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Australia’s growing oil imports are an energy security issue

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.

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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