Australia can’t outbid a blockade

Australia's fuel security conversation is usually based around how much fuel we have in reserve and how quickly we can secure additional cargoes in a supply crunch. That's important but it neglects the critical role of domestic supply in a true crisis.

For decades Australia prioritised lower prices and access to global markets over domestic industrial capacity. Newer mega-refineries in Asia produced fuel, landed, at much lower cost than our smaller and ageing refineries, which were systematically closed down. During the post-Cold War peace dividend, that made sense.

It means that our current strategy, as demonstrated during the Iran War, is to outbid the rest of the world when supply is constrained. The Federal government won't disclose the price per litre it paid for liquid fuels during this period, which only highlights two things: lowest cost fuel can suddenly become much more expensive; and in a conflict where imports are blocked, Australia has very little production to replace them with.

Australia does have two remaining refineries, but they meet a fraction of our needs and are coastal assets making them relatively vulnerable in a war.

In short, Australia's wealth can solve a shortages due to rising prices, but not shortages due to the closure of sea lanes or disruption of imports.

Australia is spending $350bn on AUKUS due to the deteriorating security situation in our region and for the same reason Australia should progressively rethink the scale and purpose of government fuel security spending. An important mission of the AUKUS submarines is to keep sea lanes open, including for liquid fuel imports. Domestic resilience could negate some of that requirement, at a fraction of the cost.

The Commonwealth has already committed billions to strategic fuel reserves and has demonstrated that it is prepared to use taxpayer dollars to secure overseas supply when necessary. This is sensible policy - a reserve provides immediate protection when supply is suddenly interrupted.

But stockpiles run down, whereas domestic production does not.

Australia has no shortage of emerging companies and technologies capable of producing liquid fuels. Many are conventional oil, gas and renewables plays, but many of these technologies are newer technologies like waste to energy, coal to liquid fuels, or nascent renewables projects which are technologically feasible but struggle to gain funding to transition from demonstration scale to commercially financeable production.

Whether conventional or emerging technology, the bottleneck for investment is often being able to demonstrate long term demand.

Investors will not readily finance hundreds of millions of dollars of infrastructure when the project's future customer base is uncertain and its product is being compared with imported fuel produced by mature assets operating at enormous scale.

Government can solve this without trying to pick technological winners.