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Refinery closure fuels concerns

Courier Mail, 5 April 2014

IT is a few years hence. Tensions in the South China Sea have boiled over.  As the international community desperately tries to negotiate an end to hostilities, disaster strikes in nearby Singapore: someone – and no one is claiming responsibility – launches a rocket attack on the country’s Jurong Island oil refining hub. As geysers of fire and oily smoke pour into the sky, Australia watches aghast.

Within days petrol pumps are dry. Despite emergency rationing, soon after our nation’s fleet of trucks begins to run out of diesel. The supply chains bringing food to our supermarkets, pharmaceuticals to hospitals and chemicals to water treatment plants start to collapse.

As the mop-up operations continue in Singapore, Australian authorities scramble to source tanker loads of fuel from elsewhere, anywhere …

It is a worst-case scenario but not one beyond the realm of possibility, and one we are woefully ill-prepared for.

The looming closure of BP’s Bulwer Island refinery in Brisbane is a stark reminder of our increasing reliance on imported fuels, to the point where, when Bulwer shuts, our entire continent will be left with just four operating refineries and our dependence on crude oil and refined fuel imports for transport will be at 90 per cent.

Both Sydney refineries closed last year and, before that, Adelaide’s Port Stanvac facility, leaving us with just Caltex in Brisbane the Kwinana refinery in Western Australia and two plants in Victoria, although the future of the Geelong refinery remains unclear.

The refining sector in Australia is not a victim of high wages and was in decline long before carbon pricing was introduced. Rather its slow demise is a product of globalisation, with our relatively small refineries (BP’s Bulwer Island has a capacity of 90-100,000 barrels a day against offshore giants producing between 600,000 and one million plus barrels a day), a high Australian dollar and falling domestic crude oil production.

Even though Australia is the world’s ninth largest energy producer (across a range of commodities including coal and gas) we face the very real prospect of being 100 per cent reliant on imported fuels by 2030, according to energy analyst Air Vice-Marshal (Retd) John Blackburn.

While our existing supply chains have worked well for decades, there is no margin for error or unforeseen contingencies – the sort of supply shock that regional hostilities, a terror attack or a natural disaster could bring on.

As it is we’ve had a taste of just how fragile our modern “just in time” production and distribution chain is.

In late 2012 fierce storms interrupted production at the Geelong refinery resulting in severe diesel shortages in Western Victoria. Trucks and motorists were stranded at cities like Ballarat, and farmers were forced to stop harvesting, in some instances driving (unleaded) utes hundreds of kilometres in an effort to source a few drums of diesel.

That was one refinery and one weather event.

Our lack of energy security and self-reliance is further underscored with the Bulwer Island closure. When that refinery shuts Australia loses its only domestic supply of a fuel called F44 – a military grade aviation kerosene used by helicopters that operate off our new amphibious vessels. So, as of next year, the fuel that a key part of our frontline Defence forces rely on will be imported.

Blackburn, who has authored two landmark reviews of Australian energy security for the NRMA, describes Australia’s lack of energy security planning as “staggeringly naive’’.

Of the 28 member nations of the International Energy Association Australia is the only one not to come close to meeting its obligation to stockpile fuel equivalent to at least 90 days of net imports.

We are at about 60, though, as Blackburn says, that is a “net imports’’ calculation that would translate to at most about three weeks of liquid fuels consumption.

“We’ve just sat back and let the market decide … the approach is that nothing has happened in the past 30 years, so she’ll be right’’.

As he points out, energy shocks don’t advertise themselves well in advance: “The lead indicators of a market failure in this domain are relatively short, you don’t have time to prepare.

“If you said to the Australian public that logic and economics dictate it is cheaper to have most of our food grown and processed offshore there would be outrage, but that is exactly what is happening with fuel … and you can’t operate farms and transport produce without fuel.’’

Another concern is that, outside limited capacity in the private sector, we simply don’t have the ability to store strategic quantities of fuel and Blackburn stresses you can stockpile oil, but not refined fuel which has a limited shelf life.

“The moment you shut that last refinery you lose that option (of being able to stockpile fuel for an emergency).’’

“If a scenario such as a confrontation in the Asia-Pacific region were to happen, our fuel supplies could be severely constrained and we do not have a viable contingency plan in place to provide adequate supplies for Australia’s essential, everyday services and for our military forces.’’

Blackburn’s views are echoed by energy analyst Dr Vlado Vivoda, a research fellow at the Griffith Asia Institute, who argues that successive governments have failed to implement a holistic and co-ordinated strategy to ensure energy security.

He says that while smaller refineries around the world are also closing “for us it is different in that we are pretty isolated from the rest of the supply chain, and what makes the issue worse is low stockpiles’’.

Government, he says, “does have a responsibility to plan for worst case scenarios’’.