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ACAPMA PETROLEUM INDUSTRY REPORT FUEL SECURITY LAWS VERSUS MARKET COMPETITION During the past year, ACAPMA has been working with the Australian government and other industry stakeholders on the need for, and design of, new laws seeking to increase Australia’s fuel security. By ACAPMA CEO Mark McKenzie. G overnment concern about Australia’s domestic fuel security has increased markedly in the wake of the Covid pandemic. This is despite the fact that the problem observed during the height of the pandemic was one of suboptimal demand resulting in Australia’s national fuel storage system being awash with fuel that few wanted to buy because people were driving less. The reality is that the public perception created by the recent announcement of two further refinery closures in recent months – effectively reducing the number of Australia’s refineries from seven at the turn of the century to just two in the near term – is that Australia’s ability to navigate a fuel crisis has been substantially reduced. And the federal government is seeking to respond to this issue. The 2021-22 budget papers included an announcement to advance two new pieces of legislation designed to increase Australia’s national fuel security. The first of these is a carrot measure that proposes the introduction of a fuel security payment to be paid to Australia’s domestic refiners to encourage them to continue to produce fuels in Australia. At this stage, Viva has committed to retaining refining in Geelong, Victoria, and subject to Ampol’s decision in respect of Lytton, this payment will be made to the two companies left standing in the domestic refinery market. The second is a stick measure that will increase the amount of fuel the nation’s refiners and importers, big and small, will need to hold in their operation at any point. Unless these businesses have spare storage capacity now, these measures will likely require investment in new storage infrastructure by fuel refining and importing businesses. The interplay of these carrot and stick measures presents a potential risk of two unintended adverse consequences in the Australian fuel market: an increase in fuel prices across the country and a distortion in market competition. On the face of it, there is considerable merit in providing business incentives for Australia to maintain domestic refining capacity. That said, the provision of a production subsidy to some market participants and not to other suppliers of fuel in the market (ie, importers) risks distortion of market competition – particularly in respect of the future operation of the fiercely competitive Australian wholesale fuel market. Perhaps more significantly, however, the requirement for a substantial increased investment in fuel storage assets and fuel stocks is likely to put pressure on fuel prices in all Australian markets. It goes without saying that if the government introduces an increased requirement for storage, that will come at a cost to Australian fuel business (in capex and opex terms) and these costs will likely pass through to consumers at the fuel pump. Ironically, the pursuit of this legislation and the possible associated consequences mean that the fuel industry is potentially going to be squeezed between the competing objectives of the Australian Department of Energy on fuel security, and the federal Treasury and the ACCC in terms of keeping fuel prices low in a post-pandemic era and ensuring fair market competition. It’s for this reason that ACAPMA has been working with, and will continue to work with, the Australian government and other industry stakeholders to ensure it is fully aware of these risks and advances a legislative framework that minimises them. 72 CONVENIENCE WORLD MAY/JUN, 2021