that basis. We do not have a target for the minimum
refining we might require in this country.
The department further noted that refinery closures were a commercial
decision for the determination of the owners/operators of refineries. It
explained that the 2009 and 2011 NESA identified risks associated with
Australia's declining refining capacity while a 2012 commissioned report which
assessed those risks found that:
Australia was well placed to maintain domestic energy
security through access to the large Asian refining system with significant
excess capacity and producing Australia specification fuels in the next decade.
The current excess refinery capacity in the Asia Pacific is around 16-18%.
Australia’s current total refining capacity would represent around 1% of this
surplus refinery capacity in the Asia Pacific.
The 2014 Energy White Paper Issues Paper observed that, in light of the
high proportion of imported crude used in domestic refineries, a policy which
supports domestic refineries would likely only make a marginal impact on energy
security, while adding substantial costs for the taxpayer and/or fuel consumer.
It also noted the high costs involved in investing in strategic fuel reserve
stocks to protect against the long run risk of a sudden severe disruption of
global trade. It was suggested in the issues paper that such costs would need
to be met by either increased fuel prices or the diversion of public funds.
However, in direct contrast, a number of submitters raised serious
concerns about Australia's declining refining capacity. NRMA noted that from
2003 to mid–2015, Australia would have lost 50 per cent of its refining
capacity. It highlighted that there is no government policy to maintain any
refining capacity in Australia, and yet, a total loss of Australia's refining
capacity would imply 100 per cent import dependency and no ability to refine
Australian-produced oil. Of the situation, NRMA expressed the view that:
Some level of refining capacity will not only protect
Australia from a total dependency of imported liquid fuels, but will be
required as alternative fuels become economically viable. It will not be
practical or feasible to encourage an alternative fuels industry if there is no
refinery capacity in Australia.
Similarly, NFF made the point that the supply chain is made more
vulnerable to supply shortages where there are a limited number of domestic
refineries and greater dependence on imported fuels. It noted that currently,
one-third of Australia's point-in-time fuel supply is at sea. NFF suggested
that any further increases in imports would create potential supply issues
resulting from factors such as shipping delays, changing trade arrangements and
Southern Oil Refining (SOR) argued that retaining some level of refining
capacity would not only protect Australia from total dependence on imported
liquid fuels but would inevitably be required as alternative fuels become more
SOR cited a 2014 BREE report, Australian Energy Resource Assessment to make the
point. According to BREE, second generation biofuels 'show promise for making a
greater contribution to transport fuel supply', but this is dependent on
sustainable production of biomass at a competitive cost.
SOR concluded that without government support to maintain and build this
production capacity, Australia would not be able to achieve an economically
viable industry sector to maximise alternatives in the total transport fuel
The Queensland Government expressed concern that both major oil
refineries in Brisbane have indicated potential closure within the next two
years as a consequence of perceived inefficient operations and financial loss.
It explained the possible ramifications:
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).
The Queensland Government argued that if no new refineries with
increased capacities are established in Australia, the community, industry and
essential services will be reliant upon either increased imports or reducing
demand for petroleum-based transport fuels.
The Australian Workers' Union (AWU) and Engineers Australia made the
point that the closure of refineries not only negatively impacts fuel security
in Australia but also jobs and specialist skills.
AWU noted in this regard that once the refining workforce has gone, like the
plants themselves, it is unlikely that they will return without significant
investment in recruitment and training.
Mr Neil Greet, Fellow of the Institution of Engineers, Engineers Australia,
made the point that, if engineering skills, training and knowledge erode, it
would not be possible to understand future challenges, and that Australia's
security would consequently be degraded.
AWU argued that the total economic benefits associated with investment in the
refining workforce should be considered when measuring the costs and benefits
of any further loss of refining capacity in Australia.
Other evidence highlighted the risks that emanate from a declining
refining capacity. According to Engineers Australia, since 2002, the proportion
of refined petroleum, oils and lubricants sourced from overseas has risen from
11 percent to 37 percent in 2012, and it is estimated that this will reach 43
percent in 2014 with the closure and conversion of the NSW refineries. It
argued that these dynamics have increased Australia's vulnerability to the
influences of the global market in terms of availability of refined products.
This concern was echoed in the evidence of other submitters. Australian
Pipeline Group (APA Group) noted that Australia's limited domestic refining
capacity for transport fuels and any disruption to the imported fuel supply
chain could have significant implications for the Australian economy,
potentially restricting the transport sector for extended periods.
AWU argued that relying solely on the international market in the
absence of a local refining capability in times of a national emergency was not
an adequate response. It suggested that, given such circumstances, Australia
must retain domestic refining capacity in order to fuel the local economy,
sustain living standards and to provide scope to contribute to its own defence.
While arguing that the closure of an additional one or more local
refineries should not pose a threat to reliable domestic fuel supply in the
longer term, Mobil Oil Australia recognised that 'some level of domestic
refining capacity is highly desirable to provide additional flexibility to cope
with the short term product supply interruptions or imbalances which can occur'.
