The nostalgia for a time when Australia was energy independent is growing louder as global markets reel from volatility in the Middle East. For many, the solution seems simple: return to the era of pumping crude from the Bass Strait and refining it on home soil to insulate the economy from overseas shocks.
However, as the current oil price shock evolves into a broader economic crisis, the calls to “drill baby drill” ignore the stark geological and economic realities of the 21st century. The push to rebuild a domestic oil industry is often based on a misunderstanding of what remains in the ground and how the global fuel market actually functions.
To understand the current vulnerability, one must look at the debunking four myths about Australia’s fuel crisis—specifically the misconceptions regarding reserve volumes, the cost of extraction, the viability of local refining, and the purpose of international emergency stocks.
Australia remains an energy powerhouse in other sectors. For decades, the nation has been a leading sea-borne exporter of both steaming coal for electricity and metallurgical coal for steelmaking.
A ship is loaded with coal at the RG Tanner Coal Terminal in Gladstone, Queensland in 2012. (AAP Image: Dave Hunt)
The country has also jostled with Qatar for the top spot in liquefied natural gas (LNG) exports before the United States ramped up its own capacity. But while coal and gas are abundant, liquid fuel is a different story.
The Geological Reality: Depleted Reserves
The first myth is that Australia has enough oil to sustain itself if it simply chose to extract it. In reality, conventional oil reserves are thin. Data from Geoscience Australia indicates that the nation’s proven or probable oil reserves stand at 1.3 billion barrels, with an additional 2.2 billion barrels classified as contingent reserves—oil that is known to exist but is not currently economically viable to extract.
Oil resources in Australia are depleted. (Supplied: Geosciences Australia)
The Bass Strait, historically the cornerstone of domestic production, is nearing depletion. While some resources remain off the north coast of Western Australia, they are insufficient to support a growing population for the long term. At current consumption rates, even if Australia continued to import 80 per cent of its liquid fuels, proven reserves would run dry in approximately seven years. Even a total cessation of imports and the extraction of all known contingent reserves would only provide a buffer of slightly over nine years.
The Economics of Extraction and Price
The second myth suggests that higher global oil prices make domestic drilling an easy win. While it is true that increased prices can make previously “uneconomic” reserves viable, the capital requirements for new projects are immense. Most oil companies are multinationals that prioritize the highest return on investment. Extracting oil in Australia can cost between US$70 and US$100 per barrel, whereas in regions like the Gulf of Mexico, that cost can be as low as US$30.
For a multinational to commit billions in capital, they require confidence in a project’s longevity—typically decades, not a few years. Investing in a field that will last less than a decade and operate on thin margins is a hard sell for shareholders.
Consumers are feeling the pain of the fuel price hike. (ABC News: Chris Taylor)
the cost of “homegrown” fuel would either be passed directly to the motorist—meaning significantly higher prices at the pump—or subsidized by the federal government, shifting the burden to the taxpayer. The timeline for developing new oil fields, including infrastructure and pipelines, often spans a decade, offering no immediate relief to the current crisis.
The Refining Dilemma
The third myth is that simply reopening closed refineries would solve the fuel security problem. Australia currently has only two active refineries: the Ampol-owned Lytton refinery in Brisbane and the Viva Energy operation in Geelong. Together, they provide roughly 20 per cent of the nation’s liquid fuels.
Ampol’s Lytton Oil Refinery in Brisbane is one of two remaining in Australia. (AAP Image: Jono Searle)
The closure of other refineries by companies like ExxonMobil, Caltex, and BP was driven by an inability to compete with the massive, modern refineries in Singapore and South Korea. Even if these facilities were reactivated, they would still require crude oil. With domestic reserves depleted, these refineries would have to import the majority of their crude anyway, leaving Australia exposed to the same global market volatility it seeks to avoid.
Interestingly, Australia has leveraged its position as a major LNG exporter to ensure refined fuel shipments continue to arrive from nations that depend on Australian gas, creating a strategic trade-off that has, until now, kept the pumps running.
Understanding Strategic Reserves
The final myth concerns the nature of oil reserves. There is a common belief that the emergency stocks required by the International Energy Agency (IEA)—equivalent to 90 days of imports—are intended solely for a member country’s domestic use during a crisis.
In reality, these reserves are designed to be released into the global marketplace to stabilize prices. For example, the IEA recently released 400 million barrels of crude, the largest release on record, to mitigate the impact of the closure of the Strait of Hormuz. Without such coordinated action, the price spikes following the US and Israeli military actions in Iran would have been significantly more severe.
Australia’s own reserve policy has historically leaned toward “just in time” rather than “just in case.” With barely a month of domestic supplies on hand and some reserves held in the US, the nation is now facing a necessary re-evaluation of its storage strategy. However, storing refined fuels is more complex and expensive than storing crude, as refined products are more volatile and deteriorate more quickly.
Comparison of Fuel Security Models
| Model | Primary Goal | Key Vulnerability |
|---|---|---|
| Just-in-Time | Cost Efficiency | Supply Chain Disruptions |
| Strategic Reserve | Market Stability | High Storage Costs / Degradation |
| Full Domestic Cycle | Energy Independence | High Extraction Costs / Resource Depletion |
The current crisis is not unique to Australia. Even the United States, the world’s largest oil producer, remains vulnerable, importing roughly 40 per cent of its crude. This global interconnectedness means that no single nation is entirely insulated from geopolitical shocks in the Middle East.
As the government reviews its reserve policies in the wake of the recent price shocks, the next critical checkpoint will be the outcome of ongoing diplomatic negotiations between the US and Iran, which will dictate the stability of the Strait of Hormuz and the subsequent movement of global oil prices.
We invite our readers to share their perspectives on fuel security and the transition to alternative energy in the comments below.
