6.1
This chapter considers the following additional aspects of the Defence Annual Report 2019-20:
Fuel storage and logistics
Science, Technology and Research
Fuel Storage and logistics
Defence Fuel Transformation Program
6.2
The major focus with respect to Defence fuel storage and logistics is the Defence Fuel Transformation Program (DFTP). This program is funded to $1.169 billion spanning financial years 2018-19 to 2038-39. Tranche 1 of the program commenced in 2018 to address the critical and high-risk areas of the fuel network over three years at a cost of $127 million. Tranche 2 will roll out over the next five years at a cost of $566.9 million:
Tranche 2 of the Fuel Transformation Program includes some capital facilities and an infrastructure program that will generate major upgrades for us across 13 different sites. Some of those major upgrades are to take into account new facilities, and some of them are just straight-up upgrades to meet industry standard. For example…a new Defence fuel installation that manages aviation fuel at RAAF Base Townsville [and] upgrading the facilities and increasing the holdings at RAAF Base Learmonth...There are other elements of tranche 2 that will include establishing a fuel services contract, which will better partner us with industry for our operations and asset management, and we’ll see an improved safety outcome.
6.3
The DFTP is primarily intended to improve the quality of fuel storage and delivery facilities, rather than increasing capacity. While it will see a modest increase to capacity of approximately six megalitres (ML):
[The DFTP] is about increasing our resilience by increasing our ability to comply with standards and ensuring that our equipment is appropriately robust rather than increasing the storage.
6.4
The remaining tranches of the DFTP will continue out until 2038-39.
Fuel storage
6.5
Defence does not measure total fuel holdings in terms of days because the average consumption varies significantly depending on what activities are currently being undertaken by Defence. Defence submitted, at the time of the hearing, that:
Of our total holding of approximately 150 megalitres of fuel across the nation in our fixed infrastructure, we currently have about 35 per cent of our fuel in those facilities. The reason it’s at 35 per cent…is that we manage our inventory holdings quite closely, depending on the activity that’s going on, the expected surge rate that we may expect and what commercial deliveries we’re providing. But we also need to manage some of our fuel—in particular, our aviation fuel—quite closely for shelf-life issues.
6.6
The total of 150 megalitres (ML) is stored across a network of 119 fuel installations across Australia. Of the total storage capacity, 60ML is for aviation fuel and 67ML is for marine fuel. Defence submitted that fuel holdings vary (by up to 50 per cent) during periods of peak use (such as major exercises). This storage amount is intentionally kept relatively low to allow for limited fuel shelf life and quality control requirements related to the capacity of quality control tanks and other facilities across the network.
6.7
Outside of the DFTP, there are also projects running under the US Force Posture Initiative which will see an additional 24ML of aviation fuel storage installed at RAAF bases Darwin and Tindal. These facilities will be owned by the Commonwealth but funded by the United States. The new facilities are planned for completion in 2023.
6.8
The total fuel usage for Defence, across all types, is 300-320ML per year. Of this, 215ML is aviation fuel, making it the predominant fuel type consumed by Defence.
6.9
Private industry may also have a role in contributing to fuel infrastructure in Australia’s northwest. Gascoyne Gateway Limited (GGL) is a privately owned company which plans to build a privately funded, single jetty, deep-water port and renewable energy hub 10km south of Exmouth in Western Australia’s Gascoyne region. GGL submitted that its development proposal includes shoreside fuel infrastructure and storage that could be incorporated within a national and Defence fuel holdings framework. GGL submitted that the planned development includes a 30ML fuel storage capability, intended to support the Australian Defence Force (ADF) and Australian Border Force (ABF).
Strategic fuel security
6.10
There are some aspects relating to Defence strategic planning which are classified above the level of both this report and even the Committee did not have an appropriate overview of all the considerations involved.
6.11
Of Australia’s fuel supply, approximately 90 per cent is imported and Australia has only two remaining operational fuel refineries. Defence submitted that strategic fuel security has been and remains an ongoing focus for Defence, and that:
fuel industry experts have done…a fuel vulnerability assessment, [and] the fuel industry in Australia is able to respond to a range of disruptions to critical shipping lanes to maintain reliable fuel supply to the country. They see that the shipping lane disruptions present a tactical response challenge to the industry as opposed to a fundamental loss of capability. They see this happening through an industry tactical response using alternative shipping routes and supply points to mitigate against shipping lane disruptions…This would result in us having an increase in supply chain lead time of about nine days because they would be looking to source fuel from as far afield as the US, India and the Middle East.
