{"id":57148,"date":"2020-07-02T06:00:06","date_gmt":"2020-07-01T20:00:06","guid":{"rendered":"https:\/\/www.aspistrategist.ru\/?p=57148"},"modified":"2020-07-01T21:09:31","modified_gmt":"2020-07-01T11:09:31","slug":"a-super-approach-to-solving-australias-fuel-storage-woes","status":"publish","type":"post","link":"https:\/\/www.aspistrategist.ru\/a-super-approach-to-solving-australias-fuel-storage-woes\/","title":{"rendered":"A super approach to solving Australia\u2019s fuel storage woes?"},"content":{"rendered":"
<\/figure>\n

While Energy Minister Angus Taylor has highlighted<\/a> that Australia\u2019s \u2018supply chain resilience has meant that during the Covid-19 pandemic, we have not faced shortages\u2019, he, and the government more broadly, have also acknowledged that Australia needs to improve its resilience.<\/p>\n

Covid-19 has ensured that the government is starting to consider the scope of the possible crisis, or crises, that may follow the pandemic. Central to this thinking are the implications of increasing strategic uncertainty in the Indo-Pacific\u2014concerns outlined in the\u00a0defence strategic update<\/a>\u00a0released by Prime Minister Scott Morrison yesterday.<\/p>\n

These concerns are driving the government to focus on the resilience of our fuel supply chains to disruptions. There\u2019s little ambiguity in the Morrison government\u2019s commitment<\/a> to \u2018delivering policy and regulatory frameworks that support secure, reliable and affordable supplies of energy for consumers\u2019.<\/p>\n

But to do so, the government is going to have to solve some enduring policy challenges in a relatively short timeframe. In February<\/a>, Australia only held 25, 20 and 22 days\u2019 supply of petrol, diesel and jet fuel, respectively. These figures fall well short of the 90-day requirements Australia agreed to maintain in signing the International Energy Agency<\/a> program treaty.<\/p>\n

Our non-compliance with IEA requirements is not a new development. Until this year, the government had been all too comfortable that our oil companies\u2019 near just-in-time supply chains could buffer us from the impacts of a sudden disruption to supply. It\u2019s important to note that the risk-mitigation strategies that underpin the supply-chain arrangements of oil companies stocking Australia remain mostly untested. And it\u2019s hard to argue that these supply chains won\u2019t be susceptible to disruption during a period of sustained regional instability and strategic uncertainty.<\/p>\n

On 22 April, Taylor moved to partially address the shortfall, announcing<\/a> that the government would establish a national oil reserve. Australia spent $94 million to buy oil at a historically low price. Because of a shortfall in domestic storage capacity, the government made a deal with the United States to store Australian-owned oil in its strategic petroleum reserve, one of the world\u2019s most cost-effective long-term oil-storage facilities. It\u2019s a sound economic decision given the dramatic fall in global oil prices in recent months. But these arrangements fall well short of addressing our supply chain vulnerabilities and don\u2019t build national resilience.<\/p>\n

That\u2019s why, on 15 June, the government released a request for information<\/a> to identify opportunities to increase Australia\u2019s domestic fuel storage capacity. While the request is open to all interested parties, oil companies are set to have the loudest voices. But should they?<\/p>\n

The oil industry has argued that there are no significant risks or vulnerabilities in their supply chains. Perhaps, then, the oil industry isn\u2019t particularly predisposed to providing innovative responses to this request.<\/p>\n

The oil industry uses future-focused market profiles to support assessments of the commercial viability of capital investment in liquid fuel supply. Oil companies will endeavour to maintain a certain level of fuel stock in reserve and try to the best of their ability to make sure that supply meets demand.<\/p>\n

But the construction of additional bulk fuel storage will not seem any more commercially viable to the oil industry now than at any other time. And it\u2019s this calculation that has defeated previous efforts to improve bulk fuel storage in Australia. There\u2019s little incentive for oil companies to absorb the not insignificant costs of building and maintaining bulk storage.<\/p>\n

In fairness to the oil industry, no one wants to pay more for their liquid fuels at the metaphorical (or physical) pump.<\/p>\n

The government\u2019s policy mechanisms for encouraging infrastructure development are also ill-suited to addressing the challenge. The debt-based Northern Australia Infrastructure Facility, for example, wasn\u2019t designed to fund this kind of nation-building effort. So far, Covid-19-prompted infrastructure projects appear to be mainly focused on roads. As we face a global recession, the government\u2019s usual user-pays approach will be no help here either.<\/p>\n

Australia\u2019s $3 trillion superannuation sector could be the answer. It\u2019s already a significant investor in Australia\u2019s domestic infrastructure and, by its nature, is a long-term investor. If the government provides long-term certainty on fuel policy, including the necessary regulation, bulk fuel storage could be an attractive investment for the superannuation sector.<\/p>\n

