S1: You've noticed the hike in prices at the petrol pump,
S1: but how high might prices go? And are we at
S1: risk of running out of petrol? I'm Samantha Selinger Morris,
S1: and you're listening to Morning Edition from The Age and
S1: The Sydney Morning Herald. Today, energy reporter Nick Toscano on
S1: what plans our government and fuel companies have to manage
S1: this crisis, and how long it might take for prices
S1: to return to normal. It's March the 24th. Hey, Nick.
S1: Welcome back to the pod.
S2: Hey, Sam. Thanks for having me back.
S1: Oh, I'm so happy to have you back because I'm
S1: sure many listeners are like myself and they're quite confused
S1: by this. So before we get into everything that's been happening,
S1: can you just tell us where we actually get our
S1: fuel from in Australia?
S2: Sure. Well, I guess that's a question with an answer
S2: that's changed quite a bit over the past couple of decades. Australia.
S2: We once had a considerable fleet of our own domestic
S2: oil refineries. So these are the sort of sprawling industrial
S2: complexes of pipes, machines and giant chimney stacks that turn
S2: crude oil into the fuels that we actually use every day,
S2: like petrol, diesel and aviation fuel. At the turn of
S2: the century, we had eight oil refineries spread across the country.
S2: That produced not all, but a good chunk of our
S2: liquid fuel needs. Today, we're left with just two. That's
S2: the Geelong oil refinery in Victoria, which is run by
S2: Viva Energy and the Lytton oil refinery in Brisbane, which
S2: is operated by Ampol. So I guess what's happened is
S2: that refined fuels in this day and age are so
S2: widely available from so many different parts of the world
S2: that can be easily shipped to buyers anywhere as far
S2: afield as Australia. And it's easier, simpler, and in most cases,
S2: cheaper to import fuels into shipping terminals here instead of
S2: going through the effort to produce them ourselves. So while
S2: there's been a desire to, um, a strategic desire from
S2: the industry and from governments to retain some of our
S2: capacity to be able to produce our own fuel, Australia
S2: has the problem of having a relatively small market, and
S2: that means we have relatively smaller and higher cost oil refineries,
S2: which have found themselves in the past little while just
S2: increasingly less and less able to compete with cheaper imports
S2: coming from the mega refineries of South East Asia in particular,
S2: that can pump out fuels for a fraction of the
S2: cost and have really pressured the profit margins of the
S2: plants that we have left. Then rewind a couple of
S2: years ago, the onset of the Covid 19 pandemic, as
S2: we saw, you know, basically brought travel and petrol and
S2: diesel use to an absolute standstill everywhere. And that was
S2: sort of the final crushing blow for, um, for a
S2: couple of the last refineries that we did have in
S2: Perth and another one in Melbourne's western suburbs. So that
S2: forced the closures of two more, leaving us with just
S2: two remaining. And that's left us reliant on imported fuels
S2: from places including, but not limited to Malaysia, Singapore, Korea,
S2: China for our fuel needs and we get smaller amounts
S2: from from the Middle East and from America. So as
S2: things stand today, imported products account for about 90% of
S2: our total liquid fuel needs.
S1: And, you know, this has gone beyond the headlines now
S1: because we are seeing the impact on prices at the
S1: petrol pump right across the country. So can you just
S1: explain to us how this war is driving prices?
S2: Well, since the outbreak of the war a couple of
S2: weeks ago now, the price of petrol has shot up dramatically. It's, uh,
S2: it's gone up 30% in the space of a couple
S2: of weeks. It's actually reached an all time high. We've
S2: never seen prices national average prices this high. We're at
S2: $2.19 a litre for unleaded, which is a record. So
S2: primarily the high cost of petrol comes down to one
S2: thing most of all. And that's the fact that the
S2: price of oil, the cost of a barrel of oil
S2: has surged faster and higher than we've seen for years
S2: and years. The cost of a barrel of oil before
S2: the war, at the start of the year, was about
S2: 70 USD a barrel, and that's blown past the $100 mark.
