Security, sovereignty and the sweet smell of petrol

It’s a rule of thumb of politics in recent years that if you use the word “security” a lot, you’ll be taken seriously and people will switch off their critical faculties. This used to only apply to national security, until other industries adopted it as well. Biosecurity. Information security. Water security. Food security. Energy security. And, of course, fuel security.

That’s why the government this morning announced a $200 million-plus investment to boost Australia’s fuel security. “Prime Minister Scott Morrison said Australia’s fuel security was essential for our national security,” according to the press release. “Fuel security underpins our entire economy.” So it has to be, well, secured.

The word, or variants of it, is used a dozen times. For good measure, “sovereign” is thrown in three times. Everyone likes something “sovereign”.

The main component is a $200 million “competitive grants program to build an additional 780ML of onshore diesel storage”. Given the attractiveness, or lack thereof, of a large flammable fuel storage facility, one wonders whether this particular grants program will suffer from the usual problem of being skewed to Coalition seats. Oil companies will also be required to increase their level of fuel holdings.

That’s to address the perceived problem in Australia’s fuel security that we don’t hold 90 days’ worth of fuel imports, an arbitrary benchmark created by the International Energy Agency (IEA). Earlier this year, we had 58 days’ worth of imports, although as a number of critics have pointed out, that doesn’t count fuel and oil on the way to Australia, which adds another 50% to that figure, lifting it over 80 days.

The IEA has long been accused of relentless optimism about the future of fossil fuels and nuclear energy, while downplaying the rise of renewable energy, and of promoting more optimistic climate change scenarios. So you can’t begin to imagine why it would want governments to buy a lot of fuel they don’t necessarily need.

After a number of reviews — Australia hasn’t “complied” with the IEA requirement since 2012 — in 2016 Australia promised to get to 90 days by 2026. Towards that, in April, Energy Minister Angus “Watergate” Taylor announced that Australia would be expanding its access to the US Strategic Petroleum Reserve, on top of increasing its spending on “ticket” contracts for access to other foreign-held reserves.

The government got no credit for that announcement, only criticism that the fuel reserve wasn’t much good if it was thousands of kilometres away in the US.

The oil isn’t much good without refining, either, which leads to the other aspect of the announcement, carefully veiled in euphemism: “Backing the refining sector by entering into a detailed market design process for a refinery production payment.”

According to the government, it “is committed to a sovereign [!] on-shore refinery capacity despite the threat to the viability of the industry. This is why we will design a market system for a production payment that recognises those fuel security benefits”.

A market system for a subsidy — makes sense. The “threat to the viability of the industry” is that Australia’s refining sector, like that in other developed countries, has been in steady decline as a surge in refinery investment has created much greater global refining capacity. That means a large new Indian refinery can now refine petroleum to a standard required for Australia at a price competitive with our four refineries, built in the 1950s and 1960s, though considerably upgraded in recent years.

How competitive a price? The government’s own media release spells out the sad truth. If all Australian refineries closed, the “hit” to consumers would be… wait for it… “around 1 cent per litre increase”.

This gets us closer to the truth of the announcement. As sceptics have argued, Australia doesn’t really have a fuel security problem and our reliance on maritime supply lines is less problematic than fuel security advocates claim. Who are those advocates? Pressure on the government to “do something” about fuel supply has come not just from the industry itself, which stands to benefit, but from unions as well.

The Maritime Union of Australia (MUA) has used the issue to argue its case for a fleet of tankers owned, managed and crewed by Australians, funded by an Australian Tanker Premium of up to 1.25 cents per litre. “Our coast. Our fuel. Our security” reads the banner held by MUA members in a picture in its report.

Unions and businesses both arguing for government intervention should alert us to what’s really going on here: old-fashioned protectionism dressed up in the new garb of “security”. In the post-COVID world, protectionism is popular again. What hasn’t changed, however, is that we all end up paying for it. Either we pay at the petrol pump, with a scheme like the MUA’s, or we pay with our taxes, as with the government’s plan. Don’t complain, it’s for our sovereign security.