Why are we paying such a massive premium?

It's interesting, isn't it, the differences across different countries.

There's a couple of different reasons.

One is about the taxes.

I think the other one is just the volume and the deals that they do.

Americans think about litres when they have to pay $6 a gallon, $6.40 a litre, and they lose their minds when it goes that high, which is a new record for America.

It's better being made expensive than it is poor.

Did you say the very first thing that you said, the reason that we are paying high watering prices for petrol and diesel, number one reason, is tax? It is, yeah.

Why isn't there anything the government can do to bring prices down?

It's a difficult problem for the government because so much of this is dictated by global events.

So the reason why we've seen the prices go up so much recently is the world had adjusted to the choke point of the Strait of Hormuz, but it adjusted by beefing up the pipeline across Saudi Arabia and exporting out through the Red Sea through another choke point called the Bab el-Mandeb Strait, also known as the Gate of Tears.

Wonderful name.

And that's now under threat from the Iran-backed Houthi rebels in Yemen.

And there's been attacks on Iran-backed militia from Iraq onto that pipeline.

So it's got a second choke point that's now coming into play.

So if there's this choke point around the second straight that we're now learning about, will prices go up as high as they did at the beginning of the year or higher?

there's more people buying electric cars.

And a huge increase for Australia in particular.

Now, that's great for our cities.

Of course, if you're a farmer, you're not exactly going to have an electric combine harvester anytime soon.

But the more we can free up our diesel so it gets out to country areas, the better.

And that means it's a big difference.

So renewables are a big help here because the more we can use renewables and electric vehicles in our cities, the more we can free up our diesel for the country areas.

Where are we now?

Do we know how effective, uh, that's been? And if things become more challenging, can we rely on those measures again?

Those measures have proved to be very good.

We've signed agreements with, um...

The most important one from a diesel point of view is South Korea.

Uh, other diesel agreements with Malaysia and Brunei and a few of the other smaller, um, diesel, um, processing countries.

Singapore, super important from a fuel point of view for petrol, but also as a logistics hub for fuel transport into Australia.

It's our single biggest, uh, reliance on the, uh, the Port of Singapore, and even our agreement with China over jet fuel, uh, and other fuel types is an important one there.

Uh, how's that looking? Will the numbers add up then?

So is our reliance in getting oil from that area continually reducing?

It is reducing, although the one that I just mentioned, that other choke point with the Houthi rebels in Yemen, that was one of the other areas where we were getting oil out.

We couldn't get it out through the Strait of Hormuz and the Gulf of Aden, sorry, the Gulf of Oman, the Persian Gulf.

So we were getting – the Saudis were putting a pipeline across Saudi Arabia out into the Red Sea and then out north through the Suez Canal or out south out through this Gate of Tears, this other choke point.

So about 4% of the world's oil comes out via that other choke point.

Now, that's having a few issues at the moment because the Houthi rebels in Yemen are backed by Iran, and they're doing some sabre-rattling at the moment.

But you're right.

What are your thoughts?

So is our reliance in getting oil from that area continually reducing?

It is reducing, although the one that I just mentioned, that other choke point with the Houthi rebels in Yemen, that was one of the other areas where we were getting oil out.

We couldn't get it out through the Strait of Hormuz and the Gulf of Aden, sorry, the Gulf of Oman, the Persian Gulf.

So we were getting oil.

The Saudis were putting a pipeline across Saudi Arabia out into the Red Sea and then out north through the Suez Canal or out south out through this Gate of Tears, this other choke point.

So about 4% of the world's oil comes out via that other choke point.

Now, that's having a few issues at the moment because the Houthi rebels in Yemen are backed by Iran, and they're doing some sabre rattling at the moment.

What are your thoughts?

We think that things will get back to somewhat normal, that prices of everything will go down, but that's not the case, David.

No, it's not, and there's a couple of reasons for that, and one of them is that when you get a disruption like this, no matter what it is, and this happened in COVID and it happened five years ago when a container ship called the Ever Given got stuck diagonally across the Suez Canal and everything backed up and took ages to unplug and flow smoothly again, we know that it's going to take two to five months to get the whole world supply system of fuel and related products flowing again.

And until that five months is up, then all of that expensive fuel that cost a whole stack of money yesterday because it was higher insurance and higher waiting costs while they were having to pay maritime staff to sit on a ship in the Persian Gulf, not doing anything, not going anywhere, just racking up costs, that expensive fuel is going to flow through the world system and then the last of that expensive stuff will get through our petrol boughs in about five months' time.

So you think there's no chance that Anthony Albanese extends it, all of it, part of it, for a little longer? It will literally be kind of two weeks from now.

There's always a chance.

There's always a hope.

Jim Chalmers has certainly left a little bit of hope in some of his statements.

But I think some of that is the government just testing the waters to see how much people would get angry.

But, like, free markets can fail, like as it stands, and resilience is a premium to pay, and we need to factor in into our decision-making and the way we shape markets in the future.

I really love that point about resilience is, is an investment that we really need to pay.

