The Morrison government will look to relax Australia’s already lax fuel standards, in an effort to support the oil sector, despite prices falling to all-time lows and a global glut in supplies.
Federal energy and emissions reduction minister Angus Taylor announced on Wednesday that fuel standards under the Fuel Quality Standards Act will be amended to free up stockpiles of unneeded jet fuel for use in other sectors and that the government will spend almost $100 million to purchase oil from the United States.
“The temporary change provides Australian refineries with flexibility and can assist them to shore up their viability by helping them resolve some storage and supply issues,” Taylor said.
However, it is not immediately clear why the fuel standards need to be relaxed, nor why the stockpiles of jet fuel need to be drawn upon, given the recent crash in global oil prices and oversupply. However, the measure appears to be targeted towards providing an additional source of feedstock for refineries, that could re-propose jet fuel into other products.
“To help refineries, the Government will work on a temporary change in fuel standards to provide refiners with more flexibility to adapt their operations to manage the changes in demand and oil prices as a result of COVID-19. Any change will be closely managed to ensure refiners have increased flexibility while motorists and the environment are protected,” Taylor said in a statement.
Australia has a range of fuel standards in place, that apply to petrol, diesel, autogas and ethanol fuels, which work to limit the environmental and health impacts of the fuels.
In complying with standards, fuel manufacturers must ensure fuels are of sufficient quality and limit the production of toxic pollutants like nitrous oxides and sulfur oxides. Compliance raises costs for consumers but ultimately works to limit the negative health impacts of fuel use.
Australia is already =seen as a laggard with regards to fuel standards, with some vehicle manufacturers refusing to release vehicles into the Australian market, citing the lower fuel standards compared to jurisdictions like the European Union.
It is a concerning precedent that follows warnings from Australian academics that governments will likely face pressure from powerful industry groups, like the fossil fuel sector, to relax regulations and environmental laws during a time of crisis.
Minister Taylor also revealed that Australia would spend $94 million to purchase and store additional oil reserves in the United States.
“The Government is taking action to improve Australia’s fuel security and enhance our ability to withstand global shocks, such as the COVID-19 pandemic, when they reach our shores,” Minister Taylor said.
“Australians can be reassured there is plenty of fuel in the country and we are extremely well placed to keep supplies flowing through the COVID-19 pandemic.”
Taylor said that he will work with Australian based oil refiners to identify measures to further support the industry, which may include government investment and further “stimulatory options” and that the government will shortly release terms of reference to guide decisions on further support measures for the oil sector.
United States oil prices sensationally plunged to negative levels in the last week, as a slow down in demand and a recent surge in supply driven by a price war waged between Russia and OPEC nations flooded the market.
US oil companies sought to offload oil at negative prices, as storage facilities reached capacity, and suppliers were running out of places to store the oil.
The measures to relax fuel standards accompany negotiations between the Australian and United States governments to secure additional oil reserves, to be held within the US Strategic Petroleum Reserve in underground facilities in Louisiana and Texas.
The Australian government has attracted criticism for its lack of stored fuel reserves, falling well short of a 90-day reserve target set by the International Energy Agency, and leaving Australia vulnerable to fuel supply interruptions.
The Morrison government has negotiated with the United States government to spend the $94 million to purchase oil at current prices, and will have the oil stored in the Strategic Petroleum Reserve for a period of ten-years.
“The new measures will take advantage of the current low prices for oil and Australia’s privileged position of access to the [Strategic Petroleum Reserve], which is amongst the world’s most cost-effective long-term oil storage facilities,” Taylor added.
“This work is a down payment on a stronger and more secure fuel supply for Australian households, motorists, industry and the national economy.”
According to minister Taylor, Australia has 81 days worth of oil reserves, but this includes 25 days worth of stocks that are held in overseas ports and in transit to Australia.
But the plan was criticised by shadow energy spokesperson Mark Butler, who said that having fuel reserves stored overseas did little to address the underlying issue of fuel security.
“For seven years this Government has ignored fuel security and instead has engaged in baseless scare campaigns against policies which would improve our fuel security as well as cut costs for consumers and carbon pollution,” Butler said in a statement.
“It is good that the Government is acting now to improve supplies while the price is so low, but under Minister Taylor’s agreement with the USA the fuel will be stored on the other side of the world. If we are serious about fuel security fuel should be stored here.”
The announcements follow agreements made by G20 energy ministers to purchase more oil in the global market as a way to support the fossil fuel sector in managing a drop in demand due to the Covid-19 pandemic.
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