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<DIV><FONT size=2 face=Arial><FONT size=3><STRONG>How global instability could
threaten the country's fuel supplies</STRONG></FONT></DIV>
<DIV>
<DIV
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<DIV
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<H5
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Bethune</H5>
<DIV>Mining and Resources Journal</DIV><CITE
style="BORDER-RIGHT-WIDTH: 0px; FONT-FAMILY: inherit; BORDER-TOP-WIDTH: 0px; BORDER-BOTTOM-WIDTH: 0px; FONT-SIZE: 12px; BORDER-LEFT-WIDTH: 0px">March
15, 2011</CITE>
<UL
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<DIV
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<DIV
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<DIV
style="BORDER-RIGHT-WIDTH: 0px; FONT-FAMILY: inherit; BORDER-TOP-WIDTH: 0px; BORDER-BOTTOM-WIDTH: 0px; FONT-SIZE: 1.2em; BORDER-LEFT-WIDTH: 0px">WITH
oil supplies from Libya disrupted, some Japanese refineries out of action and
oil prices back around $US100 a barrel, how vulnerable are Australian oil
supplies to global instability?</DIV>
<DIV
style="BORDER-RIGHT-WIDTH: 0px; FONT-FAMILY: inherit; BORDER-TOP-WIDTH: 0px; BORDER-BOTTOM-WIDTH: 0px; FONT-SIZE: 1.2em; BORDER-LEFT-WIDTH: 0px"> </DIV>
<DIV
style="BORDER-RIGHT-WIDTH: 0px; FONT-FAMILY: inherit; BORDER-TOP-WIDTH: 0px; BORDER-BOTTOM-WIDTH: 0px; FONT-SIZE: 1.2em; BORDER-LEFT-WIDTH: 0px">Unlike
the 1970s, Australia is now a net oil importer. According to the federal
government's <EM
style="BORDER-RIGHT-WIDTH: 0px; FONT-STYLE: italic; FONT-FAMILY: inherit; BORDER-TOP-WIDTH: 0px; BORDER-BOTTOM-WIDTH: 0px; FONT-SIZE: 15px; BORDER-LEFT-WIDTH: 0px">Australian
Petroleum Statistics</EM>, 51.1 gigalitres of petroleum products were sold in
Australia last year. We imported 46.7 gigalitres of crude oil and petroleum
products and exported 25.9 gigalitres. That makes 20.8 gigalitres of net
imports, 40 per cent of total sales. On that basis, Australia was 40 per cent
reliant on imports.</DIV>
<DIV
style="BORDER-RIGHT-WIDTH: 0px; FONT-FAMILY: inherit; BORDER-TOP-WIDTH: 0px; BORDER-BOTTOM-WIDTH: 0px; FONT-SIZE: 1.2em; BORDER-LEFT-WIDTH: 0px"> </DIV>
<DIV
style="BORDER-RIGHT-WIDTH: 0px; FONT-FAMILY: inherit; BORDER-TOP-WIDTH: 0px; BORDER-BOTTOM-WIDTH: 0px; FONT-SIZE: 1.2em; BORDER-LEFT-WIDTH: 0px">This
reliance is expected to increase. In 2009, Australian oil production hit a
40-year low and while it rose last year, we still produce much less oil than
even a decade ago.</DIV>
<DIV
style="BORDER-RIGHT-WIDTH: 0px; FONT-FAMILY: inherit; BORDER-TOP-WIDTH: 0px; BORDER-BOTTOM-WIDTH: 0px; FONT-SIZE: 1.2em; BORDER-LEFT-WIDTH: 0px"> </DIV>
<DIV
style="BORDER-RIGHT-WIDTH: 0px; FONT-FAMILY: inherit; BORDER-TOP-WIDTH: 0px; BORDER-BOTTOM-WIDTH: 0px; FONT-SIZE: 1.2em; BORDER-LEFT-WIDTH: 0px">In
macro-economic terms, Australia is therefore vulnerable to higher oil prices on
the 40 per cent of our needs that we import. Individuals are 100 per cent
vulnerable to higher petrol prices, with knock-on effects in other sectors
through reduced spending.</DIV>
<DIV
style="BORDER-RIGHT-WIDTH: 0px; FONT-FAMILY: inherit; BORDER-TOP-WIDTH: 0px; BORDER-BOTTOM-WIDTH: 0px; FONT-SIZE: 1.2em; BORDER-LEFT-WIDTH: 0px"> </DIV>
<DIV
style="BORDER-RIGHT-WIDTH: 0px; FONT-FAMILY: inherit; BORDER-TOP-WIDTH: 0px; BORDER-BOTTOM-WIDTH: 0px; FONT-SIZE: 1.2em; BORDER-LEFT-WIDTH: 0px">Furthermore,
while Australia is 40 per cent import-reliant in economic terms, in physical
terms we are more than 90 per cent reliant on oil imports. We import most of the
oil we use, either as crude oil for Australian refineries or as refined