And that's an important one because a- as you pointed out, Walter, the, the trend over the last twenty, twenty-five years has been the thinning out and the efficiency, and, and Sharon mentioned it in the introduction as well.

Supply chains were redesigned to take out backup, to take out duplication, to take out redundancy, to go towards an assumption of open and uninterrupted free open trade on a global basis, and the fact that you could have single points of failure or choke points, and it wouldn't be a problem 'cause everything would keep flowing.

Now, COVID six years ago gave us a really sharp wake-up call there.

There had been a move to get rid of inventory in supply chains.

I don't wanna hold stocks.

Yep

What do we know about global inventories of oil? Are we really feeling the closure of the Strait of Hormuz fully as yet, even though we're months into this conflict?

The good news there is actually the world is becoming less dependent on the Strait of Hormuz all the time because things are adjusting.

And I'll just throw a couple of numbers in there that most people would know from hearing it a few times over the last few months that about 20% of the world's oil flowed through the Strait of Hormuz.

Most of that was coming out.

Some of it was crude oil coming in and actually getting refined and then coming back out.

So first thing that happened is people stopped sending oil in for refining and diverted that elsewhere refining.

The other thing is the East-West pipeline across Saudi Arabia takes about 4 million barrels a day, so about 4% of that supply.

What part of this story is important and hasn't been hitting the headlines, do you think? What do we need to understand?

Do you think that is an important part of a conversation we need to be having?

Oh, absolutely.

This is super important.

Uh, in this package, the government has announced, um, feasibility studies for new or expanded refineries, um, in Australia.

And n- this isn't just a federal government thing as well.

If you look at what the Queensland Government is doing, they've announced they're interested in, um, building a new refinery or, or two in Queensland, um, to go with their, their investment they want in their storage facilities in their major ports from Townsville all the way down to Brisbane.

So this is a, a good thing for the federal government to be talking about.

David, uh, do you think that, you know, with all the uncertainty around this war in the Middle East, that we should be worried about ongoing issues that are going to last much longer than a few months?

Will that affect the rest of the country?

Unfortunately, yes, on the fuel price side of things.

Very unlikely to impact restrictions and the broader national situation, and I'll explain a bit more about why that's the case.

First of all, you gotta understand a little bit about how fuel pricing works at a servo.

I don't like the way this works as a motorist.

I wish it wasn't the case, but it is the case.

If you're running a servo, and we've gotta remember that most servos are actually run by mum and dad small businesses, um, they're supplied by the big oil companies, but we shouldn't ever, you know, take out our angst on the servo owners, 'cause they're usually, um, small business owners.

How did we have so many oil refineries and to be quite capable of keeping our production here and safe for Australia and not be so reliant on overseas products? How do we go from that many oil refineries to just two?

But we do have reserves here, don't we? So now just tell me, how much have we got stockpiled?

That's right.

At any given time, Australia only has about a month's worth of fuel, 30 to 36 days' worth of fuel.

There's three categories of fuel that we track with that.

There's diesel, which is the most important one.

Mm-hmm.

The diesel not only powers the national transport network of semi-trailers and diesel-fueled trains, but it powers the farm machinery that actually produces the goods that we rely on.

And, you know, that could be an escalation in this war, right, if nations agreed to that, particularly China.

Uh, David, is the government right to say that there is no supply issue here, that it's just about distribution?

Yes and no. It's definitely a distribution issue.

And one of the things people might not realize is most of our fuel is shipped into Australia from the north via Singapore, and what's been happening in the northern half of Australia in the last month or so, huge rains, huge flooding, much more than normal, sort of thirty-year flood records.

Um, I live in Canberra and work in the NT, so, um, there's a bit of travel in my life, [chuckles] and, uh, we're seeing things cut off in the NT, where even the backup roads and the alternate paths are cut off.

So that's actually causing a big disruption to fuel deliveries, and that ripples throughout the whole national network.

So biggest impact at the moment, yes, it's the war in the Middle East.

Second biggest impact, floods in the northern half of Australia, and that causes these disruptions that mean that the fuel's locked up in these bottlenecks, and it's not getting out to those regional communities, it's not getting out to the farmers, and that's where you're seeing these really big increases and the shortages and rationing.

Uh, David, is there anything we could be doing as a country to avoid this kind of impact in the future? Like, is there fuel rationing, or should we be thinking about our reserves long term and, and saving a bit more in case we find ourselves in a situation like this?

the floods are taken out of that equation, why would there be any issues with supplies? Is the fuel here and it's not getting out there or is it stuck somewhere in the Straits of Hormuz?

Well, there's two aspects.

The stuff that's in country, some of it is stuck in bottlenecks.

It's stuck in depots in Sydney or it's stuck in depots in Adelaide or various places.

How much? Well, it sounds like a lot because we're talking about literally billions of litres of diesel.

But a number that makes more sense is how long is it going to last? So there is a week or two weeks where the fuel is stuck in these bottlenecks waiting to get to the next place.

And that's the real issue.

ease that burden