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Explaining the petrol problem and whether gas is next · The Morning Edition

• 0:04
  S1: You've noticed the hike in prices at the petrol pump,
• 0:07
  S1: but how high might prices go? And are we at
• 0:10
  S1: risk of running out of petrol? I'm Samantha Selinger Morris,
• 0:13
  S1: and you're listening to Morning Edition from The Age and
• 0:16
  S1: The Sydney Morning Herald. Today, energy reporter Nick Toscano on
• 0:20
  S1: what plans our government and fuel companies have to manage
• 0:24
  S1: this crisis, and how long it might take for prices
• 0:27
  S1: to return to normal. It's March the 24th. Hey, Nick.
• 0:32
  S1: Welcome back to the pod.
• 0:33
  S2: Hey, Sam. Thanks for having me back.
• 0:35
  S1: Oh, I'm so happy to have you back because I'm
• 0:38
  S1: sure many listeners are like myself and they're quite confused
• 0:41
  S1: by this. So before we get into everything that's been happening,
• 0:44
  S1: can you just tell us where we actually get our
• 0:46
  S1: fuel from in Australia?
• 0:48
  S2: Sure. Well, I guess that's a question with an answer
• 0:50
  S2: that's changed quite a bit over the past couple of decades. Australia.
• 0:54
  S2: We once had a considerable fleet of our own domestic
• 0:57
  S2: oil refineries. So these are the sort of sprawling industrial
• 1:00
  S2: complexes of pipes, machines and giant chimney stacks that turn
• 1:04
  S2: crude oil into the fuels that we actually use every day,
• 1:07
  S2: like petrol, diesel and aviation fuel. At the turn of
• 1:10
  S2: the century, we had eight oil refineries spread across the country.
• 1:14
  S2: That produced not all, but a good chunk of our
• 1:17
  S2: liquid fuel needs. Today, we're left with just two. That's
• 1:22
  S2: the Geelong oil refinery in Victoria, which is run by
• 1:24
  S2: Viva Energy and the Lytton oil refinery in Brisbane, which
• 1:28
  S2: is operated by Ampol. So I guess what's happened is
• 1:32
  S2: that refined fuels in this day and age are so
• 1:34
  S2: widely available from so many different parts of the world
• 1:37
  S2: that can be easily shipped to buyers anywhere as far
• 1:40
  S2: afield as Australia. And it's easier, simpler, and in most cases,
• 1:45
  S2: cheaper to import fuels into shipping terminals here instead of
• 1:49
  S2: going through the effort to produce them ourselves. So while
• 1:52
  S2: there's been a desire to, um, a strategic desire from
• 1:55
  S2: the industry and from governments to retain some of our
• 1:59
  S2: capacity to be able to produce our own fuel, Australia
• 2:03
  S2: has the problem of having a relatively small market, and
• 2:07
  S2: that means we have relatively smaller and higher cost oil refineries,
• 2:12
  S2: which have found themselves in the past little while just
• 2:14
  S2: increasingly less and less able to compete with cheaper imports
• 2:20
  S2: coming from the mega refineries of South East Asia in particular,
• 2:23
  S2: that can pump out fuels for a fraction of the
• 2:25
  S2: cost and have really pressured the profit margins of the
• 2:27
  S2: plants that we have left. Then rewind a couple of
• 2:30
  S2: years ago, the onset of the Covid 19 pandemic, as
• 2:33
  S2: we saw, you know, basically brought travel and petrol and
• 2:37
  S2: diesel use to an absolute standstill everywhere. And that was
• 2:41
  S2: sort of the final crushing blow for, um, for a
• 2:44
  S2: couple of the last refineries that we did have in
• 2:47
  S2: Perth and another one in Melbourne's western suburbs. So that
• 2:50
  S2: forced the closures of two more, leaving us with just
• 2:52
  S2: two remaining. And that's left us reliant on imported fuels
• 2:56
  S2: from places including, but not limited to Malaysia, Singapore, Korea,
• 3:00
  S2: China for our fuel needs and we get smaller amounts
• 3:04
  S2: from from the Middle East and from America. So as
• 3:07
  S2: things stand today, imported products account for about 90% of
• 3:11
  S2: our total liquid fuel needs.
