Twenty-five years ago, Australia produced 96 per cent of its petroleum needs. We could look after ourselves then.
There has been much concern about Australia’s stockpiles of fuel in the past week as flows from the Middle East dry up in the wake of the Iran war. But there is some misunderstanding about what our stockpiles should be.
Australia has signed an international agreement to keep 90 days’ worth of net imports of fuel in storage. Keep in mind the word “net”.
When Australia produced enough for our needs, our net imports of petroleum were minimal, so we did not need to store much to easily meet the requirement.
However, in the past 20 years the Bass Strait, which had been our primary supply of oil since the 1960s, dried up. So, as our production of petroleum fell, and imports surged, the net import requirement went up. It would cost Australia somewhere around $20bn to store the 90 days’ commitment here.
So instead, we meet the commitment by paying for oil to be stored in countries that produce a surplus (like the US), and we have the right to access those supplies if we need to.
Keep in mind the 90-day requirement is not principally about protecting Australia. The international agreement is about keeping stores of oil all over the world that can keep the market functioning for long enough during a crisis. Keeping three months’ supply does not provide that much more protection for us, than one month’s supply, when conflicts and disruptions could last years.
What would provide protection would be for Australia to return to the environment where we produced enough oil and gas. The best way to avoid a fuel crisis is to drill, baby, drill. Then all we would need to do is build some refineries, and if a crisis emerged, then we would be self-sufficient however long a conflict or war lasted.
We got to a resilient position on fuel security in the 1960s because the Menzies government actively promoted oil and gas development.
Back then, the government passed the Petroleum Search Subsidy Act 1957 which provided a 50 per cent subsidy to companies drilling for oil and gas in Australia. BHP, partnering with the world’s best geologist at the time, Lewis Weeks, took advantage of the largesse, drilled the Bass Strait and the rest is history.
When the 1970s oil crisis hit, thanks to a different conflict in the Middle East, Australia did not have a problem with fuel supplies.
In contrast to the Menzies government approach, we have made it harder and harder to invest in oil and gas. The best chance to find new deposits of the kind of oil we need to fuel cars and trucks is in Victoria and the Kimberley. But state governments have banned fracking in these areas. This is despite fracking being a part of global oil and gas development since the US Civil War – it was invented by a Union general who noticed that shells would often cause water and oil to spout from aquifers.
It was the use of fracking, and the modern invention of horizontal drilling, that has transformed the US from the biggest net importer of oil to the biggest producer of oil in just 20 years. The same time frame over which we have let our oil production decline. During the Biden administration, the United States achieved a new record by producing more oil in one year than any country had in history.
Instead, we have naively pursued a net-zero agenda that has made Australia weaker and poorer. Thanks to Labor’s net-zero obsession, it imposes a carbon tax on the two remaining oil refineries in Australia. This program, that the government calls a “safeguard mechanism”, requires the oil refinery at Lytton in Brisbane to reduce its carbon emissions by 5 per cent every year.
To do that, Ampol buys carbon credits. Labor’s carbon tax costs them over $1m a year.
It will likely hit a $10m annual cost by 2030. And, to reach net zero under this program, the refinery is facing a $1bn cost.
No wonder no one is investing in oil and gas in Australia. In contrast, to our naivety, the Canadian Prime Minister addressed the Parliament with the message that middle-sized countries like ourselves need to recognise that the world has changed and we need to improve our resilience.
The Canadian Prime Minister has scrapped Canada’s carbon tax and is aggressively developing its oil and gas resources.
We could take a maple leaf out of our friend’s book and scrap our carbon taxes so that we can be a self-sufficient and resilient nation again.
