Australia's legislation on oil security
Part of Oil Security Toolkit
Introduction
The Australian Government’s response to national oil supply emergencies is primarily governed by the Liquid Fuels Emergency Act 1984 (LFE Act). Compared to primary legislation addressing national oil supply emergencies in other IEA Member countries, the LFE Act is more general in nature. The LFE Act provides the Commonwealth Energy Minister (the Minister) with powers in a national liquid fuel emergency to issue directions, and the Liquid Fuel Emergency Guidelines 2019 (Guidelines) set out the parameters of these powers and what a decision-maker must do or consider when exercising a power in an emergency situation.
Under the Australian Constitution, the States and Territories (jurisdictions) are responsible for managing liquid fuel shortages within their territorial boundaries. To that end, each of the Australian jurisdictions has legislation and response plans in place to manage such emergencies.
Related domestic legislation
Circumstances triggering the operation of the national emergency response system
A national liquid fuel emergency may be declared by the Governor-General under section 16 of the LFE Act if the Minister:
- is satisfied that there is a shortage, or likely to be a shortage, of liquid on a national scale; and
- has provided Energy Ministers for each State and Territory a reasonable opportunity to consult with him/her concerning the shortage, or likely shortage.
In considering these criteria, the Minister must consider whether such a shortage is likely to be “averted by the voluntary augmenting of supplies of the liquid fuel by relevant fuel industry corporations” (subsection 16(3) of the LFE Act). A determination that a national liquid fuel emergency exists cannot exceed a period of three months (subsection 16(4) of the LFE Act).
The LFE Act allows the Minister to exercise powers under the act for the following purposes:
- relating to the defence of Australia (paragraph 6(1)(a) of the LFE Act);
- giving effect to the Agreement on an International Energy Programme (IEP) (1974) (paragraph 6(1)(b) of the LFE Act);
- in connection with all or any of Australia’s Territories (paragraph 6(1)(c) of the LFE Act);
- protecting the existence of Australia as a nation (paragraph 6(1)(d) of the LFE Act);
- ensuring international and domestic commerce can occur in an efficient, competitive and profitable manner (paragraph 6(1)(d) of the LFE Act); and
- the supply of goods or services by, or to, the Commonwealth, or an authority or instrumentality of the Commonwealth, can occur without obstruction or hindrance (paragraph 6(1)(e) of the LFE Act).
Authority determining whether emergency exists
For the purposes of the provisions of the LFE Act, it is the Australian Governor-General who, subject to the Minister’s satisfaction as to the considerations at paragraphs 16(2)(a) and (b) of the LFE Act, may declare that a national liquid fuel emergency will exist during a specified period (subsection 16(1) of the LFE Act).
Legal stockholding obligations
Storage Agency
Australia does not have a Central Stockholding Entity. Instead, the vast majority of reserves are held by corporations. In order to ensure that such corporations are prepared for national liquid fuel emergencies, the Minister may exercise the contingency planning powers under the LFE Act prior to the declaration of a liquid fuel emergency to direct relevant fuel industry corporations to maintain or accumulate specified quantities of reserves of specified kinds of liquid fuels at specified locations to be available at all times after a specified date (paragraphs 12(1)(a) and (b) of the LFE Act).
Under paragraph 13(1)(b) of the LFE Act, the Minister may direct relevant fuel industry corporations to provide procedures that enable such corporations to allocate bulk supplies of fuel to persons or organisations who would be likely to be bulk customers of the respective fuel industry corporations during all or part of the period of national liquid fuel emergency (subsection 13(3) of the LFE Act).
The LFE Act provides the head of power under which the Australian Government can enter into oil stock ticket contracts. A type of oil reservation contract, oil stock tickets can be accessed or released in the event of an IEA declared collective action.
Storage Quantity
Australian primary legislation does not provide for specific reserve quantities.
Availability of stocks
Australian primary legislation does not provide for specific parameters concerning the availability of stocks.
Storage Locations
Australian primary legislation does not provide for specific parameters concerning storage locations.
Mechanisms to address emergency
General
The LFE Act sets out various responses to national liquid fuel emergencies including the provision of specified liquid fuels to specified persons and demand restraint mechanisms. In principle, relevant fuel industry corporations may be directed in times of emergency to maintain and accumulate reserves (subsection 17(1) of the LFE Act).
