Oil stocks contracts

Published on Wed 19 September 2018 11:00am

Mr Wilson (11:00am) — I’m glad to make some remarks on Report 182, from the Joint Standing Committee on Treaties, which is titled Oil stocks contracts: Netherlands. This report and the arrangement it puts in place between Australia and the Netherlands are an example of how our place in the world and our engagement with the world can be wonderfully complicated and terribly simple at the same time.

At the end of the day, this arrangement is about fuel security. It’s about Australia’s fuel stocks and, to put it simply, we’re not in a very good place. Our situation, when it comes to liquid fuel reserves, is parlous.

We are a member of the International Energy Agency. There are 30 member countries around the world. The IEA came about in the aftermath of the oil crisis in the early seventies. Member countries are part of that group to make a contribution separately—more importantly, collectively—to greater fuel security on a global basis. You make commitments as a member of the IEA, and the key commitment is the 90-day commitment. Each participant country maintains reserves equivalent to 90 days worth of fuel. We have been non-compliant since 2012, so we have been non-compliant for six years.

What does that mean? You can look at it in simple terms, and you can look at it within the terms of our international commitments. In simple terms, it means we don’t have the kinds of fuel reserves we ought to have. If there were another oil crisis we wouldn’t be well prepared for it. We wouldn’t be able to make a contribution to any kind of international response. Comparatively, are there other member nations from time to time that are non-compliant? Yes, of course. Just to give you a sense of the scale of our noncompliance, since 2008 only two other member countries have been non-compliant: Turkey and Luxembourg. Their noncompliance was relatively minor. In the case of Luxembourg, it fell to 89 days of fuel reserves—one less than the 90-day commitment—on three occasions. Turkey fell from 90 to 88 days once in 2009 and from 90 to 86 days earlier this year.

Those are the instances of other member countries being non-compliant since 2008. We currently have reserves equivalent to about 50 days worth, so we are non-compliant by an enormous margin. We have been non-compliant since 2012, so for the last six years. When you think of 50 days worth of fuel reserves, what does that mean? It covers a range of different kinds of fuel—aviation fuel, petrol, diesel. My understanding is that at various times since the beginning of this year our petrol reserves have been probably about three weeks worth.

I note that retired Air Vice Marshal John Blackburn AO had some things to say about this earlier in the year, in the context of what’s going on in Syria and the kinds of circumstances that could give rise to a disruption in global supply. He noted that Australia had no plan B. He said:

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

It’s not hard to imagine how that would occur. Liquid fuel accounts for 37 per cent of Australia’s energy use, but most importantly it accounts for 98 per cent of the energy used in transport. If we had a crisis in relation to our liquid fuel reserves, if global supply were disrupted, if there were some sort of crisis akin to circumstances we have seen a number of times over the last few decades, within three weeks we would have a major problem in our cities, in our freight networks.

It’s not as if the 1973-74 crisis was the last time we experienced this kind of issue. Obligations under the IEA have been triggered a number of times since then: in 1991, in the context of the first Iraq war; in 2005, around the time of Hurricane Katrina; and, more recently, in 2011, with the turmoil in Libya. So there are times when obligations of member countries are triggered under the IEA arrangements. Of course, we couldn’t meet our obligations. We are not currently meeting our obligations. It is true to say—and it was certainly noted in this report—that other members look at Australia with a bit of a jaundiced eye. They take a bit of a dim view of our performance in that respect, because it is a collective arrangement; it only really works if all member countries hold up their side of the bargain, and we are not holding up our side of the bargain.

What this treaty facilitates is the purchase of tickets from the Netherlands. Those tickets are essentially an option to take or otherwise disperse fuel reserves that the Netherlands have. It comes at a cost. Those tickets, over the next two financial years, will cost the Commonwealth some $24 million, just to have that option. Why are we doing it? We’re doing it because the government has made some commitments to the IEA in relation to our noncompliance. Those commitments have two phases. Phase 1 is this early stage where we purchase tickets that give us access to these reserves that the Netherlands hold. Phase 2 is the much more interesting, important and difficult phase, because in phase 2, apparently, we’re going to get to full compliance. I think it’s important to note that we don’t know, as members of the JSCOT, or as parliamentarians, much about how that phase 2 part of the exercise is going to occur.

The government is currently undertaking a sort of a review of Australia’s liquid fuel reserves, and apparently that review will report by the end of the year. I’ll be very interested to see what it puts forward. We’re currently at about 50 days of fuel reserves, a long way short of the 90 days that we need to be at. This arrangement effectively amounts to an additional 3.8 days worth of fuel. In each of the 2018-19 and 2019-20 financial years, we are purchasing 400 kilotonnes worth of fuel reserve tickets, at a cost of $24 million, as I said. That will really only lift our effective reserves, or access to fuel, from around 50 days to around 55 days. How we’re going to make up the other 35 days between now and 2026, which is the commitment we’ve made to the IEA under phase 2 of the arrangement that’s described here, remains to be seen. We’ve got to this situation without enough scrutiny from government, without enough attention from government. Three of the seven domestic refineries in Australia have closed in the last decade. Our domestic production of liquid fuels has declined by a third.

There is one further thing that I want to raise, and I’ve raised it in this place a number of times in the last 18 months. We currently do not have an Australian-flagged fuel tanker. Our fuel security depends on fuel production and fuel imports. Of course it depends on fuel reserves, and we know that they are in a parlous state. But everything that comes to this country comes by sea, and it is intolerable that we are in a situation of not having the sovereign self-sufficiency, the sovereign capacity, to transport fuel here. That is a result, unfortunately, of this government’s very, very harmful policies in relation to shipping. They seem to be intent on bringing Australian shipping as we know it to an end.

I want to thank all the members of the JSCOT who participated in this report. The member for Macquarie, who’s going to speak after me, did a lion’s share of that work. I actually wasn’t on the committee for the last several months. I’m very glad to be back on the committee. This is an example of the important work that it does.

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