Interview with Michael McLaren, 4BC
22 April 2020
Subject: Interview discusses Australian fuel security, oil prices, Australian fuel reserves
MICHAEL MCLAREN: Well, look, compared to where we were this time yesterday morning, oil has had a remarkable recovery - up 77.41 per cent on the West Texas Intermediate price. Mind you, putting that into some context, it's still minus $8.50 a barrel. So, they're still paying you to take it off their hands. It's unbelievable when you think about it. A commodity like oil, something that literally greases the cogs in the wheels of the global economy, they're paying you to take it off their hands and yet, if you want to go and buy a chocolate bar, you've still got to pay a convenience store to do that. The world, in many respects, because of this coronavirus, has gone completely stark raving mad. But where is Australia in all of this? Because a lot of you calling yesterday morning, making the point - and I think you had a very valid point to make - that if only Australia had greater storage capacity available for liquid fuels, we could be buying a lot of this. In fact, almost being gifted a lot of this surplus oil, put it into facilities for a rainy day. That being, of course, when global oil prices stabilise when the global economy returns to some sort of normality and that of course will take place probably at some point early next year when the worst of the coronavirus has passed. But of course, we don't have those facilities like they do in America and other places around the world, and so we will probably be buying a lot of our oil when indeed the price is much higher down the track. I thought I'd have a chat to our Energy Minister Angus Taylor. He's on the line. Angus, thanks so much for being there.
ANGUS TAYLOR: Thanks for having me Michael.
MICHAEL MCLAREN: Pleasure. I mean, have you ever seen anything so extraordinary as what we saw 24 hours ago? I mean, it's historic, isn't it, when in essence, they're paying people at one point, $40 per barrel to take oil off their hands.
ANGUS TAYLOR: It is extraordinary. It's West Texas crude of course that has gone negative-
MICHAEL MCLAREN: Yes.
ANGUS TAYLOR: - the Brent Crude hasn't. But the price in West Texas has got to that very, very low level. It is extraordinary. I mean, look, we were seeing a real change in the oil market before COVID-19 came along but there's no question it's exacerbated it. And the problem is storage, you're quite right. Now, you made a point in your introduction that Australia can't buy oil. Well, that's not right. We can. And we will take advantage of these historic low prices to enhance our fuel security. Of course, we have got a challenge with storage - you are quite right in the comment you made about that. We're working with the refiners now on a longer term solution to that. It's not going to solve the problem tomorrow but we do have the option of buying and storing in the United States. And I was over there only a short while ago, just before the borders closed down indeed, and negotiating an agreement with the United States to be able to store there. Ultimately, we want local fuel security of course and local storage, but in the interim, there's a great opportunity here to buy oil at very, very low prices, as you point out.
MICHAEL MCLAREN: Will we do it?
ANGUS TAYLOR: We will. We will. We'll take advantage of those low prices. And they're not going away tomorrow. Look, we are finalising the last details of the agreement with the Americans. They want us to enter the market. They've been positive about that. We've got a very good relationship with them obviously, and this is a way we can start building our fuel security. I think people are right to say that we need to hold more stocks in Australia. We've got to get the storages in place. That takes time. But this is a great opportunity to start building those fuel reserves that are needed and are an important obligation of the government.
MICHAEL MCLAREN: I mean, you know the details, I don't, but I mean, on the issue of storage, yes, obviously we can store some in Australia - we do have some storage capacity - but clearly, we don't have anywhere near enough because we never meet our IEA obligations.
ANGUS TAYLOR: We do have storage in Australia, you're quite right. It's full now, because the refineries are pumping out oil still and despite the fact that they've ratcheted back their capacity, somewhat, they're still pumping out a lot of product - diesel and petrol, but the storage-
MICHAEL MCLAREN: But we don't have storage for- we don't have it for 90 days.
ANGUS TAYLOR: No, no, no. No, we don't and-
MICHAEL MCLAREN: Which is our obligation.
ANGUS TAYLOR: Well, we're closer to 55 days on one definition and 80 days on another. Both are short of 90. And that's part of the reason why we announced sometime back we were going to start building fuel reserves. Of course, we could never have contemplated prices going to this level, which makes it a much more attractive policy obviously, and a good one for Australia and one that we're getting moving on now. It'll take time, as I say, to get those storages in place locally but we can start taking a position on this very low cost oil.
MICHAEL MCLAREN: With the American facilities, I believe, I think it was about two months ago, you were over there negotiating with facilities in Texas and Louisiana, but one of the reasons the Americans - and we talk about the West Texas crude price earlier - I mean, one of the reasons they're actually paying people to take it off their hands is that all their storage facilities are full. So, if we're going to be buying this, where are we going to be storing it?
ANGUS TAYLOR: Well, so, all the commercial storage facilities are essentially full. You're absolutely right. People would be taking the fuel as quickly as they could if they had somewhere to put it. The difference is the (US) Government does have what's called the Strategic Petroleum Reserve, which is government-owned storages. And of course, they've been looking for partner countries to work with to use those storages, and of course, we have been front of the queue. We were the first ones to put our hands up and say: ‘Yes, we want to start doing this’. We do want to have longer term storage in Australia. But, this is a good starting point to start building our reserves and so that's why I was over in the US, signed an agreement with the Secretary of Energy of the US Government, and now we can get moving on this as we finalise the last details of that agreement.
