Features Australia

Clairvoyant on fuel security?

29 June 2019

9:00 AM

29 June 2019

9:00 AM

What is it about the words ‘fuel security’ that this government doesn’t understand?

The first duty of any government is to safeguard the security of its country and its citizens. That is why, following OPEC’s quadrupling of the world oil price in 1973, the government of the day rightly, if belatedly, in 1979 joined the International Energy Agency which had been set up by the OECD as a mutual protection society for developed nations whose economies were dependent on oil-imports.

Under the terms of the IEA treaty all members are obliged to maintain liquid fuel stocks equivalent to at least 90 days of net imports. For the first 30 years of our membership we were, as a net oil-exporting country, exempt from this obligation. However as our oil ran out so did our exemption. But successive Australian governments, whether on grounds of cost or simply on the not-so-good old Aussie principle of ‘she’ll be jake’, put their heads in the sand and tried to ignore the situation.

The foreseeable result was that Australia has been in breach of its IEA treaty obligation since 2010 and, worse, has since then been in a state of unreadiness for any major interruption to our fuel supplies. The government’s own statistics show that at the end of December 2018 we held just 21 days’ supply of petrol, 20 of aviation fuel and 18 of diesel. We are the only IEA member failing to hold the minimum reserves and the only one in which the government holds no national strategic reserve.

What greater abdication of responsibility by government can there be than that for nearly a decade it has so demonstrably failed in its primary function of safeguarding the nation?

In the last couple of years outgoing Liberal Senator, Major-General Jim Molan, and former Air Vice-Marshal John Blackburn have been two of the most persistent campaigners pressing the government to take urgent action to remedy the alarming failure to maintain even the barest minimum of reserves. Looking at the purely military aspect Molan recently said, ‘There’s no point in having twelve fantastic new submarines and seventy-five F-35 Joint Strike Fighters if you’ve got no bloody fuel for them’. That’s what I find so refreshing about Jim Molan. He’s honest, direct, has had a stellar career outside of politics, and is prepared to put the national interest before that of his political party and the dictates of factional power-brokers.

No wonder Michael Photios and his friends pulled every trick in the book to see he didn’t get re-elected. I can’t imagine either of the two newly-minted NSW Liberal Senators, Holly Golightly and Andrew (Turnbull) Bragg, daring to similarly stray from the party-line.

Following pressure from Senator Molan and others, in May 2018 the then Energy Minister, Josh Frydenberg, announced a departmental review of liquid fuel security, to report by the end of 2018. When I last wrote on this subject in these pages (‘Running on empty’, 30 March 2019) there was still no news of the report. Any financial or business commentator knows that a report or a set of accounts that is late usually signals disappointing results. So when an ‘Interim’ report was produced in early April, just a few days before the federal election was announced, along with a promise that the full report would follow in ‘the second half of the year’, we all braced for impact.

At least it got off to a good start by acknowledging in the foreword that ‘Some public commentary has suggested that Australia lacks resilience in the supply of liquid fuels and that this constitutes unacceptable risk’ but it then went on to claim that ‘International threats to fuel security have a low likelihood’. Really? In my article of 30 March I said our reserves would be exhausted within three weeks if anything happened to disrupt our imports of oil and fuel ‘such as a blockade of shipping through the South China Sea or the Strait of Hormuz’. Now I make no claims of clairvoyant powers (I’ll leave that to my wife), but was there not just two weeks ago an attempt by the Iranian guards to blow up two oil tankers in international waters near the said Strait of Hormuz, followed by them shooting down a US drone which led to a retaliatory strike by B52 bombers that, had it not been called off by the President with ten minutes to spare, could well have triggered an all-out war in the Gulf?

What further evidence, short of global nuclear holocaust, does the government need before it accepts that it is a distinct possibility that our essential supply of oil and fuel could be cut off at any time?

In relation to our IEA treaty obligations, the report confirms the earlier undertaking that ‘The government has committed to returning to compliance by 2026’. Whilst taking another seven years to honour our treaty obligation is probably better than continuing to ignore it, what then followed in the report is deeply disturbing. It claims that ‘as of December 2018, Australia holds 53 days of net imports’ and that ‘this is through the government’s work to improve the accuracy of reporting and purchase tickets in third countries’. What the government are doing is running a procurement process by buying oil-stock tickets. An oil-stock ticket is a contractual right to purchase or release oil, where the seller agrees to reserve a predetermined amount of oil for the period of the contract in return for an agreed fee. It’s rather like the government becoming a trader in the pork-belly futures market.

The scheme has all the hallmarks of a Treasury-driven device designed to give the impression that the country’s fuel stocks are far greater than they truthfully are, whilst limiting the hit on the budget to a tiny percentage of what it would cost to actually buy the fuel.

The government has already embarked on purchasing the right to buy 400,000 tonnes of oil, not the oil itself, and has already used that notional 400,000 tonnes, first, to boost our claimed reserves for IEA compliance purposes and, second, to re-write their own statistics of the number of days supply by adding in the non-existent 400,000 tonnes.

Whichever way you look at it, the government is engaging at the very least in misleading and deceptive conduct.  Australia’s security deserves better than this tawdry sleight of hand.

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