The IPA has cautiously welcomed the announcement that a private company is to study the development of a refinery in Western Australia, and that both state and federal governments are supportive of the work.
IPA Visiting Fellow in Energy Security, Stephen Wilson, said there was still a key question about whether Australia could rise to the challenge of designing, building, and operating an oil refinery on the edge of the Indian Ocean.
“Governments would need new policy settings so that new refineries in Western Australia could hold their own against modern refineries in the Asia-Pacific and the Middle East”, Adjunct Professor Wilson said.
“Debacles like Snowy 2.0 undermine investors’ confidence that Australia has the wherewithal to deliver major projects on time at a competitive cost.
“Finding the answers and making the necessary changes will be essential to underpin fuel security, and to recovering our economic prosperity and productivity.”
Australian oil production, consumption and refining capacity since 1965
Australia has fallen a long way since the year 2000, when refining capacity matched domestic demand for oil products, and domestic crude oil production almost matched consumption.
“There was still trade in oil and related products for geographic and other reasons, but we were in a very secure position,” Mr Wilson said.
“Since then, it has all gone downhill. Australian oil production is less than half what it was, and refining capacity is barely a quarter of what it was a quarter century ago.
“Reliance on imports is a month-to-month affair, as the public and media have recently learned.”
Mr Wilson pointed out that even as net fuel imports ballooned this century, Australia did not increase its domestically held stocks, in contravention of the spirit and letter of our International Energy Agency treaty obligations.
“The Hormuz crisis has dramatically revealed our vulnerability, and it may yet worsen and have further impacts before it is resolved,” he said.
Mr Wilson challenged the commonly-held view that it makes no sense for Australia to refine oil that we do not produce locally. He pointed out that refining capacity far exceeds oil production in countries like Japan, Korea, China, Singapore and other Asian countries from which Australia imports petrol, diesel, and jet fuel.
In addition to our vulnerability at the Strait of Hormuz, our supply chain involves sending oil behind two other major choke points – the Strait of Malacca and the Taiwan Strait – and then back out again to supply Australia.
Mr Wilson, who authored a review of the liquid fuels market for the Australian government in 2016, said it would have been better if such a comprehensive review was now being undertaken, in advance of private sector proposals.
“At this point, any process that puts the spotlight on the relevant issues is at least moving the ball forward,” he said.
“If momentum builds for a new refinery, then a mechanism will have to be put in place to protect taxpayers, and to ensure we invest in energy security for the country and not just to prop up sub-viable projects”.
