Australia

Is Australia's fuel supply about to be cut off?

File image Source: AAP

The Turnbull government has announced a review into Australia's fuel security, amid fears that the country's supply could run dry. SBS News asked the experts if this is likely to happen.

The Turnbull government announced on Monday it will undertake a review into Australia's fuel security.

The announcement came after reports that the Syria conflict could lead to a global oil crisis if the conflict escalated further.

While it is true Australia has only 23 days worth of petrol in reserve in the event of a global disruption to its oil supply, experts say the country is not heading for an immediate fuel shortage.

They do warn though, that it is a timely reminder for Australia to be prepared for a disruption to its supply in the future.

Is the government worried?

On Monday, Federal Energy Minister Josh Frydenberg announced a review of liquid fuel security. 

He said the review was the "prudent and proper thing to do" and that it should not be construed as Australia having a fuel security problem.

"With the supply and demand dynamics of global energy markets changing rapidly and nearly a decade since the last National Energy Security Assessment, the time is right to relook at and rethink Australia’s fuel security," Mr Frydenberg said.

Prime Minister Malcolm Turnbull similarly played down fears, saying the review was "good housekeeping".

Minister Josh Frydenberg in Parliament.
Minister Josh Frydenberg in Parliament.
SBS

The review will be completed by the end of the year.

What's Syria got to do with it?

The majority of Australia’s crude oil supply comes from the Middle East and is then processed at refineries in South Korea, China and Singapore. From there, it is turned into diesel, aviation fuel and petrol, and transported by ship to Australia.

But Syria does not have much oil at all compared to its neighbours; Saudi Arabia, Iran, Iraq and Kuwait.

Joe Willis, an oil markets analyst for Wood Mackenzie, told SBS News crude production dropped significantly in Syria when its civil war broke out in 2011 and current crude production from the region is about 30 kilobarrels per day. That's not a lot, he says, so its impact globally is minimal. 

"Even if crude production in Syria ceased, because of the international military operations, there is enough global spare capacity to absorb this loss in the international market,” Mr Willis said.  

Also, Australia does not import any crude oil directly from Syria.

A Syrian policeman checks the papers of a fuel tanker truck driver before he lets him cross into Iraq from Syria at a border checkpoint in March 2004.
A Syrian policeman checks the papers of a fuel tanker truck driver before he lets him cross into Iraq from Syria at a border checkpoint in March 2004.
Getty

So where did these fears come from?

Following the strikes ordered by US President Donald Trump in April, Australian strategist and retired air vice-marshal John Blackburn AO said the Syria conflict could lead to a global oil crisis if the conflict escalated further. 

He did not say the current state of the Syria crisis meant Australia was headed for an oil shortage. 

Mr Blackburn told The Weekend Australian Australia had "no plan B" in case of a fuel supply interruption.

“If the Middle East security situation blew up or deteriorated - for example, if Syria took off - there is no plan B in this country on how to manage it, and the International Energy Agency (IEA) has stated that much in its February 2018 report on Australia’s energy policy," he said. 

“In a major disruption ... we would have major problems within two weeks.”

His comments about a potential future crisis for Australia, along with statistics that showed it only has 23 days worth of petrol in reserve, fuelled the basis of news reports in April that the country could run out of fuel. 

Speaking with SBS News, Mr Blackburn said he wasn’t talking about Australia's total supply being cut off as a result of the Syria crisis, but said there was a risk of Australia’s fuel supply being interrupted if the Syria conflict escalates.

“What people are worried about is what will happen to the rest of the stability in the Middle East, it’s not Syria itself [when it comes to oil]. The whole place is unpredictable and we haven’t got any insurance if the problems expand,” he said.

He warned Australia had not done the proper risk assessment when it comes to preventing a fuel shortage if supply from the Middle East was cut.

“We’re seeing these disturbances like what’s happening in the Middle East and North Korea and don’t know what the US is going to do next.

"At the same time, we have no stocks, we don’t mandate any of this so we don’t have any insurance. We’re basically saying ‘don’t worry about things, this will be fine."

“If you run out of fuel or you have an interruption, food is a problem, medicines, pharmacies ... our whole society relies on a just in time delivery of everything. We are running around without insurance.” 

How much backup fuel does Australia have?

The IEA requires member countries including Australia to have 90 days of crude oil in reserves and have immediate access to it. The mandate is in place to address disruptions in global oil supply.

Energy Minister Josh Frydenberg told SBS News the government had not met the 90-day mandate since 2012 but was working to comply.

“As of January 2018, Australia held 49.6 IEA-days’ worth of oil stockholdings,” he said.

The Australian Petroleum Statistics 2018 cites Australia as having 23 days worth of petrol, 20 days aviation fuel and 17 days diesel oil in reserve to serve in an emergency. The rest is understood to come from overseas credits.

Residents queue for fuel at one of the two petrol stations open, as power is cut in most of the northern Queensland town of Rockhampton in February 2015.
Residents queue for fuel at one of the two petrol stations open, as power is cut in most of the northern Queensland town of Rockhampton in February 2015.
Getty

Why does Australia have less than everyone else?

When asked why Australia was allowed to fail in meeting the 90-day mandate since 2012, a spokesman for the IEA told SBS News it had proven it could meet it in the past with its commercial stocks.

