Why Australia has to boost fuel supply – and electrify transport

As Australia’s immediate fuel crunch eases after successful efforts to diversify supply, policymakers are turning their attention to dealing with the next energy security crisis.

The question is, what would actually work?

The Coalition this week announced a policy to double onshore reserves of liquid fuels to 60 days’ supply, or around 1 billion litres of petrol, diesel and aviation fuel. For its part, the Labor government is expected to announce new energy security measures ahead of the budget.

Last week, the government canvassed options to refine more fuels in Australia, whether by expanding capacity for the nation’s two remaining fuel refineries following a fire that damaged Viva’s Geelong refinery earlier this month, reopening closed refineries, or even building a new one.

Of these options, modestly boosting fuel storage is the only sensible one. The level would need careful calibration. But it cannot stand alone. The Coalition’s plan focuses only on getting back to “normal” – meaning dependent on overseas shipments of fossil fuels – and not on reducing demand through electrification and biofuels.

Normal doesn’t exist any more. This year’s energy crisis is the second major disruption in the past five years and looks to be far worse than the 2022 crisis.

Does Australia need more storage?

Much coverage to date has focused on the gap between Australia’s domestic requirements, known as Minimum Stockholding Obligations, for roughly 30 days of onshore stored fuel and 90 days of net oil imports required by the International Energy Agency through an agreement.

This misses the point.

At the turn of the century, domestic oil wells were still producing large volumes for the nation’s eight refineries to process. Because the IEA’s 90-day requirement is for net imports and Australia was producing most of its own fuel, the nation did well by this metric.

Since then, the oil riches of the Bass Strait have largely been used up, and six refineries have closed. Oil from Western Australia’s North West Shelf is mostly exported to large refineries in Singapore and Malaysia, which are much closer than Australia’s east coast. Australia became dependent on imported fuel, meaning it needed much higher stocks to meet its IEA obligations.

Criticisms of the current government and its predecessors over fuel reserves aren’t well grounded. The refineries and their storage tanks closed because there wasn’t enough domestic oil to process and they couldn’t compete with bigger producers overseas. Australia’s remaining refineries are only hanging on through government subsidies.

Even so, it could be a smart move to further expand domestic fuel reserves, given how exposed we are to a long and increasingly unreliable supply chain. It will also take some years to shift to more secure alternatives.

Diesel storage is particularly important. Australia uses twice as much diesel (roughly 90 million litres a day) as petrol (44 million) because long-distance trucks, mine sites and farmers all rely on this fuel. There has been an addition of 300 million litres of diesel storage in the last few years via government and industry co-funding.

But doubling storage to 60 days based on current consumption, as the Coalition wants, is unlikely to be necessary. It would make no sense to spend billions building huge tanks when the goal has to be to progressively reduce how reliant we are on importing liquid fuels.