Is Australia going to run out of oil?

Australia could be at risk of running out of oil. It’s a fear that has concerned energy and security policy experts for several years — the International Energy Agency (IEA) mandates countries stockpile 90 days worth of crude oil, but Australia has consistently fallen below this figure since 2012.

Now, with global tensions highlighting the vulnerability of many of Australia’s traditional oil import routes, the Morrison government is negotiating with the Trump administration to tap into the United States’ fuel reserves. Recently, Defence Minister Linda Reynolds indicated Australia could be willing to supply the administration with an Australian warship to help guard tankers in the Persian Gulf, as tensions between the US and Iran simmer, all in the hope of getting access to oil reserves.

How much oil do we have?

Probably not enough. According to the most recent data from the department of environment and energy, Australia has just 32 days of total petroleum stocks, 28 days of automotive gasoline, 30 days of aviation fuel and 22 days of diesel oil based on current consumption trends. 

Even considering net import cover, the figure used by the IEA adjusts the above figures based on assumptions about availability of oil stocks, Australia has 60 days worth of oil — still well below the 90 days mandated by the agency. 

These numbers also show Australia’s energy future is far more insecure than pretty much all other developed countries. In comparison, the United States has 700 days of oil coverage, the United Kingdom 280, and Japan and New Zealand have 185 and 92 days respectively. According to the Australian Strategic Policy Institute the size of Australia’s stockpile makes us the most vulnerable of 25 Asian countries.

Where does Australia get its oil?

One reason for Australia’s small stockpile is that well over 90% of our oil comes from overseas. While Australia has its own oil reserves, we end up exporting about 75% of that, since most of the refineries are on the east coast — on the other side of the country from the bulk of the oil reserves around the north west shelf. 

Instead, most crude oil in our refineries comes from overseas, with Asia providing the biggest share at about 40%. Most of Australia’s refined petrol originates in the Middle East, and is shipped from refineries in Asia — often South Korea, Singapore and Malaysia. 

Why is the oil drying up?

Australia’s oil supply isn’t necessarily “drying out” — but in light of our consistently low stockpiles, there is reason to be concerned about the potential vulnerability of that supply, particularly considering various tensions bubbling up around key oil routes.

Having a somewhat unpredictable figure in the White House certainly doesn’t help. In response to the Trump administration’s decision to ratchet up pressure on Iran by increasing sanctions and trying to restrict their oil exports, the Iranian government has vowed to cause problems for tankers in the Persian Gulf and has already attacked some ships.

Currently, about one sixth of the world’s oil supply comes through the Strait of Hormuz, a narrow sliver of water in the Persian Gulf separating Iran from Oman and the United Arab Emirates. Should Trump’s prodding of Iran escalate into something more serious, there’s a chance Iran could take control of the strait, putting oil routes through the area in jeopardy.

Moreover, the US is now far less vulnerable than Australia, thanks to both the Obama and Trump administrations placing a greater premium on oil independence, meaning there is less of a strategic incentive to protect the strait in a conflict.

But it isn’t just the Middle East that puts Australia’s energy future at risk. A huge chunk of our crude and refined oil comes through the South China Sea, currently a hotbed of territorial disputes as a rising China flexes its muscles and the potential epicentre of future international volatility.

What happens if we run out? 

There’s every chance Australia will be fine, even with its limited stockpiles. But we do have to worry about the prospect of a “major disruption”, such as a conflict in Iran, or the impacts of US-China tensions on Asian routes.

The first and most obvious impact of a disruption would be to keep cars off the road. But the impacts of this are what should really cause worry. With fuel supplies seriously limited, we would struggle to move food and medication around the country. A city like Melbourne or Sydney could all but run out of food in two or three days. To respond to the shortages, a government would have to put in place heavy rationing. According to John Blackburn, a retired Air Vice Marshall and adviser to the NRMA, the country would be “brought to its knees within a week”.

What has the government done?

Morrison’s overtures to Trump seem like something of an emergency action. It has followed years of warnings about Australia’s limited limited fuel supplies from a range of different groups such as the NRMA, former military figures and policy experts. In the last few years, we’ve seen the usual raft of inquiries and reviews, all of which have concluded that Australia’s energy situation is deficient.

A follow-up to the 2011 National Energy Security Assessment has consistently been delayed, and is still yet to be released (mid-2019 was the last proposed date).

Instead, Australia continued to take the cheap option of keeping oil stocks well below the IEA agreement.

Should Australia be making its oil stores more of a priority? Write to boss@crikey.com.au with your thoughts and your full name.