“At that time Australia had sizable domestic crude oil production so net imports were relatively low,” the spokesman said.

“Domestic production started to decline about a decade ago and net imports gradually increased and indeed in 2012 commercial stocks were no longer sufficient to cover 90 days. 

Analyst Mr Willis said Australia did not rely heavily on the Middle East to process crude for their domestic refineries. He estimated in the last five years the Middle East made up only about 14 per cent of the crude processed domestically (ie, coming into the country directly), he said. 

The IEA spokesman said Australia was taking measures to meet the reserve target. 

“Australia submitted a plan to the IEA to build up dedicated emergency stocks. Legislation to support this has been enacted in 2017 and the country is now implementing this legislation. Initially, the country will hold stocks abroad in rented tanks, while it is developing plans for domestic emergency stockholding.”

So we're not going to run out? 

Mr Willis says no, not from the current action in Syria alone.

“Syria is not a single point of failure for Australia,” he said.

“Our demand/supply balances suggest Australia has ample stock, with refined products forward cover greater than the five-year average across LPG, naphtha, gasoline, jet/kero, diesel and fuel oil. But this relies on the assumption that there is no escalation in Syria.”

Liberal Senator Jim Molan, a former major general in the Australian Army, warned that Australia’s reliance on overseas credits to make up the mandate could be problematic if the Syria crisis escalates.

Senator Molan and Mr Blackburn also agreed that Australia is not going to run out of its fuel supply as a result of what is happening in Syria at the moment, but if the crisis escalates and spills over to other Middle Eastern countries that are a big source of global fuel supply, then we could be in trouble. 

Mr Molan told SBS News the Syria conflict and Trump’s strikes should instead serve as a reminder to Australia to reconsider what our fuel reserves are and that we need to come up with a liquid fuels security strategy.

“We are far too reliant on ship-borne fuel [from the Middle East] in Australia,” he said.

“The vulnerable part of this is when its [transported oil] is in a ship,” he said.

Ships anchor in front of the Jurong Island Petrochemical facility, a Singapore refinery, in this May 27, 2005 photo.
Ships anchor in front of the Jurong Island Petrochemical facility, a Singapore refinery, in this May 27, 2005 photo.
AAP

Will the price of fuel be affected?

While experts say we most likely won't run out of fuel as a result of the Syria crisis, we will likely pay more for it. 

Mr Willis said while Australia wasn’t importing crude oil directly from Syria, it has been paying more to import barrels of crude to process in domestic refineries as a result of the conflict.

He said this could “weigh on the Australian refinery margin in the case of a sudden spike in crude prices and product prices playing a catch-up.”

Mr Blackburn warned without enough fuel in reserve for an emergency if there were an interruption of supply from the Middle East in the future, the cost in Australia would rise significantly. 

“If we don’t have any stocks we will feel that shock sooner,” he said. 

Fuel nozzles rest in a fuel dispenser at a petrol station on July 23, 2013 in Melbourne, Australia.
Fuel nozzles rest in a fuel dispenser at a petrol station on July 23, 2013 in Melbourne, Australia.
Getty

What else could impact Australia’s fuel supply?

Mr Frydenberg said Australia’s international oil supply chain was “diverse, flexible and robust”.

“We import crude oil from 21 countries and import refined product from 47 countries. This mitigates supply disruption risks as fuel can be sourced from suppliers in other regions,” he said.

But Senator Molan warned if any of Australia’s links to these countries were to stop it would have insufficient fuel reserves in the country to meet an emergency situation.

“There are any number of acts that could mean the sea lines from Asia to Australia could be closed,” he said.

If there were to be a missile attack on key oil countries such as Saudi Arabia, Iran or Kuwait, for example, it could potentially block Australia’s access to fuel, he said. 

Joe Willis agreed: “Singapore, Japan and Korea rely quite heavily on Middle Eastern crude imports, so any severe crude supply cuts from Saudi Arabia, UAE, Iran and Iraq could have a much bigger impact on Australia’s ability to import refined products from Asia’s export centres."

An Iraqi policeman walks past a burning fuel tanker in the Iraqi southern city of Basra, May 21 2007 after the British military supply convoy was attacked.
An Iraqi policeman walks past a burning fuel tanker in the Iraqi southern city of Basra, May 21 2007 after the British military supply convoy was attacked.
Getty

Mr Willis said he felt Australia's reliance on foreign oil imports meant it was at risk of being cut off. 

"However, while we are in an environment where a global surplus of crude and products exist, imports should not be an issue – it just becomes a question of price," he said. 

Senator Molan said a big risk to Australia was the willingness of the world’s marine insurers to insure ships during a conflict, noting an on-sea incident during the 2006 Lebanon War. As a result, he said, no ship went in or out of Israel for 30 days as no one would pay the insurance requirements. 

Mr Blackburn noted that news of the Syria crisis may have sparked some exaggerated reports in regards to the flow on effects in Australia but he didn’t necessarily think it was a bad thing as he hoped it would instigate a change of attitude towards the country's fuel reserves.

“I think it’s good because we’re a bit too relaxed in Australia ... What’s happening in Syria is a bit of a warning for us that the Middle East is not predictable.” 

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