JSCOT Report on Oil Stocks

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.