The good oil on energy security is more than gas

The war in Ukraine has snapped the world out of its energy apathy, forcing governments to assess how secure essential supplies are from disruption. A focus on decarbonisation across the West has resulted in a greater dependence on energy imports, notably from Russia. The Biden administration slowly is coming to realise the folly of clamping down on shale oil production, a technology breakthrough that had delivered energy independence to the US. Britain is reconsidering bans on fracking that, if it had not been blocked, would have enabled the country to replicate the US shale revolution. The same applies across western Europe where significant reserves of shale oil and gas have been identified but not exploited because of pressure from environmental groups hostile to fossil fuels. Australia is a major producer and exporter of gas but is also hostage to the fact most of our domestic gas production is exported to heat and power the economies of Asia.

Energy Minister Angus Taylor has warned the energy crisis facing Europe could happen in Australia unless new gas fields are opened. The challenge domestically is to ensure there is sufficient production to supply the local market as well as exports. Additional funding to fast-track pipeline infrastructure and development of known gas resources is welcome. It serves the national interest and is a challenge to the ALP to support gas as an essential part of the nation’s low-emissions transition. It is also a damning indictment of the slow progress that has been made on a domestic supply problem that has been well known.

That said, the real supply predicament for Australia is oil. The broad thinking of Australia’s energy policy for decades has been that exports of gas would offset imports of crude oil as Bass Strait production wound down. The result is Australia is a net exporter of energy, sending 16,290 petajoules offshore in 2020. Energy imports that year were 2244 petajoules. The difficulty is that oil is still Australia’s largest source of primary energy consumption, at 37 per cent, compared with gas at 27 per cent. More than 90 per cent of Australia’s refined fuels are imported, with petrol coming from Singapore, South Korea and the US. Diesel fuel is imported from Singapore, Japan and China. The gas and oil substitution strategy might work in an economic sense but the fact is Australia’s transportation fleet runs on petrol and diesel that are exposed to potential supply shock. This may change over time with electrification or hydrogen but that is a long-term project. It cannot be taken for granted.

The government has acknowledged the precarious supply position for transport fuels and is committed to returning to full compliance with the International Energy Agency’s 90-day oil stockholding obligation by 2026. According to Geoscience Australia, there are significant undiscovered reserves of oil, including from unconventional sources such as shale oil. What is needed is development of a significant new oil province to replace Bass Strait, which yielded three billion barrels of oil for domestic consumption over 30 years. Attempts to explore for mega-reserves of offshore oil have been scuppered by protest groups opposed to fossil fuels. The oil majors needed to develop high-risk deepwater offshore fields have opted to pursue easier pickings in other countries instead. This is a strategic problem that must be addressed. The energy lesson from Europe is for all of the above: coal, gas, oil, nuclear and renewables. More gas is good, but only part of the energy security puzzle.