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AS the world heads into week six of operating with 20 percent less oil supply, Australia is moving into a crunch point where alternative networks for fuel are about to be tested.
Most of Australia’s fuel consumption over the past month has been fuel that passed the Strait of Hormuz before it was closed by Iran on March 2 – with the journey from Middle Eastern oil fields, through Asian refineries and onto Australia said to take about six weeks.
Rabobank’s Ben Picton.
With most of Australia’s fuel coming from the area impacted by the war, the Federal Government has been scrambling to secure fuel from alternative sources like the United States, as there is no significant stockpile to draw from in Australia.
Energy minister Chris Bowen this morning said Australia now has supply secured into May.
But speaking on The Week in Beef podcast, Rabobank strategist Ben Picton said with the rest of the world competing for the same supply, it could get tight.
“Our view is that we’ll continue to have some fuel. It may not be 100pc of what we would usually consume, so we might still need some demand curtailment,” Mr Picton said.
“Globally, there’s just not enough to go around and everyone will be scrambling to secure alternative supply from the people who still have it.”
Australia has cards to play
Mr Picton said while the situation was getting tight, Australia had some good bargaining chips in securing fuel supply.
“We’re a very wealthy country and we have good long term supply agreements with some of those Asian refining nations,” he said.
“We’re also a net exporter of energy ourselves just the wrong kind of energy. What we’ve seen recently is the government going to some of these countries in Asia and basically saying to them ‘if you continue to supply us with refined fuels, we will continue to supply you with liquefied natural gas and coal’.
“We are well placed in some respects, but it would have been nice if we if we had larger stockpiles at home.”
Asian refineries in for a tough period
While some ships have been passing through the Strait of Hormuz in recent weeks, Mr Picton said it was important to note that the number has gone from about 120/day down to less than five/day.
He said serious pressure was being put on the Asian refineries.
“They just can’t get enough crude oil to operate the refinery at maximum efficiency, so they’re cutting their refining runs,” he said.
“You can only run them at around about 60 capacity, if you dip below that you have to shut down the refinery. And when you shut a refinery down, it’s not a simple process to restart it takes a number of weeks.
“We may be getting close to that point where some of those refineries in Asia that have curtailed how much they’re actually producing they are starting to get close to the point where there’s just not enough oil for them to even operate at a reduced rate, and they might have to shut down entirely.
“So, we are seeing pretty severe strain on the on the global supply chain, and really we need to see the straight reopen.”
What is the Albanese government going to do about it?