John Madigan (Victoria, Democratic Labor Party) Share this | Link to this | Hansard source

I move:

That the Senate—

recognises that it is in Australia’s national interest to maintain liquid fuel refining capability.

Three small words: liquid fuel security. They might be unfamiliar to many, but liquid fuel security underpins the Australian way of life. It is essential to drive our children to school. It is essential so we can shop for fruit and vegetables and it is necessary to guarantee travel to anywhere for any reason.

Liquid fuel security underpins our industry. Liquid fuel security underpins our farming sector. Liquid fuel security underpins our manufacturers and our food processors. What is more, liquid fuel security is the linchpin of what makes Australia secure. Our army, our air force, our navy and our various other defence and national security organisations must have security of liquid fuel. Retired Air Vice-Marshal John Blackburn AO said recently: 'Without fuel we don't survive.'

This discussion today is not about division. It is not about political point-scoring. It is about bringing this issue to the forefront of public debate. It is about unifying all in this place to, firstly, recognise the importance of liquid fuel security, and then to come up with a plan.

We must have a plan. We have reached a crossroad. By the end of next year, 90 per cent of our transport fuel, whether refined or crude, will be imported. In the year 2000—just 14 years ago—that figure was closer to 60 per cent. By no later than 2030 that figure is anticipated to be 100 per cent. But these are projections, and things can change with a plan.

This morning I was looking at the end-of-month stock holdings of various fuels as reported by the government. As of June this year we had 30 days worth of LPG in storage, 19 days of petrol, 17 days of aviation fuel and 12 days of diesel. This highlights two problems: the first is our dependence on imported fuel; and the second is our poor preparedness and capability to respond to any crisis.

These two crucial issues call for a national liquid fuel security plan. It might seem as if I am overemphasising the importance this issue has for Australia, but this is not the case. The International Energy Agency says on this topic that it requires member nations to have 90 days of net import oil holdings. This includes oils with which you could not run a car, truck or plane on. It includes things like bitumen, lubricating oils, heating oils et cetera. Even including these oils—oils which do not all assure transport energy security—latest figures suggest Australia only has 52 days of reserves. That is below the 71 days recorded in previous reports. A high percentage of these fuels are imported from overseas. A high percentage are also still at sea, not even on our shore. I and many Australians believe a risk assessment must be conducted. To do this, we would need to assess the whole supply chain all the way back to the Middle East.

While Singapore is an oil-refining hub, we cannot presume it is rock solid. As senators would be aware, events in the ASEAN sphere are quite dynamic. Small regional issues can suddenly have huge implications for our nation. When I talk about the risks associated with importing fuel from Singapore, I am not talking about 1960s-style gunboat diplomacy with its associated blockades. If the disruption was a targeted one, as opposed to a consequence of regional instability, many nations could simply put pressure on the owners of the shipping companies or even the nations who have provided the vessel with a flag. Nations receiving foreign aid, for instance, could be used as leverage.

On the matter of supply lines, Dr Vlado Vivoda of Griffith University warned:

Our supplies are essentially subject to the security of supply lines that bring petroleum products from international markets, particularly from Singapore, which we are becoming increasingly reliant on.

The second issue which any plan would have to focus on is our preparedness and capability to respond to any crisis which disrupts our supply chain. By no means do I purport to have the answers, but I have plenty of questions.

In the year 2000, Australia had seven refineries. Coming into 2016, Australia will have only four. By modern standards, these refineries are admittedly quite small but nonetheless are doing a great job. Caltex, Mobil, BP and Vitol—the new owner of the Shell refinery in Geelong—are the four owners. These refineries alone have served us well. However, in the event of a crisis, would their capabilities be sufficient? Will the storage of liquid fuel be sufficient? Based on the current figures—and depending on the nature of the crisis—absolutely not. Considering Australia has 52 days of net import oil holdings, one might consider that this is the norm by world standards. But the International Energy Agency information for May 2013 indicates that Korea has 240 days, the UK has 220 days, the US has 209 days and even New Zealand has 103 days, almost double what we currently have.

This is a crucial issue. Next week I will call for an inquiry. This is an issue I want the government, the opposition, the crossbench and all stakeholders—all Australians—to recognise and address. I will use Air Vice Marshall John Blackburn AO's words to sum up my contribution to this debate on liquid fuel security. He said: 'We alone amongst all developed oil-importing countries rely completely on commercial market forces for our transport energy security. This is no less perilous than contracting out our Defence Forces or outsourcing our food supply.'

