Josh Wilson (Fremantle, Australian Labor Party) Share this | Link to this | Hansard source

I'm glad to make some remarks on Report 182, from the Joint Standing Committee on Treaties, which is titled Oil stocks contracts: Netherlands. This report and the arrangement it puts in place between Australia and the Netherlands are an example of how our place in the world and our engagement with the world can be wonderfully complicated and terribly simple at the same time. At the end of the day, this arrangement is about fuel security. It's about Australia's fuel stocks and, to put it simply, we're not in a very good place. Our situation, when it comes to liquid fuel reserves, is parlous.

We are a member of the International Energy Agency. There are 30 member countries around the world. The IEA came about in the aftermath of the oil crisis in the early seventies. Member countries are part of that group to make a contribution separately—more importantly, collectively—to greater fuel security on a global basis. You make commitments as a member of the IEA, and the key commitment is the 90-day commitment. Each participant country maintains reserves equivalent to 90 days worth of fuel. We have been non-compliant since 2012, so we have been non-compliant for six years.

What does that mean? You can look at it in simple terms, and you can look at it within the terms of our international commitments. In simple terms, it means we don't have the kinds of fuel reserves we ought to have. If there were another oil crisis we wouldn't be well prepared for it. We wouldn't be able to make a contribution to any kind of international response. Comparatively, are there other member nations from time to time that are non-compliant? Yes, of course. Just to give you a sense of the scale of our noncompliance, since 2008 only two other member countries have been non-compliant: Turkey and Luxembourg. Their noncompliance was relatively minor. In the case of Luxembourg, it fell to 89 days of fuel reserves—one less than the 90-day commitment—on three occasions. Turkey fell from 90 to 88 days once in 2009 and from 90 to 86 days earlier this year.

Those are the instances of other member countries being non-compliant since 2008. We currently have reserves equivalent to about 50 days worth, so we are non-compliant by an enormous margin. We have been non-compliant since 2012, so for the last six years. When you think of 50 days worth of fuel reserves, what does that mean? It covers a range of different kinds of fuel—aviation fuel, petrol, diesel. My understanding is that at various times since the beginning of this year our petrol reserves have been probably about three weeks worth.

I note that retired Air Vice Marshal John Blackburn AO had some things to say about this earlier in the year, in the context of what's going on in Syria and the kinds of circumstances that could give rise to a disruption in global supply. He noted that Australia had no plan B. He said:

In a major disruption … we would have major problems within two weeks.

It's not hard to imagine how that would occur. Liquid fuel accounts for 37 per cent of Australia's energy use, but most importantly it accounts for 98 per cent of the energy used in transport. If we had a crisis in relation to our liquid fuel reserves, if global supply were disrupted, if there were some sort of crisis akin to circumstances we have seen a number of times over the last few decades, within three weeks we would have a major problem in our cities, in our freight networks.

It's not as if the 1973-74 crisis was the last time we experienced this kind of issue. Obligations under the IEA have been triggered a number of times since then: in 1991, in the context of the first Iraq war; in 2005, around the time of Hurricane Katrina; and, more recently, in 2011, with the turmoil in Libya. So there are times when obligations of member countries are triggered under the IEA arrangements. Of course, we couldn't meet our obligations. We are not currently meeting our obligations. It is true to say—and it was certainly noted in this report—that other members look at Australia with a bit of a jaundiced eye. They take a bit of a dim view of our performance in that respect, because it is a collective arrangement; it only really works if all member countries hold up their side of the bargain, and we are not holding up our side of the bargain.

What this treaty facilitates is the purchase of tickets from the Netherlands. Those tickets are essentially an option to take or otherwise disperse fuel reserves that the Netherlands have. It comes at a cost. Those tickets, over the next two financial years, will cost the Commonwealth some $24 million, just to have that option. Why are we doing it? We're doing it because the government has made some commitments to the IEA in relation to our noncompliance. Those commitments have two phases. Phase 1 is this early stage where we purchase tickets that give us access to these reserves that the Netherlands hold. Phase 2 is the much more interesting, important and difficult phase, because in phase 2, apparently, we're going to get to full compliance. I think it's important to note that we don't know, as members of the JSCOT, or as parliamentarians, much about how that phase 2 part of the exercise is going to occur.

The government is currently undertaking a sort of a review of Australia's liquid fuel reserves, and apparently that review will report by the end of the year. I'll be very interested to see what it puts forward. We're currently at about 50 days of fuel reserves, a long way short of the 90 days that we need to be at. This arrangement effectively amounts to an additional 3.8 days worth of fuel. In each of the 2018-19 and 2019-20 financial years, we are purchasing 400 kilotonnes worth of fuel reserve tickets, at a cost of $24 million, as I said. That will really only lift our effective reserves, or access to fuel, from around 50 days to around 55 days. How we're going to make up the other 35 days between now and 2026, which is the commitment we've made to the IEA under phase 2 of the arrangement that's described here, remains to be seen. We've got to this situation without enough scrutiny from government, without enough attention from government. Three of the seven domestic refineries in Australia have closed in the last decade. Our domestic production of liquid fuels has declined by a third.

There is one further thing that I want to raise, and I've raised it in this place a number of times in the last 18 months. We currently do not have an Australian-flagged fuel tanker. Our fuel security depends on fuel production and fuel imports. Of course it depends on fuel reserves, and we know that they are in a parlous state. But everything that comes to this country comes by sea, and it is intolerable that we are in a situation of not having the sovereign self-sufficiency, the sovereign capacity, to transport fuel here. That is a result, unfortunately, of this government's very, very harmful policies in relation to shipping. They seem to be intent on bringing Australian shipping as we know it to an end.

