We must not waste this energy crisis

The crisis has exposed several weaknesses. Australians are at the end of long global and domestic supply chains. We hold “modest” fuel stock and manage disruption risks via a diversity of supply sources. Our two remaining refineries require ongoing financial government support and are technically limited in capacity to use Australian crude oil.

In that context, the government has managed a difficult and fast-moving crisis well. Most of the initial focus was to discourage panic buying. Consumers along long supply chains were unenthusiastic. Releasing part of our strategic reserve helps, but it doesn’t help everywhere all at once. Relaxing fuel standards, cracking down anti-competitive behaviour, setting up a energy taskforce, and securing supply via bilateral negotiations have been sensible and calibrated moves.

The government’s already-flagged responses to real supply disruptions will mean targeted fuel rationing and encouragement of actions that reduce transport activity.

There has been other progress. The government has committed to restoring compliance with our strategic reserve obligation under an International Energy Agency (IEA) by the end of this year. A combination of an enforced Minimum Stockholding Obligation on import terminals and the last two refineries, and the construction of additional diesel storage, helped to get us to around 50 days’ supply by the end of 2025.    

We must not waste this crisis. The economic impact is still unclear, but recent comments by the Prime Minister and the head of the IEA suggest it will be as bad as COVID. So, what do we do now to develop and implement a strategy to deal with the world as it is likely to be, i.e., lower emissions and ongoing dependence on liquid fuels during the transition, in a world where we cannot be so dependent on the global system for open trade and supply.

Our strategy should have two parts.

Part A should focus on fuel alternatives. We need to get off fossil fuels to get to net zero, and transport contributes 20 per cent of our emissions.

We have the New Vehicle Efficiency Standard (NVES), and 13 per cent of new vehicle sales were electric (including hybrids) in 2025. The time is rapidly approaching when range anxiety will be a thing of the past because of new batteries and ultra-fast charging. The only barrier may be a global shortage of vehicles. The government should remain committed to the NVES and increase its ambition as costs comes down and range increases.  

Long distance road freight is a critical contributor to the Australian economy, and we currently do not have a viable alternative to diesel fuel. Technology developments, including battery-swap infrastructure and fast charging, suggest a version of the NVES for trucks.  This may not be enough for our particularly challenging distances. The government’s low-carbon liquid fuel strategy that includes $1.1 billion investment in biodiesel, renewable diesel, and sustainable aviation fuel production, should be accelerated and expanded.

Part B should be to recalibrate our fuel reserves. We should achieve and maintain compliance with the global strategic fuels obligation and review our domestic Minimum Stockholding Obligation. Cost estimates ranged from $5 billion to $20 billion, but the ongoing costs will decline as we electrify.  These costs could be overtaken by the eventual economic impact of the fuel crisis.

Arguments have been made to increase our crude oil production and domestic refinery capacity to reduce or even eliminate imports. There are major barriers. First, we have very limited oil reserves. The total of our proven and probable, i.e., commercially viable, reserves plus those neither commercial nor ready for development would be exhausted in less than 10 years at our current rate of consumption. Prospective resources such as oil shales carry even higher risk and longer development timelines.    

Australia would need four new refineries, each with the combined capacity of the current ones, to meet our annual domestic demand. While they could feasibly process Australian crude oil, they may not be able to make our current fuel mix. The location of likely supply and demand would make location choices challenging, and the refineries would face the barriers of economic scale that lead to ongoing government subsidies.

Taken together, cost, risks, technical limitations, and development timelines suggest a domestic supply and production strategy doomed to failure.   

The immediate crisis requires both immediate action and a future focus. The good news is that we have the elements of a successful strategy. The challenge is to accelerate and delivery them before our memories fade.