David Fawcett (SA, Liberal Party) Share this | Link to this | Hansard source

I thank Senator Madigan for introducing this motion and for his contribution. He referenced the work of John Blackburn, who has been a very well-informed and powerful voice in this area. Senator Madigan may not be aware that he, in fact, was here in Parliament House just two days ago, briefing the Defence Subcommittee of the Joint Standing Committee on Foreign Affairs, Defence and Trade on these very issues. We talked through a whole range of aspects of Australia's fuel security, so I understand Senator Madigan's concern.

The fact is that in Australia at the moment we still have four refineries operating, as Senator Madigan said. The challenge for Australia is to look not just at the supply side, as important as that is. It is also to look at how we reduce the demand side. The important areas to understand are where we are using energy, where the alternative sources are and, importantly, how quickly we are using energy and how we can reduce supply demand. Even things such as inquiries into climate have identified that car emissions and car use of fuel as we make cars more efficient can cumulatively cause a substantial reduction in the demand for liquid fuels. So part of the whole the equation is not just looking at the supply side but understanding how we can work with car manufacturers on the standards we put on imported cars to make sure that the fuel consumption of cars not only benefits the environment but reduces the demand for liquid fuels such that we balance up that issue between supply and demand.

Australia currently exports both crude oil and refined products, and it imports both crude oil and refined products from a wide range of sources. One of the advantages Australia has is that it is an energy-producing nation. One of the things that Australia has been good at for many years is fuel source innovation. In looking at supply, we need to consider the roles of unconventional oils, natural gases, natural gas liquids and even biofuels as well as the role of traditional petrochemicals.

In relation to the market, we have seen throughout the world's history that, even in times of calamity or conflict, there can be responses by governments to work through what would otherwise be considered failures of the market. Where commercial shipping has failed ships, we have seen ships taken up from trade—governments have, essentially, taken over or nationalised supply lines. There are areas where you can overcome issues with insurers through governments paying premiums and looking at ways to make sure that we do have continuity of supply. As Senator Madigan has indicated, Singapore is a hub; but we also have liquid fuels coming from places like Japan, as well as from the Middle East via Singapore. There are alternatives that the government can look at, but Senator Madigan's point about the need for a suitable risk analysis is well made and was brought out just this week in the briefings that I was discussing.

One of the issues for refinery capacity within Australia is that the scale in Australia makes it very difficult for commercial viability for companies to invest in new refining capability here or to sustain capability in the face of product that they can bring in and make available to the consumer at a lower price. One of the problems with the simple reaction, which is that we should just mandate more production capacity here, is that it starts to distort the market. We already know the price pressure that consumers quite rightly highlight in relation to petrol prices and other liquid fuels. If we were to mandate or in some way regulate a capacity on the commercial market it would drive up prices for Australian consumers. So it is a balancing act to try to understand what the supply chain is, the parts where there are weaknesses and how we can work constructively with industry to make sure that we have both reliability and security of supply whilst making fuels available for Australian consumers, whether they be farmers or people in the cities who need that fuel for their daily life. That needs to be done in a way that does not drive up prices but achieves the outcome that the government is looking for. We understand the factors that have led Senator Madigan to put forward this motion. Studies have been done and there is currently a process underway in which Mr Blackburn and others have been advocating for further risk studies. I cease my remarks there.

Stephen Conroy (Victoria, Australian Labor Party, Deputy Leader of the Opposition in the Senate) Share this | Link to this | Hansard source

Labor supports this motion. As last year's inquiry by the House of Representatives Standing Committee on Economics into the refining industry found, having:

… domestic refining capacity is a worthwhile complement to imports as part of having reliable, mature and diverse supply chains for liquid fuels.

The energy sector is a major employer, providing work directly and indirectly for over 100,000 Australians. We know that the growth in employment in the domestic oil-refining sector is declining. That is concerning. The people employed in the sector are highly skilled, productive and loyal. When closures occur we should always do what we can to assist workers to find other work. This should always be a priority for both industry and government. This industry should not be abandoned. The domestic refining industry continues to play an important role in complementing our imports.

Nick Xenophon (SA, Independent) Share this | Link to this | Hansard source

I commend Senator Madigan for putting forward this motion. It is a very important issue and one that shows that, yet again, we as a nation are not addressing an important issue with the gravity it deserves. I welcome the opportunity to speak on this issue. It is an issue that I have been interested in for many years. When I was a member of the South Australian parliament I was very critical of the way that the Port Stanvac oil refinery was shut down by Mobil about 10 years ago. The state government did a very bad deal in handling the shutdown of that refinery. It was mothballed with no capacity for alternative competition to move into the refinery. We have had the situation in my home state of South Australia where fuel supplies are precarious. If something goes wrong with a ship, if it has been delayed at sea or breaks down, we could face a fuel crisis in South Australia with huge economic and social consequences.

