In the last line of defence against a global oil supply shock, Australia has long been the weakest link.
It is the only country among the 29 members of the International Energy Agency without enough oil in storage to cover net imports for three months, having failed to meet that requirement since 2009. Last year, Australia had just 59 days of backup supplies.
That could change under Australian government plans due to be outlined later this year — albeit at a significant cost.
In an energy white paper released yesterday, Australia said any move to become compliant would require several billion dollars of investment in fuel stocks and storage infrastructure over a decade.
“A decision on how to address this compliance issue will be made by the government in 2015,” the paper said.
The IEA was founded in response to the global oil crisis in 1973, when oil-importing countries were hit hard by an embargo on crude oil sales imposed by several Middle Eastern exporters. The Paris-based energy watchdog aimed to help member countries ride out major disruptions to oil supply by coordinating the release of emergency oil stocks to the market.
While many countries invested heavily in the construction of oil-storage facilities — such as the deep underground storage caverns in salt domes along the coast of Texas and Louisiana in the US — Australia lagged behind. Instead, Australia has mostly relied on oil stockpiles owned by major companies to meet its obligations to the IEA since joining in 1979.
As recently as 2012, the IEA raised concerns that this policy has left Australia increasingly vulnerable to a supply shock, while limiting its ability to assist other countries in need. Australia’s oil production fell 17 per cent to 416,000 barrels a day in 2013 — its lowest level since 1972 — and demand has been creeping higher.
A spokesperson for the IEA wasn’t immediately available for comment on the energy white paper.
To be sure, Australia isn’t lacking in energy sources. The country is on course to overtake Qatar as the world’s biggest exporter of liquefied natural gas by tanker, and ranks only behind Indonesia among global exporters of coal.
The government white paper also didn’t sound any alarm bells about the country’s oil security, citing “the depth, liquidity and diversity of international crude and fuel markets” and arrangements to source oil or fuel from tankers out at sea.
Still, any move to address the shortfall in emergency oil stocks couldn’t have come at a worse time for Australia’s government.
Prime Minister Tony Abbott came to power in 2013 pledging to trim government spending to ease pressure on public finances, in part caused by tumbling commodity prices.
So far, plans to raise taxes and cut welfare spending have met with harsh resistance from voters, forcing the government to cool its rhetoric and search for alternative spending cuts.
Extracted in full from the Australian.