Claire Moore (Queensland, Australian Labor Party, Shadow Minister for Women) Share this | Link to this | Hansard source

The Liquid Fuel Emergency Amendment Bill 2017 forms part of the government's plan to comply with International Energy Agency fuel emergency reserve requirements. This is a requirement to have available 90 days worth of emergency fuels. The bill allows the government to increase the reserve of fuel by entering into financial contracts that enable fuel reserves to be held financially, avoiding physical and logistical costs of transport and storage. As a result of declining domestic production of and increased demand for liquid fuels, these stores are no longer sufficient to meet the 90-day requirement, and Australia has been non-compliant with the 90-day stockholding obligation since March 2012.

Labor support this bill, but we do not support the government's broader approach to gas and energy policy, and this is part of the broader approach. Australia is in the middle of a gas price and supply crisis. If we don't see real national leadership to resolve this crisis we'll see devastating impacts on industry, business closures, and the loss of thousands of jobs, as well as more electricity price rises. Labor has been warning about the gas price and supply crunch—we've been calling it a supply crunch for years. That's why at our last national conference, in 2015, we adopted a gas export national interest test to ensure that Australian supplies wouldn't be hurt by the LNG export industry. But in recent months our conversations with industry and experts have made it clear that this is no longer a crisis that is coming sometime down the track, sometime in the future; it's a crisis that is here today.

Rather than deal with the underlying cause of the gas crisis and ensure that gas exports work for the national economic interest, the government are now focused on the immediate crisis. They have implemented a domestic gas security mechanism, with export controls to be applied by the resources minister in 2018 at the earliest. As proof that this export control is intended to ensure that future gas developments are in the national interest and that they adequately supply the domestic market, the government has put an automatic five-year expiry on its export control authority. While Labor don't believe this is a perfect solution, we are supportive and in fact have called for export controls to be imposed sooner than envisaged under the government's time line. In addition, the government's mechanism doesn't explicitly reference or address the key issue of gas prices. This is a major factor in the gas crisis.

But the greatest criticism of the government's handling of the gas crisis—besides its mendacity, historical revisionism and buck-passing, four years into government, and of course an absolute refusal to acknowledge that a crisis even existed until the outcry from business was deafening—relates to the government's handling of its own export control mechanism. This mechanism relies on the Minister for Resources and Northern Australia to declare a gas shortage year in the following calendar year before export controls can be put in place. At the time of drafting, the resources minister was Senator Canavan, from Queensland. Of course, we know that Senator Canavan has now stood down and made the decision that he will not take part in any votes until the situation around his eligibility is clarified. His successor on this same portfolio, the member for New England, hasn't made this same decision. Even though the minister's eligibility to sit in this place is currently before the High Court, the Prime Minister and the acting resources minister are seemingly willing and able to risk the legal integrity of their response to the gas crisis in order to shore up the actual government and the Prime Minister's job. Once again, it's putting the government before the actual needs of the country.

This is not a minor distraction. It's not a minor argument. According to legal experts, including George Williams of the University of New South Wales, if the minister takes action to restrict exports next year and is subsequently found ineligible to sit in this place and serve as the minister, his decisions will be subject to credible legal challenge by industry. These decisions involve billions of dollars' worth of gas trade and the viability of swathes of Australian industry. These are not light matters. The government's regulations call on the minister to declare whether 2018 will be a gas shortage year by, preferably, 1 September. We need to have this decision about next year now. We are now at 5 September and there is still no word from the member for New England on declaring 2018 a gas shortage year and imposing export controls.

This is serious, but it's only the latest sad episode of the government's mismanagement of Australia's energy system and resources. It's no wonder that they have the record that they do. This has been put on record a number of times, but I just want to put it on record again. There has been a doubling of wholesale electricity prices, an inability to agree on a clean energy target to support new-generation investment, growing carbon pollution, a full-blown gas price and supply crisis, and mismanagement of export controls. The record continues, but the crisis remains.

(Quorum formed)

David Leyonhjelm (NSW, Liberal Democratic Party) Share this | Link to this | Hansard source

I rise to speak on the so-called Liquid Fuel Emergency Amendment Bill 2017. This bill empowers the government to enter into option contracts covering up to 90 days worth of Australia's net oil imports. This 90-day requirement is imposed by the International Energy Agency on member governments so that, if there is a major oil disruption, member governments can assist themselves and each other to access oil.

While superficially sounding reasonable, there are several problems with this bill from a libertarian standpoint. The first is the real question of desirability. Why is the government getting into the oil business? As though the tentacles of the ever-intrusive state didn't snake into almost every aspect of life already, the government has managed to find a new area to meddle in and another market to distort. Private oil users secure their own supplies, including purchasing options, without government assistance.