• 3:12
  S1: And, you know, this has gone beyond the headlines now
• 3:15
  S1: because we are seeing the impact on prices at the
• 3:18
  S1: petrol pump right across the country. So can you just
• 3:20
  S1: explain to us how this war is driving prices?
• 3:24
  S2: Well, since the outbreak of the war a couple of
• 3:26
  S2: weeks ago now, the price of petrol has shot up dramatically. It's, uh,
• 3:30
  S2: it's gone up 30% in the space of a couple
• 3:33
  S2: of weeks. It's actually reached an all time high. We've
• 3:35
  S2: never seen prices national average prices this high. We're at
• 3:39
  S2: $2.19 a litre for unleaded, which is a record. So
• 3:42
  S2: primarily the high cost of petrol comes down to one
• 3:45
  S2: thing most of all. And that's the fact that the
• 3:47
  S2: price of oil, the cost of a barrel of oil
• 3:50
  S2: has surged faster and higher than we've seen for years
• 3:53
  S2: and years. The cost of a barrel of oil before
• 3:55
  S2: the war, at the start of the year, was about
• 3:57
  S2: 70 USD a barrel, and that's blown past the $100 mark.
• 4:02
  S2: It's even briefly touched $120 a barrel. Crude oil is
• 4:06
  S2: is the natural resource that is refined into petrol, diesel
• 4:09
  S2: and jet fuel and therefore makes up the biggest and
• 4:12
  S2: most important and I guess most volatile input costs to
• 4:15
  S2: the fuel that we use. The reason this has happened, Sam,
• 4:17
  S2: is that countries in the Middle East and around the
• 4:20
  S2: Persian Gulf, where much of the fighting is taking place,
• 4:23
  S2: so we're thinking Iran, Saudi Arabia, the United Arab Emirates, Bahrain,
• 4:27
  S2: they account for a massive chunk of the world's overall
• 4:30
  S2: supply of oil, and a good portion of that supply
• 4:33
  S2: is now disrupted. The biggest cause there is that Iran
• 4:37
  S2: has done something that energy markets and governments around the
• 4:40
  S2: world have long feared it would do if it ever
• 4:41
  S2: came under attack. And that's forcing the effective shutdown of
• 4:45
  S2: a shipping corridor, which you're no doubt familiar with now
• 4:48
  S2: called the Strait of Hormuz, which is off Iran's southern coast. Typically,
• 4:53
  S2: in ordinary times, that shipping channel accounts for about one
• 4:57
  S2: fifth of all the world's oil and natural gas supplies,
• 5:01
  S2: and that's basically come to a complete standstill, a complete halt. Now,
• 5:05
  S2: Iran has been threatening to attack any foreign oil tankers
• 5:08
  S2: that attempt to pass the strait. And that's basically left
• 5:12
  S2: all this oil and refined fuel from those Persian Gulf
• 5:16
  S2: countries with essentially no way to exit, with essentially no
• 5:19
  S2: way to get their oil out into the ocean and
• 5:22
  S2: take it to customers who want it. The world has
• 5:25
  S2: been trying to reduce its reliance on oil and other
• 5:28
  S2: fossil fuels for a long time now by pushing harder
• 5:30
  S2: to add more renewables and drive electric vehicle uptake. But
• 5:34
  S2: oil is still hugely important. The world consumes in excess
• 5:36
  S2: of 100 million barrels of oil every day. And the
• 5:41
  S2: stuff that's stuck in the Persian Gulf now, that's about
• 5:43
  S2: 20 million barrels. So it's it's literally 20% of our
• 5:46
  S2: overall supply.
• 5:48
  S1: Wow. And of course, we've seen reports of people panic
• 5:51
  S1: buying and petrol stations being out of petrol. So how
• 5:54
  S1: bad is the problem? Like, are we actually at risk
• 5:57
  S1: of running out of petrol?
