Only three months into 2019 and Australia’s
liquid fuel security has again reared its head as a critical issue, with
the Federal Government under criticism for failing to publish the promised
review of Australia’s liquid fuel reserves.
Then Energy Minister Josh Frydenberg ordered
the urgent review of Australia’s liquid fuel reserves last May after the
country dipped below 50 days’ supply. This has since been delayed, but the Department
of Environment and Energy has promised the review will be delivered early this
year.
Most recently, Resources Minister Matt Canavan has signalled
the review will consider whether a commonwealth reserve is needed.
Senator Canavan said a reserve was only a temporary
solution, and the key to fuel security lay in boosting domestic oil production
in the Great Australian Bight and the Beetaloo Basin in the Northern Territory.
“I’m not saying you shouldn’t necessarily think of national
reserves or stockpiles but obviously by definition they only provide temporary
relief,” he said.
“If we can boost domestic production, that can ensure that
however long a crisis eventuates, we can ensure our fuel security.”
Liquid fuel such as petrol, diesel and jet fuel accounts for
37 per cent of Australia’s energy use, including 98 per cent of transport
needs.
The International Energy Agency mandates that countries hold
at a stock in reserve equivalent to 90 days of net imports. Australia does not
meet the standard with 56 days of import coverage.
In January, latest Department of Energy figures showed
Australia’s reserves were sitting at 22 days of petrol, 17 days of diesel and
27 days of total petroleum products.
There’s concern that with instability in the Middle East and
tensions in the South China Sea and on the Korean peninsula there is a real
threat to the security of transport fuel imports.
“With increased uncertainty in the Middle East, from where
much of our oil and refined fuel comes, and the growing uncertainty in our own
region due to great power tensions and the unpredictability of the US as a
stabilising force, a review of Australia’s liquid fuel reserves is more
important than ever,” Coalition Senator and retired Major-General Jim Molan
told The Australian.
He said Australia was one of the few places in the world
without a government-mandated strategic reserve of fuel.
Meanwhile Australian Strategic Policy Institute head of Risk
and Resilience Dr Paul Barnes said Australia’s position at the end of a supply
chain means we are particularly vulnerable to geopolitical disturbances.
This year, as part of the Federal Budget, the Australian Government announced it would be fast-tracking a review of liquid fuel security.
The review, which is due to release results by the end of this year, will look at issues including the resilience of our liquid fuel supply chains to withstand disruptions internationally or within Australia.
Liquid fuel including petrol, diesel and jet fuel accounts for 37 per cent of Australia’s energy use, including 98 per cent of transport needs.
Earlier this year Senator Jim Molan raised concerns about Australia’s fuel supply potentially being affected by conflict in the Middle East.
“At the moment, from my estimations, in relation to petrol we have something between 19 to 24 days,” Senator Molan told 2GB in April.
“In relation to diesel we have something between 12 to 17 days and in relation to aviation fuel… we’ve got something like 17 to 19 days.”
The comments follow an August 2017 report from the Department of Environment and Energy showing that while Australia produces its own crude oil, around 75 per cent of local production is exported and refined overseas.
“In addition, domestically produced grades of crude oil are generally not as well suited for use by local refineries as those sourced from other countries,” the report said.
We know our fuel consumption is heavily reliant on imports, with South Korea supplying 27 per cent of Australia’s refined product imports by volume in 2016-17, closely followed by Singapore with 26 per cent. Japan supplied 14 per cent, Malaysia 10 per cent and China 8 per cent.
The executive director of the Australian Strategic Policy Institute, Peter Jennings, told the ABC’s Fact Check a lack of refineries and fuel farms meant Australia would not have the capacity to store large quantities of fuel.
“We would not be able to actually keep much in-country stock because our fuel farms are now so decrepit and falling out of service that we wouldn’t have the capacity to store it all,” Mr Jennings said.
“It would take several billions of dollars to get us to a point where we’d have the storage capacity.”
The fuel security review now being undertaken will consider how fuel is used in Australia, threats to supply and the potential impact of liquid fuel disruptions to dependent sectors of the economy.
The Review will consult with key stakeholders and is inviting feedback.
Australia’s Diesel Stocks at Lowest Level Ever. This is not sensationalism, this is fact.
Regular readers of our blog will know that we have been warning for some years of the potential for a major shortage in petroleum refined products storage unless some action is being taken to create a Strategic Fuel Energy Reserve in Australia. Something that we highlighted some time ago with our interactive infographic.
