A miracle happened 1 minute to 12. Two journos asked energy security questions at last week’s National Press Club in which Australia’s Prime Minister Malcolm Turnbull was given a last opportunity before the 2016 election to present his program. Here is an excerpt from the Liberal party’s transcript of the PM’s address and the Q&A session which followed:
…From day one, if re-elected, we will be working harder than ever to deliver our national economic plan – driving investment, jobs and growth, firing up our high-tech innovation sector, ensuring as many of our defence dollars are spent here in Australia, investing in advanced manufacturing, opening up thousands more export opportunities for farmers, tourism and service industries in the giant markets of Asia….
…..At this election, my Coalition team is presenting a clear economic plan to secure Australia’s future…..
…..Our plan gives Australians and Australian families economic security in an uncertain world…..
……These are very exciting times, believe me. There has never has been a more exciting time to be an Australian businessman or woman because you know that your future lies in being fast and agile and innovative.
These were more than inconvenient questions. Turnbull’s whole election narrative of jobs and growth in an ever-growing Asian market with 100s of millions of new middle class consumers is put in question.
There are several issues mentioned here:
- Dependency on oil and fuel imports
- Closure of Australian refineries
- Absence of strategic oil reserve
- Military tensions in South China Sea
Let’s go through these one by one
Dependency on oil and fuel imports
Fig 1:Australia’s oil balance
The gap between oil consumption and oil production (net) has been growing ever since production peaked in 2000.
Fig 2: Australian neighbours in Asia are all net oil importers (except Brunei)
Fig 3: Australian crude oil imports by country
We can see that Australia indeed imports crude oil from a dozen of countries BUT:
- Imports from neighbouring countries in Asia peaked in 2007, requiring imports from far-away countries
- Additional imports from these countries have now petered out, reducing diversity of all imports
Fig 4: Percentage distribution of crude oil imports
We can measure this diversity with the Shannon-Wiener index
Fig 5: Diversity index for Australian crude oil imports
Diversity peaked in 2011 and has declined by 21% since then. Please note that the index is independent from total import volumes. It only describes the %age wise distribution of different sources of imports. It is a structural variable.
As a result of refinery closures imports of fuels have skyrocketed.
Fig 6: Australian Diesel imports by country of origin
We can see that diesel imports from Singapore are on a bumpy plateau as refinery capacities there are limited. More diesel was obtained from Japan where oil consumption is in structural decline since 1995. Diesel imports from South Korea (where oil consumption in the last 10 years grew at 1.1% pa) seem to have maxed out in 2015. After the closure of Kurnell and Bulwer diesel imports increased from Malaysia (although this country is a net oil importer since 2011) and – spectacularly – from India which of course is supposed to have an unlimited hunger for oil.
Since January 2011, when Australian crude oil imports peaked, diesel imports have more than doubled. How long that can continue if more refineries close, is uncertain.
Fig 7: Oil consumption in 6 selected Asian countries
The graph shows oil consumption in countries from where Australia imports diesel.
Closure of refineries
Nothing could be more a symbol for oil decline than the demolition of refinery stacks
Fig 8: Clyde refinery’s stacks blown up
The root cause of refinery closures is peak oil in International Oil Companies
Fig 9: Shell peak oil
Fig 10: Chevron peak oil
Fig 11: BP peak oil
Strategic oil reserve
There was a Senate Inquiry on Transport Energy Resilience (Sep 2014 – Jun 2015)
This inquiry was held because Australia does not meet its IEA requirement to hold stocks of crude oil or fuels equivalent to 90 days of net imports.
I was invited to appear before a hearing on 9/4/2015 in the Melbourne Parliament House to explain my submission #39:
Fig 12: Submission #39 to Senate Inquiry on Energy Resilience
At the end of my presentation I got this response:
CHAIR [Senator Sterle]: Okay. Gentlemen, I have never been one to beat around the bush. I have no doubt about your expertise and your passion about the use of oil and all, but I think you are in the wrong inquiry
Wrong Inquiry? It should be obvious that a strategic oil reserve is absolutely necessary when oil production is tight as is the case of peaking production. And before the hearing I had reminded the Chair that he participated in an earlier Inquiry on oil supplies , in 2006 when Dr. Ali Samsam Bakhtiari held a 3 hr lecture on peak oil in Sydney’s Parliament House. The Final report of the Committee on Transport Energy Resilience found (p 13):
List of recommendations
6.8 The committee recommends that the Australian Government undertake a comprehensive whole-of-government risk assessment of Australia’s fuel supply, availability and vulnerability. The assessment should consider the vulnerabilities in Australia’s fuel supply to possible disruptions resulting from military actions, acts of terrorism, natural disasters, industrial accidents and financial and other structural dislocation. Any other external or domestic circumstance that could interfere with Australia’s fuel supply should also be considered.
6.14 The committee recommends that the Australian Government require all fuel supply companies to report their fuel stocks to the Department of Industry and Science on a monthly basis.
