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STRATEGIC OIL RESERVE FARCE Secret ‘Arrangement’, No Scrutiny, No Guarantee, Questionable Financing Arrangements, Fuel Security Review on the Back-burner

27 May 2020


Senator Rex Patrick has again questioned the value and reliability of the Morrison Government’s ‘Arrangement’ with US President Trump’s administration on access to strategic oil reserves, and raised new questions as to the lawfulness of the funding arrangements used to purchase fuel for the ‘reserves’.

"Newly released details about the so-called ‘Arrangement’ signed by Energy Minister Angus Taylor in March show it provides no real guarantee that Australia would be able to access strategic oil supplies during an international emergency," Senator Patrick said. 

"It turns out that this is a ‘Clayton’s agreement’, the strategic reserve you have when you don't really have one."

In answers provided by Energy Minister Angus Taylor in response to questions asked by Senator Patrick, the following was revealed: 

  • The Arrangement agreed between the Australian and United States Government is not a legally-binding, treaty-level agreement, instead it is a lesser “government-to-government” arrangement.
  • Both Governments have agreed the text of the Arrangement remains secret and there are no plans to change that.
  • The Australian Government will not table the text of the Arrangement in the Parliament and there will be no review by the Joint Standing Committee on Treaties.
  • The normal processes of Parliamentary and public scrutiny will not be allowed.

"There is also no clarity on the related oil purchase and lease contract. The Morrison Government says it will eventually release details that are not commercial-in-confidence; however those further negotiations are yet to be finalised and any transparency will be dependent on agreement between the Australian and US Governments." 

"Most significantly, however, the Arrangement agreed in March merely stipulates that the United States will “not impede Australia taking delivery of the oil in the [US Strategic Petroleum Reserve] if there is a major global disruption."

Senator Patrick observed: "US Strategic Petroleum Reserve facilities are located in Louisiana and Texas – some 14,000 kilometres (as the crow flies) from the east coast of Australia. Given that an international energy crisis, especially one generated by armed conflict, may well disrupt the availability of international shipping, the absence of any undertaking by the United States to facilitate transportation, not merely “not impede” delivery, is a critical weakness. We have no Australian-flagged tankers to ship the oil stocks purchased by the Australian Government and no guarantee that shipping would be available."

"Storage in the United States is no substitute for adequate secure, strategic fuel storage capacity in our own territory The Government is yet to put forward a plan to develop such facilities here and a Clayton’s arrangement with the United States offers no real guarantee of energy security in times of crisis."

There are also significant issues relating to the Government’s purchase of oil stocks.    

On 23 April Finance Minister Mathias Cormann provided $94 million in additional funding to enable the Government’s purchase of oil stocks and the leasing of storage capacity in the US Strategic Petroleum Reserve through a determination known as the Advance to the Finance Minister.

One determination of $91.5 million for purchasing oil was made from the Advance which was appropriated by the Parliament in the Appropriation Act (No. 6) 2019-2020; and a second determination of $2.5 million for leasing storage was made from the Advance which was appropriated by the Parliament in the Appropriation Act (No. 1) 2019-2020.

Appropriation Act (No. 6), passed by the Parliament on 8 April, enables the Finance Minister to authorise additional expenditure when satisfied that there is an urgent need, provided that the required expenditure was not provided for, or was insufficiently provided for, because of “an erroneous omission or understatement” or “because the expenditure was unforeseen”.

The need to purchase significant oil reserves has long been foreseen. More specifically Energy Minister Taylor has advised that the Department of Industry, Science, Energy and Resources provided him with advice on the US-Australian ‘Arrangement’ on 31 January 2020 and 24 February 2020. The Arrangement was signed by Minister Taylor and US Energy Secretary Dan Brouillett on 10 March 2020.

"This timeline raises serious questions as to why the bulk of the Government’s expenditure on fuel reserves could not have been explicitly provided for in the Appropriation Act (No 6) and whether the Finance Minister’s subsequent determination is consistent with the conditions set out in that legislation," Senator Patrick said. 

"The Government is currently having significant problems with its budgetary management and basic accounting. Its allocation of expenditure on oil stocks that are far from guaranteed to be available to Australia in an emergency may be another instance where proper budgetary process has broken down."

"On top of all this Minister Taylor is unable to advise when the report of the Government’s Liquid Fuel Security Review will be finalised. Indeed he has revealed that the Review has been put on the backburner while the government is “currently prioritising working with the fuel industry on short term actions to monitor emerging issues and to continue to provide supply certainty."

"All this is a most unsatisfactory, indeed shambolic state of affairs."

"The Government’s authorisation of expenditure to purchase of oil stocks, the US-Australia ‘Arrangement’ and related leasing deal, and the longer term issue of fuel security are all matters that should be very closely examined by the Auditor-General and the Parliament’s Joint Committee of Public Accounts and Audit. The Australian National Audit Office is currently undertaking monthly assurance reviews of the Advance to the Minister for Finance; however a wider investigation is clearly required in the case of the Government's fuel security policy and purchase of oil stocks."  

Copies of the answers to Senator Patrick’s Questions on Notice can be found here