6.12
Defence submitted that it assesses the adequacy of defence fuel supplies via its Joint Experimentation program which uses scenario-based modelling to assess fuel requirements for contingencies. Its Joint Logistics Command then works with industry partners to take these models and assesses supply chain capacity against those contingencies.
Fuel supply disruption and mitigation
6.13
Defence submitted that strategic challenges related to the import of bulk fuels is an ongoing strategic planning consideration and that there are multi-faceted mitigators to potential import difficulties. They include, for example, a series of logistics support agreements with the US and other countries in the region, as well as existing and future deployable fuel capabilities.
6.14
The Department of Industry, Science, Energy and Resources (DISER) submitted that strategic fuel security is an issue that the Government has actively addressed in recent years via the interim liquid fuel security review, released in April 2019, and a deeper liquid fuel security review completed at the end of 2019. These reviews led to the Government legislating the Fuel Security Services payment which is designed to keep the remaining two refineries in Australia to maintain some sovereign refining capability until at least 2027.
6.15
Additionally, the Fuel Security Act 2021 also sets the minimum holdings of fuel stocks and lifts the minimum diesel storage stocks by 40 per cent above the baseline level through a new minimum stockholding obligation (MSO) on Australia’s fuel industry between 2022 and 2024.
6.16
In response to questions about strategic fuel security, DISER stated that it had investigated 19 different fuel disruption scenarios in its liquid fuels security review and found that:
There is sufficient trucking capacity in Australia to absorb certain disruption scenarios. What I’d also like to say is that our fuel industry is very good at resolving these issues. In the last 40 years, we’ve not had a significant disruption. The industry is very good at finding solutions… under a disruption scenario, the Minister for Energy and Emissions Reduction has powers under the Liquid Fuel Emergency Act to cease exports of crude product and to redirect those crude products internally for use in Australia only. That could then be directed through our refineries to provide us that capability.
6.17
DISER submitted that in times of crisis many industries would slow down or stop, leaving mostly only critical services in operation (emergency services, defence, public health care, pharmaceutical and medical, telecommunication, distribution of water and sewerage, food and essential goods, gas, electricity and fuels, and domestic agriculture production). Those critical services constitute 26 per cent of domestic demand—which is 16 per cent of diesel, four per cent of petrol and six per cent of jet fuel; representing a relatively small proportion of what Australia would otherwise consume under normal circumstances.
6.18
Ampol supported DISER’s evidence that fuel supply chains and infrastructure in Australia are robust. Ampol concurred that times of global unrest would significantly change the fuel supply-demand balance. For example, in a time of conflict, civilian air traffic would likely be significantly reduced which would free up jet fuel holdings to support Defence operations. Other industries would be similarly affected:
Obviously, if shipping is delayed into and out of the country…large users of fuel would scale back rapidly. Mining, for example…would slow down and stop their operations if they couldn’t get ships in or out of the country to move their products in terms of international trade. That would free up fuel products for other uses.
6.19
An example of this was in the early stages of the COVID-19 pandemic in 2020 which saw close to a 90 per cent drop in demand for jet fuel and a 50 per cent drop in petrol demand when lockdowns commenced. This illustrates the changes that occur in the economy during national crises and their impacts on fuel demand. AMPOL highlighted that:
At those sorts of volumes, that leaves you a lot of room to deal with any increased surge from Defence.
6.20
Ampol also made the point that while shipping disruptions can create supply issues, Australia’s geography is a natural mitigator to this threat:
Australia [is] a big country with many alternative ways to get ships in. It would be a pretty significant scenario where Australia couldn’t be approached by ship from any direction. Ampol routinely brings products into Australia from the US, North and South Asia, west-coast India, the Middle East and as far afield as Europe. That comes in through many different shipping routes.
6.21
Ampol concurred with DISER that when discussing strategic fuel security, particularly as it relates to Defence, relative scales of consumption must be kept in mind. Relatively speaking, Defence is a very small consumer of fuels compared to the rest of the Australian economy.