S2: It's even briefly touched $120 a barrel. Crude oil is
S2: is the natural resource that is refined into petrol, diesel
S2: and jet fuel and therefore makes up the biggest and
S2: most important and I guess most volatile input costs to
S2: the fuel that we use. The reason this has happened, Sam,
S2: is that countries in the Middle East and around the
S2: Persian Gulf, where much of the fighting is taking place,
S2: so we're thinking Iran, Saudi Arabia, the United Arab Emirates, Bahrain,
S2: they account for a massive chunk of the world's overall
S2: supply of oil, and a good portion of that supply
S2: is now disrupted. The biggest cause there is that Iran
S2: has done something that energy markets and governments around the
S2: world have long feared it would do if it ever
S2: came under attack. And that's forcing the effective shutdown of
S2: a shipping corridor, which you're no doubt familiar with now
S2: called the Strait of Hormuz, which is off Iran's southern coast. Typically,
S2: in ordinary times, that shipping channel accounts for about one
S2: fifth of all the world's oil and natural gas supplies,
S2: and that's basically come to a complete standstill, a complete halt. Now,
S2: Iran has been threatening to attack any foreign oil tankers
S2: that attempt to pass the strait. And that's basically left
S2: all this oil and refined fuel from those Persian Gulf
S2: countries with essentially no way to exit, with essentially no
S2: way to get their oil out into the ocean and
S2: take it to customers who want it. The world has
S2: been trying to reduce its reliance on oil and other
S2: fossil fuels for a long time now by pushing harder
S2: to add more renewables and drive electric vehicle uptake. But
S2: oil is still hugely important. The world consumes in excess
S2: of 100 million barrels of oil every day. And the
S2: stuff that's stuck in the Persian Gulf now, that's about
S2: 20 million barrels. So it's it's literally 20% of our
S2: overall supply.
S1: Wow. And of course, we've seen reports of people panic
S1: buying and petrol stations being out of petrol. So how
S1: bad is the problem? Like, are we actually at risk
S1: of running out of petrol?
S2: No we're not. At least not yet. Sam, there are
S2: localised problems that we're seeing emerge across the country, in
S2: regional areas, in metropolitan areas as well. People are getting worried.
S2: You know, they're reading that reading the headlines. They're seeing
S2: prices rise. There's been what the industry is calling a
S2: rush on demand rather than any structural supply deficit. Yet
S2: people are filling up jerry cans with fuel to stock
S2: at their homes. People are filling up their cars unnecessarily.
S2: And what that's done is it's caused supply disruptions. These
S2: are localized disruptions. The fuel industry says they're typically resolved swiftly.
S2: But it goes to show, I guess, the volatility of
S2: the market right now that people are making a dash
S2: for the petrol station. People are often finding the bowsers
S2: having run dry at the moment. Sam, there's no risk
S2: of a shortage. The fuel industry and the federal government
S2: say we have more than enough supplies to cover demand. So,
S2: you know, a lot of these problems are being driven
S2: by consumers panic buying. There are still ships arriving to Australia.
S2: There are still lots of oil and refined fuel arriving
S2: on our shores. We have a significant national stockpile of fuel,
S2: enough to cover more than a month's worth of typical
S2: demand of diesel and petrol. We still have more than
S2: a month's worth there, even though we've released some of
S2: that recently. So things aren't at the pointy end yet,
S2: even though we're seeing prices rise. I guess the sense
S2: coming out of the fuel industry and the people that
S2: I've spoken to over the past week, is that things
S2: are okay now, but a lot will depend on what
S2: happens next and how long this goes for. And if
S2: we're still having this conversation in a month's time. It'll
S2: be a different conversation.
S1: After the break.
S2: I think what will happen first is if there's no
S2: resolution to this conflict, and suppliers continue to come under
S2: pressure and be choked into the Asian regions, you will
S2: see prices rise even potentially rise even further than they're
S2: trading at now. Beyond that, there could well be a
S2: shortage of product coming into Australia.
S1: And so how is it that ships fuel are still
S1: making their way to Australia. Is it because these are
S1: ships that had already sort of stocked up on the
S1: fuel from the Persian Gulf, and they'd already sort of
S1: been made their way before the Straits of Hormuz essentially
S1: was closed.
S2: Well, again, Australia gets most of its fuel, not from
S2: the Middle East. We source most of our fuel and
S2: some of our oil from the Asian region in particular.
S2: There are bigger sources of supply. The problem that we're
S2: seeing emerge now, the problem that's coming into view is
S2: that the Asian region sources much of its crude oil
S2: to process into fuels at its mega refineries from the
S2: Middle East. And there's been a notable drop off of
S2: oil tankers arriving in Asia. That's going to eventually disrupt
S2: the traditional flow of oil and fuels that we source from.
S2: At the same time, that problem is being made worse
S2: by the fact that China, a huge customer and a
S2: huge supplier of refined fuels, have basically cut off their exports.
