24
July 2018
PDF version [293KB]
Dr Hunter
Laidlaw
Science, Technology, Environment
and Resources Section
Liquid fuel security is a topic of
long-standing debate in Australia. It has recently been raised in relation to
the Government’s plan to address non-compliance with Australia’s international obligations.
During May 2018, there was also confirmation
that the third National Energy Security Assessment (NESA) would be completed by
mid-2019. One component of the NESA is an assessment of liquid fuel security
that is to be completed by the end of 2018. The Parliamentary Joint Committee
on Intelligence and Security has also recommended
that measures are taken to ensure a continuous fuel supply to meet national
security priorities.
Australia, as a member of the International Energy Agency
(IEA), is a party to the International
Energy Program and treaty
that requires all member states maintain oil stocks equivalent to at least 90
days of the previous year’s daily net oil imports. The purpose of this
requirement is to ensure that oil-importing countries can withstand disruptions
to supply by releasing stockpiled oil.
At the time of joining the IEA in 1979, Australia was a net
exporter of oil and was therefore exempt from the stockpiling requirement. Since
then, Australia’s oil production has peaked and is currently in decline.
Combined with a reduction in oil refining capacity and an increasing reliance
on imported oil products, Australia became non-compliant
with the stockholding obligation in 2012.
In contrast with many other IEA members, Australia has not
maintained a public (or government-owned) stockpile of oil and has instead
relied on commercially held stocks. As noted below, this may soon change. The
Government has committed
to develop a strategy to return to compliance by 2026; however, the full
strategy is still being developed. Part of the strategy has involved changes to
key legislation and the introduction of new reporting requirements for liquid
fuels.
Many of the issues around liquid fuel security are an
ongoing challenge. The first oil shock in 1973–74 helped precipitate the
foundation of the IEA in 1974. Immediately following the second oil shock in
1979, Australia’s National
Energy Advisory Committee recommended that:
[w]ith regard to supply insecurity ... Consideration be given
as a matter of high priority to the specific form and location of strategic
stockpiles[,] the timing of their purchase, the methods of their release and
their relationship to those required as a result of Australia’s IEA membership.
Methods of financing or of providing incentives for such stockholdings should
also be examined.
During 1986, the Energy
2000 Policy Review for petroleum recognised that:
[w]ith a growing dependence on imports, Australia would also
become more vulnerable to supply disruptions. The disadvantages of this
vulnerability will never be easy to quantify and consequently it will be extremely
difficult for Governments to decide what level of insurance against disruption
would be appropriate.
This quick guide contains a list of key resources to provide
context and assist understanding of Australia’s liquid fuel security.
National resources
Key legislation
- The Liquid
Fuels Emergency Act 1984 provides the legislative basis for contingency
planning and the management of liquid fuel emergencies in Australia, including
the power to control industry-held stocks, production by Australian refineries
and fuel sales. This Act was recently amended through the Liquid Fuel
Emergency Amendment Act 2017 to enable the government to enter into
commercial oil stock ticket contracts (see this Bills
Digest).
- An
agreement was signed on 13 June 2018 to enable oil stocks held in the
Netherlands under oil stock reservation contracts (‘tickets’) to be counted
towards Australia’s 90 day IEA obligation. Details of this treaty with the
Netherlands are available on the Joint Standing Committee on Treaties webpage
and the associated National
Interest Analysis.
- Mandatory reporting requirements for the production and
stockholdings of liquid fuels, including petroleum, biofuels and other
products, commenced from 1 January 2018 under the Petroleum and Other
Fuels Reporting Act 2017 and associated Petroleum and Other
Fuels Reporting Rules 2017. The associated Bills
Digest provides additional information.
Department of the Environment and
Energy
- The Australian
Petroleum Statistics is a monthly report that provides data on ‘petroleum
products, exports and imports of petroleum products and crude oil, production
of crude oil and condensate, refinery input and output, and stocks of petroleum
products’. These statistics are collected at the national and state level.
- The mandatory
reporting of selected fuel data commenced on 1 January 2018. These
statistics will be incorporated into the Australian Petroleum Statistics.
- The Australian
Energy Statistics provides the overall production, consumption and trade
statistics for energy in Australia, including the transport sector.
- The Department of the Environment and Energy supports the Energy
Sector Group of the Trusted
Information Sharing Network (TISN) for Critical Infrastructure Resilience.
