Ulas Yildirim’s recent piece in The Strategist suggesting Australia develop the industrial capability to convert its abundant coal and natural gas reserves into liquid fuels to reduce its dependence on imports of the latter took me (way) back to the first research paper I wrote in my post-graduate studies. I looked at Nazi Germany’s desperate and ultimately unsuccessful attempts to compensate for its lack of oil fields by converting its coal into liquid fuels to run its war machine (I thought the title of ‘Oil toil foiled’ was quite clever, but my adviser wasn’t as taken with it for some reason).

With virtually no oil fields of its own, Nazi Germany had hoped to secure its oil supplies by capturing the Soviet Union’s oil fields in the Caucasus. Once that proved unattainable after the defeat at Stalingrad, Germany redoubled its efforts to build synthetic fuel plants using Fischer-Tropsch and hydrogenation processes. With the time and resources available, this approach fell far short of meeting Germany’s wartime demands. Moreover, in mid-1944 the Allies realised that the synthetic fuel plants were the key to dismantling Germany’s military capability and began systematic bombing of them.

After the first massive air raid, Albert Speer, Hitler’s minister for armaments and war production, immediately realised that the end was nigh. He noted, ‘Our one hope is that the other side has an Air Force staff as scatterbrained as ours’ and the Allies wouldn’t realise what their raids had achieved and would discontinue targeting fuel production. Hoping your adversaries are even more incompetent than your own side is not the best strategy, and it didn’t work for Germany; the Allies continued to relentlessly bomb the synthetic fuel plants, reducing their production faster than the Germans could restore it. In the end, Germany literally ran out of gas.

So, with that dramatic precedent in mind, let’s look at whether a synthetic fuel industry would provide Australia with energy security in time of crisis or conflict. Let’s first consider some of the relevant data.

Australia certainly does face substantial risk in its liquid fuel supply. It’s rather unfortunate for Australia that, while it is one of the world’s top three energy exporters, it is nevertheless heavily dependent on liquid fuel imports. If we take 2018–19 (which was the last ‘normal’ year before Covid-19 struck), domestic production was around 21,500 megalitres, but consumption was around 60,600 ML (or about 165 ML a day), so around two-thirds of our liquid fuel was imported.

Aside from the strategic risk, this creates a huge balance-of-payments deficit. Imports of refined and crude petroleum in 2018–19 were $38.4 billion and exports were only $11.5 billion, resulting in a negative balance of trade of nearly $27 billion, bigger than other major ‘deficit’ sectors such as motor cars and tourism. Aside from the strategic risk, keeping more of that money in Australia would be a good thing, particularly as China puts other Australian exports under a de facto boycott.

The technologies for synthetic fuel production are mature and there are examples of production done on commercial scale. The largest seems to be the South African company Sasal, which produces around 25 ML per day. That’s around 15% of Australia’s daily requirement, or 23% of our imports. So we’d need facilities around four times the size of the world’s largest synthetic fuel plants if we were going to replace all of our liquid fuel imports.

That would be challenging since the economics of global oil markets don’t favour synthetic fuel. One suspects that if the economic case were compelling, the private sector would already be liquefying Australia’s abundant energy resources. The volatility of the global oil market likely deters companies from investing in new enterprises with very large start-up costs and unreliable returns.

The uncertain future of carbon fuels is a further disincentive; the private sector is generally not keen to put new money into assets that will likely be stranded. In Australia, we’ve already seen that our electricity sector has reached the tipping point at which nobody wants to put their own money into building new fossil-fuel-fired generators. The federal government directed Snowy Hydro to build a $600 million gas-fired plant due to lack of private-sector interest. The situation is similar in petroleum refining, where the government is subsidising Australia’s last two refineries up to $2 billion over the coming decade to ensure they keep operating.

But there are alternatives to replacing imported liquid fuels with synthetically produced liquid fuel. And of course, Yildirim isn’t suggesting we replace all imported fuel with synthetic fuel. He notes that synthetic liquid fuel production based on coal or gas is only an interim step on the path to ‘100% renewables’.

It’s clear that if the challenge is to ensure national resilience and sustain the Australian Defence Force’s capability in time of conflict, then the long-term solution is to move more quickly down that path.

Again, if we look at the numbers, 17,600 ML of Australia’s 60,600 ML in consumption was in automotive gasoline and a further 29,600 ML was in diesel. So those categories represent 47,200 ML, or 78% of total consumption. Accelerating the take-up of electric vehicles for personal transport, trucking, agriculture and mining would massively reduce Australia’s dependence on imported liquid fuels.

While an adversary might try to blockade our liquid fuel supplies, it will be difficult for them to turn off the sun or wind. Considering the emphasis that the government has placed on developing a sovereign defence industry, it’s strange that it hasn’t pushed for greater sovereignty in our fuel supply by accelerating the take-up of electric vehicles. Even the most rusted-on supporters of coal-fired power would have to admit, we don’t need any imported energy to generate electricity. Generation and storage equipment is another matter and the government’s modern manufacturing initiative is aiming to make steps there. But, overall, it has been at best lukewarm and at worst openly hostile to electric vehicles.

Of course, replacing liquid-fuel-driven vehicles with electric ones will take time. But an increasing number of countries around the world are setting increasingly ambitious timelines to cease the sale of fossil-fuel-driven vehicles by 2030 or even earlier, and, as many commentators have noted, that will likely force Australia’s hand as supplies of conventional vehicles dry up or we become a dumping ground for outdated models. Granted, viable electric military and commercial aircraft are still further off, but Australia’s consumption of aviation fuel in 2018–19 was only 7,434 ML, or 12% of total liquid fuel consumption and far less than Australia’s current domestic liquid fuel production.

Virtually all analysts examining Australia’s supply-chain security agree that in light of the sheer scale of the challenges, multiple approaches to managing risk are needed. And they also agree that in many key areas we cannot simply rely on the market (the government itself has acknowledged this through its own interventions in the energy sector). So there may be a place in a multi-pronged approach to fuel security for some synthetic fuel production. Perhaps the government could partner with the private sector to establish a small plant that could produce enough to meet the ADF’s aviation fuel requirements, providing a price guarantee as it’s doing with refinery capacity. There are precedents in the defence sector—for example, in the subsidised production of propellants and explosives, though they do come with a significant overhead.

More generally, the transition to a post-carbon economy raises fundamental fuel-supply challenges for the ADF. As the civilian world moves towards a post-carbon future, it may seem like there will be less competition for liquid fuel and the ADF will enjoy bountiful supplies of cheap fuel. But it’s more likely to be the opposite case; as the world’s transportation systems electrify, the infrastructure for carbon-based fuels will atrophy as all links in that supply chain become increasingly uneconomical. At some point in time, liquid fuels will become ‘niche’.

What does that mean for an ADF that is used to relying on the civilian world for the supply and distribution of its liquid fuels? As the ADF doubles down on huge, liquid-fuel-reliant platforms such as infantry fighting vehicles, it may need to own more and more of that supply chain from well (or synthetic fuel plant) to bowser, increasing its logistics costs and challenges. Or it can choose a different path that will allow it to sustain itself on deployed operations without unwieldy, unsupportable logistics trains.