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Australia’s growing oil imports are an energy security issue

For all the talk about Australia’s resource and energy riches and the country’s economy riding the waves of a resource boom, one facet of the country’s energy situation has largely been under the radar…

State of dependency: Australia imports the majority of its oil for the first time since 1970. Flickr/Sr. Samolo

For all the talk about Australia’s resource and energy riches and the country’s economy riding the waves of a resource boom, one facet of the country’s energy situation has largely been under the radar – the country’s growing reliance on oil imports.

BP have just released their annual Statistical Review of World Energy. This statistical bulletin is regarded as the most reliable source of information on energy-related data, and is widely cited by governments and industry specialists alike.

What the latest report reveals should cause some concern in Canberra. In 2011, Australia’s oil production declined by 14.5% compared to the previous year. At the same time, Australia’s oil consumption increased by 5.7%.

This drop in production and increase in consumption is not alarming per se. However, what is worrying is that it comes against the backdrop of a long-term oil production decline and consumption growth (Figure 1).

Australia’s oil production and consumption (2000-2011; in thousands of barrels per day). BP 2012.

In 2011, Australia’s oil production stood at 484,000 barrels per day (bpd). This is the lowest level since 1983. It is worth noting that Australia’s oil production dropped by 41% from the peak of 819,000 bpd in 2000.

Australia’s current oil-producing provinces, such as the Carnarvon Basin and the Gippsland Basin, were discovered before 1972. The history of hydrocarbon exploration over the past four decades has been one of delineating these basins’ full potential.

As a consequence, Australia has only 3.9 billion barrels of proved oil reserves, or 0.2 percent of world total. According to the Australian Mines and Metals Association, Australia has only one decade of known oil resources at current production rates.

Given the maturity of Australia’s oil-producing areas, according to the Australian Petroleum Production and Exploration Association, only the discovery of a significant new oil province can arrest the long-term decline in Australian oil production.

Meanwhile, in 2011, Australians consumed just over 1 million bpd of crude oil and petroleum products. With growing economy and population, and relatively low priced fuel, this is the highest level on record.

The result of this growing supply-demand gap is an increase in oil imports, which for the first time since 1970, make up more than half of the country’s overall oil demand. In fact, net-oil imports have increased from 12,000 bpd in 2000 to 519,000 bpd in 2011, the highest on record.

Continued growth in domestic oil demand and declining domestic oil production are expected to result in a future increase in Australia’s oil imports. Given recent trends, the country’s self-sufficiency in crude oil and refined petroleum products is likely to drop from 48% in 2011 to approximately 20% by 2020.

Such a rapid transformation in the country’s oil supply-demand structure should raise some concern in Canberra, both in terms of cost and energy security.

As recently as 2002/03, Australia enjoyed a trade surplus in oil and liquid fuels. Yet rising demand and falling production mean that in 2011 Australia had an estimated trade deficit in crude oil and refined petroleum products of $18 billion, which is likely to increase.

The growing import dependence also leaves Australia more vulnerable to potential disruptions to overseas crude oil and petroleum products supply chains. Australia is the only member of the International Energy Agency (IEA) that does not stockpile the equivalent of 90 days net imports of oil. These reserves are designed for use in an oil-supply disruption, to cushion the economic impact of any crisis. Moreover, strategic fuel stocks held by the Australian Defence Force (ADF) are believed to be minimal.pdf).

Australia imports most of its refined petroleum products from Singapore, which depends on the Middle East for more than 80% of its supplies. Political instability or conflict in the Middle East, or along oil supply chains such as the Strait of Hormuz, would have detrimental effects on Australia’s energy security.

This vulnerability is exacerbated by the state of Australia’s refining sector and the looming closure of three refineries, coupled with increased restrictions on access for foreign vessels to Australia’s coast.

In its 2011 National Energy Security Assessment, the government claimed that Australia enjoys a high level of liquid fuel security and that this position is not expected to change in the coming years.

This evaluation appears both overly optimistic and naive given recent trends and future projections of Australia’s oil production and consumption.

Australia’s relative isolation, continental size and reliance on transport fuels imply that oil supply security is vital for its economy and strategic posture. Australia’s growing dependency on imported oil, and easily disrupted or fractured supply chains, is an increasing economic and strategic vulnerability.

Comments welcome below.

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24 Comments sorted by

  1. John Newlands

    tree changer

    Some think that coal exports will pay for oil imports, hardly consistent with the aim of carbon reduction. The fuel that straddles both power generation and transport is natural gas. I wonder if we could use say 10 Mt a year of CNG and LNG as a diesel substitute, thereby increasing local gas demand 50% and perhaps reducing gas exports.

    There is little sign so far that electric cars will crowd the roads. I know people with long commutes who plan to move closer to work. Biofuel is limited and competes with food and it will be a different world if we need synthetic fuel costing say $5 a litre. I think the looming shortage of liquid fuels is a more pressing global problem than climate change.

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  2. Roger Edgbaston

    Apparatchik

    With Australia's super-abundance of natural gas, and the ready availability of gas-to-liquids technology (if economically and strategically justified), the concern about our lack of indigenous oil resources is a non-starter.

