How can Australia secure its fuel supplies as geopolitical tensions boost oil price

Highlights

• Fuel prices have risen steeply and reached unprecedented highs this year due to a shortage of oil and gas.
• A small part of the petrol used in Australia is also produced at Australian refineries.
• Australia’s domestically produced crude oil is mostly exported, while the domestic demand is fulfilled through imports.

As tensions escalate in the eastern European nations of Russia and Ukraine, the global energy market has sent the world into a frenzy. Fuel prices have skyrocketed and reached unprecedented highs, while an absolute shortage of oil and gas has left nations scrambling for alternative sources.

Australia, being one such nation that depends on other countries for its oil supplies, has also faced the wrath of soaring oil prices in recent months. Amidst the oil price hike, the government has ensured that consumers are able to manage the cost of living pressures by reducing the fuel excise to half. Despite these measures, the energy market in Australia awaits a permeant fix that can be beneficial in the long run.

The sharp uptick in consumer demand has hurt an already depleted supply of fuel, putting upward pressure on prices. Therefore, to bring fuel prices down to more palatable levels, it seems imperative for Australia to look for cheaper alternatives. Let us see where Australia can get its oil supplies from amidst rising geopolitical tensions:

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Where does Australia import its petroleum from?

Australia heavily relies on petroleum imports to meet the domestic consumer demand. A report from the Australian Institute of Petroleum suggests that the majority of petroleum imports in Australia came from Asia in 2020-21. Among these imports, 26% were from Singapore, 16% from South Korea, another 16% from Malaysia, 14% from China and 19% from other countries, including Brunei Darussalam, Japan, Chinese Taipei, the USA, and the Netherlands.

Part of the petrol used in Australia is also produced at Australian refineries. However, the remaining is shipped via tankers from across Asia to import terminals across the Australian coastline. From here, petrol is transported to storage facilities and terminals. Later, trucks deliver petrol to the service stations. Thus, petrol prices also factor in transportation costs and are generally higher in cities that require a greater deal of transportation.

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Is the fuel supply secure?

Oil supply security seems like an unattainable reality in today's world, where uncertainty dominates most of the global markets. Thus, different sources of fuel come with a diverse possibility of disruptions in the Australian oil supply. Political or social unrest in any of the oil-exporting countries can translate into shipment delays and higher prices. At the same time, any changes in the trade-related policies in these countries can also impact how much oil they can ship to Australia.

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Though largely considered secure, these sources of oil and petroleum products have not directly been impacted in recent months. All changes in the global supply of oil have occurred due to heavy sanctions on Russia. As supplies were cut from Russia, oil prices started increasing in all parts of the world, affecting refineries in Singapore and other regions as well.

Thus, Australia received the oil shock indirectly after prices rose in refineries following the uptick in crude prices. It seems important for the Australian government to manage higher crude prices in the short run, though no serious damage may arise to the overall oil supply.

What can be done to gain more resilience?

In the event that all global supplies are hampered, Australia might be compelled to look domestically to fulfil its oil demand. Many years back, Australia used to refine its oil from eight major refineries. However, the number soon declined, and only one refinery remained operational. The remaining refineries were converted into fuel import terminals.

Over the years, the proportion of refined oil has increased in Australian imports. At present, the small amount of crude oil produced by Australia is exported. Thus, it appears economical to import most of the refined oil that is demanded in the country.

In the long run, a good idea could be sparing some reserves for domestic use, which can help save the country from any foreign shocks. A quarter of the global oil supply comes from the seas passage between the Persian Gulf and the Gulf of Oman. Since about a fourth of the world depends on this region for oil, little can be done if there are any disruptions here.

However, if any of the refining countries face disruptions, Australia can simply switch to another producer. This is evident in the fact that Australia has managed to fare well even in the face of many oil-supply shocks in the recent past.

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