It might feel like a lifetime ago but it was only last week analysts began talking about fuel rationing in Australia.
This week that prospect seems less likely. A temporary ceasefire in the Iran war has been announced as Prime Minister Anthony Albanese heads to Singapore, a crucial refinery hub, to firm up fuel supplies.
US President Donald Trump has pledged a two-week ceasefire and Iran has pledged safe passage for ships through the crucial Strait of Hormuz, through which about 20% of the world’s oil is shipped.
Does this mean the fuel crisis is over? Not by half. In its response to US-Israeli bombing, Iran didn’t only block the strait, it targeted the oil and gas infrastructure of its neighbours. Repairs will take months.
[ UK to call for toll-free Strait of Hormuz after Iran seeks feesOpens in new window ]
Serious fuel shortages are hitting many nations hard, especially poorer ones such as the Philippines, Pakistan and Thailand.
Australia is in a better position as it is wealthier and can pay more for fuel. As a major exporter of liquefied natural gas (LNG) and thermal coal, it also has leverage with the Asian nations who refine most of Australia’s liquid fuels.
This will help in the short term. Longer term, the energy vulnerability this crisis has exposed has to be solved by winding down reliance on oil imports.
Ceasefire, not an end
Iran announced the closure of the strait the day the war began on February 28. Over the next 37 days, nations have scrambled to try to find alternate supplies or workarounds to avoid the bottleneck in the Strait of Hormuz.
Even if the ceasefire holds, it won’t magically resolve the oil crisis. Tightness of supply will persist for months. The war has effectively removed about 11-million barrels a day from the market, roughly halving the flow of oil through the strait, according to shipping data.
Even if the Strait of Hormuz reopens as Iran has promised, it won’t mean shipping can instantly return to pre-war levels.
If petrol prices are too high, car owners could switch to public transport. But truckers and farmers don’t have other options
Damage to oil refineries and pipelines in many countries will limit supply, while insurance rates and shipping costs may remain prohibitively high for some time.
Iran’s missiles have done significant damage to infrastructure in major oil and gas exporters such as Saudi Arabia, Qatar, the United Arab Emirates and Kuwait.
The crisis has driven prices of refined fuels such as diesel and jet fuel to record heights.
How is Australia getting supplies?
Australia imports about 90% of its liquid fuels, largely as petrol and diesel. Some comes as crude oil to be processed at two remaining refineries.
When Albanese goes to Singapore, he goes not only as a customer but as a major seller of the LNG and coal many regional trading partners rely on. Australia imports most of its fuels from Singaporean and South Korean refineries, but it also exports LNG to Singapore and LNG and thermal coal to Korea.
What Albanese will be focused on is not so much petrol as diesel. Surprisingly, Australia is the world’s single largest importer of diesel, though not the largest consumer.
The fuel is a mainstay for trucks and heavy equipment due to the combination of high power output and efficiency offered by diesel engines. Farmers also rely heavily on diesel for their machinery and transport. The mining sector accounts for about 35% of Australia’s diesel use through trucks and back-up generators at remote mines.
Compared to petrol users, most diesel users have no alternative. Petrol is mainly used in cars in cities. If petrol prices are too high, car owners could switch to public transport. But truckers and farmers don’t have other options.
The supply crunch isn’t only affecting oil, it is also fertilisers and other oil-derived products. For Australian farmers, this is unwelcome as most fertilisers are imported and local production is low.
Calls for more drilling misguided
Australia uses about 1-million barrels of oil a day. Even during its heyday in the 1970s, the local oil industry never came close to that. Australia has huge gas reserves, which is why so many gas companies are active, but very little conventional oil. The Gippsland Basin, one of the richest sources of oil, is running dry.
Is there more? Yes, but not much. Geoscience Australia estimates proven commercial reserves are around 229-million barrels of oil. That sounds like a lot, but given how much is used, that’s about seven months. After that it would all be gone. This is why calls to drill more oil are misguided.
If Australia had commercially viable oil, the oil companies would be trying to extract it. It’s significant that they’re not. Unconventional oil reserves are likely to be much larger, but the controversial technique of fracking has to be used to access these. Queensland is spruiking its Taroom Trough oil reserves, but these are unproven and would require fracking.
There’s only one realistic alternative to oil: avoiding it altogether. Battery and electric vehicle costs have fallen very sharply in a few years and keep getting cheaper. That’s why the simplest, quickest solution is to go electric.
Wilder calls to look at coal to liquids and gas to liquids don’t stack up. Other alternate fuels such as hydrogen and biofuels haven’t panned out commercially on a large scale.
There’s only one realistic alternative to oil: avoiding it altogether. Battery and electric vehicle costs have fallen very sharply in a few years and keep getting cheaper. That’s why the simplest, quickest solution is to go electric.
As EVs surge in popularity they’re likely to reduce demand for petrol at first, not diesel. That’s because passenger cars tend to run on petrol, and EVs are most viable at this size.
But change is also coming for diesel machinery. Iron ore magnate Twiggy Forrest has invested heavily in heavy duty electric mining machinery, replacing large volumes of diesel. Many miners in China have also gone down this route.
From oversupply to undersupply
It’s easy to forget that before the attacks on Iran, the world was facing a perceived oversupply of oil. China’s demand for refined fuels is falling as it electrifies, while the US has become the world’s top producer.
These concerns about oversupply have gone out the window because so much capacity has been knocked offline. We could be well into the southern winter before we see supplies returning to more comfortable levels.
For many people in Australia and around the world, that likely means more months of fuel price pain.
• Kevin Morrison is an industry fellow at the Institute for Sustainable Futures, University of Technology Sydney.
• This article was first published in The Conversation.
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