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.
What about refineries?
Calls to reopen closed refineries don't stack up, as Energy Minister Chris Bowen has pointed out . New South Wales's Kurnell, South Australia's Port Stanvac and Victoria's Altona refineries have already been demolished and replaced with oil import terminals. The exception is Perth's Kwinana refinery, which closed in 2021 and has being considered as a site to manufacture biofuels.
There's no point in expending the time and money on building new refineries if there's no domestic crude oil to process. Australia's proven supplies of crude oil are now six years away from depletion. Potential new reserves such as the Taroom Trough in Queensland or WA's Dorado are unproven. They will take a long time to confirm, would be expensive to extract, and may not produce the right type of crude oil to be converted into the most important fuel, diesel.
A new refinery could import crude from overseas, but it would be competing with much larger regional refineries and we would still be reliant on overseas supplies.
For these reasons - and more - expanding refinery capacity is unlikely to help.
Electrify now
This year's oil shock may have a long tail. The Strait of Hormuz is not open and damaged facilities will need to be repaired.
It makes sense to accelerate the shift to electric transport and machinery wherever possible, rather than overbuilding fuel storage and see the tanks become stranded assets.
What authorities must do is make a hard-nosed assessment of how much fuel storage we will actually need, paired with accelerated electrification targets.
The great benefit of electrified transport is that the energy to run electric cars, buses, trucks and mine equipment can be made locally using renewables and storage, with backup gas plants. Every new EV cuts demand for petrol or diesel, freeing up scarce supplies for use in areas where electrification is presently harder.
Electric cars are now approaching price parity with combustion engine vehicles. Electric buses and electric delivery vans are now common on city streets and the first electric prime movers are arriving .
Rapid progress in battery technology means electric trucks are now viable for medium-distance routes such as Sydney-Canberra .
Longer routes will be harder. Here, biodiesel may have a role. Last year the federal government announced a $1.1 billion plan for low-carbon liquid fuels such as biodiesel, made from fats such as tallow, vegetable oils or even algae.
These alternative fuels have long struggled with scale and cost. But they may be worthwhile if it means long-distance trucks are able to run on locally-made, low-emissions fuel. For example, Indonesia is about to shift to a 50/50 mix of biodiesel and fossil diesel.
A new efficiency scheme for commercial and heavy transport could drive the change, as the New Vehicle Efficiency Scheme is doing for cars and light commercial vehicles.
So, there's the plan:
- Double down on electric vehicles of all forms
- Accelerate the evaluation of biodiesel for long-distance trucking
- Increase Minimum Stockholding Obligations for onshore reserves consistent with electrification
- Decide whether to comply with IEA 90 day fuel obligations or renegotiate
- Reject calls for government support for new oil exploration or refineries.
Tony Wood does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.
