Australia to boost fuel stockpile to 50 days under $10b package as oil crisis worsens

Australia’s reserves of diesel and jet fuel will be boosted to 50 days of average use under a $10 billion funding package announced by the Albanese government in a major policy shift that creates the first publicly owned stockpile since World War II.

Set to cost $3.2 billion, the 1 billion-litre fuel stockpile is a significant departure from the current fuel security policy, which relies on privately owned fuel and storage facilities, and comes amid a worsening fuel crisis.

The federal government received blame when hundreds of service stations ran out of fuel in the first weeks of the Iran war, from February 28, as the closure of the Strait of Hormuz halted 10 per cent of the world’s oil supply and oil prices soared.

While fuel shortages were driven by panic buying, the government’s legal requirement for 27 days of reserves was criticised for being far below the International Energy Agency’s requirement of 90 days.

While the government secured extra fuel imports and cut fuel tax to lower the price of petrol and diesel, oil company bosses are now warning that fuel supplies will run perilously low if the strait remains closed beyond June.

For weeks, Energy Minister Chris Bowen and Prime Minister Anthony Albanese have hinted they were open to increasing the nation’s strategic reserve, although Bowen said in mid-April that three months’ worth of fuels would cost $20 billion, and the prime minister argued that products secured on the spot market were already shoring up supplies.

Alongside the new diesel reserve, Albanese announced a 10-day boost to the legally binding minimum stockholding obligation for petrol, diesel and aviation fuel, which requires private fuel companies to hold fuel in their facilities in case of emergencies.

The new minimum holding for petrol and aviation fuel is 37 days and diesel 42 days. The government’s 1 billion-litre diesel and aviation fuel stockpile would increase the nation’s holdings above the minimum requirement to around 50 days’ worth of average national use.

“This is aimed at making sure that Australians can have more confidence in protecting our energy sovereignty,” Albanese said.

Both these publicly held reserves will be kept at undisclosed locations in private facilities around the country.

As a matter of national security, the locations of the private fuel reserves are not revealed, making it harder for enemy forces to target them. For logistical reasons, the majority of storage is to the north of the country.

Under the legislation, private companies are required to hold fuel that can be released in emergencies.

Critical diesel and aviation fuel stocks, as well as fertiliser, are increasingly scarce on the global market, and last month Albanese and Foreign Minister Penny Wong made emergency diplomatic visits to Singapore, Malaysia, China and South Korea to acquire extra supplies and shore up agreements to buy future shipments. Petrol, however, is still plentiful on the global market.

“Our fuel security reserve will focus on regional stock … and supply constraints for essential users in the event of another supply crisis,” Albanese said.

A further $7.5 billion for fuel and fertiliser security includes financial support for building extra storage and securing extra supply. Australia imports about 90 per cent of its liquid fuels.

Bowen said the publicly owned diesel stockpile mirrored the policy of other fuel-importing nations.

“We’re a minority around the world. Twenty-two out of the 32 members of the International Energy Agency have a common national government-owned fuel reserve,” he said.

The diesel reserve is aimed at helping with emergencies such as the shortages at hundreds of service stations in early March when panic buying of fuel at the start of the Iran war drained bowsers, Bowen said.

“If we had a government-owned reserve, which at the direction of the government, could be sent to those areas of shortage, like we had in regional NSW at the time, and areas of Western Australia and across the board in regional areas, that would have been very handy, and that’s what we’re building,” he said.

Opposition energy spokesman Dan Tehan said the government had failed to deliver support to increase the local production of oil, which he said was a crucial element of fuel security.

“Ultimately, locking in Australia’s long-term fuel security requires getting more fuel for Australians,” Tehan said.

“The government’s announcement said nothing about looking at ways to increase the domestic supply of crude oil and unlock new oil projects in Australia.”

Bowen has said the government was not opposed to new oil production, but that it would not invest in uncommercial ventures

Motoring groups said on Wednesday that the move to boost fuel stocks and set up a government-owned strategic reserve marked a shift in strategy for the country.

“We welcome it,” National Roads and Motorists Association spokesman Peter Khoury said. The NRMA has advocated increased reserves for nearly two decades.

“The events … since the war began have demonstrated the need for Australia to take fuel security seriously. That means increasing our storage capacity, and it means securing supply for the long term.”

Australian Chamber of Commerce and Industry chief executive Andrew McKellar welcomed the initiative, but said Australia’s stock holdings were still below those of many comparable nations.

“Fifty days is still well short of the International Energy Agency recommended reserve holding of 90 days,” he said.

BP, one of the largest fuel suppliers to Australia, said the government’s package of measures to bolster fuel security was “comprehensive and very well-considered”, and it looked forward to working with the government on its development.

Environment campaigners slammed the fuel plan, saying the funding would keep Australia “chained to foreign oil from the Middle East” for longer, when it could be used to expand the rollout of cleaner energy.

“This is a $10 billion plan for two weeks of fuel – that’s junk logic,” Climate Council chief executive Amanda McKenzie said. “True energy security means unshackling ourselves from price hikes and supply shocks that foreign oil drives.”

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