Ensuring oil supply vital to national security interests

The Morrison government’s action to secure Australia’s long-term fuel security is important to employment and the nation’s strategic interests. Under a $2.35bn rescue package, taxpayers will underwrite the operations of the nation’s two remaining oil refineries — Ampol in Brisbane and Viva in Geelong — and support the upgrade of their operations to produce cleaner fuel.

Visiting the Ampol refinery near the mouth of the Brisbane River on Monday, Scott Morrison highlighted the 1250 jobs that would be protected at the two refineries and another 1750 building jobs to be created during the upgrades. Major industries — such as agriculture, transport and mining — as well as motorists would have greater certainty and expect savings on vehicle maintenance and greater choice of new vehicle models, the Prime Minister said.

Until a few years ago, as John Durie wrote on Monday, Australia had eight refineries. In total, the eight were the same size as just one in Singapore or India and were unable to compete. Propping up uncompetitive industries is normally bad policy. “As we have learned with the car industry, it doesn’t make a lot of sense to keep paying subsidies to sub-scale plants when they are going to close anyway,” Durie wrote. “But that is precisely what (Mr) Morrison is doing here, throwing $2bn at Ampol and Viva shareholders to keep sub-scale refineries operating.”

What justifies the outlay of taxpayers’ funds, however, is the importance of sovereign fuel stocks amid a deteriorating geo-strategic situation, particularly around the shipping lanes of the South China Sea. This issue has been highlighted in recent years by NSW Liberal senator and former army major general Jim Molan. The South China Sea carries about a fifth of the world’s trade. As Mr Morrison says, the investment will ensure Australia maintains the ability to produce its own fuel in a crisis: “This is a key plank of our plan to secure Australia’s recovery from the pandemic and to prepare against any future crises.” Ampol and Viva have yet to guarantee the refineries will remain open beyond 2030, Ben Packham writes. The package was designed in collaboration with the companies.

As Perry Williams writes, fears have been growing that the nation’s refining sector could disappear entirely because of falling demand brought on by the pandemic and competition from larger refineries in Asia. In February, ExxonMobil announced it would close its Altona refinery in Victoria. BP announced last year it was ceasing oil production at Kwinana in Perth.

In June last year, Australia purchased $94m of crude oil at record low global prices for storage in the US Strategic Petroleum Reserve in case of global emergencies. But as we reported in December, national security consultant John Blackburn warned at a parliamentary inquiry on the impacts of COVID-19 on Australia’s foreign affairs and defence late last year that “buying oil stocks to stick in a cabin in America is not going to do anything for our domestic oil or fuel security”. That would depend on the nature of any emergency.

Fuel security will be more prominent in the national debate when the government introduces a fuel security bill in the current sitting. According to information supplied by the government, from July 1 next year importers and refiners in Australia will be obliged to hold minimum stocks of petrol, diesel and jet fuel at minimum national stock levels at 24, 20 and 24 consumption cover days respectively. That is in addition to Australian-owned fuel stored overseas and fuel already bought and en route to Australia. From July 1, 2024, there will be an increase in the level of diesel stocks required to 28 consumption cover days. In uncertain times, our economic and transport security requires no less.