“In the month of November 2016 – the latest government figures became available. Diesel consumption cover for the whole of Australia fell to (13) days, the lowest in thirteen years and beyond. Having stocks run down to that level is a huge threat to our economy.” Kevin Hughes – HEH Australian Petroleum Consultancy Co
When stocks are at that level, even a simple refinery breakdown, shipping delay, industrial unrest, act of terrorism in Asia or elsewhere, would be catastrophic for our economy.
Victoria and South Australia regularly ran out of diesel in the latter months of 2016 and have been suffering such run-outs for years.
How long will this be allowed to go on?
Australia is the only country within the IEA & APEC group not to have a Strategic Fuel Energy Reserve.
The International Energy Agency (IEA) condition of its membership is still a long way out of Australia’s reach at (90) days cover for all products.
WHY HASN’T THE GOVERNMENT MOVED ON THIS SERIOUS THREAT?
One can only speculate that the powerful oil industry lobby, which will be advising that everything is ok and nothing needs to be done, is too heavily influencing the government. The reason for such advice is centred around the major oil companies’ self- interest. They do not wish to have to fund or be involved in the management of, as in all other IEA & APEC countries, a Strategic Petroleum Energy Reserve.
Major oil and other importers of petroleum will always, perhaps understandably, unless directed otherwise by government, limit storage within their terminals to meet their own immediate market needs. Even New Zealand has a Strategic Reserve – located in Japan, while Japan itself has regulated that major oil must store at its cost, 40% above its routine requirements as a Strategic Reserve.
We are not necessarily advocating the Japanese model is the most cost effective for Australia, there are several models that can be evaluated, such as:
The Government Build additional storage in strategic locations where storage is weakest
Adopt the Japanese model and have the oil companies store a defined percentage above their market requirement – perhaps subsidised by the Government.
Build additional storage in strategic locations in collaboration with major oil on their land.
Appoint a Petroleum Industry Ombudsman, which among other responsibilities, could manage the process, the cost of which could be borne collectively by the oil industry.
Whatever happens, this major threat to our economy and to our way of life, cannot be allowed to continue. The community will not forgive any government that does not take appropriate action to protect its people, and neither it should, particularly with a problem that has been looming and well known for years. Each one of us too, should take responsibility and draw this community threat to our Members of Parliament and whoever else will listen.
To provide continual focus on what we see as an increasing threat to our Australian economy we will each month provide the latest data on ‘days consumption cover’ trends. Our view, for the protection of the Australian economy, the target days cover should be a minimum of (30) days for diesel and petrol, whereas the International Energy Agency (IEA), as a condition of membership requires (90) days cover for all petroleum stocks (including crude oil) and we are not currently meeting even that benchmark.
As will be seen from the latest numbers our fuel security remains at a precarious level.
Mogas
Distillate
September 2016
24 days
18 days
November 2016
23 days
13 days
Variance to last yr.
+ 16.9%
– 6.1%
We are still waiting with interest for the now long overdue Federal Government report on the issues raised from its April 2015 Senate Inquiry – which former Government Minister Macfarlane promised would be provided before 2015 year end.
We once again suggest that if the government appointed a Petroleum Industry Ombudsman as we have been variously recommending, the task of managing Australia’s fuel energy security could be one of that office’s stable of duties, its function paid for by the oil industry.
Article reproduced from HEH Australian Petroleum Consultancy Co the monthly update. So powerful was the message we felt it essential to syndicate and distribute in the effort to raise more awareness of the issue.
Australia’s fuel supply security. All is not what it seems.
TENSIONS in the South China Sea over recent weeks have again thrown the spotlight on Australia’s fuel supply security.
Artwork: Sarah Boese
Retired Air Vice Marshall John Blackburn, who has produced major reports on the issue for the NRMA, went so far as to say Australia’s entire food, medicine and water distribution was hanging on a “just in time” approach to transport fuel supply.
What he means is that with Australia’s strategic fuel stockpiles as low as 34 days and more than 85 per cent of refined fuel imported, predominantly from Asia, any major disruption would be bleak.
Australia has closed four refineries since 2003 and the trend to importing from Asia, where huge facilities are far more cost-efficient, is unlikely to stop.
Engineers Australia told a Senate inquiry in 2015 that the country’s total stockholding of oil and liquid fuel amounted to two weeks of supply at sea, 5-12 days’ supply at refineries, 10 days of refined stock at terminals and three days at service stations.
The Australian Government has agreed in principle to produce a plan to add 40 days of fuel reserves, due for release later this year.
For farmers, this will need to address concerns including the location of the stockpiles – if storage increases but there’s still a reliance on road transport to get the supply to regional areas, what are the implications?