S2: They typically account for 15% of the Asian market. They've
S2: put a halt on all that. That's going to hit
S2: home eventually, too.
S1: And so what are the contingency plans then? Like what
S1: is the government and fuel companies? What have they said
S1: that they're going to do about it?
S2: Well, the first and most important thing I think, that
S2: the federal government has done is they've tapped into the
S2: strategic reserve, the strategic stockpile of fuel to provide something
S2: of a buffer. Australia is in breach of its requirement
S2: as a member of the International Energy Agency to hold
S2: 90 days worth of refined fuel products, but we still
S2: have more than a month's worth of supply. I think
S2: it's 3 or 4,000,000,000l at last check of fuels. The
S2: energy minister, Chris Bowen, has decided to release, I think,
S2: 5 or 6 days worth of petrol and diesel to
S2: help provide that sort of cushion and help insulate us
S2: from the from the effect of of any shock. There
S2: may be another draw down soon, we don't know. The
S2: other thing is other initiatives that have that have happened
S2: in the past couple of weeks have been a decision
S2: to enable Ampol, which is the operator of the Lytton
S2: oil refinery in Brisbane, to supply the market with fuel
S2: that would ordinarily be in breach of emissions limits for
S2: Australian vehicles feel that it would normally export. It's now
S2: delivering into the local market. Ampol has also delayed a
S2: planned maintenance closure of the Lytton oil refinery. It was
S2: going to come offline for a couple of months as
S2: of June. That's now been pushed back to April to
S2: enable it to pump out another 300,000,000l of fuel product
S2: into the economy.
S1: And so you've mentioned there that sort of month, Mark,
S1: you know, should we be talking about this in another month?
S1: Should this war still be going on? And the Straits
S1: of Hormuz closed for another month? That might be, I guess,
S1: a sort of tipping point. Is it like, is that
S1: when things might start to get a bit more serious
S1: in terms of us looking down the barrel of a
S1: possible real significant fuel shortage?
S2: That's the prevailing fear. I think what will happen first
S2: is if there's no resolution to this conflict, and suppliers
S2: continue to come under pressure and be choked into the
S2: Asian regions, you will see prices rise even potentially rise
S2: even further than they're trading at now. Beyond that, there
S2: could well be a shortage of product coming into Australia.
S2: And the other thing the fuel industry is doing in
S2: response to all this is they're working around the clock
S2: to try and lock in additional sources of supply from
S2: countries where we wouldn't normally source a huge amount of
S2: of our refined product from, including the EU and including
S2: North America to try and make up to try and
S2: offset the declines that we're seeing into Asia.
S1: Okay. Well, let's look at the other side of the coin,
S1: which is the question that if the war ends tomorrow,
S1: how long would it take for prices to drop and
S1: the supply to go back to normal?
S2: That's a good question. There would be an impact seen
S2: almost immediately. Prices would begin to ease. Obviously petrol prices
S2: take longer to to fall than they do to rise
S2: in these sorts of scenarios. But the fact of the
S2: matter is the world has no shortage of oil and
S2: of refined fuels. What's happened here is that there is
S2: this this huge disruption, this at this choke point that's
S2: causing this big bottleneck. Before the outbreak of the war,
S2: the oil price was at 70 USD a barrel in
S2: a context of a weak global economy, rising inflation, which
S2: led to subdued demand. so the world had more oil,
S2: more oil and fuel than it needs. Nothing structurally changed
S2: over the past two weeks that would change that environment.
S2: It would return to an environment of oversupply, but there
S2: would be some impacts that would take longer to recede.
S2: Not only is there the Strait of Hormuz being blockaded,
S2: but there's also now been, especially over the past week,
S2: serious damage inflicted on oil and natural gas infrastructure in
S2: the region. There's actual, you know, actual refineries, actual production
S2: fields that have been that have been blown up or
S2: that have been that have been struck by drones or
S2: what have you. To return to your question, it may
S2: take a lot longer than just the reopening of the
S2: Strait of Hormuz. For all of that price pain to proceed,
S2: given the world may take longer for supplies to catch
S2: up again.
S1: What you've just mentioned there, of course, the gas production
S1: sites that have been hit in strikes. And that brings
S1: me to what I wanted to ask you about, which
S1: is that will other sources of energy be affected in
S1: Australia with regards to what's, of course, going on in
S1: and around Iran?
