The review into Australia’s fuel reserves, recently announced by Minister Frydenburg, is a necessary step forward in addressing Australia’s liquid fuel security.
Since 2012 Australia has been non-compliant with an International Energy Agency (IEA) obligation to hold 90 days’ worth of fuel reserves. This is to assist in managing local and international needs should there be a disruption in global fuel supply.
Current reports indicate that Australia only holds an aggregated fuel reserve of approximately 48 days. Broken into its constituent elements, the situation is even more dire given that fuels cannot be easily swapped between the various transport and industry sectors. The aggregate figure represents around a 22-day supply of crude oil, 59 days of LPG, 20 days of petrol, 19 days of aviation fuel and 21 days of diesel. 98% of Australia’s transportation is reliant upon liquid fuels and the inadequate holdings represent a significant risk to the ability of our economy to function or our police and armed services to protect our interests in the event of an extended disruption in supply. This would also impact the ability for our hospitals (including emergency departments) to function effectively, potentially disrupting the supply of pharmaceuticals and other medical equipment.
The Government has committed to meeting our IEA commitments by 2026. Compliance does not necessarily mean security, however, as highlighted by the purchase of fuel tickets with our most trusted allies. Ticketing is allowed for under IEA rules, but with the fuel physically offshore, will not provide us with the security we need if the shortage is caused by an interruption (hostile, accident or natural disaster) to shipping or infrastructure required by our normal supply chains. Ongoing conflict in the Middle East and the militarisation of the South China Sea pose potential threats to our fuel supply as do natural disasters such as cyclones and tsunamis. Australia needs to be prepared, not only for each of these events individually, but the possibility of multiple events intersecting.
The solution to this issue is not as simple as just building more storage. This review needs to canvass all options needed to ensure that Australia achieves the following three outcomes:
-ensure we have a minimum of 90 days’ worth of liquid fuel demand on Australian soil in an affordable and commercially sustainable manner,
-invest in technology and supply chains which can be rapidly scaled up in a crisis to extend our reserves through blending alternative products such as drop-in biofuels or where feasible, refined domestic crude (currently considered uneconomic and mismatched to extant refinery design), and
-clear guidance for Government investment in long term alternatives to our traditional liquid fuels sources. This includes alternative fuel types as well as the discovery and development of crude reserves.
Partnership with industry will be essential to achieve the 90 day minimum reserve holding in a commercially sustainable manner. Precedent exist in other areas such as telecommunications where the Universal Service Obligation (USO) places a shared responsibility on both government and the organisations that provide services, in regions of Australia where the market would not respond to need at an affordable price. The review needs to model such an arrangement with liquid fuel suppliers and understand the cost implications of balancing fuel security with the impact on individual and business consumers. The modelling must also take account of Australia’s extant infrastructure which has been built around just-in-time replenishment in both the fuel distribution network as well as the industries and services that draw on our transport network.
Achieving a minimum 90 day reserve is just a starting point. It provides breathing room but a disruption to supply, especially from armed conflict, has the potential to continue well beyond 90 days. The review should not only examine the efficacy of the inter-governmental agreements to ration liquid fuel in times of crisis but the most effective and affordable way to make this reserve last as long as possible. Biofuels (fuel products made from plant or waste material, refined to become high quality ethanol) that can be added to fuel, or potentially replace fuels entirely, is one such option. Australia’s biofuel industry is still small, sometimes controversial and in the past has been viewed predominantly through the lens of environmental measures. The e10 program which has been established in Australia for some years could, by definition, extend the fuel reserve by 10% were sufficient quantities produced. Some trials have indicated that many vehicles and aircraft can safely use blends substantially greater than 10%. A scalable biofuel industry therefore has the potential to significantly extend a 90 day reserve over the near to mid-term.
The success of using ‘drop in’ biofuels in this way is dependent upon the necessary regulatory frameworks and technical approvals (aircraft, ships and land vehicles) being in place prior to the crisis. It also means that feedstocks for these fuels need to be identified and distribution networks established to ensure that in time of crisis, biofuel production can be increased to meet the need in a timely manner. Mandated integration of biofuels and associated subsidies have been controversial in the Australian context. Allies such as the US, however, and many other countries in the Asia Pacific have mandated biofuel targets. The US Navy for example has its Green Fleet initiative which aims to use 50% renewable fuels by 2020. Of note, the US Navy signed an agreement with the Queensland Government in 2016 for that state to be a major supplier of biofuels.
Not all vehicles can take ethanol products, but innovations in this area are producing fuels that can become complete replacements without any alterations to current engine designs. In 2012 Qantas operated Australia’s first biofuel trial flight, an A330 powered with biofuel derived from used cooking oil. A split of 50:50 between biofuel and conventional jet fuel has been certified for use in commercial aviation here in Australia. Further innovations in using other products like Brassica Carinata, a non-food, industrial type of mustard seed are being used to save on emissions, but could also reduce our dependency on fossil fuel based products that are expensive to refine here in Australia due to the nature of our crude oil.
While targets and subsidies may be hard to justify solely from an emissions reduction perspective, making biofuels are part of Australia’s standard fuel supply chain with targeted Government investment in respect to capacity would ensure that the underlying infrastructure is established and scalable to meet greater demands during a time of crisis.
Our fuel production and refinement has naturally declined as oil reserves have been depleted and cheaper refinement is available elsewhere. However our demand for liquid fuel remains high and will do for many decades to come. Future technologies may be able to completely replace fossil fuels, but at the moment there are no clear viable alternatives that the average Australian can afford. With our economy’s dependence on liquid fuels, this review must investigate future fuel sources that can be priorities for Government investment. This includes not only investigating Australian supply options for conventional crude such as the Great Australian Bight and technology to expand domestic refining capacity, but also alternative feed stock such as non-convention extraction and processes such as coal liquefaction. Options to reduce demand should also be included in the study, considering technology such as electric vehicles from a fuel security perspective rather than just emission reduction.
Exercising the responsibility detailed in Sect 51(vi) of the Constitution, the Commonwealth invests significant amounts of taxpayer money in military equipment to deter aggression and where necessary, to fight and win wars. Liquid fuel is a critical enabler to almost every major Defence platform which means that $200bn of investment over the next decade will be pointless if the nation runs out of aviation fuel, diesel and other petroleum based products. Responsible governments weigh cost and benefit in all decisions, but most importantly when considering spending on national security matters. In a perfect world Australia wouldn’t need a defence force and we wouldn’t need to spend large amounts of tax payer money on equipping and modernising our military. In a perfect world, neither would we need to spend on liquid fuel security.
Tensions on the Korean Peninsula, the South China Sea, instability and conflict in multiple regions demonstrate on a daily basis that we do not live in a perfect world. The likelihood that “business as usual” might not always work is increasing. The review announced by Minister Frydenberg must provide Government options to achieve the three outcomes described above: reserves, interim measures and future fuel sources. It is government’s responsibility to weigh those options and to invest in the capacity and plans needed to keep Australia secure when and if a fuel crisis eventuates.
Liberal senator David Fawcett chairs parliament’s Joint Standing Committee on Foreign Affairs, Defence and Trade.
This was first published in The Australian on June 8, 2018 and is available at https://www.theaustralian.com.au/opinion/low-fuel-reserves-endanger-australias-security/news-story/bf7f5d88df120e92a77dac0703450fe6