So there is quite a lot of flexibility before you get to these really critical scenarios where shipping lanes are stopped. You’ve still got two refineries that can operate on domestic crude. So there’s a lot of resilience there.
6.22
Private industry may also be engaged to help improve strategic fuel security. GGL submitted that its proposed deep-water port near Exmouth would be advantageously positioned at the closest point of mainland Australia to Christmas and Cocos Keeling Islands, British Indian Ocean Territories (Diego Garcia) and the Sunda Strait. The Committee heard that this would make the proposed port an important additional strategic logistics node for the import of bulk fuels and handling of other equipment for the ADF and ABF.
6.23
GGL submitted that such a facility would improve Australian Naval capability:
Exmouth port…would offer unconstrained access to the Indian Ocean with no navigation channels and quick access to submarine optimal diving depths. Conversely, there appear to be very few viable alternatives for the navy’s refuelling of warships between HMAS Stirling (650nm to the south) and Darwin (1450nm to the north-east). Moreover, the option of refuelling Collins Class submarines in Exmouth would likely extend operational patrol ranges by up to two weeks while providing more rapid deployment to critical waterways in archipelagic sea lanes to the north.
Biofuels
6.24
Bioenergy Australia gave evidence on the current state of bioenergy production in Australia and future opportunities.
6.25
In relation to the current capacity of the biofuels industry in Australia, the evidence was that the industry is demand-driven and that Australia is currently behind the US and Europe in terms of its capacity to respond to a short notice spike in demand for biofuel products.
To set the scene right now: there aren’t huge quantities that would be able to respond, but we do have three biodiesel refineries operating in Australia that would be able to supply into the system. We also have two functioning ethanol refineries. But the others are really pilot plants at the moment and are looking to really accelerate as those offtakes are available.
6.26
The biofuels industry sees future potential for increased production of biofuels, particularly for aviation and marine use, to ease reliance on imports in a crisis where normal supply chains are threatened. As it currently stands, however, the industry does not have any substantial capacity. As a demand-driven sector, Biofuels Australia submitted that if a large consumer, like Defence, actively pursued increased use of biofuels, the industry would react to that demand.
6.27
Bioenergy Australia submitted that Australian civil aviation has already taken steps towards a future involving the increased use of biofuels. It stated that the QANTAS Group has set a zero net emissions target by 2050 and that it will invest $50 million over the next decade to help develop a sustainable aviation fuel industry. Similarly, Virgin Australia successfully completed a trial in 2018 for the delivery of sustainable fuel through existing jet fuel infrastructure at Brisbane airport. Throughout the trial, 195 flights were fuelled. Brisbane Airport’s 2020 Master Plan notes its intent to continue to work with airlines to increase the use of aviation biofuels.
6.28
While increased biofuel production capacity is possible, Biofuels Australia accepted that for military use there are specific military specifications that fuels must meet in order to be used across the ADF’s fleet of aviation, marine and land-vehicle engines. The view was expressed that meeting these specifications is achievable, and that meeting certification requirements would be incumbent on the producers of those fuels.
There is an ASTM specification that needs to be met, and it’s up to the producers to do that. That gives confidence to people who are buying the product that it has been through all of that, and the US aviation labs and people like that are involved in that certification process.
6.29
Biofuels Australia submitted that sustainable aviation fuel is currently somewhere in the order of three times more expensive than jet fuel:
If you’re buying 100 litres of aviation fuel, if it’s sustainable aviation fuel, at the moment it’ll be three times the cost of normal jet fuel.
6.30
Evidence from Defence, however, was that limitations, including cost, currently make the substantially increased use of biofuels in military platforms problematic:
Sixty-five per cent of the fuel that we procure is aviation fuel. We…heard evidence that that’s three times more expensive than the commercial market. There is a cost-prohibitive element for us. Another factor for us is that, as far as Defence consumption in the Australian market goes, Defence is less than one per cent of the total fuel consumed in Australia. We’re certainly not market leaders in terms of putting out a higher level of demand in the marketplace which would make a significant difference to the cost of production.