S2: The other big commodity that's been affected by all this
S2: is natural gas, which is a fuel that's used in
S2: Australia and around the world for cooking, for heating, for
S2: hot water. It's used to power our electric grids and
S2: it's used in a range of industrial processes. Qatar is
S2: the world's second biggest supplier of liquefied natural gas. So
S2: that's our LNG. That's natural gas that has been super
S2: cooled down to the point that it becomes a liquid,
S2: and then it can be put onto ships to be
S2: sent around the world. Qatar's main LNG production hub was
S2: hit by a drone strike in the early days of
S2: this conflict in itself, that knocked out about one fifth
S2: of the world's LNG supply. Qatar is a major supplier
S2: to Asia, and Asian economies are very heavily dependent on
S2: imported LNG for their energy needs. So what's happened? There
S2: is prices have gone through the roof in Asia. They've
S2: gone through the roof in Europe. Australia hasn't been affected
S2: so badly, at least yet. We are a big gas
S2: exporter ourselves. We produce a lot of gas for the
S2: domestic and for the international markets. So far, our prices
S2: have remained steady, even though there is often a link
S2: between the price that we pay here and the prices
S2: that our exporters are earning from selling cargoes into international markets.
S2: At the moment it's been pretty steady. They've stayed around
S2: the $10 a gigajoule mark this whole time, which is
S2: historically quite subdued. But again, the longer this drags out
S2: and the more there is a overall international shortage causing
S2: a mad scramble for any spare gas supplies. There's a
S2: fear that that could start being felt here at home
S2: as well.
S3: And Nick, just to wrap up, I mean, I really.
S1: Want to ask you what the lesson is in all
S1: of this or what it perhaps should be, because we
S1: know that this is far from being the first oil
S1: shock that Australians have experienced in their lifetime. There was
S1: a massive fuel crisis in 1973, in 1979 again. So
S1: what should we be take from all of this?
S2: Well, I guess the biggest thing probably, Sam, is the
S2: risks of relying on globally traded energy supplies that are
S2: critical to our needs, but that can be essentially held
S2: for ransom in geopolitical events like this. The closure of
S2: the Strait of Hormuz has been something that's been long feared,
S2: but it's never really come to pass until now. I
S2: guess what's happening now just shows it just underscores the
S2: significance of the threat of relying on on other countries
S2: for our energy supplies. Advocates of renewable energy and some
S2: political leaders say that we shouldn't be wasting this opportunity
S2: to double down on transitioning our energy system to adopt
S2: more sources of renewable energy, to reduce our reliance on, on,
S2: on other countries. And yet you can't hold the wind
S2: and the sun hostage like you can hold fossil fuels hostage. Obviously,
S2: driving the uptake of electric vehicles speaks to the same issue.
S2: I guess the other lesson from this is I'm not
S2: sure what the government will take away from it, but
S2: there has been this long running debate about how much fuel,
S2: how much oil products we should be holding in storage.
S2: It's a tricky one for the government because it costs
S2: a lot of money. I think the last estimate from
S2: the federal government was if we were to increase our
S2: fuel stockpiles from 35 days to to the 90 day
S2: benchmark set by the International Energy Agency, that would cost
S2: nearly $20 billion. Is that a cost that taxpayers and
S2: consumers would be willing to wear? That's obviously a debatable point,
S2: but I mean, it's like an insurance policy. You only
S2: need it when you need it. And I imagine there
S2: will be a significant discussion taking place on the other
S2: side of this conflict about whether our stockpiles do provide
S2: enough of a buffer for a country like Australia. That's
S2: at the very end of a global supply chain.
S1: Well, Nick, we are so lucky to have you to
S1: walk us through this. It is quite complicated. So thank
S1: you so much for your time.
S2: No worries. Thanks, Sam.
S1: And in other news today, the long awaited Australia. EU
S1: free trade deal will be finalized today. Under it, Australian
S1: red meat exports to Europe are set to rise tenfold.
S1: Union groups have joined churches, health organizations and community advocates
S1: to demand that Prime Minister Anthony Albanese move urgently to
S1: enact gambling reform, citing the $32 billion that Australians lose
S1: every year, and children and teenagers who turn to AI
S1: companion chatbots for relationships are being exposed to sexually explicit
S1: content and are being encouraged to self-harm or suicide, according
S1: to a new report by the Esafety commissioner. Today's episode
S1: was produced by Josh towers. Our executive producer is Tammy Mills,
S1: and our podcasts are overseen by Lisa Muxworthy and Tom McKendrick.
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