Coalition bid to shore-up vulnerable oil supplies

The Morrison government will look to safeguard the future of oil refining and regain sovereignty over petrol supplies.

Minister for Energy Angus Taylor has held meetings in the past week and will ­review the refining sector at the same time as opening a process to boost its fuel storage in the hope it can ensure security of supply. Picture: AAP

The Morrison government will look to safeguard the future of oil refining and regain sovereignty over petrol supplies amid concern Australia’s fuel stocks remain vulnerable to an energy crisis.

A long-term strategic review of the nation’s refining industry could see the government support the sector to remain operating while a formal process has started to develop a domestic oil reserve to back up supplies held in a US strategic facility.

Australia’s four remaining refinery operators are weighing the future of their plants amid soft margins, high costs and plunging demand due to COVID-19.

Energy Minister Angus Taylor has held meetings with the industry in the past week and will ­review the refining sector at the same time as opening a process to boost its fuel storage in the hope it can ensure security of supply. ­Between seven million to 15 million barrels of domestic fuel storage could be added under the storage plans.

“The government wants to ­assess how we can best partner with industry to increase our storage capacity to further enhance fuel security,” Mr Taylor said.

“We are also working closely with our local refineries to better understand their challenges by ­assessing the long-term sustainability of the sector.”

Caltex’s Lytton refinery is closed for extended maintenance while Viva Energy has halved petrol production at its Geelong ­refinery, reflecting falls in demand, with part of the facility shut down.

The government in April said it would spend $94m on the strategic fuel reserve with supplies ­initially stored in the US until Australia has developed further ­capacity to store its reserves.

Australia is looking to boost its stockpile to meet International Energy Agency fuel security rules that require emergency oil stocks equivalent to 90 days of net oil crude imports. It currently holds 75 days of stocks. Caltex, Viva, ­ExxonMobil, United Petroleum and BP have all been involved in discussions over utilising or expanding their existing storage ­facilities to create the local reserve.

John Coyne.

The Australian Strategic Policy Institute’s John Coyne said Australia’s lack of domestic fuel reserves was a key vulnerability, and one that would not be solved by market forces alone.

He said the oil industry had for years argued there were no significant risks to fuel supplies. But COVID-19 had highlighted the risks of being overly reliant on offshore supply chains.

“Any Chinese government analyst worth their salt knows fuel supply is Australia's economic and national security achilles heel,” Mr Coyne said. “Any discussion on supply chains and resilience, especially with respect to fuel, quickly comes down to who will cover the costs.

“And that’s why, in a time of increasing strategic uncertainty, the government needs to consider stepping up to make the nation-building investments needed to address national fuel resilience.

“In developing its strategy, they'll need to look beyond the oil industry for answers.”

Centre Alliance senator Rex Patrick has also criticised Australia’s plan to boost access to emergency oil stocks by tapping a US reserve, arguing it fails to account for the threat of an international energy crisis.

Mr Patrick said the arrangement between the two nations was not legally binding and provided no guarantee Australia would be able to access oil supplies during an international emergency.

A glut of jet fuel due to the aviation industry shutdown will also be addressed by the federal government by temporarily changing diesel standards to enable all Australian refineries to use excess jet fuel supplies.

Leading suppliers Caltex and Viva said jet fuel plunged 80-90 per cent over the past few months.