6.31
The specification requirements of military fuels is also a challenge. While biofuels could be certified to military specifications—and indeed the US and UK have recently changed their standards for military aviation fuel to allow for up to 50 per cent blended sustainable fuel—the scale and complexity of that ongoing certification task could be problematic as was raised by Defence:
To use those fuels in an aviation engine, each variant of that fuel would need to be engineer certified by the original manufacturer to operate in each type of engine. For one type of fuel for one type of engine, that is something that is quite possible. But, when you multiply it by the different types of biofuels that the market could supply in various corners of the world and multiply that by the number of engine types from different manufacturers that Defence might be operating…it makes it quite a complex and costly problem.
6.32
Notwithstanding this, Bioenergy Australia cited the Indian Air Force, Netherlands Air Force and Netherlands Coast Guard as examples of Air Forces which have successfully, trialled and/or have targets for increased use of biofuel blends for military aviation fuels.
6.33
Defence and Bioenergy Australia submitted opposing views about the issues surrounding the requirement for interoperability between allied militaries in the context of fuels. Defence submitted that its capacity to take a leadership role in the increased use of biofuels is limited by its requirement to remain highly interoperable in deployed environments with its allies, particularly the US:
We must be in step with them to make sure that we are also able to operate with the fuel types that are available wherever they’re operating.
6.34
Bioenergy Australia submitted that allied interoperability, as opposed to being a limitation on the use of biofuels, in fact makes it incumbent upon Australia to increase their use:
Australia’s working relationship with joint international manoeuvres requires our assets to operate on a similar flexible range of biofuels. As the rest of the world advances in this area, Australia risks being left behind. Interoperability was presented as a barrier by the Defence representatives at the Inquiry, we would argue the complete opposite, in that we will not be able to operate with our major partners, when other nations are moving to blended stock and we have not. This could cause challenges with joint missions, training activities etc.
6.35
Defence also submitted that while the future use of alternative and sustainable fuels are within the remit of the department, the Defence Fuel Transformation Program is predominantly focused on rectifying challenges associated with infrastructure and the way Defence manages fuel, as opposed to the viability of biofuels in military applications.
With respect to the Defence Fuel Transformation Program, it does not have a component of alternative fuel technology development in it.
Science, Technology and Research
6.36
The More, Together: Defence Science and Technology Strategy 2030 was released in May 2020 and is refocussing the future of Defence strategic research. Central to the strategy is the introduction of the Science, Technology and Research (STaR) Shots concept.
6.37
Some aspects of the STaR Shots program are addressed in earlier chapters of this report as they relate directly to capability areas including space and cyber.
STaR Shots
6.38
The eight initial STaR Shots are strategy-led, mission-directed programs designed to focus strategic research and drive the development of future Defence capabilities. The STaR Shot projects are:
Resilient Multi-Mission Space
Agile Command and Control
Quantum-Assured Position, Navigation and Timing
Disruptive Weapon Effects
Operating in CBRN Environments
Remote Undersea Surveillance
6.39
The STaR Shots are intended to:
drive the evolution of innovation pathways, from fundamental research and development through to prototyping and transition into capability, to focus the national S&T enterprise on Defence’s biggest problems. STaR Shots will aim to deliver new capabilities into the hands of the warfighter and collectively support the overarching objective of equipping Defence to prevail in contested environments.
6.40
The STaR Shots program is an important part of improving Australia’s sovereign capability in a number of areas, including some which relate to political warfare, information warfare and ‘grey zone’ operations.
Artificial intelligence
6.41
The Defence Annual report 2019-20 states that Defence:
Faces a significant evolution of technology that will dramatically change the speed and character of warfare. Success in this environment depends on the ability to withstand constant grey zone competition, command a data enriched algorithmic battlespace, and exploit transient capability advantages in agile ways. Artificial intelligence (AI) and autonomous systems will enable Defence to analyse masses of data in complex operating environments. The Joint Capabilities Group established the Defence Artificial Intelligence Centre to build the capability foundations and accelerate the understanding and implementation of AI across Defence.
6.42
The department has a responsibility for developing industry capability to support emerging and critical technologies. Defence recognises that technologies such as Artificial Intelligence (AI), have dual purposes across economic and defence settings. As a result the department has championed Australia’s AI Ethics Principles, and launched Australia’s first national AI Action Plan, to ensure the development of AI is completed in a way which is secure and fosters responsible uses of the technology.