products. Last year, Australia imported 46.7 gigalitres out of the 51.1
gigalitres it consumed. Gross imports were 91 per cent of consumption. Imports
averaged 128 million litres, or 805,000 barrels a day.</DIV>
<DIV
style="BORDER-RIGHT-WIDTH: 0px; FONT-FAMILY: inherit; BORDER-TOP-WIDTH: 0px; BORDER-BOTTOM-WIDTH: 0px; FONT-SIZE: 1.2em; BORDER-LEFT-WIDTH: 0px"> </DIV>
<DIV
style="BORDER-RIGHT-WIDTH: 0px; FONT-FAMILY: inherit; BORDER-TOP-WIDTH: 0px; BORDER-BOTTOM-WIDTH: 0px; FONT-SIZE: 1.2em; BORDER-LEFT-WIDTH: 0px">Why
does Australia import most of the oil it uses? Using imported rather than local
crude in our refineries reflects logistics (74 per cent of our oil is produced
off north-west Western Australia) and differences between the quality of oil we
produce and the configuration of Australian refineries.</DIV>
<DIV
style="BORDER-RIGHT-WIDTH: 0px; FONT-FAMILY: inherit; BORDER-TOP-WIDTH: 0px; BORDER-BOTTOM-WIDTH: 0px; FONT-SIZE: 1.2em; BORDER-LEFT-WIDTH: 0px"> </DIV>
<DIV
style="BORDER-RIGHT-WIDTH: 0px; FONT-FAMILY: inherit; BORDER-TOP-WIDTH: 0px; BORDER-BOTTOM-WIDTH: 0px; FONT-SIZE: 1.2em; BORDER-LEFT-WIDTH: 0px">Furthermore,
Australian refineries only produce three-quarters of the petrol, diesel and
other products we consume. While consumption of oil products continues to rise
(particularly diesel for the resource sector), Australian refining capacity has
fallen since the closure of Adelaide's Port Stanvac refinery in 2003. At the
margin, all increases in demand for petroleum products are met by imports.</DIV>
<DIV
style="BORDER-RIGHT-WIDTH: 0px; FONT-FAMILY: inherit; BORDER-TOP-WIDTH: 0px; BORDER-BOTTOM-WIDTH: 0px; FONT-SIZE: 1.2em; BORDER-LEFT-WIDTH: 0px"> </DIV>
<DIV
style="BORDER-RIGHT-WIDTH: 0px; FONT-FAMILY: inherit; BORDER-TOP-WIDTH: 0px; BORDER-BOTTOM-WIDTH: 0px; FONT-SIZE: 1.2em; BORDER-LEFT-WIDTH: 0px">So
Australian oil supplies rely on the smooth operation of import supply chains and
while the record so far has been very good, the buffer against disruptions is
not great. The government monitors petroleum stocks and late last year Australia
had only 28 days' coverage of crude oil supplies, 15 days of petrol and 16 days
of diesel. So where do our oil imports come from and how exposed are we to the
Middle East or North Africa (MENA) for crude oil and Asia for refined
products?</DIV>
<DIV
style="BORDER-RIGHT-WIDTH: 0px; FONT-FAMILY: inherit; BORDER-TOP-WIDTH: 0px; BORDER-BOTTOM-WIDTH: 0px; FONT-SIZE: 1.2em; BORDER-LEFT-WIDTH: 0px">About
10 per cent of Australia's oil imports come from MENA, mostly from the United
Arab Emirates on the Persian Gulf. Australia does import crude from Libya but
last year this only amounted to 2 per cent of our crude imports.</DIV>
<DIV
style="BORDER-RIGHT-WIDTH: 0px; FONT-FAMILY: inherit; BORDER-TOP-WIDTH: 0px; BORDER-BOTTOM-WIDTH: 0px; FONT-SIZE: 1.2em; BORDER-LEFT-WIDTH: 0px"> </DIV>
<DIV
style="BORDER-RIGHT-WIDTH: 0px; FONT-FAMILY: inherit; BORDER-TOP-WIDTH: 0px; BORDER-BOTTOM-WIDTH: 0px; FONT-SIZE: 1.2em">The
main effect of Libyan events has been on oil prices rather than physical
supplies. Most of Australia's crude oil imports come from Vietnam, Indonesia,
Brunei, Malaysia and other Asia-Pacific region countries. Most of our refined
products come from Singapore, Japan, Korea and Taiwan.</DIV>
<DIV
style="BORDER-RIGHT-WIDTH: 0px; FONT-FAMILY: inherit; BORDER-TOP-WIDTH: 0px; BORDER-BOTTOM-WIDTH: 0px; FONT-SIZE: 1.2em"> </DIV>
<DIV
style="BORDER-RIGHT-WIDTH: 0px; FONT-FAMILY: inherit; BORDER-TOP-WIDTH: 0px; BORDER-BOTTOM-WIDTH: 0px; FONT-SIZE: 1.2em; BORDER-LEFT-WIDTH: 0px">But
any instability in the Persian Gulf would have much greater consequences,