I want to thank all the members of the JSCOT who participated in this report. The member for Macquarie, who's going to speak after me, did a lion's share of that work. I actually wasn't on the committee for the last several months. I'm very glad to be back on the committee. This is an example of the important work that it does.

Susan Templeman (Macquarie, Australian Labor Party) Share this | Link to this | Hansard source

There are some members in this place who will remember the petrol queues of the seventies when, because of a world shortage, petrol was in very short supply in Australia. I can't remember all the details of it, but I remember my mum and dad being really stressed about getting a full tank of petrol. I certainly didn't know much about the OPEC oil crisis back then, but I certainly saw the effects. It seems like a long time ago. While it would be tempting to think that this agreement is about shoring up local fuel supplies, what we are recommending in this report is actually more about our role as a global citizen.

Just as we saw post GFC, the world looked to put in place a series of things that were really to make sure the same mistakes weren't repeated. In the wake of the OPEC oil crisis in the late seventies, in 1979, we became a member of the International Energy Agency. We are one of 30 members required to hold the equivalent of 90 days of the previous year's average net oil imports. The idea is that if there's a major disruption of global fuel supplies, members' stocks can be pooled and can contribute to a collective effort to maintain global supply. The action has only been triggered three times since we signed that treaty in 1979. It happened in 1991 during the Iraq conflict. Hurricane Katrina triggered it in 2005, and the turmoil in Libya activated that agreement in 2011.

To be clear, the committee sought some clarification about Australia's physical stocks of oil. The advice that we received from the department was that they are separate but interrelated areas, and that this treaty action only applies to the IEA obligation. Just because we're not compliant with the IEA obligation doesn't directly imply that we have a liquid fuel security problem, although we did hear evidence of only around three weeks supply of liquid fuel in Australia. I note that the government is doing an inquiry to really assess what the circumstance is, and that is certainly warranted. The department advised us that because there's quite a diverse supply—we import crude oil from 21 countries and we refine product from 47 countries, so there are multiple sources—that it does give us some resilience to a disruption. But, fundamentally, we have international obligations that we need to meet, and that's the purpose for entering this treaty: to make sure that we have sufficient fuel security to contribute back to the world. This really does speak to Australia's place in the global order.

One of the points that I found quite interesting in the evidence that we took—and I have to say that the Joint Standing Committee on Treaties is always an education—was one of the reasons given for why Australia doesn't hold a strategic reserve. That is that we've never had a significant disruption in this country which has impacted on Australian supplies in the history of the IEA. So you probably do have to be in your 50s to go back to a time when you remember the previous impacts. Over 40 years of the different disruptions that we've had, none of them have actually impacted on Australia.

The bottom line is that Australia has not been a good corporate citizen. We have been one of nine countries over the course of that treaty not compliant with the 90 days. Our current holdings are around 49.6 days, so fewer than 50 days. The minister says this is less than we would like, and the IEA says this is way less than what we are required to have—it's significantly less. By comparison, when you look at the others that have been noncompliant in the last decade or so, there have only been two noncompliant countries. Their noncompliance just pales in comparison to ours. Three times Luxembourg, instead of 90 days, had 89 days of fuel supplies. Turkey, in 2009, found itself with 88 days and, in 2018, with 86 days. So we really are dragging our heels on this one.

While there is a cost attached to the solution that has been put forward, it's an important step for us to be taking if we want to be taken seriously on the world stage. About two years ago Australia submitted a plan to the IEA's governing board to demonstrate how we would for the first time be compliant. Under phase 1 of the plan we are procuring these 400 kilotonnes of tickets. This first agreement, which is with the Netherlands, is with only one country. We will have to make separate agreements with every country we do this with. We said we will buy 400 kilotonnes in the 2018-19 and 2019-20 financial years, so that is what this applies to. Phase 2 is much longer term and there is much less clarity around what that would look like in order to get us to compliance by 2026. The way to do that is still under consideration. I certainly urge a close and ongoing look at that.

Let's keep in mind that the steps we're taking with this agreement are tiny. We're talking 3.8 days at a cost of $23.8 million. It is being considered a pilot phase, hence the decision not to take a larger chunk of ticketing. We look forward to hearing the result of the pilot and the finding as to what is the most cost-effective way for us to return to compliance.

I think it's worth noting that the oil tickets that we are spending money on are actually a right to either purchase a reserved oil stock outright or release that stock back to the host market. There was some discussion about how quickly that oil could get to Australia. Of course, it would take a really long time to get here—several weeks. That's really where the committee recognised that this was not about Australia's domestic fuel supply but about our ability to contribute to the world's fuel supply.

We sought an assurance that Australia would return to full compliance within the proposed time frame—that is, by 2026. I think we could only describe as limited the assurance by the department that the plan we currently have is going to achieve the outcomes we would like to see. I think that's the worry we should all have. 2026 is going to come around very rapidly, so I urge the relevant parties to keep focus on this.

The member for Fremantle, who spoke before me, said that our ability to play a part internationally does depend on our willingness to live up to the promises that we have made as part of these agreements. We're certainly showing good intent here in accessing the Dutch ticket sellers. The Netherlands is the largest seller of tickets globally, so it has done this before. We're not so experienced at it. In addition to the Netherlands, we do have bilateral arrangements with the United Kingdom, the United States and Germany and we are negotiating or exploring bilateral relationships on this matter with a further six countries. I expect that those agreements will be a matter for this chamber before too long.

In conclusion, we have serious concerns about Australia's own domestic fuel supplies. I want people to be very clear that this isn't seen as the solution, but it still has a very valid role to play in ensuring that Australia meets its international obligations. It is too easy to make promises and then let them slide. We have clearly done that for a really long time on this agreement. It is a show of good faith by Australia that we're progressing this agreement. I look forward to seeing more progress on this as we head towards 2026.

Debate adjourned.

Federation Chamber adjourned at 11:20