Recall the strategic fuel debate that ran hot a few years ago when the BP refinery in Perth was about to be closed and we got down to a couple of weeks of fuel reserves across Australia?
The Morrison Government in a panic announced a review – as governments do when they have no idea what to do – which led to a new tax on fuel to subsidise the remaining four (now just two) refineries. (There were seven operating back in 2010.)
Their solution was to add another levy on crude to generate $2.3 billion between now and 2030. Apparently this would help with our fuel security, with most of the money going to keep the last two refineries operating.
Only problem is we don’t have any security of supply of crude to those refineries as we consume around a million barrels a day but produce only 400,000, which is why we see those big tankers steaming in from Singapore and the Middle East loaded up with petrol and diesel.
Any shock to the system, like, for instance, as unlikely as it may sound, war in the Middle East, or missiles being lobbed at tankers going through the Gulf, could overnight see shortages in fuel as people rushed to fill their tanks.
Now this won’t worry all the teal-voting Tesla drivers or the vegan-fuelled push bike riders but it will certainly focus the minds of the rest of the community, not to mention the farmers, particularly if fuel rationing is put in place.
In such a scenario it is not hard to see fuel racing up well past what the Europeans are paying, which is currently around 1.9 Euro a litre for diesel, around $3.00 a litre in our money.
Imagine filling up the farm fuel tanks for harvest if the price hit, say, $3 or $4 a litre, or worse, you were rationed to half the fuel you brought last November/December as a result of a supply shock.
It’s a real risk, something I wrote about three years ago when I suggested the solution was to increase the level of domestic reserve storage of refined diesel and petrol by encouraging farmers and miners to keep 12 months of storage on their properties. If nothing else, it would disperse the risk of terrorists blowing up our strategic reserve.
Why build new tanks in a few centrally located regions when there are privately held tanks from one side of the country to the other?
As usual with all my good ideas, no one listened, instead the government in their infinite wisdom opted to spend $200 million on new tanks when they could have used the funding to encourage farmers, miners etc to keep their tanks full as the nation’s strategic reserve.
It gets better. They also purchased US$93 million of crude to be stored in the US Strategic Reserve, which is a bunch of underground salt caverns in New Mexico.
I won’t bother pointing out the obvious flaws in asking Uncle Sam to add to their strategic reserve other than the fact that Sleepy Joe Biden, in an act of political desperation, this time last year sold down half of their 700 million barrel reserves to help keep the price of gas down for Billy Bob and Mary Loo at the bowser just before they went to the polls for the mid term elections.
Which means half our oil went into a F150s in Idaho or Utah rather than to help a F16 keep flying above Israel or Ukraine. A good strategic decision for the Democrats but not so good for those who are interested in defence.
Strategic drawdowns are supposed to be for national emergencies, not political emergencies in the polls. There have been just three emergency drawdowns since the establishment of the SPR: one after Hurricane Katrina in 2005, one during Operation Desert Storm in 1991, then one in 2011 in response to production disruptions in Libya.
In 2020, Trump went the other way to Biden directing the Department of Energy to fill the Strategic Petroleum Reserve to maximum capacity to help support domestic oil producers given the impending economic collapse from COVID-19 and extreme drops in international oil markets.
However, this Presidential decree was blocked by the Democrat controlled Congress.
It was then, in March 2022, that Biden announced the release of 1 million barrels of oil per day from the reserve for the next 180 days for domestic political reasons. There was a political promise to refill the reserve by early 2023 when the crude prices had fallen, but, predictably, it never happened.
Instead, with prices remaining stubbornly high and Billy and Mary liking the cheaper gas, even if they did not like Biden, the President continued to release reserves, selling off just under half of the SPR by September 2023.
As of October 2023, purchases to replenish the reserves were put on hold and it is now predicted that it will take over a decade and billions of dollars to rebuild the Strategic Reserve (around 300 super tankers), because different weights of crude are needed to be layered into the salt caverns slowly over time.
Australian reserves of accessible crude petrol and diesel, in the meantime, are expected to go up from 24 days to 27 days for petrol and from 20 days to 32 for diesel, and this is next years goal! What Australia should be doing is building its own strategic reserves in salt caverns in Queensland as well as keeping all the tanks on farms and mines topped up with distilled product as it’s only a matter of time before the Middle East explodes into a regional war and the queues start forming at the gas stations.
