Fuel security: why is there none? 

The Maritime Union of Australia has again drawn attention on the Morrison Government’s refusal to act on fuel security after years of warnings, with new figures showing Australia now has just 22 days of petrol and 17 days of diesel at its disposal.
Australia has been non-compliant with the International Energy Agency’s 90-day fuel stockholding obligation since March 2012 and the current government has since ignored several key reports.
For example, a National Energy Security Assessment was announced last April. It was sparked by concerns over declining domestic production, diminishing refining capacity and concerns over potential flashpoints in the Middle East, South China Sea and Korean Peninsula.
However, nothing has been done since then and a report in today’s Australian newspaper said the new figures have again sparked warnings from Coalition MP and security experts that the nation is dangerously exposed if a major geopolitical upheaval disrupts existing supply routes.
The newspaper said experts have also criticised a government move to spend more than $20 million buying supplies held offshore to bolster the national reserve, saying the move will do little to boost the resilience of the domestic fuel stockpile.
MUA national secretary Paddy Crumlin said a number of inquiries and reports in recent years have focused on the important issue of fuel security, including the MUA’s report titled ‘Australia’s Fuel Security – Running on Empty’ in December last year, written by shipping expert John Francis.
“The Senate has held inquiries into both fuel security and tax avoiding flag-of-convenience shipping, while the Energy White Paper and Defence White Paper also investigated our increasing reliance on foreign fuel,” Mr Crumlin said.
“It’s doubling up on the government’s initial policy negligence in allowing Australia to lose its refinery capacity of oil we own and is sourced in our country, and then allow tax avoidance and dodgy shipping governance to replace our domestic shipping capacity. No one has been at the wheel of energy security in Canberra for a very long time. It’s a joke with very few laughs for Australian jobs, economic independence and long term planning.
“In addition, the ‘Running on Empty’ report found that Australia now relies on the equivalent of almost 60 full-time fuel import tankers to keep us supplied with petrol, diesel and jet fuel, which is now all carried on the international spot market, mainly from Korea, Singapore and Japan.
“The report found Australia’s reliance on foreign flagged tankers removes any opportunity for the Commonwealth to be able to requisition national flag tankers if necessary to secure minimum import or coastal distribution requirements following major economic or geopolitical disruptions.
“The cost of addressing this risk is comparatively low: even carrying Australia’s entire import volume on a fleet of Australian tankers would cost less than one extra cent per litre.
“The Australian government needs support as a matter of urgency a number of Australian tankers as part of a national strategic fleet to ensure that some level of supplies can be maintained in the event of a crisis.”
Mr Crumlin said there are now no Australian-crewed tankers supplying fuel to our nation, down from 12 in the year 2000. At the same time, the number of refineries has halved to four. This means we now import more than 90 per cent of our fuel and that number is rising.
“Australians would expect our Government to have a better plan and this would involve more refining here and Australian-crewed ships to carry it around the coast,” he said.
“This isn’t only a matter of fuel security but also national security. Unlike Australian seafarers, foreign crews have no background checks yet they are carrying petroleum products, ammonium nitrate and LNG around the Australian coast.”

Fuel security: how long would we have?

A potential crisis caused by the nation’s lack of strategic fuel reserves and over-reliance on foreign petroleum supplies could be addressed by restoring a fleet of Australian-owned tankers, according to a new report.
Written by maritime consultant John Francis, former director of the Maritime Transport Policy Centre at the Australian Maritime College, Australia’s Fuel Security: Running on Empty examines solutions to the risk of the nation grinding to a halt if fuel supplies are impacted by a global economic shock or conflict along major trade routes.
Commissioned by the Maritime Union of Australia, the report provides a detailed estimate of the number of tankers required to maintain supplies, along with the cost, per litre, of using Australian-owned and crewed tankers.
The report warns that Australia’s reliance on foreign flagged tankers “removes any opportunity for the Commonwealth to be able to requisition national flag tankers if necessary to secure minimum import or coastal distribution requirements following major economic or geopolitical disruptions to oil markets… ”
“The cost of addressing this risk is comparatively low: even carrying Australia’s entire import volume on a fleet of Australian tankers would cost less than one extra cent per litre.”
The report outlines major industry and policy shifts that have seen Australia go from producing and refining most of its fuel needs at the turn of the century, to an overwhelming reliance on foreign imports. Last financial year, 91 per cent of Australia’s refined petroleum was imported or produced from imported oil, while more than half involved ‘just-in-time shipments’ on vessels carrying finished petrol, diesel, jet fuel and other products. Of the 677 tankers that visited Australia in 2017, not one was owned, managed or crewed by Australians.
It also highlights the fact that Australia is the only International Energy Agency member country that fails to meet its 90-day fuel stockholding obligation, which has been the case since early 2012, with government statistics showing fuel reserves are generally less than three weeks.
Mr Francis produced detailed costings, per litre of cargo, for a range of scenarios involving the use of tankers owned, managed and crewed by Australians, finding this additional cost could be spread across the entire import volume to provide a “very modest cost per litre.
“The cost of five Australian ships spread across the projected import volume … in 2018-19 results in a cost of less than one-tenth of a cent per litre.
“Even if the whole future import volume covered by 60 ships, the cost is less than 1 cent per litre,” he found.
With more than 90 per cent of petroleum products shipped to Australia on foreign tankers — much of it through potential conflict zones — MUA deputy national secretary Will Tracey said Australia was sleepwalking into a major fuel security crisis.
“The government’s own statistics show that across Australia we have less than three weeks of fuel reserves,” Mr Tracey said.
“In the worst case scenario, a major economic crisis or a conflict that disrupts the supply chain — such as in the South China Sea — could cut fuel supplies, leaving us with just three weeks in reserve before transport systems collapse, food supplies are impacted, and essential services cut.
“At the turn of the century, there were 12 Australian-owned tankers supplying our fuel needs, but this entire fleet has been lost, replaced with an almost-total reliance on foreign imports of crude and refined petroleum products.
“In May, the Turnbull government finally announced a National Energy Security Assessment would be undertaken to examine declining domestic production, diminishing refining capacity, and the risks posed by potential flashpoints in the Middle East and South China Sea.
“To be comprehensive, this risk assessment must also examine the risk of relying entirely on foreign-flagged vessels, rather than having tankers owned, managed and crewed by Australians.
“This report, by a leading maritime expert, shows that this is an extremely cost-effective option that would improve fuel security while having an imperceptible impact on prices.”
A copy of “Australia’s fuel security: It’s running on empty” is available here.

