Australia has been willfully out of compliance with International Energy Agency treaty obligations as to fuel reserves for years.
Under the Agreement on an International Energy Programme (I.E.P.), each IEA country has an obligation to hold emergency oil stocks equivalent to at least 90 days of net oil imports. Australia joined the IEA and became a party to the IEP Agreement in 1979.
Australia currently holds 22 days’ stocks. As Bill Shorten noted last week in announcing Labour’s plan to address this long-standing issue, this means that in the event of a total oil supply chain disruption, Australia’s economy could come to a sputtering halt in just over three weeks.
For a country supposedly awash with energy resources, this extraordinary exposure is stark reminder of 2 things:
First, that Australia – and the Asia-Pacific region as a whole – remains hugely dependent on diesel and gasoline. Unless this changes, the world will not achieve Paris carbon emissions reduction targets.
As noted recently by the Chair of the IEA’s Governing Board “there is fast-growing acknowledgment that we can’t decarbonise our energy system just by greening electrons. In industry and (heavy) transport, there is a huge need for greening molecules.”
Second, that IEA fuel reserves arrangements are a legacy of the 1970s oil shocks – they are a 1970’s solution that persists today because it is assumed IEA countries will continue to be reliant on oil indefinitely. The huge decline in renewable energy generation costs since the 1970s necessarily brings this assumption into question.
The ongoing ideological battles about the role of renewable energy in Australia’s power sector – keeping the lights on in a low-carbon world – have meant that little attention has been given to date to the equally important issue of keeping the wheels turning in a low-carbon world.
There is an urgent need for much greater focus on how mining, transport and agriculture can be supported to break the diesel addiction, and helped to realise the cost, efficiency and environmental benefits, already being realised in the power sector, of leveraging Australia’s immense renewable energy resources.
After years of gentle encouragement from the IEA to get our house in order, finally in 2016-17 Australia was informed politely but firmly that the time had come to deal with this reserves issue. Within the Department of Environment and Energy, the Office of Energy Security was charged with developing a policy.
One strategy under consideration was touched on by Labor in its policy announcement last week.
It involves the concept of creating a tax-payer funded body to develop and operate massive diesel and gasoline tank farms, to hold the huge volumes of diesel and petrol needed to meet Australia’s stockpile obligations.
Your taxes, paying for vast stocks of mainly imported fossil fuels?
Consider the scale: currently structural stocks across the economy amount to around 22 days. That means that 68 days’ stocks – more than 3 times what is in the economy today – would be needed to lift reserves to the required 90 days’.
In 2018, Australian diesel sales were 28,000 ML, up from 19,800ML in 2010-11, the vast bulk of which is imported. That’s 76 million litres every day.
So 68 days’ stocks? Do the math: 76 million x 68 = 5,168 million litres of diesel bought with taxpayers’ money and held in tax-payer funded storage tanks.
At an average sale value of $1.50 per litre (roughly the same for diesel and petrol in 2018), that is $7.7 billion in diesel cost alone, before considering the cost of the tank-farm infrastructure.
But wait, it gets better.
Diesel does not last very long at all in tanks. Diesel fuel stocks typically have use-by dates around 6 months, to a maximum of 12 months in ideal conditions.
So that $7.7 billion in stockpiled diesel would need to be regularly tested for quality, renewed and replaced. At taxpayer expense.
To make this picture even more disturbing, right now Australia’s diesel consumption is continuing to grow. If this trend continues, the dead diesel stockpile investment will also have to grow.
In short, the costs of maintaining ongoing diesel fuel reserves to put Australia in IEA compliance are astronomical. Which is no doubt why Australian governments have put the issue off for as long as they have.
In the age of low-cost solar and wind energy, in a country with immense reserves of renewable energy – far more than Australia will ever need domestically – is it too much to think that renewable energy might offer something better than a 1970s oil-based solution in relation to fuel reserves?
It is not well known that the IEA reserves arrangements allow hydrogen stocks, if the right preconditions exist, to be counted against fuel reserves targets.
This means that renewable hydrogen – hydrogen produced from water via renewable energy powered electrolysis, stored as hydrogen or its derivative ammonia – can in the right circumstances be counted towards Australia’s fuel reserves.
The opportunity presented by Australia’s fuel stocks dilemma is to implement a strategy which sees renewable hydrogen and its derivative renewable ammonia adopted as means of meeting a rapidly increasing proportion of Australia’s reserves commitment over coming years.
Unlike diesel, hydrogen and ammonia don’t degrade. Stocks would not need to be replaced. Once necessary stock levels have been achieved, production volumes can be directed to export markets.
This means Australia can leverage its renewable hydrogen reserves investment to seed a renewable hydrogen export industry. Not only would we make our own renewable fuel, we would use the same infrastructure to produce renewable fuel for export.
Australia need not do this alone. To the contrary, the opportunity presented is one in which Australia’s interests are beautifully aligned with those of our major trading partners in the Asia-Pacific region – particularly Japan and Korea. Both currently rely on oil for around 40 per cent of primary energy needs.
Japan and Korea are both implementing strategies to move their transport and industry to clean hydrogen precisely because, in the 21stcentury, building further economic reliance on imported diesel and gasoline is not a sound strategy at all. It is the antithesis of sound strategy.
The opportunity for Australia is to leverage the market scale of our major trading partners and other countries in our region – especially Japan and Korea but also Indonesia, Taiwan and others – to create demand and market conditions supporting industrial scale supply chains for renewable hydrogen and renewable ammonia fuel.
A sound strategy for Australia would be to take active, even urgent, steps to collaborate with Japan and Korea to create the right market (and IEA Agreement) conditions so that renewable hydrogen can be used to meet fuel reserve requirements, and so that renewable hydrogen rapidly achieves true industrial scale in production, shipping and use.
Just as we’ve seen with solar and wind costs, once international scale is established, unit costs will plummet.
Naysayers will be quick to observe that current unit costs of production of renewable hydrogen are higher than imported diesel or petrol. Well, yes, because diesel and petrol are incumbents, produced at massive industrial scale for international supply chains, and renewable hydrogen and ammonia are new.
Here’s the counter-question: Knowing what we now know about diesel fuel, its health impacts and contribution to emissions, about the need to arrest the continuing trajectory of carbon emissions in the Asia-Pacific, and about the need to address emissions from mining, transport and agriculture in Australia – does it really make sense to expand our investment in diesel fuel stockholdings?
Rather than the dead investment of increasing diesel stock-holdings 3-fold, and expending vast sums of taxpayer dollars to maintain Australia’s addiction to diesel, surely there is compelling logic for Australia to instead use this once-in-a-generation opportunity to underpin a renewable hydrogen/renewable ammonia industry that serves our domestic economy and the entire region.
Andrew Want has been involved in sustainability and environmental markets for over 25 years and has a Master of Laws in these fields. He also represents Renewable Hydrogen Pty Ltd.