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Australia’s fuel security package

Australia’s fuel security is essential for our national security and underpins our economy. We have been fortunate to have not experienced a significant fuel supply shock in over 40 years. However, we currently import around 90% of our liquid fuels.

To support our long-term fuel supplies, the Australian Government has developed a comprehensive fuel security package. The government’s long-term fuel security goal is to increase our domestic storage and to hold a sovereign refining capability that meets our needs during an emergency, as well as into the future. We will secure our local industry’s capabilities, while keeping fuel prices in Australia among the lowest in the OECD.

The government is committed to securing Australia’s long term refining capacity by building on the fuel security package that was introduced in the 2020-21 Budget. New measures introduced in the 2021-22 Budget include:

  • a variable fuel security services payment (FSSP) to pay refineries for the fuel security service that they provide and maintain sovereign capability
  • up to $302 million to support infrastructure upgrades at refineries to bring forward the introduction of better fuels from 2027 to 2024
  • $50.7 million to design and implement a fuel security framework, to administer the government’s fuel security activities including a minimum stockholding obligation (MSO) and the FSSP.

This package will:

  • lock-in Australia’s refineries to at least 2027, but with the option to extend to 2030
  • bring forward improvements to fuel quality from 2027 to 2024 by accelerating major infrastructure upgrades at refineries. This will deliver health benefits through improved air quality
  • ensure Australia has the fuel stocks and sovereign refining capability it needs to be prepared in an emergency
  • support the economy and workers in fuel-dependent industries, such as transport, agriculture, mining, tradies and critical services.

The fuel security package measures introduced include:

  • $260 million Boosting Australia’s Diesel Storage Program to support the construction of new diesel fuel storage which will support industry in meeting its minimum stockholding obligation
  • taking advantage of historically low oil prices to purchase Australian-owned oil  to store in the United States Strategic Petroleum Reserve (US SPR).

Fuel security legislation

On 30 June 2021, the new Fuel Security Act 2021 (the Act) commenced. The Act establishes the legislative framework for the MSO and the FSSP.   

The Act represents the commencement of a new liquid fuel security framework that is designed to improve Australia’s long-term fuel security and ensure a domestic refining capability of our critical fuels. The Act also establishes regulatory oversight responsibilities for the Department of Industry, Science, Energy and Resources.

The fuel security services payment

The government’s fuel security package will help Australia recover from the global COVID-19 crisis by securing our sovereign fuel stocks, locking in jobs for around 4,000 Australians, as well as protecting Australian families and business from increased fuel prices. The fuel industry is crucial to Australia’s economy and our national security.

The FSSP has been designed to secure Australia’s long-term refining capabilities by providing eligible refiners with a payment for the production of key transport fuels (jet fuel, petrol and diesel). The amount paid is adjustable and is based on an external margin marker with the payment to be between:

  • 0 cents per litre (cpl) when the margin marker is at or above $10.20/barrel (collar)
  • a maximum of 1.8 cpl when the marker drops to $7.30/barrel (the cap)

Under the FSSP, refiners only receive government support in downtimes and not when they are profitable.

Read more about the FSSP.

A minimum stockholding obligation for industry

Australia needs certainty of fuel stocks to provide confidence to fuel users and government in our resilience to potential supply disruptions and to protect consumers and the economy. An MSO is an efficient way to achieve certainty of fuel stocks and is commonly used in other developed nations such as the United Kingdom and Japan.

The MSO will apply from 1 July 2022 to both importers and refiners in Australia requiring them to maintain minimum stocks of the three key transport fuels of jet fuel, petrol and diesel. Minimum stocks can be called on in times of supply disruption, in emergencies and if fuel demand unexpectedly increases.

Companies will need to meet the MSO from 1 July 2022. The target minimum stock levels will be set by the Minister for Energy and Emissions Reduction via notifiable instrument. From 1 July 2024, the diesel stock minimum will increase to 40% above the baseline level.

Refining businesses will be exempt from the increased diesel stockholding. This is in recognition of the fuel security benefits that refineries provide through their capability to continue to supply fuel to the market using domestically sourced crude oil.

Diesel is our most important and versatile fuel and is needed to cover us during significant events like flooding, bushfires and pandemics. Diesel is vital for emergency services, enabling the transport of food, equipment and medicines and is a backup fuel for electricity generation for critical services like hospitals, water and sanitation and electricity generation in remote communities.

Diesel demand has remained strong throughout the COVID-19 pandemic even as demand for petrol, and particularly jet fuel, has been significantly impacted due to lockdowns and travel restrictions.

The Minister for Energy and Emissions Reduction will make Rules to set out the detailed requirements of the MSO following further consultation with the fuel industry.

Australia’s fuel storage program

The Boosting Australia’s Diesel Storage Program (BADSP) is providing up to $260 million in competitive grants  with matched funding from industry to build additional domestic fuel storage, boosting Australia’s diesel storage by 40% and supporting around 1000 jobs.

The program supports industry to prepare for an increase to the minimum stockholding obligation for diesel in 2024.

Holding more fuel stocks in Australia will increase our resilience to supply disruptions, thereby protecting consumers and the economy from fuel shortages.

Further information about the program including the program guidelines can be found at business.gov.au.

Modernising our legislation

Modernising the Liquid Fuel Emergency Act 1984 and Petroleum and Other Fuels Reporting Act 2017 will support a more effective government response in the event of market disruptions.

Governments, industry and consumers will all benefit from an improved fuel-related legislative framework that is fit for purpose.

Consideration of these legislative changes are likely to commence in late 2021, which will include consultation with industry.

Forging Australia’s path to compliance with the International Energy Program Treaty

Australia is committed to returning to full compliance with the International Energy Agency’s 90-day oil stockholding obligation by 2026.

Australia’s fuel security package will assist Australia to comply with the International Energy Agency stockholding obligation by 2026.

 

Australia is taking strong action on liquid fuel security and to keep fuel prices low. 
We are implementing a comprehensive fuel security package with a new legal framework under the new Fuel Security Act 2021 which passed in our Parliament last month. 
This includes: Refinery production payments worth up to $2.04bn so refineries to recover losses during downtimes. In return, Australian refiners commit to continue operating until at least 2027.
$302 million for refinery infrastructure upgrades to help refiners bring forward the production of better quality fuels to 2024, in time for higher fuel standards. 
A new Minimum Stockholding Obligation on for key transport fuels, supported by a $200m competitive grants program. This is similar to Korea’s own stockholding obligation, and will place a floor under petrol and jet levels from 1 July 2022, and increase diesel levels 40% from mid-2024. Diesel is a key source of energy for Australia and critical to transport and emergency services in a crisis. Our fuel security package also includes: Strategic oil stocks established in partnership with the United States, Improved petroleum stock reporting, and Upgrades to liquid fuel legislation for improved government response in times of market volatility. Investments by Australia, like Korea, in positioning ourselves as major players in global hydrogen economy and in advanced low emissions vehicle technologies. Taken together these measures support our commitment returning to compliance with the IEA treaty by 2026.

 

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Read more

Expanding Australia's diesel storage to boost long-term fuel security, Ministerial media release 15 July 2021

Locking in Australia’s fuel security joint Ministerial media release 17 May 2021

Boosting Australia’s diesel storage Ministerial media release 8 January 2021

Immediate support for Australia's refineries and fuel security Ministerial media release 14 December 2020

Australian Fuel Storage Program Request for Information

Boosting Australia’s fuel security Ministerial media release 14 September 2020

Enhancing Australia's fuel security Ministerial media release 15 June 2020

Australia to boost fuel security and establish national oil reserve Ministerial media release 22 April 2020