Fuel prices hit four-year high as retailers boost margins

Average petrol prices increased by seven per cent in the past three months, hitting a four-year high in real terms of around 145 cents per litre (cpl) in Australia’s largest cities (Sydney, Melbourne, Brisbane, Adelaide and Perth), according to the ACCC’s latest petrol monitoring report.
Annual average prices in the five largest cities in real terms steadily fell between the 2013-14 and 2016-17 financial years. However, in 2017-18 the average price of petrol increased overall by nearly 10 per cent compared with the previous year.
“The major factors driving higher prices were an increase in international crude oil and refined petrol prices, and a lower AUD-USD exchange rate,” ACCC chairman Rod Sims said.
“The OPEC cartel in particular continues to have a damaging effect on Australian petrol prices. In late-2016 OPEC, and some other crude oil producing countries, agreed to cut production. This restricted supply into the market, which has clearly started to bite through steadily increasing petrol prices in the past financial year.
“A weaker Aussie dollar has also increased costs for wholesalers buying petrol for the Australian market, which flows through to consumers who pay for this at the pump,” Mr Sims said.
While higher global oil prices are the major factor, the ACCC report also shows that the gross margins Australian petrol retailers are obtaining for every litre sold are also adding to the price pressure motorists experience. Average gross retail margins hit a record high in 2017-18. Annual average gross indicative retail differences (GIRDs), a broad indicator of gross retail margins, in the five largest cities in 2017-18 were 12.4 cpl. This is 4.3 cpl higher than the average in real terms over the last 16 years.
“Current gross retail margins in the five largest cities are now over 50 per cent above the 16 year average since the ACCC began tracking this data,” Mr Sims said.
Brisbane motorists continue to pay the highest price for petrol of the five major cities. This continues a trend that has seen Brisbane prices being the highest of the five major cities for 18 of the past 24 months.
Regional petrol prices
The average differential between prices in the regional locations the ACCC monitors and the five largest cities fell by 1.0 cpl in 2017-18, compared with 2016-17. However, motorists in these regional locations were still paying an average of 4.4 cpl more for their petrol in 2017-18.
The ACCC has undertaken four regional petrol market studies in Darwin, Launceston, Armidale and Cairns and continues to monitor prices and margins in these locations.
“In all these locations, gross retail margins and prices continue to remain high. However it’s worth noting that prices in Cairns, while still high, are getting more competitive. This correlates with more vigorous competition following independent retailer United increasing its presence in the Cairns area,” Mr Sims said.
“This example demonstrates the value for consumers of having competition in petrol markets.”
Background
The ACCC collects retail petrol prices for all capital cities and over 190 regional locations across Australia.
On 20 December 2017, the Treasurer issued a new direction to the ACCC to monitor the prices, costs and profits relating to the supply of petroleum products and related services in the petroleum industry in Australia.
Under the new direction, the ACCC produces quarterly petrol monitoring reports focusing on price movements in the capital cities and over 190 regional locations across Australia. It also produces industry reports that focus on particular aspects of consumer interest in the fuel market in relation to prices, costs and profits. Today’s report was the fourth issued under the direction.
Gross retail margins are the difference between average retail prices and average wholesale prices. As they do not include costs, gross retail margins should not be confused with actual retail profits. These margins are averages across the five largest cities over time. The level of prices, costs and profits vary significantly between retail operations and not all petrol retailing sites will be achieving these margins. Some will be achieving higher margins, others lower.

Annual average GIRDs in the five largest cities in real terms: 2002-03 to 2017-18. The analysis about savings from price cycles was not undertaken for Perth because it has regular weekly price cycles.

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