The National Farmers Federation says the federal government needs to do more to ensure the future security of diesel supplies by ensuring Australia retains a significant capacity for onshore oil refining.

Australia now has four aging oil refineries but BP recently announced the closure of its refinery at Kwinana in Western Australia.

Around 90 per cent of Australia’s liquid fuels are imported mainly from south-east Asia.

As part of last year’s budget the federal government announced a fuel security package aimed at both increasing in-country fuel storage capacity and propping up local refineries.

Federal grants totalling $200 million are now available to lift diesel storage by 780 megalitres with applications closing on February 22 and work expected to begin by mid-2021.

Federal Energy and Emissions Reduction Minister Angus Taylor said the scheme was aimed at creating new jobs and protecting fuel-dependent industries including agriculture and transport.

Australia needs to hold about 40 per cent more diesel than current levels to meet its commitment to comply with the International Energy Agency’s stockholding obligation – equivalent to 90 days of worth of imports – by 2026.

Recently the federal government took advantage of low oil prices to buy 1.5 million barrels of crude and hold them in the US Strategic Petroleum Reserve.

It also brought forward to January 1 a support payment to local refineries of a minimum one cent per litre and said it would pick up the $83.5 million cost for the first six months.

NFF chief economist and general manager for trade Ash Salardini said the federation was concerned the support payment would become a new fuel levy beyond June 30.

Mr Salardini said the COVID pandemic had heightened farmer concerns about the potential for serious disruptions to fuel imports.

“At the moment we don’t have a huge amount of refinery capacity in Australia,” he said.

Mr Salardini said at some point it would become uneconomic to keep stockpiling fuel and being able to produce a certain percentage of our own fuel would ensure critical activities like farming would be able to continue if overseas supply chains were badly disrupted.

The quality of stored diesel also degraded over time and stocks would probably need to be turned over every 12 to 18 months, he said.

Mr Salardini said the constant talk now about emerging low-emission fuels including hydrogen were also causing fears about the long-term future availability of diesel.

“Is hydrogen really going to be around in 10 years time, 20 years time, 30 years time, how long will it take the rubber to hit the road with hydrogen?” he said.

As an industry that relied on diesel for most of its energy, agriculture needed a secure supply of liquid fuel to ensure its operations could continue uninterrupted.

The NFF is also advocating for the construction of on-farm fuel storage to remain eligible for the instant-asset write-off and accelerated depreciation provisions.

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