This week, John Wren discusses the dangers of Australia's low fuel stocks.
FOR SOME TIME now there have been rumblings in the media about how low the nation’s fuel reserves have been allowed to get to. I first read about it over 18 months ago when our Defence Chiefs warned of the strategic dangers of keeping it so low. We have about two to three weeks of stock on hand.
As a member of the International Energy Agency, Australia has an obligation to hold at least 90 days of supply.
The issue reared its head again this week with a vengeance. The American Secretary of Defence Mark Esper and Secretary of State, Mike Pompeo were in Australia for their annual meeting with their Australian counterparts, Marise Payne and Linda Reynolds. On top of the agenda were China and Iran.
The Americans are increasingly concerned about Iran’s ability to impact global fuel supplies through the strategic Gulf of Hormuz. A British oil-tanker was recently intercepted (in a tit for tat exercise after the UK impounded an Iranian tanker in Gibraltar). Given our dependence on imported fuel, any blip in international supply could have a devastating impact on Australia’s economy.
The Americans asked Australia for two things (that we know of). The first was to base American conventional missiles in Northern Australia. These missiles could reach China if needed. This proposal lasted about 24 hours before it was scrapped.
It must be remembered that China is Australia’s largest trading partner even if we are militarily aligned with the U.S. We are, to an extent, caught between the two superpowers. Basing such missiles in Australia would turn Darwin into a primary target in any conflict.
The second was a request for Australian ships to join a U.S.-led international task force to protect shipping in the Persian Gulf. Australia announced it was giving “serious consideration” to the request. In international diplomatic speak, this is a “yes”. As part of an inducement to get Australia to participate the Americans offered to let Australia tap into its massive fuel reserves in an emergency.
This was gleefully leapt on by the embattled Energy Minister Angus Taylor as the solution to our fuel reserves issue. The reality is that the proposal is utterly ridiculous. For Taylor, it is the classic Liberal Party response. It gives the appearance of doing something without actually doing anything at all.
Other examples of the "action/inaction" tactic are making “enquiries” and conducting “feasibility studies”. Both give the appearance of action without delivering anything tangible. They are usually just delaying tactics.
But why is it ridiculous? Well, according to the Australian Institute of Petroleum and Taylor’s own Department of the Environment and Energy, Australia imports around 50% of our fuel as refined fuel, mostly from Singapore. The other 50% is imported crude which is then refined in one of four small (by global standards) refineries in Geelong and Altona (Vic), Lytton in Queensland and Kwinana in WA. Australia also exports crude oil. Though our crude is not suitable for petrol. It’s better suited for heavy fuel oils.
If we were to draw on the U.S. reserves to maintain our supply we would need around 10-15 tankers per month to meet our current usage levels. Further, it would take on average around four weeks to fill a tanker in the U.S., sail it to Australia and unload it.
That’s if the tanker is available of course. Then we need to find not just another 11-15 tankers but approximately twice that as once the tankers are in Australia, they’d need to return empty to be refilled. That’s another two to three weeks. Remember, we only have around three weeks of fuel in stock!
This of course assumes every ship makes it to Australia without being torpedoed by a hostile state, without storms and so on. It also assumes that in a conflict with strategic fuel in short supply that America would really allow Australia to take its fuel. Remember this Australia: America has common interests but in Trump’s own rhetoric he will always place America first!
Clearly, the best option is to simply buy more fuel and increase our reserves to the 90 days our global agreements committed us to. But why have our fuels been run down though in the first place?
Well the Government has been trying to run Australia like a “just in time” (JIT) car plant. With the JIT operations model, virtually no raw materials or work-in-progress is kept in store. Suppliers literally deliver the materials and components directly to the production line.
Melburnians were very used to seeing truckloads of Ford engines and dashboards on our freeways being delivered to Ford’s Campbellfield plant where they were delivered straight to the production lines. By minimising storage of raw-materials, the company frees up significant working capital.
This is what the Government has been doing in Australia. By not buying fuel they have freed up their working capital. It’s the Government’s ceaseless quest for a futile surplus in action.
The downside of the JIT operations model is that there is no buffer in the system. If one of hundreds of suppliers has a hiccup the entire plant will need to shut-down. Other suppliers will then need to shut down as well as they often have no capacity to store finished products (they are normally shipped direct to the end user).
That one failed supplier can impact hundreds of plants. It’s a cascading effect. This happened in 2006 when Melbourne automotive supplier Ajax Fasteners went into liquidation. All four Australian car plants at the time had to shut-down. The Victorian State Government was forced to step in to rescue the situation and the thousands of jobs at stake.
This is the danger of keeping our fuel stocks so low. One blip in supply in the Middle East and Australia will literally shut down. Taken to the extreme, there will be no food in the supermarkets, no planes will fly, people won't be able to get to work, ambulances to hospitals won’t run and so on.
Don’t expect the police to respond to your desperate calls for help either, they too will be stranded. We will also be defenceless as the Australian Defence Force won’t be able to mobilise. A Mad Max scenario would not be far off the mark. This is not responsible management of the economy: this is literally playing with people’s lives, our lives.
Long term, we must move to electric vehicles. Australia would then be largely self-sufficient in fuel and less dependent on imported fuel supplies. Strategically, it makes sense. The current situation is unsustainable.
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