Stockdraw
Industry: Reduce Mandatory Level
According to subsection 17(7) LFE Act, the Minister may direct corporations, if they have been directed during a national liquid fuel emergency to hold a specific quantity of fuel under subsection 17(1), to hold lesser quantities of reserve fuels than they otherwise would have to hold during the emergency.
Industry: Release
The LFE Act provides for various mechanisms of stock release in times of emergency including the transfer, sale and allocation of fuel to customers. Section 18 of the LFE Act provides that relevant fuel industry corporations may be directed to transfer liquid fuel between locations for the purpose of dealing with a shortage or likely shortage of liquid fuel.
Subsection 19(1) of the LFE Act provides that, during a period of national liquid fuel emergency, relevant fuel industry corporations may be directed to make specified quantities of specified fuel types available for purchase. Subsection 19(3) of the LFE Act provides that such directions may deal with fuel price to the extent that the direction may determine that liquid fuel shall be sold at prices agreed by that supplier and their customer, or in the absence of an agreement, at a price determined by arbitration. It is important to note that in the event of a declared national liquid fuel emergency the Australian Government has no powers to regulate price (section 25 of the LFE Act).
Under sections 21 and 22 of the LFE Act, the Minister may direct relevant fuel industry corporations or relevant persons that ordinarily make liquid fuel products available for bulk purchases, to make liquid fuel available for purchase by their bulk customers, in accordance with bulk allocation procedures approved by the Minister under section 13 of the LFE Act.
Production Surge
The LFE Act provides for the possibility that the Minister may direct a relevant fuel industry corporation that produces or refines liquid fuel to produce in Australia a specified quantity of a specified kind of liquid fuel during a period of national liquid fuel emergency (section 20 of the LFE Act).
Demand restraint
The LFE Act provides for restrictions in the supply of liquid fuel to bulk customers (sections 21 and 22 of the LFE Act) and rationing of the supply of liquid fuels to retail customers (sections 23 and 24 of the LFE Act). These powers would generally be used as a last resort in a national liquid fuel emergency.
Fuel Switching
The LFE Act does not provide for fuel switching measures during a period of national liquid fuel emergency.
Government: Release
In the event of a decision by the IEA to a collective action release of stocks by IEA member nations, the Australian Government may release some or all oil stocks held under ticket contracts.
Mechanisms limiting emergency measures
Section 25 of the LFE Act makes it clear that directions under sections 21-24 of the LFE Act may not regulate prices.
Monitoring and enforcement of emergency regime
Australia’s emergency regime is monitored and enforced on the domestic and the international level. Each will be considered in turn.
Domestic
Reporting duties
Certain fuel industry corporations are required to report monthly information on their activities and stocks to the Australian Government under the Petroleum and Other Fuels Reporting Act 2017 and the Petroleum and Other Fuels Reporting Rules 2017. This information provides for the collation of statistics to satisfy Australia’s monthly statistical reporting obligation as an IEA Member.
Further, under the LFE Act, relevant fuel industry corporations and relevant persons may be directed to maintain (section 14 of the LFE Act) and to make available (section 14A of the LFE Act) statistical information relating to liquid fuels that the relevant corporations or persons possess or control after a specified day.
Compliance monitoring and enforcement powers to support the statistics maintenance and reporting powers (and other powers) under the LFE Act are provided at Part IV of the LFE Act (sections 29-40).
Enforcement
The LFE Act provides for both criminal and civil penalties in the event of non-compliance with relevant LFE Act provisions. For example:
- failure to comply with requests to furnish information or documents pursuant to section 30 of the LFE Act can lead to criminal sanctions (note to subsection 30(1) of the LFE Act; cf. section 11A of the LFE Act);
- persons contravening civil penalty provisions of the LFE Act – concerning for example a corporation’s contravention of an order to maintain and accumulate stock reserves (subsection 12(9)) – may be ordered to pay a pecuniary penalty (sections 34-35). Additionally, injunctions can be imposed ordering addressees to engage or to cease engaging in conduct (section 37).
Note that the LFE Act provides that relevant fuel industry corporation and relevant persons are not liable for an action in relation to breach of contract where the relevant conduct in breach of a contractual obligation was in compliance with a direction under the LFE Act (section 47).
International
The IEA
As a Member of the IEA, Australia is obliged, pursuant to article 2 of the Agreement on an International Energy Programme (IEP), to maintain oil reserves equal to 90 days of net imports of the previous year. IEA Members are obliged to submit information concerning their emergency measures to the IEA secretariat (article 32 IEP) on a continuous basis and the IEA monitors Member countries’ compliance with the IEP.