The second is the question of necessity. We aren't at war. There isn't a vital national security reason to maintain oil supplies to keep the Shermans rolling. Our defence forces maintain their own oil stocks. But, even if they didn't, ironically, these option contracts would be of limited use in the event of a major war because they cover oil stored overseas. So, if there is a trade catastrophe, the option contracts may fail and we won't be able to get our hands on the oil anyway.

The third is the question of affordability. In a time of runaway deficits, this bill represents an unnecessary new cost to taxpayers. Ninety days oil supply for the whole of Australia is a lot of oil. If the government enters into oil option contracts, this will bid up the cost of securing access to oil, which will reduce the frequency with which the private sector enters into oil option contracts. So, in a self-fulfilling prophecy, government intervention will lead to insecurity in private sector arrangements, leading to further calls for government intervention.

Finally is the issue of self-determination. Why is Australia being dictated to by yet another international organisation? The costly requirement for the government to buy oil options is not something that the Australian Defence Force or industry or the Australian public have asked for. This so-called emergency reserve has been demanded by a foreign organisation, unaccountable to Australian voters. The International Energy Agency, to whose diktat the Australian government is jumping, is but one of hundreds of international organisations and literally thousands of mainly UN sponsored treaties to which past governments have quietly signed us up.

This is a bill for which no good case can be made. The Zeros aren't bombing Darwin. But, even if they were, our national response would hopefully be a bit more robust than rushing to exercise our call options to buy shares in a virtual lake of foreign oil. This so-called emergency oil reserve is unnecessary, a significant cost to taxpayers and a distortion of the marketplace. Moreover, the impetus to create it is driven by our membership of an international organisation. If the demand to waste millions on this scheme is a condition of membership in the International Energy Agency, that sounds like a good reason for Australia to leave; otherwise, we should simply reserve our position in respect of this condition. I therefore urge my fellow senators to exercise their own call option on this proposal and send this so-called Liquid Fuel Emergency Amendment Bill back down the gurgler.

Nick Xenophon (SA, Nick Xenophon Team) Share this | Link to this | Hansard source

I support this bill, the Liquid Fuel Emergency Amendment Bill, with reservations. The reservations are that I don't believe it goes far enough—quite a contrary position to that of Senator Leyonhjelm. I support this bill because the issue of fuel security is of fundamental importance not just in strategic terms but also to our economy. We live in an increasingly fragile geopolitical situation. We hear the news almost on a daily basis about North Korea and their mad plans in terms of intercontinental ballistic missiles and their nuclear weapons capability. If Australia were involved in a conflict, our fragility in fuel supplies could mean that, in a matter of days, we would run out of fuel, in the absence of reserves.

Mr Acting Deputy President Sterle, given your experience and history in the transport sector, what would that do? It would mean that the whole country would grind to a halt. The economic impact would be devastating. Trucks wouldn't be on the roads. Motor vehicles wouldn't be going anywhere. Basic logistical supplies such as food and the necessities of life wouldn't be able to be transported from point A to point B. It would be simply catastrophic to our economy and leave long-lasting scars. When you compare what Australia does at the moment, which is not very much, to, say, the United States—I understand that their strategic supply reserves are in the order of 12 months; I stand to be corrected on that—it indicates we have not taken this issue seriously.

Several years ago, former senator John Madigan, to his absolute credit, referred the issue of Australia's transport energy resilience and sustainability to the Rural and Regional Affairs and Transport References Committee, which you chaired, Mr Acting Deputy President Sterle. It was a very useful inquiry. I participated in some of that inquiry, and it was a very good inquiry. The evidence given to that inquiry was quite striking. It was about how limited our fuel supplies are, particularly for some types of fuel. We are looking at maybe two, three or four weeks of fuel in the event of a conflict breaking out. If the Strait of Hormuz, the South China Sea or, dare I say, the Strait of Malacca were affected, that would be very, very significant.

These are important issues. The evidence given to the inquiry indicated that there were very, very serious issues in terms of fuel supply. The recommendations made by the committee were:

… that the Australian Government require all fuel supply companies to report their fuel stocks to the Department of Industry and Science on a monthly basis.

The committee recommends that the Australian Government develop and publish a comprehensive Transport Energy Plan directed to achieving a secure, affordable and sustainable transport energy supply. The plan should be developed following a public consultation process. Where appropriate, the plan should set targets for the secure supply of Australia's transport energy.

The other recommendation was:

… that the Australian Government undertake a comprehensive whole-of-government risk assessment of Australia's fuel supply, availability and vulnerability. The assessment should consider the vulnerabilities in Australia's fuel supply to possible disruptions resulting from military actions, acts of terrorism, natural disasters, industrial accidents and financial and other structural dislocation. Any other external or domestic circumstance that could interfere with Australia's fuel supply should also be considered.

These are matters that I will raise with the government in the context of whether these other recommendations have been dealt with.

