Latest / The Front / How oil from Iran and Russia gets into our fragile fuel supply chain

Transcript

How oil from Iran and Russia gets into our fragile fuel supply chain · The Front

• 0:03
  Speaker 1: From The Australian. Here's what's on the front. I'm Claire Harvey.
• 0:06
  Speaker 1: It's Friday, April seventeen, twenty twenty six. Australia's throwing an
• 0:13
  Speaker 1: additional fourteen billion dollars at missiles, drones and submarines. The
• 0:18
  Speaker 1: Defense Minister says we're in the footheels of a new
• 0:20
  Speaker 1: nuclear arms race, but a huge chunk of that spending
• 0:24
  Speaker 1: is reprioritized money that was already going to defense, and
• 0:28
  Speaker 1: our chief international correspondent, Cameron Stuart reckons it's all a
• 0:31
  Speaker 1: smoke and mirror's pantomime and Australia is still not spending
• 0:35
  Speaker 1: enough to make us safe. That story is live right
• 0:39
  Speaker 1: now at the Australian dot Com dot AU. Australia doesn't
• 0:44
  Speaker 1: directly buy oil from Russia or Iran, but we're at
• 0:48
  Speaker 1: the end of a complex and shaky global supply chain
• 0:52
  Speaker 1: that passes through some very unsavory places on its way
• 0:56
  Speaker 1: to the Asian refineries that provide most of our petrol,
• 1:00
  Speaker 1: diesel and aviation fuel. Now, a refinery fire in Victoria
• 1:04
  Speaker 1: is heaping pressure on the government to amp up its
• 1:07
  Speaker 1: emergency response to a global shortage. Associate editor Eric Johnston
• 1:11
  Speaker 1: is here in just a moment. For thirteen hours on Thursday,
• 1:20
  Speaker 1: Australia's fuel situation was literally on fire. A Victorian oil
• 1:25
  Speaker 1: refinery has been engulfed in flames. The Carryo refinery, operating
• 1:29
  Speaker 1: for seven decades, is one of only two working oil
• 1:33
  Speaker 1: refineries in Australia. The Federal Energy Minister today conceding petrol
• 1:37
  Speaker 1: production will be impacted these days. We only have two refineries,
• 1:43
  Speaker 1: one in Queensland owned by Ampole and one near Geelong
• 1:47
  Speaker 1: in Victoria owned by Viva Energy. The Viva refinery caught
• 1:51
  Speaker 1: a blaze in the middle of the night and burned
• 1:53
  Speaker 1: until Thursday morning, when fieries put it out. Viva's back
• 1:58
  Speaker 1: in action, now making diesel, petrol and jet fuel. The
• 2:01
  Speaker 1: fire was embarrassing and scary, but the truth is Australia
• 2:05
  Speaker 1: makes a pitifully small amount of the liquid fuel we
• 2:09
  Speaker 1: actually need to keep our economy running.
• 2:12
  Speaker 2: Australia sits at the end of the incredibly complicated supply chain,
• 2:19
  Speaker 2: and that's not where we want to be sitting.
• 2:21
  Speaker 1: This is Eric Johnston, an associate editor with The Australian.
• 2:25
  Speaker 1: I call Eric in when I've got a business or
• 2:27
  Speaker 1: economy story that's diabolically complicated, so you can help me
• 2:30
  Speaker 1: step through it. This is a doozy and it takes
• 2:34
  Speaker 1: us to some places you might not expect Australia to
• 2:37
  Speaker 1: be shopping.
• 2:38
  Speaker 2: Australia relies heavily on oil imports. And when we say that,
• 2:43
  Speaker 2: remember there's two parts of it. Oil that's the heavy, thick,
• 2:46
  Speaker 2: black crude stuff and then there's refined fuel. And we
• 2:49
  Speaker 2: get both of these mostly from the big four supplies
• 2:53
  Speaker 2: in Asia.
• 2:55
  Speaker 1: That's Singapore, Malaysia, South Korea and China. We also get
• 2:58
  Speaker 1: oil from Brunei. That's why Anthony Albanese has been on
• 3:02
  Speaker 1: a love bombing tour of Asia in recent days, making
• 3:05
  Speaker 1: sure those countries are happy to keep sending oil and
• 3:07
  Speaker 1: fuel even as their own economies start to look shaky.
