Supply Security for Transport Fuels

Self-sufficiency in transport fuels is not necessary for supply security

• Security of supply is the result of resilient and efficient supply chains and robust risk management – it is not about self-sufficiency or independence from markets.
• There are 3 critical elements of any strategy to deliver security of supply:
  • Diversity of supply options,
  • Flexible and resilient supply chains, and
  • Efficient supply and emergency management strategies.
• Australia fully meets these conditions as confirmed by numerous government and independent reviews over many years.
• There have been no long-term / widespread shortages of transport fuel supplies for decades.
• Australia has never had major difficulties sourcing crude and fuels to meet our transport requirements, even during rapidly rising prices; suitable crudes and fuels are readily available in Asia and globally.
• Australia has a very active oil market that is closely linked to a very responsive global market.
• Australia does not produce enough compatible crude oil to run existing domestic refineries.
• Thus, even if Australia had more refineries, crude oil imports would still be needed for our refineries so 'self-sufficiency' in mainstream transport fuels is simply unattainable.

Australia’s current fuel security policy protects our economy, social and community wellbeing

• This conclusion is supported by extensive government, independent and parliamentary reviews of the Australian transport fuels supply chain and supply reliability.
• These reviews have concluded that Australia’s market based approach and policy has delivered a HIGH level of transport fuels security, and secure and reliable performance is expected to continue into the future. These reviews have also confirmed robust and flexible emergency response arrangements and the efficient transition of a changing industry.
• The core business of Australian fuel suppliers is supplying fuel to the market where and when it is needed, so they have direct business incentives to ensure security and reliability of supply.
• A market based approach also provides a flexible and robust framework that is capable of adjustment in response to changes in technologies and developments in global and domestic markets.
• Under a market based approach, competing suppliers aim to reduce to an acceptable level the risks and consequences of supply disruptions - including over the longer term.
  • This involves balancing supply reliability, with cost to consumers and bulk fuel users.
• In a well-functioning market all major fuel users (eg. mining, farming, Defence etc) need to make informed decisions about the fuels required to meet their operational requirements and how they will manage the risks of a disruption so that commercial and community interests are maintained.
  • For some major fuel users, the industry can and does manage this risk.

The NRMA assertion that "Australia's supply of transport energy is: not secure; becoming less affordable; enjoys almost no diversity; is not sustainable in the longer-term" is not supported by the facts.

• This NRMA assertion is not supported by the evidence:
  • There has been no long-term or widespread disruption to Australian fuels supply for decades
  • Global oil prices are at their lowest level since 2009.
  • Australian transport fuel prices are low by international standards (reflecting low taxation).
  • Fuel is a regular purchase for motorists, but it is now a smaller share of household spending as the fuel economy of all Australian cars has improved since 1990 and will continue to do so.
  • Australia sources crude oil and feedstock from over 17 countries: Asia-Pacific 58%, Africa 21%, and Middle East (only UAE) 13%.
  • Australia sources finished petroleum products from over 20 countries (85% from across Asia).
  • Within Australia, there are a variety of fuels types available and a wide range of fuel suppliers.
  • There are expanding sources of crude oil and finished products for Australia’s needs.
  • Major investment in new or expanded terminal/storage facilities has occurred in recent years.
• This NRMA assertion is also not supported by extensive government, independent and parliamentary reviews of the Australian transport fuels supply chain and supply reliability and security.

National Security issues should be examined in the context of Australia’s defence requirements and plans

• Energy security assessments should be focused on ‘supply security’ and ‘energy policy’ and how the economy is served by current and future market operation and settings, and how the market operates during periods of market ‘disruption’ that are more likely to be encountered.
• Thus, energy security assessments should not consider ‘national security’ settings and scenarios in which crude oil or product supply is disrupted for an extended period by widespread military conflict.
• ‘National security’ scenarios should be considered as part of Defence planning and reviews, for example in the upcoming Defence White Paper.
• AIP notes that that the oil market has continued to operate during all military conflicts and no shortages were experienced in Australia. Australia, like all other countries, was impacted by increases in global oil prices during major military conflicts, with associated economic costs, but there was continued access to physical supply in the global market.

Australian and global fuel supplies have been resilient to disruptions including major military conflicts

• The Australian Government, as well as collaborative international energy bodies/forums, routinely examine and test a very wide range of events or scenarios that would place the global or domestic oil market under intense pressure, including significant disruptions to supply.
• In some very extreme, low probability scenarios, the market may not operate as normal or in the most efficient way, and global trade flows may be affected. However, even in such events which have occurred (eg. US Hurricanes, GFC, Iraq War, Kuwait invasion, Libya crisis etc) the market has continued to operate with limited very localised impacts (ie. an impact on market price, rather than availability).
• Given the importance of the global oil market to countries’ economic performance and activity, most major disruption scenarios are routinely considered along with the best way to manage such events.
• There is an important role for Government in consultation with the Australian petroleum industry to ensure effective emergency response plans are in place (ie. through the liquid fuel emergency legislation and NOSEC), as well as a role for major fuel users in the widespread adoption of robust supply management and business continuity planning (as outlined in AIP’s Submission to the Inquiry).