Angus Taylor’s decision to buy $94 million of oil last week seemed to come out of nowhere. The energy minister said it was because the price for oil had tanked, making it the perfect time for Australia to buy up and restock our dangerously low reserves.
But the deal — which will see Australian oil stored in America’s national stockpile — has been brewing for some time. And despite claims that it is part of an effort to improve Australia’s fuel security, the oil will sit, unrefined, in reserves on the other side of the world.
So what’s going on here?
Crikey has confirmed that the oil is not being purchased from the US government, but from the private sector, with details currently commercial in confidence.
The Taylor’s office would not say which company Australia was buying the oil from. It was also unable to say when the oil would be purchased.
But questions remain as to why we are storing it in America.
Some answers no doubt lie in the agreement struck between the US and Australia last month. But those details are yet to be made public.
“There are some very valid questions about what is in the fine print, but we might not get to see that,” Paul Barnes, head of the risk and resilience program at the Australian Strategic Policy Institute (ASPI) said.
“There are also details that the government should address. What are we going to do with the oil in a crisis? How do we get it into a refined product?”
Washington might have the answers
What we do know is that the government has been negotiating access to America’s oil reserves since at least 2018. The latest arrangement stems from discussions between President Donald Trump and Prime Minister Scott Morrison in Washington last August.
Back then, crude oil was worth around $55 a barrel and no one had ever heard of COVID-19.
In March, Taylor signed a deal in Washington with the Trump administration over access to its strategic reserves. As the SMH reported, the visit coincided with oil prices hitting their lowest levels since 1991. During the visit, Taylor also travelled to Texas to meet with top industry executives there.
Taylor’s announcement comes at a time when US oil companies are desperately trying to get rid of their oil, as a COVID-19-induced oversupply threatens to overwhelm their storage capacity.
Trump had initially wanted the US government to buy the oil but a plan was rebuffed by congress. He has instead said the US will lease out space in its national reserve to companies struggling with a glut.
Australia does need to increase its strategic fuel reserves. But it’s not clear how counting oil on the other side of the world toward our reserves helps Australia from a security point of view.
Australia currently holds just 28 days’ worth of fuel imports, well below the 90-day minimum required under international agreements. The International Energy Agency has granted permission for Australia to count oil held in the US towards its 90-day obligation. But experts have questioned this, saying the oil would be useless in a crisis, as it would take four weeks for the oil to get here and once it did, Australia had no capacity to refine it.
Tom Swann, a senior researcher at the Australia Institute, which has been pushing for a reduction in Australia’s oil consumption, says the deal doesn’t help Australia’s fuel security and is a missed opportunity to invest in renewable energy.
“There’s a real opportunity to fix this problem and provide employment by building out our electric vehicle capacity,” he said.
“Instead we’re getting accounting tricks and oil on the other side of the world.”