Mr Blackburn told the ABC getting fuel stocks to where they’re needed is key – and it’s a process heavily reliant on fuel supply.
“What’s important is what type of fuel you’ve got and where, because we can’t move fuel around Australia readily,” he said.
“We can’t move by rail anymore because we don’t have the rolling stock, we don’t own ships anymore and the trucks that move fuel are designed for ‘just in time’ commercial deliveries.”
Fuel shortages, we’ve been here before.
Recent history shows it doesn’t take much to cause regional fuel shortages and a major headache for farmers.
In 2012 Victorian farmers in Gippsland and other regions weren’t able to buy fuel at harvest time due to a refinery issue.
In 2013 Melbourne, Sydney and Brisbane and surrounding regional areas were hit by shortages when more than 100 Cootes Transport tankers were grounded.
In the same year industrial action caused disruptions in Queensland in May, when the Maritime Union of Australia briefly blocked entrance to the Caltex refinery at Lytton in a rally after tanker ship job cuts.
What are the risks?
WHEN grain grower Corey Blacksell worries about fuel supply, it’s industrial action that is one of his biggest fears.
“I do see fuel security as a big risk,” he says.
“The more imminent issues are industrial issues – it wouldn’t take many boatloads of fuel to be delayed to cause major disruption.
“The risk is we’re importing our fuel – there’s not a lot of stuff sitting at Port Adelaide at any one time.”
Regional conflict – not necessarily involving Australia- is also a concern, with major shipping routes travelling through the increasingly tense South China Sea region.
The United States and China are locked in a struggle over navigational freedom, with Malaysia, Brunei, Taiwan, Vietnam and the Philippines weighing in.
A conflict could interrupt supply through blockades on the lanes, but also by forcing Asian countries to reduce their exports to bolster their own emergency fuel holdings and feed increased defence force needs.
There’s also the potential that because Australia doesn’t have its own flagships, threats to foreign crews could lead them to abandon risky routes.
The NRMA says even a 20-40 per cent cut in the fuel supply would lead to a situation where communities would quickly start running out of basics like food and medicine and the transport-reliant economy would start to shut down.
What happens in a fuel emergency?
Suppliers say it’s still very unlikely Australia would need to enter a state of liquid fuel emergency.
However if a national supply emergency was declared, essential users including Ambulance services, corrective services, fire and rescue crews, police and public transport services would have priority access to fuel.
For business owners, this means considering options like increasing on-site fuel storage.
“Many large fuel users only hold limited stocks on the expectation that stocks will be held by fuel suppliers, or indeed governments will intervene to protect their interests if supplies are limited,” they say.
“This expectation creates a vulnerability in the transport fuel supply chain.”
“Fuel suppliers do not hold buffer stocks to guarantee the ongoing normal business operation of all major fuel users and distributors during a major supply disruption.”
The institute recommends making a careful analysis of fuel usage to inform a plan of what to do if supply is disrupted.
“Actions should also be taken by major fuel users to address any unacceptable business risk arising from a fuel supply shortage, including investing in their own extra stockholdings and storage capacity, improving fuel supply management and changing business priorities to avoid or minimise the impact of business fuel supply disruption.”
A fuel management and refuelling system and can help inform this type of strategy by providing up to date data on your business fuel use including detailed figures on consumption, seasonal variations and where the most fuel is being used.
Improving storage capacity by going with higher capacity tanks, or buying relocatable tanks that can be filled and placed in key work areas in times where disruption is a risk, are other options worth considering.
For help with creating a strategy, ask the expert engineers and technicians at F.E.S. TANKS for a free consultation.
Oil Refining & Australia’s Market | An animated infographic
How is crude oil refined? What are the products it produces? Where does Australia sit in its ability to process crude oil? Not just now but in the future? Please view our animated infographic by clicking on the image below or click hereto get the answers.
Crude oil, in its raw natural form, must undergo refinement to make it useful for consumers. An oil refinery separates, converts, and purifies the components of crude oil into valuable petrochemicals. Many products, from propane to petrol to bitumen, can come from just one barrel of crude oil through refining. Australian oil refineries were constructed in the 1950s and 1960s. Together, they have a refining capacity of approximately half a million barrels per day. Let’s look at the fundamental processes in an oil refining setup, and learn more about Australia’s role in the global oil industry.
Types of Crude Oil
The composition of crude oil varies greatly between different natural sources. The two most important factors for profiling crude oil are its density and its sulfur content.
Oil that is less dense is referred to as “light,” whereas denser oil is classified as “heavy.” Oil with high sulfur content is called “sour,” as opposed to “sweet” oil which contains less sulfur.