Stockpiling imported fuels
The Queensland Government made the point that increased stockpiling of
imported fuels will create new challenges in relation to shelf life and changes
in the risk and safety management profiles of such storage. Storing refined
fuel has different technical safety requirements to crude oil which has a
longer storage life and lower volatility. Furthermore, the Queensland
Government put the view that, should mandatory stockpiling be introduced,
refinery closures raised questions of ownership arrangements: should the two
Queensland refineries close, the state would be dealing with mandatory
stockpiling of refined fuel product rather than crude oil.
The Queensland Government continued:
If refined fuel is stockpiled in the state, this can
potentially provide a short-term buffer against any significant price
increases. The import of refined product however, will not benefit from this
effect and result in possibly more expensive prices for fuel products in the
long term. However, more competition may be facilitated if multiple players
enter the retail fuels and distribution market.
As a first step, NRMA recommended that the Australian Government
undertake a public analysis of the country's refining capacity with a view to
determining the implications of ongoing closures, and the loss of local
capacity, on both near-term and longer-term resilience and security.
The Maritime Union of Australia (MUA) suggested that the closure of
Australian refineries affected NSW and the Australian Capital Territory (ACT)
in particular given that since September 2014, they no longer have any
operational refineries. As a consequence, ships are now critical to the fuel
supply for transport, aviation, industry and mining in both jurisdictions. Fuel
supply to these two locations is dependent upon tankers importing fuel to only
three ports – Sydney, Port Botany and Newcastle.
MUA explained that as one fuel tanker carries the equivalent fuel of 1000 truck
tankers, it was not possible to transport replacement supplies by road from
refineries in Brisbane or Melbourne in the event of a disruption to these ports
Furthermore, international petroleum imports, and an increasing amount
of domestic shipping, are undertaken on international-flag and crewed tankers.
From 2011–12 to 2013, there was a 47 per cent increase in domestic voyages by
international-flag ships and a 67 per cent increase in the tonnage of refined
petroleum carried by these ships.
According to MUA, in contrast to the record of Australian-crewed ships,
international-flag tankers have been found to have hundreds of deficiencies
that are so serious that they have been detained an average of 12 times per
year by the Australian Maritime Safety Authority (AMSA).
In 2013, most of these ships were detained because of deficiencies in relation
to International Safety Management compliance, fire safety, lifesaving
appliances, pollution prevention, and emergency systems.
In contrast, according to MUA, the five (but soon to be three)
Australian-crewed tankers were never detained in 36 years of service.
MUA put the argument that greater use of international-flagged and
crewed tankers over the Australian alternative would further weaken Australia's
already fragile fuel security.
It suggested that Australian companies and the Australian Government would not
have the capacity to take control of and re-direct these tankers in the event
of a fuel emergency in Australia.
Dr Penny Howard, National Research Officer of MUA suggested that it was unclear
what would happen if there was a disruption to the fuel supply and Australia
was reliant upon international flagged ships that have 'no particular
obligation to Australia' and which may have contracts with a number of
countries during the course of a year. Dr Howard noted that such a scenario had
not been considered in the risk assessments conducted by the department.
Emergency fuel distribution system
The Liquid Fuel Emergency Act 1984 (LFE Act) provides the
Australian Government with the authority to prepare for and manage a national
liquid fuel emergency. Under the Act, the Minister for Industry can control the
industry's stocks of crude oil and liquid fuels, Australia's refinery
production and the distribution of fuel stocks in an emergency. Similarly, each
state and territory has arrangements in place to deal with liquid fuel
emergencies within their respective jurisdictions.
AIP explained that there were comprehensive response strategies in place
to address or replace any lost supply including:
numerous 'in-refinery' technical options;
utilising of alternative supply infrastructure and supply and
sourcing supply from other Australian refineries and fuel
sourcing supplies from international sources and the spot market;
equitably allocating bulk fuel to consumers; and
drawing down industry stockholdings.
Notwithstanding this evidence, the AIP pointed out that many larger fuel
users hold only limited stocks on the expectations that stocks will be held by
fuel suppliers or that government will intervene to protect the interests of
fuel users if supplies are limited.
Emergency services are recognised as 'essential users' in the Act and Liquid
Fuel Emergency (Activities – Essential Users) Determination 2008 and have
'priority' access to fuel in the event of a national liquid fuel emergency. The
Guide Note on Essential Users emphasises that 'governments all agree' that
those users who 'contribute to the provision of goods and services which, if
reduced in supply or availability, would be likely to seriously damage the
health, safety or welfare of the community', should have priority access to
fuel. Declared essential users include:
Defence of Australia;
Fire or rescue service;
Public transport service;
State Emergency Service or an equivalent organisation;
AIP noted that many business and industry fuel users incorrectly believe
that they are 'essential users' for the purposes of the Act and will get
preferential supplies during a supply emergency in the same way as police,
ambulance and emergency services.
