Fuel deal between Trump and Australia secures crucial backing

A bid by the Morrison government to avoid spending billions of dollars on a vast stockpile of emergency fuel has won crucial support from the world’s peak energy agency ahead of a possible deal with United States President Donald Trump.

But a complementary plan to shore up dangerously low domestic storages – by rewriting an international treaty – is struggling to gain momentum, leaving Australia exposed to price hikes and rationing should war or disaster strike the Middle East or South China Sea.

The Sydney Morning Herald and The Age revealed in August that the Morrison government was negotiating with the Trump administration to buy millions of barrels of oil from America’s tightly guarded fuel reserve under a new strategy to limit Australia’s exposure to a major crisis.

Australia imports 90 per cent of its liquid fuels but has enough automotive petrol to last only 25 days and crude oil for 30 days – well below the 90 days it is obliged to store under an agreement with the International Energy Agency (IEA). Overall, Australia has just 54 days of net coverage.

The US deal, which is yet to be signed off by Mr Trump, would allow Australia access to the Strategic Petroleum Reserve and its 640 million barrels of crude oil stored across a network of underground caverns.

Australia would be able to store its own fuel in the Texas and Louisiana facilities or use US-owned stocks in an emergency, effectively preventing the need to spend billions of dollars building storage facilities in Australia to meet the IEA rules.

IEA executive director Fatih Birol endorsed the negotiations and said a deal could count towards Australia’s 90-day obligation, but urged the government to return to compliance as soon as possible.

“Oil is today the lifeblood of the global economy. You may like oil, dislike oil, but this is the reality of life,” Dr Birol said.

“I have heard there are some good, positive discussions between the Australian government and US government and I hope we will sometime soon get some good news about that. Such an arrangement would be welcomed by me.”

Energy Minister Angus Taylor has also been pushing for a major rewrite of the treaty that dictates the 90-day supply standard.

Mr Taylor has said the “outdated” rules should be changed so oil stock owned by Australia and being transported to the mainland can count towards overall domestic supply.

He briefed Dr Birol on Australia’s plan during a recent meeting at a climate summit in Spain.

Asked whether he supported a rewrite, Dr Birol said the IEA hadn’t discussed the idea and appeared lukewarm in his own support.

“We are bound by the decision made by our member governments,” he said. “The current government decision does not allow the counting of oil in transition. If the governments change their position we can allow it but currently, no.”

New government figures show oil headed to Australia on the sea or “overseas and awaiting delivery to Australia” represents about 23 days’ supply. If added to the 54 days of net supply currently held onshore, Australia would still fall short of the 90-day requirement.

Security experts and some government MPs have long warned that low storage levels exposed Australia to “far too much risk” given supplies rely on volatile ocean passages, including the Persian Gulf, Indian Ocean and South China Sea.

Dr Birol said recent attacks on oil facilities in Saudi Arabia were a reminder of the risk.

“Saudi Arabia today is by far the largest oil exporter in the world and nobody can guarantee me that we will not see a similar attack on Saudi Arabia or another producing country,” he said.

Negotiations with the Trump administration over the terms of a deal to access the Strategic Petroleum Reserve are continuing. The government has promised to ensure any deal “represents the best outcome for Australians”.

The warnings over oil security come as Japan’s cabinet on Friday approved a contentious plan to send naval troops to the Middle East to ensure the safety of its oil transport ships. A Japanese-operated tanker was attacked in the Gulf of Oman in June. A British tanker was seized by Iran in July and later released.

Energy-poor Japan sources more than 80 per cent of its oil from the Middle East.

Although the country is a US ally, Japan’s mission will stay away from the Strait of Hormuz where a US-led coalition that includes Australia has been deployed to patrol the oil supply choke point.

extracted from SMH

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