Fuel shortages in Australia: planning for an uncertain future

Following National Cabinet on 30 March, the Prime Minister outlined a four-phase fuel security plan:

1. Plan and prepare (monitoring impacts of global factors);
2. Keeping Australia moving (current settings – fuel supply continues to flow, but there have been some disruptions);
3. Taking targeted action (ensuring fuel goes where needed most and adopting voluntary measures to limit fuel usage); and
4. Protecting critical services for all Australians (where action will be required to ensure critical users are protected and the economy is operating). 

Prior to this announcement the Government has so far:

• released six days’ worth of petrol and five of diesel from Australia’s emergency stockpile that is held by our major fuel industry corporations, on specific undertakings that the fuel would be routed to regional areas suffering the greatest fuel shortages;
• made minor adjustments to petrol and diesel standards intended to increase fuel availability in the domestic market. The flashpoint for diesel has been reduced from 61.5 degrees Celsius to 60.5 degrees Celsius, and restrictions on high-sulphur fuel have been eased for the next 60 days;
• convened National Cabinet on 20 March, meeting with State and Territory leaders to address fuel security and supply chain resilience. National Cabinet will meet again next week (week beginning 30 March) to continue addressing this issue; and
• worked with industry to secure replacement vessel deliveries of fuel to Australia for the six vessels that have been cancelled in the past weeks and secured an additional three.

Specific to the transport industry, the Government has introduced a Bill to amend the Fair Work Act 2009 (Cth) (FWA). The amendments aim to ensure that rising fuel costs are not unfairly borne by truck drivers and transport operators by enabling truck drivers to lodge emergency applications for a contract chain order, removing the current minimum six-month waiting period.

A contract chain order under the FWA provides the Fair Work Commission with power to require manufacturers, mining companies, retailers and other transport clients to provide fair pay and conditions to contractors, including truck drivers.

By removing the six-month minimum waiting period, those impacted will be able to negotiate terms relating to costs more quickly to cope with an ever-changing market. We anticipate that orders sought will address matters such as payment terms, the timing of payments and minimum payment floors. 

The Government’s powers in the face of a fuel shortage are provided by the LFE Act, which was introduced in 1984 at the time of the Iran-Iraq war:

In the event of a serious shortfall of fuel supplies it could be expected that fuel prices would tend to rise substantially as purchasers competed for available supplies. This would be exacerbated by panic buying, and consequently normal market operations may break down. Such a situation could cause severe economic dislocation and hardship throughout the community. The Hon. Barry Jones AC, then Minister for Science and Technology, 24 August 1983

The potential for disruption is clear, and the continuing conflict between Iran and Iraq, not to mention the troubles in Lebanon and the failure to resolve the deep and bitter differences between the Arab states and Israel, underlines the fact that the problems will not go away. The Middle East is, and it appears that it will be, the main oil supply source of the world. Doug Anthony, then Leader of the Opposition, 8 September 1983

How does the Government intend to guarantee sufficient supplies of motor spirit in Australia if political troubles or war resulted in a sudden lack of availability of Middle East oil? Colin Mason, then Senator, 8 December 1983

The LFE Act provides contingency powers that the Government may use without an emergency being declared to:

• direct the fuel industry to maintain reserves;

• make guidelines relating to fuel industry allocation of bulk supplies in the case of an emergency; and

• direct the fuel industry to develop allocation procedures in accordance with those guidelines, which require approval of the Minister.

This largely takes place without impact to the public. 

However, the government’s powers broaden significantly (including the power to direct rationing) if a national liquid fuel emergency is declared. Such an emergency declaration has not been made during the more than 40-year history of the Act. A national liquid fuel emergency cannot be proclaimed unless:

• the shortage, or likelihood of shortage of liquid fuel is of such magnitude that it is necessary in the public interest for the Minister to make directions regarding the transfer, sale, and rationing of fuel; and

• either:

  • a national emergency has been declared under the National Emergency Declaration Act 2020; or

  • the Energy Minister for each State and Territory has had reasonable opportunity to consult with the Minister concerning the shortage. 

If the above requirements are satisfied, then it is the Governor-General who may proclaim a national liquid fuel emergency which cannot exceed three months and may be terminated earlier. The Government is presently indicating that it is not necessary to declare a liquid fuel emergency, but if it did, what could it do?

If a national liquid fuel emergency was proclaimed, the Minister may, for the purpose of dealing with the shortage:

• direct relevant fuel industry corporations to maintain reserves, to transfer liquid fuel around Australia, to make liquid fuel to be available for purchase, and regarding the output from refineries; and

• give directions as to allocation of liquid fuel to bulk customers (rationing bulk fuel supply), and regulating or prohibiting the supply of liquid fuel (rationing retail fuel supply).

In giving any direction, the Minister must take into account the following matters, which are prescribed by the Liquid Fuel Emergency Guidelines 2019:

• the expected severity, type, impact and duration of liquid fuel supply disruption during the period of national liquid fuel emergency;

• any relevant submissions given to the Minister within the specified period; and

• the expected supply needs of essential users.