6.43
Defence Science and Technology Group (DSTG), in conjunction with Plan Jericho and the Trusted Autonomous Systems Defence Cooperative Research Centre, led an ‘Ethical AI’ workshop in Canberra from 30 July to 1 August 2019 that brought together Australian and international experts in law, ethics, science and technology to address ethics across a range of military AI applications. The principles discussed in the workshop may inform future AI experimentation. The Defence Artificial Intelligence Centre, supported by Plan Jericho, contributed to Operation COVID-19 ASSIST by developing data visualisation and analytical tools for use by the Australian Defence Force COVID-19 Taskforce in support of state and territory governments.
Committee Comment
DSTG STaR Shots
6.44
The Committee is encouraged by the investment of Defence in the development of advanced technologies, via the DSTG STaR Shots and other initiatives in the pursuit of continual improvement and innovation in military technologies. In particular, the Committee strongly supports the development of unconventional, disruptive technologies, tactics and strategies that can make our relatively small Defence organisation disproportionally potent and effective in deterring or responding to threats.
Biofuels
6.45
The evidence presented relating to the proposed use of biofuels and alternative fuels in Defence platforms (particularly aircraft as the predominant user of fuel in Defence) was of interest to the Committee in terms of its future utility in certain civilian and military applications. The Committee notes Defence’s evidence regarding the complexities of biofuels with respect to engineering certification, airworthiness, availability in deployed environments and compatibility with allied and host-nation fuel systems and accepts that a large scale adoption of biofuels for military aviation at this point in time is unviable as a ‘business as usual’ proposition.
6.46
The Committee also notes DISER’s evidence pertaining to the Liquid Fuel Emergency Act but is concerned that the nature of Australia’s society has changed substantially since the measures in that Act were conceived. Drawing on evidence presented to the Senate Standing Committee on Rural and Regional Affairs and Transport (RRAT) Inquiry into Liquid Fuel Security (2015) is it apparent that the extent to which modern Australia relies on the transport industry to keep the expansive ‘just in time’ replenishment system for a broad section of our economy means that an extended restriction on civilian liquid fuels may not be sustainable. Coupled with the RRAT report’s analysis of the various ways that fuel supplies could be disrupted, the committee considers that Government should be considering biofuels as part of a contingency framework.
6.47
The Australian military already have procedures in place in the form of Flight Manual information that allows the use of non-standard fuels (including non-aviation fuels such as diesel for some aircraft) in emergency situations. In some cases, the use of such fuel will reduce engine life or affect performance. To minimise these consequences of using non-standard fuels, the concept of a drop-in biofuel is defined by the International Energy Agency (IEA) to be ‘liquid bio-hydrocarbons that are functionally equivalent to petroleum fuels and are fully compatible with existing petroleum infrastructure’. The Committee notes evidence from Bioenergy Australia regarding the uptake of drop-in biofuels by international military forces. In particular, the Committee is aware from a JSCFADT delegation to US Indo-Pacific Command (INDOPACOM) from 29 Jul to 4 Aug 2018 that the US Navy (USN) has previously approved a 50 per cent drop-in biofuel for use in the F/A-18 Super Hornet and have completed flight testing of a 100 per cent advanced biofuel (CHCJ-5) in the EA-18G ‘Green Growler’ at Naval Air Station Patuxent River. The (USN) and United States Air Force (USAF) continue to expand uses for CHCJ-5 with international partners and have undertaken engineering analysis to determine the impact on military engines that use a JP-5 / JP-8 compliant drop-in biofuel. This would reduce the effort required by RAAF to use a JP-8 (F-34) compliant drop-in biofuel in a circumstance of restricted fuel supply. Just as the US Department of Defence is partnering with the Commercial Aviation Alternative Fuels Initiative (CAAFI) to capitalise on the systems based sustainable aviation fuel development (feedstock, processing and distribution), the Australian Government should:
1
Increase investment into an Australian sustainable aviation fuel industry through funding mechanisms such as the Australian Renewable Energy Agency (ARENA). This will have an environmental benefit and with collaboration by Defence, could ensure that a sustainable aviation biofuel industry (feedstock, processing and distribution) exists that is capable of being scaled if required during a contingency.
2
Through mechanisms such as AUKUS, undertake collaborative research with the US and UK military in the development of drop-in biofuels such that alternative fuels for military use are standardised and certifications for Defence use are jointly developed (if not already in place through USN and USAF activities) should a contingency require the use of alternative aviation fuels.