globally and for Australia.</DIV>
<DIV
style="BORDER-RIGHT-WIDTH: 0px; FONT-FAMILY: inherit; BORDER-TOP-WIDTH: 0px; BORDER-BOTTOM-WIDTH: 0px; FONT-SIZE: 1.2em; BORDER-LEFT-WIDTH: 0px">The
Asia-Pacific region is highly reliant on Middle Eastern oil. About a third of
the world's seaborne-traded oil passes out of the Persian Gulf through the
Straits of Hormuz each day, much of it headed for our region.</DIV>
<DIV
style="BORDER-RIGHT-WIDTH: 0px; FONT-FAMILY: inherit; BORDER-TOP-WIDTH: 0px; BORDER-BOTTOM-WIDTH: 0px; FONT-SIZE: 1.2em; BORDER-LEFT-WIDTH: 0px"> </DIV>
<DIV
style="BORDER-RIGHT-WIDTH: 0px; FONT-FAMILY: inherit; BORDER-TOP-WIDTH: 0px; BORDER-BOTTOM-WIDTH: 0px; FONT-SIZE: 1.2em; BORDER-LEFT-WIDTH: 0px">Although
less than 10 per cent of Australia's oil comes from the Middle East, Singapore
(the largest supplier of refined products for Australia) gets 40 per cent of its
oil from the Middle East and Japan (another supplier to Australia) relies on the
Middle East for 85 per cent of its oil. Instability in the Gulf would have
global consequences for oil prices and physical supply consequences for our
region. For Australia it could both affect our crude oil imports and our imports
of refined products.</DIV>
<DIV
style="BORDER-RIGHT-WIDTH: 0px; FONT-FAMILY: inherit; BORDER-TOP-WIDTH: 0px; BORDER-BOTTOM-WIDTH: 0px; FONT-SIZE: 1.2em; BORDER-LEFT-WIDTH: 0px"> </DIV>
<DIV
style="BORDER-RIGHT-WIDTH: 0px; FONT-FAMILY: inherit; BORDER-TOP-WIDTH: 0px; FONT-SIZE: 1.2em; BORDER-LEFT-WIDTH: 0px">So
far instability in the Gulf has been limited to Bahrain, which is not an oil
producer but is the base for the US Fifth Fleet, which provides security for oil
exports from the Gulf. Most Middle East analysts regard significant instability
in the Gulf as less likely than in north Africa but the outlook is inherently
uncertain.</DIV>
<DIV
style="BORDER-RIGHT-WIDTH: 0px; FONT-FAMILY: inherit; BORDER-TOP-WIDTH: 0px; FONT-SIZE: 1.2em; BORDER-LEFT-WIDTH: 0px"> </DIV>
<DIV
style="BORDER-RIGHT-WIDTH: 0px; FONT-FAMILY: inherit; BORDER-TOP-WIDTH: 0px; BORDER-BOTTOM-WIDTH: 0px; FONT-SIZE: 1.2em; BORDER-LEFT-WIDTH: 0px">As
the most recent terrible events in Japan show, the Middle East is not the only
unstable region. We also rely on Japan for imports of refined petroleum,
particularly diesel.</DIV>
<DIV
style="BORDER-RIGHT-WIDTH: 0px; FONT-FAMILY: inherit; BORDER-TOP-WIDTH: 0px; BORDER-BOTTOM-WIDTH: 0px; FONT-SIZE: 1.2em; BORDER-LEFT-WIDTH: 0px"> </DIV>
<DIV
style="BORDER-RIGHT-WIDTH: 0px; FONT-FAMILY: inherit; BORDER-TOP-WIDTH: 0px; BORDER-BOTTOM-WIDTH: 0px; FONT-SIZE: 1.2em; BORDER-LEFT-WIDTH: 0px">While
the conventional wisdom is that Australia is largely self-sufficient in oil, the
reality is that we are highly import-dependent and, therefore, vulnerable to any
adverse developments in the Middle East, the world's biggest oil-producing
region, or Asia.</DIV>
<DIV
style="BORDER-RIGHT-WIDTH: 0px; FONT-FAMILY: inherit; BORDER-TOP-WIDTH: 0px; BORDER-BOTTOM-WIDTH: 0px; FONT-SIZE: 1.2em; BORDER-LEFT-WIDTH: 0px"> </DIV>
<DIV
style="BORDER-RIGHT-WIDTH: 0px; FONT-FAMILY: inherit; BORDER-TOP-WIDTH: 0px; BORDER-BOTTOM-WIDTH: 0px; FONT-SIZE: 1.2em; BORDER-LEFT-WIDTH: 0px"><EM
style="BORDER-RIGHT-WIDTH: 0px; FONT-STYLE: italic; FONT-FAMILY: inherit; BORDER-TOP-WIDTH: 0px; BORDER-BOTTOM-WIDTH: 0px; FONT-SIZE: 15px; BORDER-LEFT-WIDTH: 0px">Graeme
Bethune is chief executive of EnergyQuest, an economic consultancy specialising
in oil and gas. <A
href="http://www.energyquest.com.au/">www.energyquest.com.au</A></EM></DIV></DIV></B
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