This group shares information on ‘security issues and practical measures to
improve the resilience of energy infrastructure to all hazards’.
- The Department of the Environment and Energy is responsible for
the Liquid
Fuels Emergency Act 1984 and the government response to any national
liquid fuel emergency, including the National Oil Supplies Emergency
Committee (NOSEC;
within the COAG Energy Council) and the National Liquid Fuel Emergency Response
Plan that details the agreement between the Commonwealth and the states and
territories relating to the declaration and management of any liquid fuel
emergency.
Department of Industry, Innovation
and Science
- The Resources
and Energy Quarterly from the Office of the Chief Economist provides
details on both global and domestic oil production, consumption and forecasts.
The Office also published the Australian
Energy Projections to 2049–50 (last updated November 2014) with longer-term
projections of energy consumption, production and trade for economic sectors,
including transport.
- The Australian
Liquid Fuels Technology Assessment (October 2014) provides an overview of
current and potential liquid fuel production technologies, as well as levelised
cost estimates to 2050. In addition to an overview of 18 different production
technologies, information is provided on the potential of the technology in the
Australian context, and barriers and opportunities associated with each
technology.
- The Department of Industry, Innovation and Science supports the development
and investment in Australia's petroleum resources (within the ‘upstream
petroleum’ sector).
- The Offshore
Petroleum Exploration Acreage Release is used by the government to promote
petroleum exploration in offshore waters. The overview
of this program provides details on the roles, requirements and regulatory
framework.
Geoscience Australia
Major industry representatives
- The Australian Institute of Petroleum
(AIP) represents the downstream petroleum industry that is involved in the
refining, wholesaling and retailing of petroleum products. Details on the state
of the industry and recent developments in the region are provided in their
latest Downstream
Petroleum report (2017). Several other resources and factsheets,
including those on Australia refineries, fuel pricing and supply security and
reliability are available on the AIP website.
- The Australian Petroleum
Production & Exploration Association (APPEA) represents Australia’s oil
and gas exploration and production industry.
- The Australian Pipelines &
Gas Association (APGA) represents the pipeline infrastructure sector,
particularly gas pipelines, but also oil.
- The National Roads and
Motorists’ Association (NRMA) commissioned Retired Air Vice Marshall John
Blackburn to provide advice on Australia’s fuel security in 2013 and these
reports formed part of the NRMA’s submission to the 2015 Senate inquiry (see
below). The reports can be found as the two attachments to Submission
18.
Previous inquiries and reports
The Senate Standing Committee on Rural and Regional Affairs
and Transport held an inquiry into Australia’s
transport energy resilience and sustainability and reported in June 2015.
Among other topics, the report
covered Australia’s liquid fuel stockholdings and supply chain, threats to
liquid fuel security and the role of government in fuel security. Submissions
to the inquiry were received from many key stakeholders.
The House of Representatives Standing Committee on Economics
held an inquiry into Australia’s
oil refinery industry (report tabled in 2013). Chapter 3 provides
background and impacts of declining refinery capacity in Australia. Chapter 4
covers these issues in relation to energy security, self-sufficiency and
stockholdings (among other topics).
National
Energy Security Assessments were released in 2009
and 2011.
The third assessment is in progress. The assessments consider ‘human and
environmental threats to the adequate, reliable and affordable delivery of
liquid fuel, gas and electricity to the Australian consumer’. They have
typically examined the likely effects of a ‘shock scenario’ that results in
disruption to the global supply chain and the effect this would have on
Australia’s liquid fuel supply.
The Liquid
fuels vulnerability assessment provides an overview of the
liquid fuel situation, world oil outlook and an overview of oil shock
vulnerabilities. This includes an analysis of a hypothetical major supply shock
scenario (Singapore petroleum outage for 30 days). The adequacy and
vulnerability of Australia’s liquid fuel stockholdings, including in relation
to the IEA requirements, is also considered. This report by ACIL Tasman was
published in October 2011 and was an update to their 2008 review.
Commissioned reports
Several reports have been commissioned to inform the
government and assist in the development of policy on fuel stockholdings.
Costings and other underlying assumptions were correct at the time of reporting
and may have changed.
Global
Oil Market – a review paper by Cape Otway Associates (November 2016)
provides a comprehensive review of the oil market from the early 1970s onwards,
plus an outlook for future developments and new challenges that the oil market
may face in the next few decades.