• 5:59
  S2: No we're not. At least not yet. Sam, there are
• 6:01
  S2: localised problems that we're seeing emerge across the country, in
• 6:05
  S2: regional areas, in metropolitan areas as well. People are getting worried.
• 6:09
  S2: You know, they're reading that reading the headlines. They're seeing
• 6:11
  S2: prices rise. There's been what the industry is calling a
• 6:14
  S2: rush on demand rather than any structural supply deficit. Yet
• 6:19
  S2: people are filling up jerry cans with fuel to stock
• 6:22
  S2: at their homes. People are filling up their cars unnecessarily.
• 6:26
  S2: And what that's done is it's caused supply disruptions. These
• 6:29
  S2: are localized disruptions. The fuel industry says they're typically resolved swiftly.
• 6:33
  S2: But it goes to show, I guess, the volatility of
• 6:36
  S2: the market right now that people are making a dash
• 6:39
  S2: for the petrol station. People are often finding the bowsers
• 6:41
  S2: having run dry at the moment. Sam, there's no risk
• 6:44
  S2: of a shortage. The fuel industry and the federal government
• 6:47
  S2: say we have more than enough supplies to cover demand. So,
• 6:50
  S2: you know, a lot of these problems are being driven
• 6:53
  S2: by consumers panic buying. There are still ships arriving to Australia.
• 6:58
  S2: There are still lots of oil and refined fuel arriving
• 7:01
  S2: on our shores. We have a significant national stockpile of fuel,
• 7:05
  S2: enough to cover more than a month's worth of typical
• 7:08
  S2: demand of diesel and petrol. We still have more than
• 7:11
  S2: a month's worth there, even though we've released some of
• 7:12
  S2: that recently. So things aren't at the pointy end yet,
• 7:16
  S2: even though we're seeing prices rise. I guess the sense
• 7:20
  S2: coming out of the fuel industry and the people that
• 7:22
  S2: I've spoken to over the past week, is that things
• 7:24
  S2: are okay now, but a lot will depend on what
• 7:27
  S2: happens next and how long this goes for. And if
• 7:29
  S2: we're still having this conversation in a month's time. It'll
• 7:33
  S2: be a different conversation.
• 7:39
  S1: After the break.
• 7:40
  S2: I think what will happen first is if there's no
• 7:42
  S2: resolution to this conflict, and suppliers continue to come under
• 7:46
  S2: pressure and be choked into the Asian regions, you will
• 7:48
  S2: see prices rise even potentially rise even further than they're
• 7:51
  S2: trading at now. Beyond that, there could well be a
• 7:54
  S2: shortage of product coming into Australia.
• 8:04
  S1: And so how is it that ships fuel are still
• 8:06
  S1: making their way to Australia. Is it because these are
• 8:08
  S1: ships that had already sort of stocked up on the
• 8:11
  S1: fuel from the Persian Gulf, and they'd already sort of
• 8:13
  S1: been made their way before the Straits of Hormuz essentially
• 8:16
  S1: was closed.
• 8:17
  S2: Well, again, Australia gets most of its fuel, not from
• 8:20
  S2: the Middle East. We source most of our fuel and
• 8:23
  S2: some of our oil from the Asian region in particular.
• 8:26
  S2: There are bigger sources of supply. The problem that we're
• 8:29
  S2: seeing emerge now, the problem that's coming into view is
• 8:34
  S2: that the Asian region sources much of its crude oil
• 8:37
  S2: to process into fuels at its mega refineries from the
• 8:40
  S2: Middle East. And there's been a notable drop off of
• 8:44
  S2: oil tankers arriving in Asia. That's going to eventually disrupt
• 8:48
  S2: the traditional flow of oil and fuels that we source from.
• 8:52
  S2: At the same time, that problem is being made worse
• 8:55
  S2: by the fact that China, a huge customer and a
• 8:57
  S2: huge supplier of refined fuels, have basically cut off their exports.
