Australia’s fuel security has been the source of constant policy discussion in Australia for nearly two decades. This discussion occurred largely as a result of stepped reduction in the number of fuel refineries in Australia over recent years and concern that Australia was not complying with its in-country fuel stockholding, as prescribed under international agreements.
The reasons for these refinery closures are varied but include declining domestic oil reserves in key regions like Bass Strait, the rise of modern mega-refineries in Asia and South America that are able to produce fuel products at a much lower unit price than Australia’s smaller and older refineries, and significant increases in domestic labour and electricity costs.
It is important to note that while these past refinery closures have notionally increased Australia’s domestic market exposure to global supply interruptions, the abundant supply of global fuel products from multiple geographic regions of the world has made such a change possible without putting Australia’s economy at risk – as evidenced by the fact that domestic interruption to Australia’s fuel supply over the past 20 years has been negligible.
That being said, understandable community concerns about the need to ensure that Australia has enough in-country fuel reserves (and domestic production capacity) to support critical transport and other infrastructure, should a prolonged global supply interruption occur, have persisted. These concerns have given rise to regular discussions between the Australian Government and the fuel industry about what can realistically be done to reduce Australia’s exposure to global fuel supply shocks in the future.
Earlier this week, the Prime Minister (The Hon. Scott Morrison MP) and the Federal Energy Minister (The Hon. Angus Taylor MP) jointly announced a plan to improve Australia’s Fuel Security. The plan comprises three elements that the Government intends to progress in consultation with relevant stakeholders in our fuel industry.
The first of these steps is the provision of $200M in capital grants that will be made available to the fuel industry to build an additional 780ML of fuel storage in Australia. Grants will be offered on a shared investment basis (i.e. capped at 50% government contribution) and grant applications will be assessed on a competitive basis, with priority given to three key aspects, namely:
- The strategic value of the location of the new fuel storage facility
- Connection with Australian refineries
- New storage located in regional locations.
“Our understanding is that the government is now working on the design of the new grants programme and expects to open the programme for applications in the first half of 2021”, said ACAPMA CEO Mark McKenzie
“It is also worth noting that the programme is not confined to fuel producers and fuel importers, but will be open to all fuel businesses (and new market entrants) that have the capacity to deliver new fuel storage facilities”, added Mark
The second element will be the introduction of new laws that establish a minimum stockholding of transport fuels by the Australian fuel industry, to operate as a buffer against future global supply shocks. The Australian Government intends to work with industry stakeholders – including fuel wholesalers and distributors – to design legislation to set these minimum obligations over the next 6 months.
The new legislation will effectively seek to combine two existing pieces of legislation – namely the Liquid Fuel Emergency Act 1984 and the Petroleum and Other Fuels Reporting Act 2017 – with a view to:
- Increasing existing average diesel stockholdings by 40% to provide a minimum of 28 days consumption cover
- Ensuring that petrol and diesel stockholding do not fall below current average levels of 24 consumption days
“During discussions with senior government officials immediately following the announcement, ACAPMA sought and received assurances that these legislative design discussions will include Australia’s fuel importers, fuel wholesalers and fuel distributors – as opposed to merely engaging the large refinery businesses,” said Mark.
The third element involves the design and implementation of a market-based mechanism that will deliver a minimum payment of 1.15 cents per litre to refineries. The payment has been justified based on a government economic assessment showing that Australia’s wholesale prices would increase by around 1 cent per litre if all existing refineries were to exit Australia.
To receive this support, refineries will be required to commit to stay in Australia and to implement their own internal efficiency measures to improve their long-term viability. Additional support will be provided to refineries by exempting them from the additional stockholding obligations described under element two above.
“All in all, the architecture of the Federal Government’s Fuel Security Plan looks sound and the plan also creates new opportunities for fuel businesses involved in fuel importation, fuel wholesaling and fuel distribution”, said Mark
“ACAPMA will be working with the Government on the first two of these initiatives over the next two months and we will ensure that the interests of our member businesses are properly considered”, concluded Mark.
ACAPMA members wanting more information on these initiatives and ACAPMA’s engagement with same should contact Mark McKenzie by sending an email to email@example.com