Oil
market responses to crises: an historical survey by ACIL Allen
Consulting (June 2014) provides a review of oil markets and oil shocks and
their effects, including effects on Australian policy.
The Review
of market resilience to oil supply disruptions by Hale & Twomey
(June 2014) is focussed on market disruptions that introduce significant
pressure but don’t disrupt the market’s ability to function. This provides a
review of the mechanisms available in the supply chain that promote resilience
to disruption and how these are used by companies in Australia to manage
disruption.
Australia’s
maritime petroleum supply chain by Hale & Twomey (June 2013)
provides an overview of how the maritime supply chain for oil operates in
Australia. It also describes how the petroleum market interacts with the
shipping supply chain and petroleum tanker dynamics.
The Stock
on the water analysis by Hale & Twomey (February 2013)
reports on the typical quantity of liquid fuel that Australia and New Zealand have
in the ‘tankers at sea’ category (known as ‘stock on the water’). This includes
where the stock is typically located based on an assessment of the route
between the source location and the destination for import tankers. Stock that
is held in tankers at sea cannot be counted towards the IEA stockholding
obligation; however, due to the long supply chain for liquid fuels to
Australia, they can comprise a significant volume of fuel.
The National
Energy Security Assessment (NESA) identified issues: competitive pressures on
domestic refining report by Hale & Twomey (June 2012) provides a
review of Australia’s refining outlook in relation to regional developments and
modelled the impact that structural changes to refining may have on Australian
supply chains. This followed the 2011 NESA that recognised the significant
competitive pressures being felt by Australia’s domestic refining industry.
NESA
identified issues: Strait of Hormuz by ACIL Tasman (July 2012)
provides an economic assessment of a significant disruption to shipping in the
Strait of Hormuz, at the mouth of the Persian Gulf. The economic modelling was
based on a relatively short disruption (full capacity was restored by the third
week) that didn’t result in a physical disruption to liquid fuel supply in
Australia.
Australia’s
emergency liquid fuel stockholding update 2013: Australia's International Energy
Agency oil obligation ‘main report’ by Hale & Twomey (October 2013)
provides an overview of Australia’s compliance under the IEA stockholding
obligations and some cost options for returning to compliance. It analyses four
emergency stockholding options and provides some estimates of the stockholding
compliance gap going forward to 2033. This was an update on the July 2012
report National
Energy Security Assessment (NESA) identified issues: Australia’s international
energy oil obligation that examines options for holding emergency stock
to meet Australia’s oil IEA obligations. It reviews global stockholding models that
may be suitable for Australia and the likely costs to implement.
Australia's
emergency liquid fuel stockholding update 2013: oil storage options & costs
by Hale & Twomey (October 2013) provides an update to their earlier work on
Australia’s oil stockholding obligations. It updates the options and costs
associated with large scale emergency stock holdings, including the facility,
stock and operational costs.
Australia's
emergency liquid fuel stockholding update 2013: ticket markets by Hale
& Twomey (October 2013) provides an expanded discussion of a ticket market
in Australia and associated costs. It analyses using a non-IEA country as
provider of the ticket stocks and the creation of a domestic ticket market.
This was updated in the Ticket
market pricing update report (April 2014) to reflect new pricing in the
international ticket market. Further information on ticket markets and options
for developing ticket markets was provided in Additional
advice: ticket markets (June 2014).
International Energy Agency (IEA)
The IEA provides a monthly report on oil stock levels in days of net
imports for member countries.
The World
Energy Outlook provides a global perspective to demand and supply
projections to 2040 and discussion of major global trends in the energy sector.
The Energy
Supply Security 2014 report provides an overview of Australia’s
policies and industry context in relation to energy security for oil and gas.
The IEA recently published an in-depth review
of Australia’s energy policies. Chapter 1 provides an overview of Australia’s energy
statistics and policies. Chapters 2 to 5 covers oil, natural gas, electricity
and the integration of renewables into the energy system. Part II of the report
(Chapters 6 to 8) discusses transformation in the Australian energy system in
relation to climate change policies, energy efficiency and renewable energy.
The IEA oil
website contains information on global oil trends and links to other
relevant reports and data. This includes their annual analysis and forecast for
global oil demand, supply refining, and trade, in the Market Report
Series: Oil
2018 (analysis and forecasts to 2023).
For copyright reasons some linked items are only available to members of Parliament.
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