• 3:13
  Speaker 1: But hang on, where are those Asian suppliers getting the
• 3:16
  Speaker 1: raw oil to make the fuel products they resell to us? Well,
• 3:20
  Speaker 1: some of it's from the Persian Gulf, Saudi Arabia, the
• 3:23
  Speaker 1: United Arab Emirates, Iraq, Kuwait, some comes from Asia, some
• 3:27
  Speaker 1: passes through China and India, and they're among the main
• 3:30
  Speaker 1: customers for Russian and Iranian oil. Australia doesn't directly buy
• 3:36
  Speaker 1: oil from Russia or Iran, but we're in the same
• 3:38
  Speaker 1: supply chain as countries who do. Wherever it begins, the
• 3:43
  Speaker 1: vast majority of what our Asian suppliers sell to us
• 3:46
  Speaker 1: has to come through the Strait of Hormuz, the very
• 3:49
  Speaker 1: waterway presently at this center of an epic custody battle
• 3:52
  Speaker 1: between Iran and the United States. God knows what will
• 3:57
  Speaker 1: have changed by the time this episode goes to air
• 3:59
  Speaker 1: Eric but they are surely just as reliant on the
• 4:03
  Speaker 1: whims of Iran. And if Donald Trump as the rest
• 4:05
  Speaker 1: of the world, aren't they.
• 4:06
  Speaker 2: Well, this is where we spoke about a very complicated
• 4:09
  Speaker 2: supply chain, and this is where it gets a little
• 4:11
  Speaker 2: bit murky. So yes, most of the oil that comes
• 4:15
  Speaker 2: out of the Strait of Homos goes into the refineries
• 4:18
  Speaker 2: in Asia, so Singapore relies heavily on it, and so
• 4:22
  Speaker 2: too Korea. Malaysia is its own oil producer. These refineries
• 4:27
  Speaker 2: also get oil from Brunei, but for the whole they
• 4:30
  Speaker 2: do rely on it. Russia is a big global oil supplier.
• 4:33
  Speaker 2: India is a supplier, but it also buys it's supply
• 4:37
  Speaker 2: via Iran. So who knows the provenance of where Singapore
• 4:41
  Speaker 2: is actually getting its oil. The golf Mexico is another.
• 4:45
  Speaker 2: No one's asking any questions about where it's coming from
• 4:48
  Speaker 2: because it's all fairly commodified. It's ubiquitous. It's the same stuff.
• 4:54
  Speaker 2: They're just putting it in their refineries. But the important
• 4:56
  Speaker 2: thing is they need this stuff to be able to
• 4:59
  Speaker 2: keep the refineries.
• 5:00
  Speaker 1: Remember Eric said this was a complicated supply chain. It's
• 5:04
  Speaker 1: also very fragile. If any of those countries cut off
• 5:07
  Speaker 1: their supplies or get themselves into a war, we very
• 5:10
  Speaker 1: quickly find our service stations running out of diesel, or
• 5:13
  Speaker 1: our airline tickets going through the roof, or our grocery
• 5:16
  Speaker 1: prices starting to get amped up. That's what's happening right now.
• 5:21
  Speaker 1: The conflict has already removed around four hundred million barrels
• 5:24
  Speaker 1: of oil from global markets since it started, and that's
• 5:27
  Speaker 1: a remarkable figure. If this goes on for a little while,
• 5:30
  Speaker 1: that could go up to about a billion barrels, which
• 5:33
  Speaker 1: is incredible. That's oil that's not in the global economy
• 5:36
  Speaker 1: that would have normally been there, So something has to
• 5:41
  Speaker 1: give for that sur prices. Markets are sitting a price
• 5:44
  Speaker 1: signal to start reducing consumption of oil. Machines are slowing down.
• 5:49
  Speaker 1: If this conflict goes on for much longer, we could
• 5:52
  Speaker 1: find ourselves in a real pressure point.
• 5:54
  Speaker 3: The US claims that it's blockade is working, that no
• 5:57
  Speaker 3: ships have managed to get through, and that it has
• 5:59
  Speaker 3: now turned around ten vessels. They've also released a clip
• 6:03
  Speaker 3: of what they are sending out to ships if they
• 6:06
  Speaker 3: try to break through. Take a Listeninian ports and postal area.
• 6:11
  Speaker 2: This is illegal action, implying with this block.
• 6:14
  Speaker 4: Aid, he will use sports the whole of the United States.
• 6:17
  Speaker 2: Baby, he's ready to.
• 6:18
  Speaker 5: Force the plants.
• 6:20
  Speaker 1: In theory, Eric, this is all like something out of
• 6:23
  Speaker 1: an economics textbook. You know, we produce gas, we're very
• 6:26
  Speaker 1: good at that, we export most of it. We give
• 6:28
  Speaker 1: it to the countries who give us in return the oil.
• 6:30
  Speaker 1: We're not wasting our time or energy doing something that
• 6:33
  Speaker 1: we're not very good at, which is extracting or refining oil.
• 6:37
  Speaker 1: But doesn't that leave us incredibly vulnerable in a situation
• 6:40
  Speaker 1: like this, especially when we also don't have in Australia
• 6:43
  Speaker 1: a fleet of oil tankers to bring the oil to us.
