Australia negotiating with Trump administration to buy emergency oil supplies

The Morrison government is negotiating with the Trump administration to buy millions of barrels of oil from America's tightly guarded fuel reserve under an emergency strategy to lower the risk of Australia plunging into an economic and national security crisis.

The deal forms a core plank of a new push to shore up dangerously low domestic storage levels, which have left the nation vulnerable to price hikes and rationing in the event of war or disaster in the oil-rich Middle East or increasingly volatile South China Sea.

Australia imports 90 per cent of its liquid fuels but only has enough petrol and crude oil to last 28 days – well below the 90 days it is obliged to store under an agreement with the International Energy Agency.

Overall, Australia has just 57 days of net coverage compared with 92 for New Zealand, 280 for Britain and 700 for the United States.

In a move that effectively rules out spending billions of dollars to buy and stockpile huge volumes of fuel in Australia to meet the 90-day standard, Energy Minister Angus Taylor told The Sydney Morning Herald and The Age that the government was locked in "constructive discussions" with the US for the right to tap into its enormous Strategic Petroleum Reserve.

"The government has undertaken this new initiative since the election to ensure that we continue to deliver increased security for Australians," Mr Taylor said of a possible US deal.

"Access through a contractual arrangement would greatly boost our stocks and flexibility of supply."

Stored underground in massive caverns in Texas and Louisiana, the Strategic Petroleum Reserve was set up by president Gerald Ford in 1975 to keep the country running in a crisis. It holds more than 640 million barrels of crude oil. One cavern is so big it could fit Chicago's 110-storey Willis Tower.

The stockpile has been tapped only 19 times, including after Operation Desert Storm and during hurricane emergencies. "Exchange" deals allow the US to lend millions of barrels in return for the recipient handing back the same quantity of oil, often at a higher quality, once the crisis is over.

In the event supply was disrupted from the Middle East or south-east Asia, the US oil would take several weeks to ship to Melbourne or Sydney and would have to be refined before being released to the market.

While it negotiates with the Trump administration, the Morrison government is also pushing for a major rewrite of the treaty that dictates the 90-day supply requirement.

Mr Taylor said the "outdated" treaty should be changed so oil stock owned by Australia and being transported to the mainland can count towards overall supply – especially ships just days away from unloading at Australian ports.

The Energy Minister raised the idea with International Energy Agency executive director Fatih Birol earlier this year in Japan.

"A modernised mechanism, that includes oil stocks in transit to Australia combined with our other fuel security initiatives, would mean that as of May 2019 we are compliant at 92 days of stock," Mr Taylor said.

The International Energy Agency treaty requires member nations to hold 90 days worth of supply so they can maintain domestic needs and release oil to the global market in the event of conflict or natural disasters.

The Turnbull government launched a fuel security review in May last year, but the final report has been delayed and won't be delivered until the end of this year. An interim report completed ahead of the federal election dubbed Australia "an outlier in the global community in the way we think about liquid fuel security".

Department of Energy and Environment officials have spent recent months modelling a series of hypothetical disruption scenarios, including how fuel would be managed in the catastrophic event all imports were to cease.

Liquid fuels account for 37 per cent of Australia's energy use and 98 per cent of transport needs.

Former Liberal senator Jim Molan, a one-time commander of coalition forces in the Iraq war, has long warned that low storage levels exposed Australia to "far too much risk" given supplies rely on vast stretches of volatile ocean passages including the Persian Gulf, Indian Ocean and South China Sea.

Defence Minister Linda Reynolds said on Sunday that the government was giving serious consideration to a US request for the navy to help protect oil tankers in the Persian Gulf, one of the world's most important shipping lanes, from an increasingly aggressive Iranian military.

Australian Strategic Policy Institute risk and resilience program head Paul Barnes said the key to fixing Australia's low storage levels was diversifying supply.

"We have to be sophisticated in our thinking about how we do that," Dr Barnes said.

"It might be that we cannot just continue to assume that we must get the best price per litre of fuel for people. We have to possibly start thinking more broadly that it might cost a little bit more to put petrol in the car because we have to adapt to changing global conditions."

Labor had vowed to create a national fuel reserve had it won the May 18 election, a promise the Coalition claimed would cost more than $10 billion.

"Unlike Labor’s fuel security policy, which would have cost our economy billions, we are focussed on practical measures to increase transparency, accountability and availability of fuel stocks," Mr Taylor said on Sunday.