Does Australia have close to 90 days of oil reserves?

By William Ton, James Lane and Peter Trute

The Statement

“Well, on our definition, they're close to 90 days and that includes stock on water, which is an important part of this.”

Federal energy Minister Angus Taylor. September 16, 2019.

The Analysis

A drone attack on oil processing facilities in Saudi Arabia on September 14 sent world oil prices higher and focused attention on the adequacy of Australia’s fuel reserves. [1]

Federal Energy and Emissions Reduction Minister Angus Taylor told ABC News Breakfast the International Energy Agency (IEA) advised him there were “ample commercial stocks” of fuel available and there was “no threat to fuel supplies in Australia”. [2]

AAP FactCheck examined Mr Taylor’s statement that Australia has close to 90 days of fuel reserves.

Australia is a member country of the International Energy Agency (IEA) and a signatory to a 1974 treaty that requires IEA members to hold oil reserves that will cover at least 90 days in the event of a severe oil supply disruption. Australia has not complied with the IEA’s 90-day reserve requirement since 2012. [3]

The IEA is the global energy authority which provides information on the energy sector and advocates policies to “enhance the reliability, affordability and sustainability of energy in its 30 member countries”. [4]

According to the IEA, Australia had a total of 58 days of oil stock reserves as of June 2019, the lowest among the 30 member countries. [5]

When questioned about the statement that Australia has close to 90 days’ supply, Mr Taylor’s office referred AAP FactCheck to the Department of Environment and Energy’s monthly petroleum statistics report. The report calculates petroleum stocks in different ways, including the IEA standard of “net import coverage”, also called “IEA days”, which is based on average daily imports.[6]

The report also shows how many days’ fuel supply is held on ships destined for Australia and the number of days’ supply held for the Australian market both in Australia and overseas.[6]

Mr Taylor’s calculation is based on the estimated IEA days of net import coverage plus stocks held for, and on the way to, Australia. The minister indicated this at the time of his statement, saying the calculation “includes stock on water”. Using this method Australia has averaged fuel stocks to cover 86.6 days during 2019. [6]

The Department of Environment and Energy’s Liquid Fuel Security Review interim report, released in April 2019, states that counting stock on water is not in line with IEA requirements, which do not allow countries to count stocks still being shipped towards their reserves. [7]

In an interview on ABC Radio on August 5, 2019, Australian Strategic Policy Institute (ASPI) executive director Peter Jennings said counting oil contracted or en-route for delivery may not be a viable way to ensure Australia’s fuel security in the event of an oil shortage. [8]

“I think that is really just looking at what has been contracted and if you're in a difficult strategic situation, ships may not be able to take to sea,” Mr Jennings said.

The Liquid Fuel Security Review interim report notes that there are "different ways to measure fuel stocks”.[7]

The report notes that the Australian government has committed to "returning to compliance" with IEA requirements by 2026. The government is working with the IEA over how to do this and how to possibly make reforms to those requirements. [7]

The report also says the government’s “preferred measure of domestic fuel security” is consumption cover, which counts how many days fuel stocks will last under normal demand. “Consumption cover of petrol, diesel and jet fuel has been consistent over the last decade, ranging between 17 and 20 days on average,” it says. [7]

Australia has ”the equivalent of around nine IEA days of stock in foreign ports and 20 IEA days of stock on route to Australia”, according to the report. Because those stocks are owned by Australian companies and are destined for import into Australia, it says, the IEA method used to count the 90-day stockholding “does not capture the full picture of domestic liquid fuel security, particularly as it also does not include Defence stockholdings”. [7]

Modelling of an “extreme” scenario where there are no oil imports to Australia suggests the country could support “critical users” for three months, the report says, although it states further testing is needed. [7]

The Australian Institute of Petroleum, the representative organisation for Australia’s petroleum industry, argued in a 2017 submission about a new petroleum data reporting regime that not counting on-water stocks gave an incomplete picture of how much petroleum was available to the domestic market. On-water stocks represent about a quarter of Australia’s total fuel inventory, the AIP said. [9]