Essential users receive priority in the circumstances of a fuel shortage and Government policy indicates they would not be subject to fuel rations, if implemented. The Minister may determine a person or organisation as an essential user if they carry on activities:

• related to the defence of Australia; or

• related to the provision of that product as fuel for ships and aircraft engaged in trade or commerce:

  • between Australia and places outside Australia; or

  • among the States; or

  • between a State and a Territory or between Territories; or

• related to the export of that product from Australia; or

• that are essential to the health, safety or welfare of the community.  Such activities currently include:

  • an ambulance service;

  • a corrective service;

  • a fire or rescue service;

  • a police service;

  • a public transport service;

  • a State Emergency Service or an equivalent organisation; and

  • a taxi service.

Three questions immediately arise:

• Am I an essential user? And if not, can I become one?

• Why, during a fuel shortage, would the export of that fuel be essential?

• What can I do to best protect my business?

As matters stand, the answer is that essential users are limited to the list of emergency and public transport services determined in 2008. The current guidance is also pessimistic about the prospect of expanding the list, but that guidance was drafted without reference to the present situation.

For example, consider transport companies who are delivering medical equipment to hospitals. The National Oil Supplies Emergency Committee (NOSEC) guidance states ‘no’. The NOSEC Guidance Note - Retail rationing under the Liquid Fuel Emergency Act 1984 provides the following sample question:

Question: My freight company is responsible for the transportation of food and medical supplies and thus serves an important economic purpose. Is my company exempt from retail rationing? 

Answer: Only the users listed in the Essential Users Determination are exempt from Retail Rationing in the event of a liquid fuel emergency. We recommend that you review your business continuity practices to ensure your company is prepared to address these issues if an emergency situation is to occur. 

However, in the context of the war in Iran and potential for long-term fuel restrictions, the Minister may use the LFE Act to restrict the consumption of the general public while carving out certain users to preserve the essential elements of the economy. In doing so, the Minister would be recognising that an economic shutdown will severely impact the health, safety or welfare of the community.

To the extent that the Minister does not feel that he has the power to manage fuel rationing in this way under the LFE Act, we would expect emergency legislation to be passed to achieve economic stability while severely restricting non-essential activity. Bills are being moved through Parliament this week addressing fuel-shortage-related issues including underwriting the purchase of import shipments. 

You may be surprised to hear that fuel exports are deemed essential in legislation aimed to address fuel shortage!

This is due to Australia’s obligations as a member of the International Energy Agency (IEA). You might have heard of our IEA obligations, because one of the obligations is to maintain minimum emergency oil stocks equivalent to at least 90 days net imports, which Australia has never done, and, at present, Australia holds less than 30 days of oil stocks. 

Another obligation as a member of the IEA is to contribute to the Emergency Oil Sharing System (EOSS) and Co-ordinated Emergency Response Measures (CERM). This means that Australia may be required to contribute its supplies internationally. In our local area, countries that may require support from Australia’s reserve include Papua New Guinea, Fiji, and other Pacific and Indian Ocean countries and territories. 

The LFE Act is drafted to be compliant with our IEA membership, which necessitates that even in a time of emergency, we have the ability to export fuel. 

It should be highlighted that essential users must be identified by the Minister in writing and entities involved in the export liquid fuel are not automatically deemed essential users. 

The LFE Act together with Government guidance indicates that any such essential user activity would be regulated through production of a plan for the export of product, review and approval of that plan by the Minister, and then export of the product would only occur in accordance with that plan. 

Given the above-described broad powers that may be used in the context of a national liquid fuel emergency, what should you do to protect your business?

There are two NOSEC guidance notes published that provide insight into the approach agreed between the Federal, State and Territory governments:

• NOSEC Guidance Note - Essential Users under the Liquid Fuel Emergency Act 1984

• NOSEC Guidance Note - Retail rationing under the Liquid Fuel Emergency Act 1984

The Guidance Notes highlight that the Government will first lean on voluntary mechanisms such as car-pooling, increased use of public transport, and voluntary support from the fuel industry and will only resort to options such as rationing if earlier measures are insufficient. 

Fuel rationing can only be utilised if the Minister is satisfied that the conditions for an emergency are met, and the Governor-General agrees to declare a national liquid fuel emergency. Fuel rationing cannot be implemented for longer than three months. 

The guidelines indicate that were the Government to introduce rationing it would be on a maximum transaction value per vehicle per day. This means that the quantity of fuel would vary depending on the price each day. For example, if the fuel price increased, this implies that demand is higher, supplies are shorter, and the number of litres purchased for the given value would be less. 

A 2018 copy of the National Liquid Fuel Emergency Response Plan, obtained through FOI in 2023, has scared many people. It contains an example fuel limit that capped fuel purchases at $40. The Government has ruled out implementing the flat $40 fuel limit, accurately describing that proposal as out-of-date. 

If your business would be impacted by rationing, if it were implemented, don’t spend your time jumping at shadows, but start your government lobbying efforts now. To support those efforts, implement business continuity measures so that when the time comes, you can prove that the nature of your business justifies protection:

• identify how your business is essential to the health, safety or welfare of the community;

• ensure that your vehicles can be clearly distinguished by fuel suppliers;

• plan for how your business would manage a reduction of 10 per cent, 30 per cent, and 50 per cent of normal fuel supply for 30 days;

• identify your business’ higher and lower priority fuel uses, and any non-essential business activities that could be cancelled or deferred; and

• consider the fuel efficiency of equipment and vehicles and increasing use of more efficient vehicles over vehicles with lower efficiency.

To the extent that you wish to exit or suspend loss-making contracts, review your force majeure clauses and assess whether they may be validly triggered by a declaration of a national liquid fuel emergency.