This is a serious issue. I'm not sure how effective the ticket system will be. It's at least a step in the right direction to ensure fuel security. My concern is that, given the geopolitical situation in the region, if a conflict breaks out—I hope it doesn't happen—then we will be incredibly vulnerable in terms of fuel supplies. That, to me, indicates that this bill is a step in the right direction, but I fear it may not go far enough.

Janet Rice (Victoria, Australian Greens) Share this | Link to this | Hansard source

I rise today to speak to the Liquid Fuel Emergency Amendment Bill 2017. This bill is part 2 of the government's reform package to the way that we collect information on our liquid fuel holdings and maintain our compliance with our obligations under the International Energy Agency. Part of these obligations is that Australia hold on to, at minimum, 90 days of liquid fuel stocks. In the Senate Rural and Regional Affairs and Transport References Committee's inquiry, which I was part of, we heard how that requirement for us to hold on to 90 days of liquid fuel stocks had not been met for a very long time.

There's a good reason as to why that is an appropriate thing for Australia to have. According to data released by the Organization of Petroleum Exporting Countries, or OPEC, in 2016, OPEC currently controls 81.5 per cent of the existing world oil reserves and accounts for 60 per cent of exports. Since the OPEC crises of the 1970s, when the OPEC nation-states limited the export of oil and prices quadrupled in major oil-importing countries, there has been an understanding that the oil and petroleum supply chain is one of the most, if not the most, precarious supply chains in the world. It makes sense for countries like Australia to have a supply of fuel so that we are not affected by disruptions to that supply chain. Our Senate committee heard that 95 per cent of our transport currently runs on petroleum products, including the petrol that you know of, gasoline, diesel, jet fuel, LPG, bunker fuel and other oil products. In the event of a disruption in the oil supply chain and if we as a major importer don't have that 90-day supply, the price shock from increases in fuel costs would ripple across the economy. It's basically a really important measure to maintain some stability and evenness in our supply.

In the worst-case scenario—if there was a disruption from those OPEC-producing countries and a genuine shortage of supply eventuated—we would be at a standstill. We would have trucks and ships unable to move produce from the regions to the city and a breakdown of the usual functioning of our economy, so there are really good reasons as to why this 90 days of supply is a sensible measure. But Australia hasn't been compliant with that. It's been over five years since Australia has held 90 days of liquid-fuel stocks and, as of April this year, Australia only holds 51 days of liquid-fuel reserves. This didn't used to be a big issue for us. We used to produce much more of our oil products ourselves, but we are now in a situation where we are largely an oil product importer.

The government's proposed way of procuring these liquid-fuel stockholdings is by purchasing tickets so we actually don't have to have the 90 days of supply here physically in the country. We've got tickets on it, so there's oil supply somewhere else in the world that's identified as belonging to Australia. This was identified by the department during our inquiry as the least-cost option to bring Australia into IEA compliance. Under this ticketing contract, the seller agrees to reserve, on behalf of the buyer, a predetermined amount of oil in return for an agreed fee. During the contractual period, the buyer—in this case, Australia—has the option to purchase all or part of the reserved oil stock. The price is determined by a market-based rate under the contract. If we don't want it in that period of time, we can release the stock back into the global oil market. The entity who's going to be selling these tickets is optioned to buy and could either be a public or a private owner of oil stocks.

This is the second-best option. There are merits to requiring actual real oil supplies. Obviously that sort of ticket system could break down in a global emergency as well, but we do note that there are substantially increased costs that would be required if we were going to maintain those 90 days of oil supply physically in Australia. So the Greens support the government in using this proposed ticket system and these ticketing contracts to secure sufficient reserves as a mechanism to bring us back into IEA compliance. Like Senator Xenophon has noted, we will wait to see whether this ticketing system is a useful and viable enough measure in order to be able to do this.

But, of course, this is only one half of the story. If you are talking about maintaining security of liquid-fuel supplies, there are other ways of going about it rather than presuming that we are going to continue to be in the situation where 95 per cent of our fuels are coming from oil-based products. There's another way of moving to give ourselves fuel security. The other key way is reducing our dependence on these oil fuels, these fossil fuels and these liquid hydrocarbons in the first place. We know that, in terms of needing this oil supply, the key driver of it is our transport sector, so, if we're going to shift from having this reliance on foreign oil supplies, we've got to work to make sure that we can shift the fuels being used by our transport sector to renewable fuels. That's because the transport sector accounts for three-quarters of our liquid fuel demand. That means that, if we are serious about fuel security and serious about our compliance with our stockholding requirements, we need to decrease the use of oil in our transport sector. Not only would this reduce our reliance on oil; it would have very many other benefits as well.

Stephen Parry (President) Share this | Link to this | Hansard source

It being 2 pm, we move to questions without notice.