• 9:02
  S2: They typically account for 15% of the Asian market. They've
• 9:05
  S2: put a halt on all that. That's going to hit
• 9:07
  S2: home eventually, too.
• 9:08
  S1: And so what are the contingency plans then? Like what
• 9:11
  S1: is the government and fuel companies? What have they said
• 9:13
  S1: that they're going to do about it?
• 9:14
  S2: Well, the first and most important thing I think, that
• 9:17
  S2: the federal government has done is they've tapped into the
• 9:19
  S2: strategic reserve, the strategic stockpile of fuel to provide something
• 9:23
  S2: of a buffer. Australia is in breach of its requirement
• 9:27
  S2: as a member of the International Energy Agency to hold
• 9:30
  S2: 90 days worth of refined fuel products, but we still
• 9:33
  S2: have more than a month's worth of supply. I think
• 9:35
  S2: it's 3 or 4,000,000,000l at last check of fuels. The
• 9:39
  S2: energy minister, Chris Bowen, has decided to release, I think,
• 9:42
  S2: 5 or 6 days worth of petrol and diesel to
• 9:45
  S2: help provide that sort of cushion and help insulate us
• 9:47
  S2: from the from the effect of of any shock. There
• 9:51
  S2: may be another draw down soon, we don't know. The
• 9:53
  S2: other thing is other initiatives that have that have happened
• 9:55
  S2: in the past couple of weeks have been a decision
• 9:58
  S2: to enable Ampol, which is the operator of the Lytton
• 10:03
  S2: oil refinery in Brisbane, to supply the market with fuel
• 10:07
  S2: that would ordinarily be in breach of emissions limits for
• 10:11
  S2: Australian vehicles feel that it would normally export. It's now
• 10:14
  S2: delivering into the local market. Ampol has also delayed a
• 10:17
  S2: planned maintenance closure of the Lytton oil refinery. It was
• 10:21
  S2: going to come offline for a couple of months as
• 10:23
  S2: of June. That's now been pushed back to April to
• 10:26
  S2: enable it to pump out another 300,000,000l of fuel product
• 10:29
  S2: into the economy.
• 10:30
  S1: And so you've mentioned there that sort of month, Mark,
• 10:32
  S1: you know, should we be talking about this in another month?
• 10:35
  S1: Should this war still be going on? And the Straits
• 10:37
  S1: of Hormuz closed for another month? That might be, I guess,
• 10:40
  S1: a sort of tipping point. Is it like, is that
• 10:42
  S1: when things might start to get a bit more serious
• 10:45
  S1: in terms of us looking down the barrel of a
• 10:47
  S1: possible real significant fuel shortage?
• 10:50
  S2: That's the prevailing fear. I think what will happen first
• 10:54
  S2: is if there's no resolution to this conflict, and suppliers
• 10:57
  S2: continue to come under pressure and be choked into the
• 11:00
  S2: Asian regions, you will see prices rise even potentially rise
• 11:02
  S2: even further than they're trading at now. Beyond that, there
• 11:06
  S2: could well be a shortage of product coming into Australia.
• 11:09
  S2: And the other thing the fuel industry is doing in
• 11:11
  S2: response to all this is they're working around the clock
• 11:13
  S2: to try and lock in additional sources of supply from
• 11:16
  S2: countries where we wouldn't normally source a huge amount of
• 11:19
  S2: of our refined product from, including the EU and including
• 11:23
  S2: North America to try and make up to try and
• 11:25
  S2: offset the declines that we're seeing into Asia.
• 11:29
  S1: Okay. Well, let's look at the other side of the coin,
• 11:30
  S1: which is the question that if the war ends tomorrow,
• 11:33
  S1: how long would it take for prices to drop and
• 11:35
  S1: the supply to go back to normal?