As hevay oil requires more refining than light oil to yield useful products, light oil is valued higher than heavy oil. For the same reason, oil that is sweet is more valuable than oil that is sour.
Most of the crude oil found in Australia is premium crude; light and sweet.
One typical barrel of crude oil might yield:*
70 litres of petrol
34 litres of diesel
15 litres of jet fuel
7 litres of propane / butane
7 litres of heavy fuel oil
7 litres of refinery fuel gas
7 litres of coke
5 litres of bitumen
4 litres of petrochemical feedstock**
2 litres of lubricants
*Total litres exceed the volume of one barrel due to the lower density of refined products.
**Raw materials used for conversion into other products used in science and industry.
Oil Refinery
Like other industrial plants, the typical oil refinery is a large-scale operation, taking place in vast complexes with equipment the size of office buildings. Many refineries are designed to operate continuously for months at a time. The specific layout and equipment of a refinery varies greatly, and depends on both the quality of the crude oil being refined, and the market for different refined products.
Cost to build an efficiently-scaled refinery: $6.5 billion
Hydrocarbons
Crude Oil is made up mostly of hydrocarbons- compounds consisting entirely of hydrogen and carbon. Hydrocarbons are categorized by their molecular shape and the number of carbon atoms present in the molecule. The simplest hydrocarbon is methane, with one carbon atom and four hydrogen atoms. Generally, the greater the number of carbon atoms in a hydrocarbon, the higher its boiling point. This is one of the key principles applied in oil refining.
Distillation
Crude oil contains a variety of hydrocarbons that have different boiling points. To separate these compounds, the oil is first sent to a boiler where it is heated into a super-hot mixture of liquid and vapour called the feed. The mixture is then fed into a distillation tower. In here, the compounds with a lower boiling point rise up as vapours, while the compounds with a higher boiling point fall downwards as liquids. The tower contains trays that allow the vapour to bubble upward through the liquid, helping to exchange heat and resulting in more effective separation.
Cracking
Heavy, high-boiling fractions, composed of larger hydrocarbon molecules, are often less desirable than the lighter fractions composed of smaller molecules. For this reason, some of the heavier fractions are sent to cracking units that break down the hydrocarbons into smaller components. One widely-used method, known as Fluidized Catalytic Cracking (FCC), works by exposing the oil to extreme heat and a finely powdered catalyst, which breaks apart the molecules. The heated feed and catalyst are combined in the riser. The reactor then separates the catalyst from the newly cracked product, which may be sent back for re-distillation. Meanwhile, the catalyst is cleaned and recycled in the regenerator.
Hydrotreating
The distilled product may still contain undesirable elements, the most important of which is sulfur. Fuels containing sulfur, when burned, produce pungent sulfur dioxide. Hydrotreating removes sulfur by exposing the product to hydrogen gas as well as extreme heat and a catalyst. The hydrogen atoms bond with the sulfur, converting it into hydrogen sulfide. This hydrogen sulphide gas can then be removed via re-distillation. In this example, the organosulfur compound propanethiol (C₃H₈S) is being converted into cleaner-burning propane (C₃H₈).
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Products
In addition to fuels, lubricants, and bitumen, countless other products are made from chemicals derived from oil refining:
Cosmetics, Plastic bags, Electronics, Golf balls, Detergetns, Tyres, House paint, Diving suits, Plastic bottles, Hot air balloons, Water and sewage pipes, Rain boots, Nappies, Optical media
Australia’s Market
With a refining capacity of 146,000 barrels per day, The Kwinana Refinery is the largest oil refinery in Australia. The largest refineries in Asia, however, can process between 600,000 and 1,200,000 barrels per day. Due to the competitive advantage of Asian oil refineries, Australia’s oil refining market is in steep decline. Since 2003, 3 out of 8 Australian refineries have been de-commissioned, with a another due for de-commissioning in mid-2015. Australia now imports most of its refined products from Singapore, South Korea, and Japan.
Australia’s Future
Australia’s dependence on imports of refined products, crude oil and other refinery feedstock (ORF) has increased significantly over the last 30 years.
In 1986-87, imports of crude oil and ORF equalled 24% of domestic consumption. Today, this proportion is over 80%.
Since 2009, Australia has been the only country within the International Energy Agency without enough oil in storage to cover net demand for 3 months. In 2014, Australia had just 59 days of backup supplies.
Unless we upgrade our refining capacity or cut down our demand for petroleum products, Australia may be 100% dependent on overseas refining by as early as 2030.