Superannuation industry investments could fund the construction of several bulk fuel storage facilities across Australia. As an added benefit, these facilities could end the fuel storage monopolies present in many of Australia\u2019s major ports.<\/p>\n

There are several models that could make this investment attractive to the industry. One could see the Australian government, like it has done with the US petroleum reserve, pay a fee to facility owners for long-term storage. Another could involve the Australian government mandating a minimum onshore storage requirement for the oil industry.<\/p>\n

The Commonwealth could also invest equity, through superannuation funds, to develop the required storage infrastructure. This approach would likely be far more successful than the Northern Australia Infrastructure Facility\u2019s debt-based model.<\/p>\n

If oil companies were to invest in this bulk storage, their boards and shareholders would likely seek double-digit returns. A superannuation fund, especially one that\u2019s looking after taxpayers\u2019 money, would probably seek returns several percentage points lower. As an investor, the Commonwealth could factor the nation-building and national security benefits of the investment into its return-on-investment calculations.<\/p>\n

Regardless of the model, someone has to pay for the additional cost of storage.<\/p>\n

Covid-19 has created the opportunity to address many of Australia\u2019s enduring security vulnerabilities and policy challenges. It has also created a once-in-a-lifetime chance to question many of the assumptions that have underpinned our policy decisions.<\/p>\n

The answer to how we address the challenge of fuel security will likely require a paradigm shift in how we approach nation-building. At the very least, it seems clear that the government will need to look beyond the oil and energy sector to find a palatable policy solution to increasing our national fuel holdings.<\/p>\n","protected":false},"excerpt":{"rendered":"

While Energy Minister Angus Taylor has highlighted that Australia\u2019s \u2018supply chain resilience has meant that during the Covid-19 pandemic, we have not faced shortages\u2019, he, and the government more broadly, have also acknowledged that Australia …<\/p>\n","protected":false},"author":310,"featured_media":57151,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false,"footnotes":""},"categories":[1],"tags":[17,2559,1580,2750],"class_list":["post-57148","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general","tag-australia","tag-fuel-security","tag-resilience","tag-supply-chain"],"acf":[],"yoast_head":"\nA super approach to solving Australia\u2019s fuel storage woes? | The Strategist<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.aspistrategist.ru\/a-super-approach-to-solving-australias-fuel-storage-woes\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"A super approach to solving Australia\u2019s fuel storage woes? | The Strategist\" \/>\n<meta property=\"og:description\" content=\"While Energy Minister Angus Taylor has highlighted that Australia\u2019s \u2018supply chain resilience has meant that during the Covid-19 pandemic, we have not faced shortages\u2019, he, and the government more broadly, have also acknowledged that Australia ...\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.aspistrategist.ru\/a-super-approach-to-solving-australias-fuel-storage-woes\/\" \/>\n<meta property=\"og:site_name\" content=\"The Strategist\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/ASPI.org\" \/>\n<meta property=\"article:published_time\" content=\"2020-07-01T20:00:06+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2020-07-01T11:09:31+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.aspistrategist.ru\/wp-content\/uploads\/2020\/07\/GettyImages-1201807268.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1024\" \/>\n\t<meta property=\"og:image:height\" content=\"683\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"John Coyne\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@ASPI_org\" \/>\n<meta name=\"twitter:site\" content=\"@ASPI_org\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"John Coyne\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"5 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebSite\",\"@id\":\"https:\/\/www.aspistrategist.ru\/#website\",\"url\":\"https:\/\/www.aspistrategist.ru\/\",\"name\":\"The Strategist\",\"description\":\"ASPI's analysis and commentary site\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/www.aspistrategist.ru\/?s={search_term_string}\"},\"query-input\":\"required name=search_term_string\"}],\"inLanguage\":\"en-AU\"},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-AU\",\"@id\":\"https:\/\/www.aspistrategist.ru\/a-super-approach-to-solving-australias-fuel-storage-woes\/#primaryimage\",\"url\":\"https:\/\/www.aspistrategist.ru\/wp-content\/uploads\/2020\/07\/GettyImages-1201807268.jpg\",\"contentUrl\":\"https:\/\/www.aspistrategist.ru\/wp-content\/uploads\/2020\/07\/GettyImages-1201807268.jpg\",\"width\":1024,\"height\":683,\"caption\":\"VICTOR HARBOR, AUSTRALIA - JANUARY 25: Australia Flag \/ Gas Station \/ Kangaroo \/ Fans \/ Public \/ Peloton \/ during the 22nd Santos Tour Down Under 2020, Stage 5 a 149,1km stage from Glenelg to Victor Harbor \/ TDU \/ @tourdownunder \/ #UCIWT \/ on January 25, 2020 in Victor Harbor, Australia. 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