• 11:37
  S2: That's a good question. There would be an impact seen
• 11:39
  S2: almost immediately. Prices would begin to ease. Obviously petrol prices
• 11:44
  S2: take longer to to fall than they do to rise
• 11:47
  S2: in these sorts of scenarios. But the fact of the
• 11:50
  S2: matter is the world has no shortage of oil and
• 11:54
  S2: of refined fuels. What's happened here is that there is
• 11:56
  S2: this this huge disruption, this at this choke point that's
• 11:59
  S2: causing this big bottleneck. Before the outbreak of the war,
• 12:02
  S2: the oil price was at 70 USD a barrel in
• 12:04
  S2: a context of a weak global economy, rising inflation, which
• 12:09
  S2: led to subdued demand. so the world had more oil,
• 12:12
  S2: more oil and fuel than it needs. Nothing structurally changed
• 12:16
  S2: over the past two weeks that would change that environment.
• 12:19
  S2: It would return to an environment of oversupply, but there
• 12:22
  S2: would be some impacts that would take longer to recede.
• 12:25
  S2: Not only is there the Strait of Hormuz being blockaded,
• 12:28
  S2: but there's also now been, especially over the past week,
• 12:31
  S2: serious damage inflicted on oil and natural gas infrastructure in
• 12:36
  S2: the region. There's actual, you know, actual refineries, actual production
• 12:41
  S2: fields that have been that have been blown up or
• 12:43
  S2: that have been that have been struck by drones or
• 12:45
  S2: what have you. To return to your question, it may
• 12:48
  S2: take a lot longer than just the reopening of the
• 12:51
  S2: Strait of Hormuz. For all of that price pain to proceed,
• 12:54
  S2: given the world may take longer for supplies to catch
• 12:56
  S2: up again.
• 12:57
  S1: What you've just mentioned there, of course, the gas production
• 13:00
  S1: sites that have been hit in strikes. And that brings
• 13:02
  S1: me to what I wanted to ask you about, which
• 13:03
  S1: is that will other sources of energy be affected in
• 13:07
  S1: Australia with regards to what's, of course, going on in
• 13:09
  S1: and around Iran?
• 13:11
  S2: The other big commodity that's been affected by all this
• 13:13
  S2: is natural gas, which is a fuel that's used in
• 13:15
  S2: Australia and around the world for cooking, for heating, for
• 13:18
  S2: hot water. It's used to power our electric grids and
• 13:21
  S2: it's used in a range of industrial processes. Qatar is
• 13:25
  S2: the world's second biggest supplier of liquefied natural gas. So
• 13:29
  S2: that's our LNG. That's natural gas that has been super
• 13:33
  S2: cooled down to the point that it becomes a liquid,
• 13:35
  S2: and then it can be put onto ships to be
• 13:37
  S2: sent around the world. Qatar's main LNG production hub was
• 13:41
  S2: hit by a drone strike in the early days of
• 13:44
  S2: this conflict in itself, that knocked out about one fifth
• 13:48
  S2: of the world's LNG supply. Qatar is a major supplier
• 13:51
  S2: to Asia, and Asian economies are very heavily dependent on
• 13:55
  S2: imported LNG for their energy needs. So what's happened? There
• 13:58
  S2: is prices have gone through the roof in Asia. They've
• 14:00
  S2: gone through the roof in Europe. Australia hasn't been affected
• 14:04
  S2: so badly, at least yet. We are a big gas
• 14:07
  S2: exporter ourselves. We produce a lot of gas for the
• 14:10
  S2: domestic and for the international markets. So far, our prices
• 14:14
  S2: have remained steady, even though there is often a link
• 14:17
  S2: between the price that we pay here and the prices
• 14:20
  S2: that our exporters are earning from selling cargoes into international markets.
• 14:25
  S2: At the moment it's been pretty steady. They've stayed around
• 14:27
  S2: the $10 a gigajoule mark this whole time, which is
• 14:31
  S2: historically quite subdued. But again, the longer this drags out
• 14:35
  S2: and the more there is a overall international shortage causing
• 14:39
  S2: a mad scramble for any spare gas supplies. There's a
• 14:42
  S2: fear that that could start being felt here at home
• 14:44
  S2: as well.