• 6:46
  Speaker 1: We rely on other countries' fleets to do that, including
• 6:49
  Speaker 1: Chinese ships.
• 6:50
  Speaker 2: You're right, it's like that perfect picture of a perfect
• 6:53
  Speaker 2: environment of a supply chain. Someone sells eggs and someone
• 6:55
  Speaker 2: else buys a cake and it's just a perfect environment
• 6:59
  Speaker 2: and everyone's happy. But this is a real world and
• 7:02
  Speaker 2: we're talking about chair of politics and things have changed
• 7:05
  Speaker 2: and it's a really interesting situation. Australia does have oil deposits,
• 7:09
  Speaker 2: but it costs a lot of money to extract. It
• 7:12
  Speaker 2: cost a lot of money to explore, and then it
• 7:15
  Speaker 2: takes time to get that stuff out of the ground.
• 7:18
  Speaker 2: The Northwest Shelf is a big gas producing area and
• 7:21
  Speaker 2: it's believed that there is a fair bit of oil
• 7:24
  Speaker 2: in there offshore. However, what we've seen over the last
• 7:29
  Speaker 2: ten years or so, particularly with Australia the last fifteen years,
• 7:32
  Speaker 2: is we've really put all our eggs in the allergy basket,
• 7:37
  Speaker 2: that's the gas producing basket. We've sort of pivoted away
• 7:41
  Speaker 2: from producing oil, which we used to do in large quantities,
• 7:44
  Speaker 2: particularly down in Bass Straight, but that's running dry and
• 7:47
  Speaker 2: it's run dry in terms of oil. But we've really
• 7:52
  Speaker 2: really backed ourselves into the L and G world. Now
• 7:55
  Speaker 2: we've never really of anticipated this total shut off from markets.
• 8:00
  Speaker 2: Now markets are still functioning that US is still a
• 8:03
  Speaker 2: big producer, potentially some Russian oils making its way into
• 8:06
  Speaker 2: the market. South American oil is also really important too. Now,
• 8:11
  Speaker 2: this allergy is Australia's leverage to the world, going back
• 8:16
  Speaker 2: to our birthday cake and egg example. So while we
• 8:19
  Speaker 2: do rely heavily on oil, countries like Japan and Malaysia
• 8:24
  Speaker 2: and South Korean particular RELI really heavily on our allergy
• 8:29
  Speaker 2: to keep their power plants running and so on. They've
• 8:31
  Speaker 2: built all the infrastructure around that, so they need that.
• 8:34
  Speaker 2: So that's the leverage that you see a Prime minister
• 8:37
  Speaker 2: trying to use at the moment. We'll continue to supply
• 8:40
  Speaker 2: allergy and gas without any risk, but we need assurances
• 8:44
  Speaker 2: from you that we're going to keep getting your supply
• 8:47
  Speaker 2: of fuel.
• 8:48
  Speaker 1: Yeah, of course it's interest to export that L and G,
• 8:50
  Speaker 1: and we're good at producing those eggs for that birthday cake.
• 8:53
  Speaker 1: But something that rages from time to time in Australia
• 8:55
  Speaker 1: is a debate about whether we should be reserving some
• 8:57
  Speaker 1: of that for domestic use. All view on that eric
• 9:01
  Speaker 1: WA has enforced a strict fifteen percent reservation policy for
• 9:05
  Speaker 1: its gas. The rest of the country is kind of
• 9:08
  Speaker 1: not really and nationally, we don't have one, should we be?
• 9:12
  Speaker 2: The bottom line is yes, we should set aside some
• 9:15
  Speaker 2: of the production rather than sending it all offshore. So
• 9:18
  Speaker 2: we had this bizarre situation as particularly the Queensland allergy
• 9:23
  Speaker 2: plants were getting up and running, they were producing off
• 9:25
  Speaker 2: gas and gas was being produced from Bass straight down
• 9:29
  Speaker 2: in Victoria, sent all the way up there and off
• 9:32
  Speaker 2: to export markets. And it was a strange situation because domestically,
• 9:37
  Speaker 2: well on the East Coast, the gas policy has been
• 9:38
  Speaker 2: a bit of a mess.
• 9:40
  Speaker 4: It's understood the government dis ordered some modeling on this
• 9:43
  Speaker 4: potential gas tax. That means it's a chance to appear
• 9:47
  Speaker 4: in the May budget and so the gas industry is
• 9:51
  Speaker 4: fighting the possibility.
• 9:52
  Speaker 5: Well, the fact is Australia's gas industry is the second
• 9:55
  Speaker 5: largest taxpayer and the proposals from these organizations will kill
• 10:00
  Speaker 5: off new investment and will ultimately leave Australia more exposed
• 10:04
  Speaker 5: to future energy shocks.
