The government’s plans to bolster Australia’s fuel stores are sensible – but 5 years too late

News the Australian government will spend over A$10 billion to boost fuel supplies is both welcome and well overdue.

The plans announced today ahead of next week’s budget include $3.7 billion for publicly owned fuel reserves able to hold 1 billion litres of diesel and aviation fuel. They also include increasing stockholding requirements another ten days, and $7.5 billion to support fuel companies to access loans, insurance and equity to purchase and store more stock. That would mean Australia would have 37 days of petrol and diesel and 50 days of jet fuel.

Successive governments have largely been asleep at the wheel on fuel security. As the largest energy crisis on record drives up fuel prices and makes diesel harder to source, the government is frantically trying to play catch-up. Australia is highly exposed, as it now imports almost all its liquid fuels. Shoring up diesel supplies is vital, given how critical this fuel is for farming and trucking.

After the US-Iran war broke out and the crucial Strait of Hormuz closed, Australian policymakers hurriedly developed a National Fuel Security plan. Today’s announcement is the biggest so far under this plan. Previous measures include using emergency procurement agreements with neighbouring countries, underwriting emergency fuel cargoes, increasing stockpiles under new emergency stockholding powers and increasing existing liquid fuel sources.

These measures are an excellent start to bolster fuel security. But they’re not enough. Our leaders should secure more refining capacity and look for more domestic oil. They must also accelerate the shift to electric vehicles to make sure the next oil crisis passes us by.

How did we get here?

There’s nothing new about Australia’s insecure supplies of liquid fuels.

A fuel crisis was likely as early as 2020, as my research has shown, because of the closures of domestic refineries, the decision to temporarily hold our strategic oil reserve in the United States and a lack of domestic oil exploration and production.

Over the last ten years or more, successive governments have made the decision to rely heavily on liquid fuel imports and to let all but two refineries close. Over 90% of Australia’s petrol, diesel and jet fuel for both civilian and military purposes are imported from Singapore, South Korea, Japan and China.

Such reliance leaves Australia exposed to fuel shortages if there is a disruption to shipping lanes or geopolitical tensions, such as there is now. Coupled with this, the collapse of domestic refining has severely reduced Australia’s ability to produce its own fuel.

Even if we still had refining capacity, we would need to import crude oil to refine.

Then there’s the elephant in the room – very low fuel stockpiles. Historically, Australia has held very low liquid fuel stockpiles of around 30 days under the government’s Minimum Stockholding Obligation.

These critically low stockpiles leave Australia vulnerable – especially around diesel. Soon, it will be time to plant winter wheat. That requires fuel and fertiliser, both of which are derived from fossil fuels and both of which are in desperately short supply.

This is a significant oversight by the government, given wheat is a major export crop.

Is the new plan enough?

The government’s plan offers quick fixes. It may be enough to buy us some time. But a longer-term strategy is desperately required. Market interventions will not be enough – the government must lead.

As economic experts Yergin and Stanislaw have observed, some parts of the economy – the “commanding heights” – are so critical they should be controlled by the government and not left to the market. Until Australia shifts to electric vehicles in earnest, fuel is one of those areas.

Policymakers must take two actions in the medium-term.

One, build more refining capacity as a backup in case a fire breaks out as it did at the Geelong refinery last month – or other accident. The steady closure of local refineries in the face of intense competition across Asia suggests they may not be financially viable. This means government involvement through subsidies or part/full ownership will be necessary.

Two, secure oil to feed increased refinery capacity. It would be sensible to have significant domestic oil storage. Encouraging more domestic oil production would give us a measure of self-sufficiency in oil, a position Australia enjoyed until the oil wells of the Bass Strait began to run dry. It would be sensible to require current oil fields to maximise their production.

Time to tackle consumption

At present, the vast majority of Australia’s cars, trucks, planes, machines and farm equipment run on liquid fuels. But that could change.

This is why addressing supply is not enough. We also have to tackle consumption by progressively reducing how much fuel we use for transport.

The easiest way to do this is to electrify as much transport as possible, which will reduce the need for liquid fuels over time.

Giving incentives to switch to electric vehicles as Norway, China and many other nations have done is key. Australia has some incentives, but the shift to EVs has been sluggish until very recently.

The second challenge will be to electrify freight, whether through electrified trucks or trains.

The third challenge will be to tackle how much fuel we use on farms. Across Europe, many farmers are switching to electric tractors. The European Union is encouraging their use.

But Australian farms are often much bigger than those in Europe. Huge fields and long distances between fields and farm infrastructure, and questions over grid power availability are hurdles to be overcome. One solution may be microgrids, where large farms run on solar and charge their electric equipment on site.

One option worth exploring seriously is biofuels. Making fuels from plant oils is progressing and may well prove essential for Australia’s long-term energy security.

Sensible, but late

We should see today’s announcement as a sensible suite of measures coming five years too late. It will take time for these to become reality. That means there’s likely more pain to come for farmers and truckies as the energy shocks of 2026 roll on.