The budget patches an energy system built for a different world

Australia’s fuel security problem is not a story of neglect. Consecutive governments operated within assumptions that were broadly shared: that global markets would remain open, maritime supply chains would remain reliable, and energy security could be managed through commercial access rather than sovereign control. Those assumptions are now inadequate. The question ahead is whether Australia is simply catching up with vulnerabilities that have become impossible to ignore, or beginning to address geopolitical change at the pace the moment requires.

The headline fuel resilience package presented in the federal budget on Tuesday suggests both are true. Totalling $14.8 billion, the package includes $7.5 billion for a “fuel and fertiliser security facility”, $3.2 billion for a permanent government-owned “Australian fuel security reserve” of around one billion litres, and an increase in minimum stockholding obligations designed to lift diesel and aviation fuel reserves to 50 days, from 21.

As a response to the Hormuz crisis, these moves are necessary, but the deeper importance lies in showing that Australia is paying to retrofit resilience into an energy system built for a different world. This is a serious policy shift, but catching up with known vulnerabilities is not the same as getting ahead of them.

Disruption in the Strait did not create Australia’s fuel insecurity so much as reveal how little resilience had been built into a system dependent on imported crude and refined product, even though direct Persian Gulf exposure is limited. As an International Energy Agency (IEA) member, Australia must hold stocks of at least 90 days of net imports, a threshold it has not met since 2012. Even under the new package, Australia will remain well short of that benchmark.

That shortfall is important, but it captures only the most visible part of the problem. Too much of Australia’s fuel debate returns to how many days of fuel remain, as though resilience is simply about counting barrels. Stock levels are relevant, but reserve numbers alone cannot answer whether the system can withstand disruption. The harder challenges are about logistics, refining, allocation, governance and exposure to decisions made elsewhere.

On refining in particular, Australia’s domestic base has shrunk from eight refineries to two, and 79% of refined petroleum product consumption in 2023–24 was met by imports, the highest share on record. The budget’s additional support for the remaining refineries, and feasibility work on expanded domestic refining capacity, are welcome, but they also underline the scale of the problem: Australia liberalised and internationalised the market far more successfully than it built the contingency architecture such a model required.

A similar contradiction is visible in gas. Australia is one of the world’s largest LNG exporters, yet domestic gas insecurity persists. The government’s new east coast gas reservation scheme, which requires LNG exporters to supply the domestic market with an amount equivalent to 20% of their exports from July 2027, is therefore a major intervention. But it also proves the underlying point: Australia is now having to retrofit domestic resilience into export systems that were not designed to guarantee it.

The sharpest example is Japan: Australia exports large volumes of LNG, which Japanese companies routinely resell into regional markets, often at a premium, contributing to an Australian domestic market increasingly exposed to international price signals when supply tightens.

The result is an export model designed to reassure partners and maximise commercial returns, but one that leaves Australia exposed during crisis because it lacks mechanisms to guarantee domestic resilience.

Prime Minister Anthony Albanese did recently secure diesel cargoes from Brunei and South Korea, alongside wider engagement with partners including Singapore, Malaysia, and, notably, Japan: the same country whose resale practices illustrate why market access is not the same as supply control. The government should be praised for proving how years of relationship-building can pay off. But diplomatic agility is not the same as structural resilience. A system that must find new cargoes during disruption remains dependent on others’ spare capacity and political calculations rather than redundancy at home. Energy partnership and energy security are not the same thing.

The governance dimension may be the sharpest vulnerability. In a supply disruption, the issue is not just how much fuel exists on paper, but who gets it first, by what criteria and under what authority. A system can look efficient in normal times and prove brittle when governments must choose between defence, freight, agriculture, aviation and household consumption. The consequence of all of this is that when disruption hits, attention, fiscal headroom and institutional effort lean toward preserving the existing fossil fuel system. That response is understandable, but it diverts political and institutional capacity from reducing dependence on that system over time. Fuel shocks do more than expose weakness – they defer transition by forcing governments back into emergency management of the old model.

The budget’s energy measures are a step in the right direction, as is the earlier “national fuel security plan” released in March, but they must be understood as the true beginning rather than the end of the debate. This means further efforts to meet the IEA 90-day threshold, retaining and, where possible, rebuilding refining capacity, strengthening regional supply, stress-testing allocation frameworks – and, ultimately, making sure none of these measures are treated as alternatives to long-term energy transition. They are what allow a government to respond from structural strength rather than managed friction.

Australia is not alone in having built an energy system around assumptions that were rational in a more benign strategic environment: that global markets would stay open, maritime supply chains would remain dependable, and commercial access could substitute for sovereign capability. It is, however, unusually exposed when crisis hits the system, given its geography, import dependence and limited refining capacity.

Turning talk of resilience into reality will depend on whether the new fuel security package becomes a bridge to a more coherent energy model or simply a larger buffer around the same vulnerabilities of the old one.