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Local gas makes sense

Fuel for thought: Gas Energy Australia chief executive John Griffiths says Australia will have to spend billions on fuel storage if it keeps relying on imported fuels.

Bountiful local transport fuel struggles to make inroads against imported diesel

28 Sep 2015

AUSTRALIA will have to spend more than $6 billion on fuel storage facilities if it continues to rely so heavily on imported petrol and diesel, according to a leading gas industry advocate.

At present Australia has about 56 days of fuel in storage despite the fact it is a signatory to the International Energy Agency treaty and has agreed to keep at least 90 days of fuel in storage.

However, if Australia switched from imported petrol and diesel for its transport fuel and started using its own domestic gas supplies, it would not need so much expensive storage, and there would be other major advantages, according to Gas Energy Australia chief executive John Griffiths.

Speaking at the opening of the first public compressed natural gas (CNG) refueling outlet located at a regular petrol station in Melbourne's Tullamarine, Mr Griffiths said he hoped the opening of the Caltex CNG outlet would be the first step in a trend to halt the “dieselisation” of Australia’s transport system.

“We have been working hard with companies and government to encourage the uptake of cleaner gaseous fuels, and CNG is one of those,” he said.

“We have seen over recent years the increased dieselisation of Australia’s light-commercial vehicle fleet and I think it is quite timely that this station is being opened now.

“There is a lot of debate in the community about diesel exhausts and their effects on the community, highlighted by the revelation around VW and the cheating with their exhaust tests,” he said.

“People are becoming a lot more aware about diesel exhaust. The carcinogens have not gone away.”

Engines running on natural gas produce up to 25 per cent less greenhouse gas emissions than a diesel and up to 90 per cent fewer harmful particulates.

Mr Griffiths said it didn’t make sense to be entirely reliant on importing petrol and diesel when it was cheaper to run vehicles on gas, but he was realistic about gas’s status in the transport fuel market.

“The reality is gas is a niche fuel. But, once you can get a critical mass going, we can start getting some of those costs down, because the fuel is definitely cheaper.

“Also, it is certainly greener and it is domestically produced, creating more jobs.”

The government has recognised that using gas for transport fuel would be in the national interest, as its excise policy is to tax gaseous fuels at only half the rate of petrol or diesel, whichever is the dominant fuel in the market being examined.

“In fact, especially with the heavy vehicles, some of which use LPG, the rate of tax on them today is more like 70 to 80 per cent that of diesel,” Mr Griffiths said.

“This is actually breaching the government’s policy. We have raised this with the government, and they haven’t challenged our numbers.

“We have raised it with with the National Transport Commission and the Department of Transport. They acknowledge it, but I guess they don’t have full control over it.”

Switching a large proportion of the national transport fuel usage over to gas would have big benefits for the country overall, Mr Griffiths said.

“If you can grow the industry there will be a lot more jobs compared to importing diesel from overseas, where all the jobs and profits are made.

“Whereas, using natural gas, the processing is here and the jobs are here.

There will actually be more revenue for the government.”

Mr Griffiths said a switch to locally sourced transport fuel would also be a boon in terms of self-reliance and supply security.

He added that the last National Energy Security Assessment looked at a scenario as to what would happen to Australia’s fuels supply if there was a blockade of Singapore.

“They said ‘Oh, well, there are other sources available nearby, so there’s no worry’,” Mr Griffiths said.

But the bigger issue was what would happen if there was a disruption to supplies from the Middle East.

“Then we are in trouble because those other refineries in Asia wouldn’t get the fuel either. But, so far, governments appear to be discounting that, saying ‘Oh well, it hasn’t happened, we haven’t seen any disruptions to supply so we don’t really need to worry’.”

Mr Griffiths said, however, we do need to worry because Australia was in breach of its commitment to keep at least 90 days of transport fuel in reserve under the treaty signed with the International Energy Agency (IEA).

The latest figures from the IEA show that Australia had 56 days of transport fuel in reserve as at June 2015, the lowest level of all the IEA member countries. In comparison, the United States had 348 days and the United Kingdom 187 days in reserve.

“We have been in breach of our obligations under the IEA agreement for a couple of years now. The government acknowledges it has got to do something about it, to build facilities to hold the stocks we need.”“The government estimated it would cost about $6.8 billion to do that, so obviously a more cost-effective option is to actually use more domestic fuel, because the stock-holding obligation is determined by how much oil you import.

“If we are using more domestic gas and other fuels, then we are not importing as much and we don’t have to stockpile as much.

“The government acknowledges the point, but they are still looking at their options.”

The Lowy Institute says Australia is the only member of the IEA to be in breach of its treaty obligation to hold a 90-day 'strategic petroleum reserve'.

In its February, 2015 publication, the Lowy Institute said the IEA was established in 1974 by the world’s largest oil consumers (the US, Europe and Japan) as a counterbalance to the world’s largest oil producers (OPEC) following the oil shocks of the 1970s.

One of its main functions is to supply oil to the energy market in the event of a significant disruption, as it did 2005 following Hurricane Katrina in the Gulf of Mexico.

Accordingly, all members of the IEA are required to hold oil stocks equivalent to 90 days of imports, which can be drawn on in the event of such a disruption.

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