At the core of considerations regarding fuel stocks was the role of fuel
suppliers and the question of where the obligation to retain fuel stocks to
deal with an emergency should lie. AIP members held the view that it was not
the role of fuel suppliers to hold buffer stocks in the event of a disruption.
AIP argued that:
It is not the role for fuel suppliers to hold buffer stocks
to guarantee the ongoing business operations of major fuel users and
distributors during a major fuel supply disruption. Therefore, it is in the
interests of all fuel users to understand their own fuel use and to consider
how best to manage the potential impacts of reduced fuel supply.
However, AIP noted that fuel supply patterns were consumer driven and
that prior to harvest season, suppliers fill available storage facilities.
Yet, AUSVEG made the point that while growers might be in a position to
take some measures, it was not reasonable to expect them to put in place on
their own measures sufficient to deal with a disruption.
It informed the committee that information derived from vegetable growers located
around Australia of different farm sizes revealed that their fuel storage
depended on the size of the farm – smaller growers had a few thousand litres of
storage, with the larger growers having up to 33,000 litres.
Mr AJ White, Deputy CEO of AUSVEG made the point that, as many producers are
now harvesting on a year-round basis, any such disruption in fuel supply would
impact the entire agricultural sector.
Another matter raised in relation to the issue of fuel security was
whether there is an intersection between national security, energy and economic
security. AIP argued that energy and economic security issues were distinct
from national security issues. Therefore, national security issues are a matter
for defence while energy security should be assessed through the energy white
However, NRMA challenged this approach by arguing that it was impossible to
differentiate between national security, energy security and food security as
they are all part of the country's base.
Air Vice Marshal Blackburn (Retired) noted in this regard that Defence was
'totally' dependent on industry and the civil supply base. He continued:
If your civil supply base—food supply and everything else
that happens—does not work then Defence cannot work either. So it is not a case
of: if you had stocks the Defence then they could go off and operate; they
cannot—they are totally dependent on the civil infrastructure. So you cannot
actually separate energy security and defence security because they are
Fuel security or insecurity?
In considering evidence regarding Australia's fuel stockholdings, the
IEA stockholding requirement, Australia's liquid supply chain and domestic
refining capacity, this chapter has revealed clear divisions in evidence on the
question of whether Australia's current arrangements provide adequate fuel
Those who questioned the current arrangements and suggested that
Australia should not be content to 'outsource our energy security to the
market' made the following points: 
Australia fails to meet its IEA stockholding obligations;
Australia holds no government controlled or mandated stocks in
contrast to regional and global peers and has no control over any part of
despite an apparent dependence on oil, there are no current
alternatives to substitute fossil liquid fuels used for transportation with
Australia's almost 100 per cent reliance on imported liquid fuels
leaves the country's industries, including that of transport, extremely
vulnerable to supply disruption and exposes Australia's economy to continually
rising and volatile world spot prices for oil;
the rising costs of fuel coupled with growing dependence on other
nations for fuel supply (which implies greater susceptibility to delays in
deliveries from foreign shipping) raised questions regarding Australia's energy
The argument was put to the committee that these factors made Australia
particularly vulnerable in the event of an interruption to the import supply
To this end, the point was made that Australia's Energy Green Paper
acknowledged that the combined effect of declining domestic refining capacity
and increased dependent on fuel imports, particularly for specific fuel types,
could 'enhance concerns about the level of risk to Australia's national
As NRMA stated in its submission:
Australia is moving towards a situation where by 2030 we
Less than 20 days of liquid fuel;
100% imported liquid fuel
Submitters concerned about the fuel supply status quo made the point
that stockholdings alone would not guarantee Australia's transport energy
security while increased storage was only part of the solution. They contended
that a different approach is required whereby supply and demand aspects of
Australia's transport fuel supply as well as stockholdings are considered.
NRMA made the point that what was required is a secure, reliable and
ongoing flow of fuel. To this end:
Rather than focus on stockholdings as an isolated endpoint or
a stand-alone 'solution', the Government needs a comprehensive and
multi-faceted approach to energy security...Australia's reliance on imported oil
and fuel has grown from 60% in 2000 to over 90% in 2014, with further declines
in indigenous oil and fuel production capacity foreshadowed.
To address fuel security concerns, like-minded submitters pointed to the
need for government to take a multi-faceted approach to transport energy
security as a mechanism to achieve adequate fuel security.
In direct contrast, submitters who argued that Australia has adequate
fuel security including the department and AIP, supported by various government
commissioned reports and analysis, pointed to factors such as:
the extensive supply network and shipping routes;
the lack of severe disruption events to date;
a need to tap further into regional markets rather than expensive
the cost implications of meeting IEA requirements which may have
no bearing on fuel security per se; and
the need to avoid the impost of additional costs on the industry
At the heart of the debate regarding fuel security is that of the role
of government and fuel security policy. The following chapter explores these questions.
Navigation: Previous Page | Contents | Next Page