The weekend’s drone attack on a key Saudi oil installation is an “unprecedented” attack that exposes Australia’s vulnerability to a global oil shock, an industry commentator has said.
Professor Samantha Hepburn of Deakin University said the missile attack that took out 5 per cent of global oil output has highlighted the dangers of Australia’s complacent and “naïve” approach to its strategic oil reserves.
As a member of the International Energy Agency (IEA), Australia is obliged to keep an onshore stockpile of 90 days’ worth of crude oil that can be called upon in the event of any disruption to global supply.
But Department of Energy data for July showed Australia had enough fuel stockpiled to last just 58 days if all imports and domestic production ceased. That is down from a high of 97 days in August 2011.
Professor Hepburn, the director of the Centre for Energy and Natural Resources Law at Deakin’s Law School, said Australia was the only import-dependent country among the 28 IEA member nations not complying with the 90-day mandate required by IEA.
“Basically Australia has been non-compliant since 2012,” Professor Hepburn said.
“And our [fuel] coverage has fallen since 2011, which is very concerning given our huge dependence on oil.
“It’s extraordinary that we have not complied with the mandate.
“We are a country that is import-dependent and geographically isolated. It’s a naïve notion that we can rely on the goodwill of the US, that they have a large reserve, and so we don’t need to [have one].”
The weekend attack sent oil prices soaring, with prices spiking by almost 20 per cent early on Monday – the largest intraday increase since 1988, according to Bloomberg.
By Tuesday afternoon, the price for Brent crude oil had settled around $US68.77 ($100.62), up about 14 per cent on Monday’s opening price of $US60.22 ($88.12).
Professor Hepburn said while Australia had experienced disruptions to global oil supply in the past – Hurricane Katrina, the Gulf War – the unconventional and unprecedented nature of the Saudi attack placed the world in uncharted territory, creating huge implications for the price of fuel in Australia.
This is a disruption to global supply like no other and at the same time Australia is overtly non-compliant [with the fuel stockpiles mandate].’’
Professor Samantha Hepburn
“The concern is, could this happen again … and because it’s oil, it has implications economically and socially. This can disable a civil society and because of that, it will certainly have an impact on price.”
CommSec chief economist Craig James said the rule of thumb was that $US1-a-barrel lift in the crude oil price meant a 1-cent-per-litre increase in the local petrol price, but that generally takes two to three weeks to show up at the pump.
Professor Hepburn said the nature of the attack – an act of “strategic terrorism” – and the uncertainty around resumption of normal supply, could also create price rises based purely on “fear”.
“What this does is create a fear of future attacks, which could become the biggest factor affecting future supply and price,” Professor Hepburn said.
“Essentially, a few fires have taken out 5 per cent of the global output, and we don’t know when it will be fully operational, which is a huge issue for pricing.”
Minister assures the nation ‘we’re fine’
Meanwhile, Energy Minister Angus Taylor has played down the threat, maintaining that Australia has 90 days’ worth of reserves, despite the department’s own figures of 58 days.
But deputy Labor Leader Richard Marles said the ministers had included stock ‘on water’, which could include fuel on ships bound for Australia.
“I think explaining that Australia has a 90-day reserve is not an honest account,” he told ABC Radio.
“Right now, I think it is absolutely fair to say that the government has failed in this.
“Right now, I don’t think there is any way in which you could honestly say that what we have in place at the moment meets those requirements.”