• 10:07
  Speaker 2: So a reservation is an intervention tool. And we like
• 10:10
  Speaker 2: free markets, but sometimes markets do have imbalances and they
• 10:14
  Speaker 2: do need to be counted. So by itself, all this
• 10:18
  Speaker 2: gas that sits underground, and it's very expensive and really
• 10:21
  Speaker 2: costly to extract by itself. The Australian economy is not
• 10:24
  Speaker 2: really big enough to invest all this money to actually
• 10:27
  Speaker 2: get it out of the ground. That's why we have
• 10:29
  Speaker 2: these big long term contracts with countries like South Korea
• 10:33
  Speaker 2: and Japan. They help fund get this gas out of
• 10:37
  Speaker 2: the ground. However, because the gas is in our ground,
• 10:39
  Speaker 2: we should at least be clipping the ticket and reserving
• 10:43
  Speaker 2: some of it for our own domestic use. And I
• 10:45
  Speaker 2: think that's where the difference will be. We wait to
• 10:48
  Speaker 2: it retrospectively because these are long term contracts have already
• 10:51
  Speaker 2: been made, so we've already made the deal. But any
• 10:53
  Speaker 2: new developments you will start increasingly seeing more gas diverted locally.
• 11:00
  Speaker 1: Whenever anything happens like this oil shock that we're having. Now,
• 11:03
  Speaker 1: there's a kind of a straw man. I suppose that's
• 11:06
  Speaker 1: created that the government is obsessed with renewables. It's wasting
• 11:08
  Speaker 1: all its time thinking about the transition to renewable energy,
• 11:11
  Speaker 1: and that's why it hasn't focused properly on fuel security
• 11:13
  Speaker 1: for Australia. But isn't there a possibility that Australia could
• 11:17
  Speaker 1: become much more self sufficient in the things that we
• 11:19
  Speaker 1: need to replace fossil fuels if we were focusing on
• 11:22
  Speaker 1: ethanol biodiesel, which is a kind of byproduct of vegetable crops,
• 11:29
  Speaker 1: are we failing to kind of grasp that that is
• 11:32
  Speaker 1: actually where we could solve this problem for ourselves.
• 11:35
  Speaker 5: Yeah.
• 11:36
  Speaker 2: Look, these things are good and they are important to do.
• 11:40
  Speaker 2: And like anything, if you are too reliant on something,
• 11:43
  Speaker 2: it's important to diversify away from it, and I think
• 11:46
  Speaker 2: that should be the driving argument around this. This is
• 11:49
  Speaker 2: a wake up call. We are to reliant on something, however,
• 11:52
  Speaker 2: and there is a big However, the rhetoric has also
• 11:55
  Speaker 2: got ahead of the reality. The reality is the whole
• 11:58
  Speaker 2: economy is geared everything that we do, not only from
• 12:03
  Speaker 2: the cars, but from the food that we eat, which
• 12:05
  Speaker 2: needs fertilizer, the plastics in your phone, often the components,
• 12:10
  Speaker 2: and your clothing. Everything comes back to oil and it
• 12:13
  Speaker 2: really is underpinning everything in the economy. And as our
• 12:18
  Speaker 2: price goes up, we often see that feeds through to inflation.
• 12:21
  Speaker 6: The latest inflation figures are set to be released this morning,
• 12:24
  Speaker 6: with Australian's warn of a possible grim economic period ahead.
• 12:28
  Speaker 6: The next RBA decision hinges on today's data, with experts
• 12:32
  Speaker 6: foreshadowing a likely rise meaning and interest rate height could
• 12:37
  Speaker 6: be on the way to headline inflation currently.
• 12:40
  Speaker 2: So of course it is really important to drive and
• 12:44
  Speaker 2: push and diversify away through not only for environmental reasons
• 12:48
  Speaker 2: but also for logical reasons as well. That if we
• 12:51
  Speaker 2: are too reliant on one product, but we've got one
• 12:54
  Speaker 2: hundred years of infrastructure and this is not going to
• 12:57
  Speaker 2: happen overnight. We are not just going to wake up
• 12:59
  Speaker 2: tomorrow and switch to ETH. No, the whole economy is
• 13:01
  Speaker 2: geared around the supply chain, very complicated one, a bit
• 13:05
  Speaker 2: of a clunky one as well, but this is the
• 13:07
  Speaker 2: one that works, and that stuff takes time, and even
• 13:10
  Speaker 2: putting arbitrary dates in by twenty thirty, that's not going
• 13:14
  Speaker 2: to work because we do overshoot in one area, leaving
• 13:17
  Speaker 2: ourselves exposed in other areas. Thanks Eric, Thanks very much.
• 13:29
  Speaker 1: Eric Johnston is an associate editor with The Australian. You
• 13:32
  Speaker 1: can read all his unrivaled analysis anytime at the Australian
• 13:36
  Speaker 1: dot com dot au