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  3. Bruce Tabor

    Research Scientist at CSIRO

    While Australia is in a better position than most regarding alternatives to oil, what concerns me most about our energy policy is that lack of a strategic long-term plan. Currently we leave things to the "free" market. Inevitably we will suffer the consequences of market failure and painful adjustment. It doesn't have to be so.

    Contrast how the UK and Norway have treated their North Sea resources. The UK let the free market rule and most of their share of North Sea oil was sold off as quickly as it could be extracted at the low prices of the last 30 years. The UK now must import most of its oil at much higher prices. Norway husbands its resources, ensuring they will last, and applies high resources taxes to make sure all Norwegians benefit. They are now among the richest people on the planet with a vast sovereign wealth fund.

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  4. Bruce Moon

    Bystander!

    Vlado

    Back in the 1990's, when at Griffith Uni I looked at Natural Gas as a transport fuel. I assume a copy of that remains in the GU library.

    Back than, fears over the implications of fuel importation were no less prolific and also largely unheeded.

    About half the oil based energy demand in Australia is for transport fuels. And, with a (relatively) low price and ease of use, there has been little incentive to explore alternate options. I dare say this will remain the case for some time…

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    1. David Arthur

      resistance gnome

      In reply to Bruce Moon

      My impression of China during my years of being a small child was a nation of bicycle riders, and Australia as a nation of motor vehicle drivers. Perhaps the reverse will be the medium-term future.

      MInd you, we know that world petroleum supplies are dwindling, anyway. Surely we always knew that, sooner or later, we'll be needing alternate sources of transport fuel?

      The long-term future is that we'll all be bicycle riders once more.

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    2. Philip Dowling

      IT teacher

      In reply to David Arthur

      Clover Moore is trying to take Sydney back to the 1980's. The Chinese 1980's.

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  5. Roger Crook

    Retired agribusiness manager & farmer

    Roger E is right, it's a no brainer. But we in Australia are not into strategic planning, we are into electoral cycle tactics, and we love it. That's why our infrastructure is RS.
    It may not be the definitive, but you could read this for a start: http://en.wikipedia.org/wiki/Natural_gas_vehicle
    Meanwhile, as 'Rome Burns' we give the bloody stuff away to those who have no energy. I did hear a figure of 20cents a litre.

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  6. Eriks Velins

    Retired

    Congratulations on an excellent summary of a rather sorry state of affairs.You made one error, however, our crude oil reserves are only a fraction of the reported figure.Geoscience Australia gave that figure as 1264 million bbls on14.3.2012. Our government usually includes condensate and LPG in its total , which are not crude oils. Unfortunately the Australian government is not the only one which provides misleading information. Thus our future transport fuel supplies are far less secure than publicly acknowledged.Of course, we do not know the ultimate indigenous supply which is a matter of geology, risk management and economics. But we are able to convert every hydrocarbon from natural gas to coal into transport fuels. That is a matter of economics.However, Australia is not competitive due to its very high capital, construction, operating and natural gas costs.
    Thus the problem of rising fuel costs remains and continues to be ignored by the government.

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  7. Eddy Schmid

    Retired

    Erik, reference; "Australia is not competitive due to its very high capital, construction, operating and natural gas costs. ". Sorry mate, that does not hold up under scrutiny.
    Here in W.A. where it is ALLEGED, we have 300 years supply of natural gas, we've been running our public transport system of buses on COMPRESSED NATURAL GAS for many years. The infrastructure is in place, and given the time frames available with a strategic plan, would not be insurmountable.
    Witness too, the idiotic Federal…

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    1. Bruce Moon

      Bystander!

      In reply to Eddy Schmid

      Erik

      Two points.

      First, the conversion of Natural Gas to electricity for locomotive use appears wasteful. It's not only the energy lost in the conversion process, it's also the need to erect overhead lines, and the relative 'loss' by charging up the lines.

      With a greater abundance of coal, that is a better choice.

      I know there are some who argue that in relation to global warming, coal is ghastly. But, that argument is flawed. It uses a relative emissions position to justify energy…

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  8. Eriks Velins

    Retired

    Bruce, Eddy,
    We have now mixed up two subjects, the size of our crude oil reserves and alternative transport fuels.I can not read any argument against my data and its implications upon balance of payments.
    LPG and CNG are valid transport fuels, subject to their economics, ie in comparison with equivalent petroleum based fuels.LPG (propane and butane) comes from crude oil and natural gas processing and oil refining.Much of the automotive LPG (propane ) is now imported. Woodside's associated LPG…

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  9. John Harland

    bicycle technician

    The peaking of our oil production, coupled with continued increase in use, and the effects of both our balance-of-payments and our exposure to internatinal oil politics, were an obvious trend from at least the late 1980s.

    The peaking of Australian production was quite apparent 25 years ago. Equally, it was reasonable to assume that World oill production would peak some time later.

    The article reads as only a little better than an insult to the reader's intelligence.

    We have a quarter century of policy failure to overecome. A 90-day stockpile is not much of the way towards addressing that.