Fuel Security
6.48
In the initial stages of this inquiry, the Committee had deep reservations about Defence’s broad assertion that ‘Australia is able to respond to a range of disruptions to critical shipping lanes to maintain reliable fuel supply to the country’. Whilst the Committee was aware in general terms of the strategic planning frameworks that exist within Defence, it was seriously concerned that Defence’s scenario-based modelling for assessing the assuredness of fuel importation, storage and logistics systems in times of national or international crises were based on unrealistic assumptions and uncontrollable variables. These concerns included competing allied fuel demands, the vulnerabilities of our petroleum-capable ports, and the ability or willingness of foreign exporters and foreign bulk shipping during times of international crises.
6.49
The Committee’s grave concerns were based on evidence received from Defence and DISER in open, public forums, where officials were circumspect in aspects of their evidence, particularly around issues such as the measures, modelling and preparations that Defence have undertaken to ensure appropriate fuel security in a crisis situation. Based on these concerns, the Committee sought a private briefing from Defence and DISER. While the Committee is not at liberty to detail in this report the evidence received at the private briefing, it is somewhat more reassured than it otherwise would have been, that Defence will have appropriate access to fuel supplies in a crisis. The Committee remains concerned, however, that Australia’s defence fuel security in a national or international crisis, is predicated on Defence having access to significant volumes of fuel supplies that would have otherwise been earmarked for civilian and industrial purposes, which would cause immense disruption to civil society and Australian industry.
6.50
The Committee also remains apprehensive regarding the capacity of Australia’s land-based petroleum transport capabilities, including road and rail, to move bulk fuel cross-country in a genuine national crisis situation.
6.51
With respect to the efficacy of its oversight role, the Committee notes with concern, that the provision of the private briefing from Defence and DISER was at the discretion of those organisations. If they had refused to provide a private briefing, or were not fulsome in their evidence, the Committee’s understanding of Australia’s fuel security situation would not have been an accurate one. This further enhances the Committee’s strongly held view that the Government should as a matter of priority, adopt the Committee’s Recommendation 2 of the Committee’s previous report Contestability and Consensus: A bipartisan approach to more effective parliamentary engagement with Defence. This would result in an amendment to the Defence Act reflecting provisions in the Intelligence Services Act that permits the Parliamentary Joint Committee on Intelligence and Security (PJCIS) to be constituted by suitable members and senators appointed by the Prime Minister and the Leader of the Opposition to routinely receive classified briefings and material from Defence as part of their oversight functions. This could be in the form of a new Defence Committee as recommended in the Committee’s previous report or by enhancing the role of the Defence Sub-Committee of the JSCFADT.
6.52
Australia’s civil and defence fuel security should be an area of urgent specific strategic focus for the Government, particularly as Australia’s primary geographic area of national interest has moved from the northern hemisphere to regions and countries closer to home in an increasingly unstable geopolitical environment.
6.53
The Committee recommends that the Australian Government increase investment into an Australian sustainable aviation fuel industry through funding mechanisms such as ARENA.
6.54
The Committee recommends that the Australian Government use mechanisms such as AUKUS, to collaborate with the US and UK militaries in the development of drop-in biofuels for military use to ensure that standards and certifications for Defence use are jointly developed should a contingency require the use of alternative aviation fuels.
6.55
The Committee recommends, as a matter of urgency, that the Government appoint a task force, including Defence, industry and independent experts, to critically assess Australia’s current fuel security in light of the Strategic Update 2020 and over the longer term given changing geo-strategic circumstances.
6.56
The Committee once again urges the Government, as a matter of priority, to adopt Recommendation 2 of the Committee’s report Contestability and Consensus: A bipartisan approach to more effective parliamentary engagement with Defence, and establish a new parliamentary committee, or by enhancing the role of the Defence Sub-Committee of the JSCFADT, with an exclusive focus on Defence and with effective powers of oversight along the lines of the Parliamentary Joint Committee on Intelligence and Security (PJCIS).
Senator the Hon David FawcettMr Andrew Wallace MP
ChairChair
Joint Standing Committee on Defence Sub-Committee
Foreign Affairs and Trade