Dr Paul Barnes, head of risk and resilience at ASPI, told AAP FactCheck in an email that “including stocks at sea and not yet in Australia does not comply with the detail laid out in the IEA’s compliance regime about having reserves to address surprises and contingencies”. [10]

The Liquid Fuel Security Review interim report states that there are “a number of questions about exactly how Australia’s liquid fuel market would work in the case of major disruptions” and further modelling and testing “will provide the information that the Government requires to make sound decisions on how to manage the risks in”. [7]

Deakin University Law School Professor of Law Samantha Hepburn told AAP FactCheck that Australia should not count on-water supplies towards IEA stocks “because we don't have full control of our fuel stocks on international waters until it is on our soil”.

Professor Hepburn also said the purpose of the IEA’s 90 day fuel stock is to ensure there is a sufficient global stockpile for “a collective response in the event of a massive fuel disruption”.

“If you don't have 90 days of reserves, excluding on-water stocks, Australia would be unable to contribute to the global response in the event of a fuel shortage and this would undermine global security,” Prof Hepburn said. [11]

Based on this evidence, AAP FactCheck finds that Mr Taylor’s statement is mostly accurate: based on his stated measure of including on-water stocks being shipped to Australia, the nation’s fuel reserves are close to 90 days’ cover.

However, Australia’s fuel reserves currently do not meet the 90 days’ cover required under its commitment to the IEA international energy program treaty. Energy security experts have expressed concern about counting on-water stocks in fuel reserves. The Liquid Fuel Security Review interim report states that early modelling suggests critical users could be supported for three months if Australia could not receive oil imports but also states that a number of questions remain about what would happen in a major disruption.

The Verdict

  • Somewhat True - The claim is mostly accurate but there is more than one error or problem.

The References

1: ‘Oil prices jump 12pc following Saudi Arabia attack, but fuel prices should not follow yet’, by Michael Janda. ABC. September 16, 2019: https://www.abc.net.au/news/2019-09-16/oil-prices-expected-to-jump-more-than-10pc-on-saudi-attack/11515350

2. ‘Interview with Michael Rowland, ABC News Breakfast’, Department of the Environment and Energy, September 16, 2019: https://minister.environment.gov.au/taylor/news/2019/interview-michael-rowland-abc-news-breakfast

3. ‘International Energy Agency (IEA) program treaty’, Department of the Environment and Energy: https://www.energy.gov.au/government-priorities/international-activity/international-energy-agency-iea-program-treaty

4. ‘Our Mission’. IEA. 2019: https://www.iea.org/about/ourmission/

5. ‘Closing Oil Stock Levels in Days of Net Imports’. IEA. September 12, 2019: https://www.iea.org/netimports/

6. ‘Australian Petroleum Statistics 2019’. Department of the Environment and Energy. September 2019: https://www.energy.gov.au/publications/australian-petroleum-statistics-2019

7. ‘Liquid Fuel Security Review. Interim report’. Department of the Environment and Energy. April 2019 (Pages 2, 5, 7 and 31): https://www.environment.gov.au/system/files/consultations/7cf6f8e2-fef0-479e-b2dd-3c1d87efb637/files/liquid-fuel-security-review-interim-report.pdf

8. ‘Petrol rationing a real risk if Persian Gulf tensions continue’, by Tom Iggulden. ABC. August 5, 2019: https://www.abc.net.au/radio/programs/pm/petrol-rationing-a-real-risk-if-persian-gulf-tensions-continue/11384942

9. ‘Consultation on the exposure draft of the petroleum and other fuels reporting rules 2017 (Ministerial Rules)’ Nathan Dickens, Deputy CEO, Australian Institute of Petroleum. July 18, 2017: https://www.energy.gov.au/sites/g/files/net3411/f/petrol-other-fuels-reporting-submission-aust-institute-petrol-2017.pdf

10. Dr Paul Barnes, head of risk and resilience, ASPI: https://www.aspi.org.au/bio/paul-barnes

11. Professor Samantha Hepburn, Deakin University Law School: https://www.deakin.edu.au/about-deakin/people/samantha-hepburn

First published September 19, 2019 16:32 AEST