6.17 The committee recommends that the Australian Government develop and publish a comprehensive Transport Energy Plan directed to achieving a secure, affordable and sustainable transport energy supply. The plan should be developed following a public consultation process. Where appropriate, the plan should set targets for the secure supply of Australia’s transport energy
8 months later: Fatih Birol, Executive Director of the International Energy Agency (IEA) visits Australia to repeat his warnings at the World Economic Forum in Davos that there might be higher oil prices in a few years’ time.
Fig 11: Minister Frydenberg (left) and IEA’s Fatih Birol
From the website of the Minister for Resources and Energy, Josh Frydenberg:
“A key focus of our meeting will be Australia’s ongoing role in the IEA’s modernisation plans, which includes greater engagement with emerging economies, energy security, clean energy, and energy efficiency”
From a newspaper article in the SMH:
|Low oil prices could put energy security at risk: International Energy Agency
The head of the International Energy Agency has warned that low oil prices could pose a threat to energy security as investment sinks in the sector, putting the world increasingly at the mercy of the geopolitically less stable Middle East for supplies.
Dr Fatih Birol, executive director of the Paris-based body, said investment in oil supply had dropped by 20 per cent last year, with a further drop of at least 16 per cent expected this year, making the first consecutive two years of declining investment in the industry’s history.
Sustained low prices around current levels would also cause higher cost projects to be cancelled or delayed, with the result that the share of world production from the only major low-cost region, the Middle East, would see its share of the market rise from about half at present to 75 per cent, he said.”The geopolitical developments in the Middle East today may mean that low oil prices may not necessarily help to improve oil security,”
Dr Birol said in an interview during a visit to Canberra at the invitation of federal resources and energy minister Josh Frydenberg.”Dr Birol conveyed an important and somewhat sober message that lower oil prices do not mean endless supply,” Mr Frydenberg said.
Just 1 month later the Federal government tries to evade IEA requirements with every trick in the book:
Turnbull government looks to ease cost of meeting IEA’s petroleum reserves
Even though Australia is about to become one of the world’s biggest exporters of energy, it is trying to find a cheap way to meet its international requirement to store 90 days of petrol.
One option is to convince the International Energy Agency to count petroleum stocks “on water” – in tankers en route from Asia’s refineries – in Australia’s strategic reserves. Another is leasing or “ticketing” additional reserves. Ticketing is buying an option to take physical delivery in a crisis.
The Turnbull government wants to reduce the huge cost of lifting Australia’s strategic petroleum reserves to the International Energy Agency’s minimum requirement of 90 days’ net imports.
Meeting the minimum strategic petroleum reserve is a key requirement for maintaining membership of the powerful agency, which helps set global energy policies.
Fatih Birol’s warning message was apparently not conveyed to the Prime Minister, otherwise the PM would have been able to correctly answer the energy security question at the NPC. Anyway, sobering news is of course not what is wanted in an election campaign.
South China Sea
Fig 12: Shipping routes
If there is a military conflict in the South China Sea, crude oil supplies from the Middle East to South Korea, Taiwan and Japan (from where Australia imports fuel) would have to be diverted via the Lombok Strait and a route east of the Philippines which would be more costly.
Most fuel imports from South Korea and Japan would already use a route east of the Philippines. Taiwan would be more of a problem as there are already tensions with China anyway. More details can be found here:
Crude oil imports from Vietnam could be in danger because there will be direct conflicts over oil fields. Vietnam’s main oil field Bach Ho has peaked which makes it necessary to develop all oil fields along the coast and to extend them further out offshore.
Fig 13: Vietnamese oil blocks and 9-dash line claim by China
More details are in this post:
10 years after peak oil in Vietnam: Asian Century sails into troubled waters in the South China Sea
Pressure is on because Vietnam has turned into a net oil importer
Fig 14: Vietnam oil production and consumption
Howard’s and Abbott’s legacy
For completeness and fairness it needs to be remembered that Malcolm Turnbull’s Energy Minister Josh Frydenberg succeeded Ian McFarlane, a veteran of John Howard who simplistically calculated in his 2004 energy white paper that there are ”sufficient oil supplies for 40 years”. Not 40, but just 4 years later oil supplies were no longer sufficient when they were so tight that oil prices skyrocketed to $140. And Tony Abbott was no better:
New Australian Prime Minister is sceptical that peak oil has value for policy making
So Josh inherited an administration which was instructed to be in peak oil denial
Australia’s gap between local oil production and consumption has been growing ever since oil production peaked in 2000. As oil production of International Oil Companies has also peaked, many refineries have closed, among them 3 Australian refineries. For the remaining refineries the diversity of crude oil imports is declining. Australia is not prepared for an external oil shock as crude oil and fuel stocks are below IEA’s requirement of 90 days
None of these issues was addressed by the Prime Minister at the NPC. His answer tried to dispel any fears about oil supplies.