A message from Jens Goennemann

In our last newsletter, I mentioned that during COVID, AMGC coordinated a Grey Innovation-led consortium of over 30 local manufacturers, which delivered 1,700 invasive ventilators into the national stockpile in record time and with full TGA approval.

What I didn’t mention were consumables and staff trained to operate the ventilators. Neither was sufficient, so let’s be grateful we never had to find out the hard way.

None of this takes away from the incredible work done by everyone involved in the ventilator effort. It does, however, highlight the importance of thinking complex systems fully through rather than stopping at the obvious headline capability.

Our current fuel issue, due to the skirmish with Iran, is equally multifaceted. It requires honesty, realism and long-term thinking. Some argue the depth of our vulnerability is itself a product of how poorly Australia tends to think strategically, and how quickly we move on from shocks like Covid or Russia’s invasion of Ukraine in 2022.

In 2005, Australia had eight refineries. Today, we are down to two, refining roughly a fifth of the nation’s liquid fuel needs – mainly from imported crude. Around 80 per cent of our liquid fuel diesel, petrol and jet fuel, is imported, largely via Asian refiners who themselves rely heavily on Middle Eastern crude.

Local refining capacity disappeared for a range of reasons. In simple terms, many Australian refineries lacked the scale, sophistication and economics of major Singaporean, Indian and South Korean facilities.

Our own crude oil production is dwindling and ill matched to the grade of crude our local refiners need, hence it is exported. According to Geoscience Australia, the country has around 1.3 billion barrels of proven reserves remaining which translates into roughly six years of supply at current production rates. There are another 2.2 billion barrels believed to exist but not economically recoverable.

“Drill, baby, drill” to get to the increasingly marginal Australian crude for a handful of years and at a loss is obviously no solution.

Compounding matters further, declining domestic crude production means that even local refinery operators increasingly depend on imported crude suited to their refinery configuration.

You will have heard calls to increase Australia’s fuel reserves, which appears there has been some movement over last few days via the $10 billion Fuel Security and Resilience Package. According to the federal government, the nation currently holds approximately 44 days of petrol, 33 days of diesel and 30 days of jet fuel reserves. Australia effectively abandoned compliance with the International Energy Agency’s (IEA) 90-day net import stockholding obligation in 2012.

So how do we reduce exposure during a major disruption?

There remains no realistic alternative to importing the lion’s share of the crude required to feed Australian refineries, which, of course, does not solve the underlying import dependency problem. If we are dependent on imports anyway, one can reasonably ask why we would not simply import refined fuel directly according to shifting demand rather than carrying the additional cost of local refining.

Increasing storage capacity is one obvious avenue and the additional one billion litres of local reserves are welcome, but it comes at a substantial price tag of $3.2 billion, and it only gets us halfway to the IEA’s 90-day target. The Government estimates suggest moving to a 90-day reserve would cost around $20 billion over four years.

Emerging biofuels are an interesting addition to the mix, but they currently attract a significant green premium, and available refining capacity remains tiny and the commercial realities questionable.

Then there is electrification gradually weaning transport, industry and farming off diesel dependence. That path makes sense too, provided we remain clear-headed and incremental enough not to starve the very economy required to pay for the transition.

Australia currently consumes around 90 million litres of diesel and 44 million litres of petrol every single day. Resolving the nation’s fuel vulnerability will take coordination, realism, time and money.

My concern is that once the immediate crisis passes, Australia will revert to what it too often does on strategic resilience: very little.