• 14:45
  S3: And Nick, just to wrap up, I mean, I really.
• 14:47
  S1: Want to ask you what the lesson is in all
• 14:50
  S1: of this or what it perhaps should be, because we
• 14:52
  S1: know that this is far from being the first oil
• 14:54
  S1: shock that Australians have experienced in their lifetime. There was
• 14:57
  S1: a massive fuel crisis in 1973, in 1979 again. So
• 15:03
  S1: what should we be take from all of this?
• 15:06
  S2: Well, I guess the biggest thing probably, Sam, is the
• 15:08
  S2: risks of relying on globally traded energy supplies that are
• 15:13
  S2: critical to our needs, but that can be essentially held
• 15:16
  S2: for ransom in geopolitical events like this. The closure of
• 15:20
  S2: the Strait of Hormuz has been something that's been long feared,
• 15:23
  S2: but it's never really come to pass until now. I
• 15:27
  S2: guess what's happening now just shows it just underscores the
• 15:30
  S2: significance of the threat of relying on on other countries
• 15:33
  S2: for our energy supplies. Advocates of renewable energy and some
• 15:41
  S2: political leaders say that we shouldn't be wasting this opportunity
• 15:44
  S2: to double down on transitioning our energy system to adopt
• 15:49
  S2: more sources of renewable energy, to reduce our reliance on, on,
• 15:53
  S2: on other countries. And yet you can't hold the wind
• 15:56
  S2: and the sun hostage like you can hold fossil fuels hostage. Obviously,
• 16:01
  S2: driving the uptake of electric vehicles speaks to the same issue.
• 16:05
  S2: I guess the other lesson from this is I'm not
• 16:08
  S2: sure what the government will take away from it, but
• 16:10
  S2: there has been this long running debate about how much fuel,
• 16:13
  S2: how much oil products we should be holding in storage.
• 16:16
  S2: It's a tricky one for the government because it costs
• 16:18
  S2: a lot of money. I think the last estimate from
• 16:20
  S2: the federal government was if we were to increase our
• 16:23
  S2: fuel stockpiles from 35 days to to the 90 day
• 16:27
  S2: benchmark set by the International Energy Agency, that would cost
• 16:30
  S2: nearly $20 billion. Is that a cost that taxpayers and
• 16:33
  S2: consumers would be willing to wear? That's obviously a debatable point,
• 16:37
  S2: but I mean, it's like an insurance policy. You only
• 16:40
  S2: need it when you need it. And I imagine there
• 16:42
  S2: will be a significant discussion taking place on the other
• 16:45
  S2: side of this conflict about whether our stockpiles do provide
• 16:49
  S2: enough of a buffer for a country like Australia. That's
• 16:51
  S2: at the very end of a global supply chain.
• 16:58
  S1: Well, Nick, we are so lucky to have you to
• 16:59
  S1: walk us through this. It is quite complicated. So thank
• 17:02
  S1: you so much for your time.
• 17:05
  S2: No worries. Thanks, Sam.
• 17:12
  S1: And in other news today, the long awaited Australia. EU
• 17:15
  S1: free trade deal will be finalized today. Under it, Australian
• 17:19
  S1: red meat exports to Europe are set to rise tenfold.
• 17:23
  S1: Union groups have joined churches, health organizations and community advocates
• 17:28
  S1: to demand that Prime Minister Anthony Albanese move urgently to
• 17:32
  S1: enact gambling reform, citing the $32 billion that Australians lose
• 17:37
  S1: every year, and children and teenagers who turn to AI
• 17:41
  S1: companion chatbots for relationships are being exposed to sexually explicit
• 17:45
  S1: content and are being encouraged to self-harm or suicide, according
• 17:50
  S1: to a new report by the Esafety commissioner. Today's episode
• 17:56
  S1: was produced by Josh towers. Our executive producer is Tammy Mills,
• 18:01
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• 18:05
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• 18:11
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