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  10. SUSTAINABLE POPULATION PARTY

    Written & authorised by William Bourke, Sydney

    Along with food and water security, a stable population would enhance energy security. If only our federal pollies would join the dots...

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  11. Daryl Deal

    retired

    Perhaps it is time for the Australian Military to create a source of renewable fuels, which will replace at least a minimum of 50% of the current reliance on carbon based fossil fuels.

    Of course during WW2, Australia's military was fueled by mining oil shales, near Katoomba in the Blue Mountains.

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    1. Philip Dowling

      IT teacher

      In reply to Daryl Deal

      How dare you.
      Environmental studies. Aboriginal studies. Heritage studies. etc. etc will consume the budget to deal with this issue.
      The military budget will be reduced accordingly.

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    2. Jonathan Maddox
      Jonathan Maddox is a Friend of The Conversation.

      Software Engineer

      In reply to Daryl Deal

      For the record, production of kerosene from shale at Katoomba did happen, but about 50 years earlier than you recall.

      "By 1895 both mines were winding down, & Katoomba's shale oil industry was abandoned by 1903."

      http://infobluemountains.net.au/rail/ksr/kat_tram.htm

      Katoomba also ceased being a coal-mining town in 1933 when its power station closed down.

      To the best of my knowledge Australia had no domestic liquid fuel industry whatsoever in the second world war period. Petroleum was all imported. There was a lacklustre effort to fit private vehicles with "gas producers" (tubs on the back bumper generating syngas from wood or coal on the spot for immediate combustion) and the CSIR laboratories did some proof-of-concept research in coal-to-liquids (of course those techniques were already well understood, just never before tried in Australia).

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    3. Eriks Velins

      Retired

      In reply to Jonathan Maddox

      Oil shale was processed at Clyde, Sydney, from 1926-28, when the company became bankrupt and was bought by Shell. Hence its inland location at the end of Parramatta river.There was a shale oil refinery at Glen Davis which operated during the war and into the 1950's. Some of its equipment was subsequently bought by Shell for its Clyde refinery. Clyde, of coursed has now been shut down.

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    4. Jonathan Maddox
      Jonathan Maddox is a Friend of The Conversation.

      Software Engineer

      In reply to Eriks Velins

      Thankyou Eriks, I hadn't been aware of Glen Davis Oil Shale Works.

      Clyde was supposed to have been shut down in October 2012 but I still occasionally see flares as I pass. Unless the flares are part of ongoing decommissioning work, the assertion on Shell's website that the site now operates purely as an import terminal for oil products is perhaps not entirely accurate.

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    5. Barry White

      Retired

      In reply to Jonathan Maddox

      Shell retained the right to market lubricating oils so maybe the flaring is something to do with that.

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    6. Eriks Velins

      Retired

      In reply to Barry White

      Lubricating oils are made in a luboil refinery. There were once four in Australia, in Kwinana, Kurnell, Geelong and Hallett's Cove refineries. I believe they are now all shut down,. Shell makes its luboils in its Birkenhead depot in Brisbane from imported blending components and additives.

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  12. Barry White

    Retired

    The problem with natural gas is the enormous capital expenditure to provide
    CNG refueling service in every service station.
    Also the tanks in the cars need regular purging to remove residual chemicals.
    It can be done and when oil prices get back up to $150 plus then it may become
    worthwhile.

    By the time we need to do the conversion the capital is unlikely to be available.
    Electrification and duplication of all mainline is absolutely urgent and should be
    done before any more expenditure on roads.
    Also many of the closed down branch lines should be reopened.
    We are in for a real problem with the cost of food distribution in the future and if the government was doing its job work would be under way now.

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    1. Roger Crook

      Retired agribusiness manager & farmer

      In reply to Barry White

      A natural gas vehicle or NGV is an alternative fuel vehicle that uses compressed natural gas (CNG) or liquefied natural gas (LNG) as a clean alternative to other fossil fuels. Worldwide, there were 14.8 million natural gas vehicles by 2011, led by Iran with 2.86 million, Pakistan (2.85 million), Argentina (2.07 million), Brazil (1.70 million), and India (1.10 million).[1] The Asia-Pacific region leads the world with 6.8 million NGVs, followed by Latin America with 4.2 million vehicles.[2] In the…

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    2. Barry White

      Retired

      In reply to Roger Crook

      Yes Roger, I think we are stupid !
      I have never seen a calculation on how long our reserves of natural gas will last if we used it as an alternative to oil.
      The export of gas is totally stupid as it will reduce very significantly the time that we will have to transition to whatever energy replaces oil and gas.

      The politicians are aware of this but for some reason have been ordered to ignore the problem. Note how they change the subject to global warming whenever someone raises the subject of oil supply.
      I am adverse to conspiracy theories but it does seem to be worldwide .

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  13. Chris Harries

    logged in via Facebook

    Closure of oil refineries in Australia also brings up another issue of concern regarding energy security.

    Australia has a mandated agreement, along with all other signatory nations, to ensure that it has a minimum buffer of 90 days of liquid fuels in storage at all times. This is an internationally agreed standard.

    However, Australia's attitude to this mandate has been very lax to date and has attempted to justify compliance only by toting up every conceivable bit of storage capacity we have…

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