Let us put this in perspective. Refining in Australia has been in in free-fall for several years—it is down 30 per cent in two years and will continue to drop—as local refiners find themselves stranded with obsolete facilities and unable to compete with huge refineries overseas. Shell closed its Sydney refinery at Clyde in 2012. Caltex's closure later this year of its Kurnell refinery in Sydney means that Sydney will, for the first time since the 1920s—that is 90 years—be reliant entirely on imported fuel. BP has announced it will close its Bulwer refinery in Brisbane in mid-2015. South Australia lost its sole refinery in 2003—that is 11 years ago. These closures mean the loss of thousands of jobs—a huge challenge for each of those families. Senator Madigan and I have been campaigning relentlessly about manufacturing jobs in this country. These are manufacturing jobs we are losing.

Today we are talking about fuel security in addition to job security. Australia will be left with four remaining refineries: BP's Kwinana unit in WA; Shell's Geelong refinery, which was this year sold to Vitol of Switzerland; Caltex's Lytton refinery in Brisbane, which recently announced more than 100 job losses as it seeks to cut costs and stay open; and ExxonMobil's Altona refinery in Melbourne. An NRMA report in February found that Australia will source 90 per cent of its liquid fuel needs from overseas by 2015 and predicted that by 2030 that will become a complete dependence on offshore sources of fuel. The contraction in Australia's liquid fuel supplies is not a surprise. It has been long expected and the dynamics driving it are well understood. Yet no Australian government has adequately assessed or planned for the obvious risks to our economy and society of a disruption to overseas fuel supplies.

I endorse strongly endorse the comments of Senator Madigan in relation to the national security implications of this. If there is a conflict—if sea lanes are disrupted in an increasingly uncertain world—where does that leave us as a nation? It will bring us to a standstill. We are drifting towards a very insecure future, bobbing on a sea of risks and uncertainties in the global fuel market.

And yet it seems to be business as usual. Our national dependence on liquid fuels outsourced to pitiless fuel multinationals. Surely, it is time for the federal government to assert the national interest and plan for a minimum fuel-refining capacity in this country and for minimum fuel supplies. The United States and other countries do it; we have been absolute mugs when it comes to this. I am not sure if Senator Madigan can assist me, but I think the level of fuel supplies we have at the moment is for weeks and not the months that we actually need. The NRMA report, Australia's liquid fuel security, released in February this year, found we would be left high and dry if there were a significant disruption to overseas shipping lanes, refining capacity or oil production. It warned that Australia would have about three weeks of fuel on hand, if supplies were halted for whatever reason, from 2015.

That is a national scandal. If demand were high—as in a run on fuel supplies in an emergency—stocks would scarcely last a week, the NRMA warned. Senator Madigan gently reminded me that we nearly ran out of diesel last year, and in his home town of Ballarat there was a diesel fuel shortage. I did not go to the joint standing committee briefing, but I previously received a one-on-one briefing with Air Vice-Marshal John Blackburn, the author of that report. I commend him for the tremendous work he is doing. This is what he had to say:

If this happens, then Australians will suffer food shortages, will not have adequate access to medical services or pharmaceutical supplies, will not be able to get to work and, if the problem lasts for more than a few weeks, many will no longer have work to go to.

This motion that has been introduced by Senator Madigan deserves our strong support; it deserves not just our words but action from the Australian government. We cannot put our heads in the sand on this issue; we must act decisively on our fuel supply. The NRMA suggests we need at least 30 per cent of our fuel refined here in Australia if we are to avoid the worst effects of unforseen crises in shipping, the oil sector or global refining capacity. Why isn't the government looking at this?

Since 2005 I have been warning of Australia's limited refining capacity, when a secret South Australian government report warned that my home state was regularly running dangerously low on fuel. These are the issues that need to be dealt with. I hope Senator Madigan will raise it again. As I do on many other issues, I will work collaboratively with Senator Madigan on this issue because it deserves to be at the forefront of the government's attention; it has not been to date. If we do not tackle the issue sooner rather than later, it will lead to a national emergency and it will have calamitous consequences for our economy and our society. This issue will not go away—we must tackle it as a nation. I again commend Senator Madigan for raising this issue.

Question agreed to.