MICHAEL MCLAREN: Of course the US Strategic Oil Reserve, as the name suggests, is in the United States. And one of the reasons a lot of people say - and you've heard this argument a million times, I know - but we need local, that is in Australia, storage. We can't guarantee necessarily the shipping lanes will always be free and open as they are at the moment. Now, we get pretty much all our oil, from Singapore from the super refineries, it's the Tapis, the crude that we get - while we're in peace and everyone's getting on all right, that works. Hypothetically, a nation to our north cuts off the sea lanes, Singapore is removed or there's a strategic strike on a Singapore refinery - we're out of oil. So you're saying we've now got this reserve in America, but if indeed the shipping lanes are closed, what's good the oil over there?
ANGUS TAYLOR: Well, let's be clear about this, the whole purpose of starting to buy a strategic reserve, is that over time we will have much of it that's reserve held in Australia. That is, of course, the purpose. The problem we've got at the moment is we're getting moving on this and there aren't enough storages in Australia and we have to address that over time - there's no question about that. The other point I'd make though is the vast majority of disruptions to the oil market, including all the disruptions that we've experienced over the years since the IEA agreements went into place, are disruptions that aren't as serious as what you've just described there. We do face occasionally disruptions in the oil market. The first of the big ones that many of us remember were the early 1970s, the first oil shock-
MICHAEL MCLAREN: But you've got to prepare for the worst-case scenario?
ANGUS TAYLOR: You have to, you have to prepare for all scenarios. You have to prepare for all scenarios. And so there is one scenario where you need domestic oil stocks and that's why we're saying we need to enhance those domestic oil stocks, but the vast majority of scenarios are also ones that the world has to deal with. Look, the IEA agreement was set up in the first place so the world could respond to shocks by getting more oil into the market collaboratively.
MICHAEL MCLAREN: Yeah, yeah, yep.
ANGUS TAYLOR: That was the purpose of the exercise. It is true that there are very extreme scenarios, not ones that we've thankfully experienced, where sea lanes are cut off. The sea lanes to the US are probably the last ones that would ever be cut off, to be frank. But, there's no question that enhancing domestic oil stocks is something we should be focusing on and we are.
MICHAEL MCLAREN: Because if you wanted to keep the US sea lanes open in a time of war, you'd obviously have to divert some of the Australian Navy to make sure that the oil tankers got through, which means you don't have submarines and frigates and destroyers to fight the enemy, which are blocking the sea lanes in the first place. So, you stretch yourself!
ANGUS TAYLOR: Well, look there are lots more reasons to keep the sea lanes open than just oil of course.
MICHAEL MCLAREN: Quite right.
ANGUS TAYLOR: That's one factor, an important one, but there are many others as well. So look, these are extreme scenarios, we haven't experienced them but you're quite right to say we have to have enough stocks at home. The IEA worries more about the total supply chain, because they're worried about global disruptions. We were also worried about domestic supplies and that's why, as you say, there's a transitioning process here. Right now though, we've got very cheap oil. We will take advantage of that. We should start building that strategic reserve and over time we can make sure it's located in the correct places.
MICHAEL MCLAREN: I suppose after this, the worst of this coronavirus passes, of course the focus of the government will be on the economic recovery? Crikey, we're going to need one. And some of that's going to have to obviously come from nation building infrastructure that will boost productivity, it'll also give people jobs. This would be a wonderful opportunity, wouldn't it, to actually get people building the physical oil storage facilities in Australia, as part of the economic recovery?
ANGUS TAYLOR: Well look, the truth is we even before COVID-19 arrived, we're seeing much lower oil prices and gas prices, and that creates an extraordinary opportunity for Australia. We forget the amount of industry that was built in this country on the back of cheap gas and oil out of Bass Strait. Now we're starting to see those conditions returning for different reasons, and there is fantastic opportunities. One of them, you've just described, which is making sure we've got enough stocks in Australia. But there are many, many others, and you know, if you're in the fertiliser industry, manufacturing, energy intensive manufacturing, these lower prices - which, as I say, were happening even before COVID-19 came alone - those opportunities were emerging. We are, we were determined even before this to start to realise those and of course, now, even more so, because we are going to need means of creating jobs and getting the economy back on track.
MICHAEL MCLAREN: Okay, so just before we go, one last one - when roughly will we start to see the first of the new onshore storage facilities opened?
ANGUS TAYLOR: Well, obviously we've been in discussions with the refineries for some time now starting to work through the details. We want to get this right. I'm not going to put a date on it, but of course we don't want to muck around with this, we want to get on with it. And that first step is to start taking advantage of low oil prices and get some of that in reserve. Then we can start shifting it to Australia.
MICHAEL MCLAREN: Good to talk, Angus. Thanks for your time. Much appreciated.
ANGUS TAYLOR: Thanks Michael.