Global Supply Chain Risks

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Global Supply Chain Risks

Australia’s Liquid Fuel Security

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AVM John Blackburn AO (Retd)

I will discuss:

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Global / Australian trends and implications

•

Australia’s Fuel supply Chain

•

Risks and Resilience

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NRMA Fuel Security Project Is there a problem? 28Feb13 Report How big is the problem? Strategies to deal with the problem?

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Fuel Sources

The UK’s projected import dependency will increase to 44 per cent of the consumption of oil by 2020. That level of imports has been assessed as having a significant impact on the UK’s oil security …

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Australia, with only 71 days’ holdings, was the only country out of 28 member countries that failed to meet its 90-day net oil import stockholding levels. So, the world’s ninth-largest energy producer is the lowest and only non-compliant stockholder in the IEA.

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The in-country stockholdings of oil and refined fuel is in the order of 23 days … Supply chain depth in States with no refineries ???

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EWP

- “Australia is linked into well-established global supply chains to meet our liquid fuel needs and import dependency itself does not imply an energy

security threat.”

LFVA

– “Given that there has been no major disruption to liquid fuels supplies in Australia for decades, as well as Australia’s competitive fuel prices by

international standards, it would be reasonable to conclude an appropriate balance is being maintained by fuel suppliers.”

Do we have a problem?

RISKS ?

Reliability vs Security

Issue of Systemic Risk ?

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Supply Chain Vulnerabilities

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Supply Chain Vulnerabilities

Sources ... Trade ... Shipment ….. Ports …. Refining ….Transport … Storage …. Point of Supply … Demand

Scenario analysed in 2011 LFVA:

A 30 day Singapore production interruption Scenario analysed in 2011 LFVA: Historical Market Performance

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Trading Systems –

economic / banking system failures

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Shipment –

shipping companies, conflict scenarios,

state/non-state threats

•

Ports / Refineries –

capacity, accidents / incidents, natural

disasters, industrial action, equipment failures, lack of

surplus tankage …. Ownership ?

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Transport –

lack of rail transport capacity, limitations of

road transport systems

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Depots / points of supply –

reduction in supply chain

stocks

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Supply Chain Vulnerabilities – What isn’t analysed in the EWP …

Primary sources of processed fuels for Australia

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Supply Chain Vulnerabilities – What isn’t analysed in the EWP …

Port Vulnerabilities

… e.g. Port Adelaide

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Ports / Refineries –

closure of Australian Refineries?

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28 % loss in 2012-13

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Potential cumulative loss of 42% if Shell Geelong closes in 2014

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Views have been expressed that Zero refining capacity in

Australia is “acceptable”

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Ownership of overseas refineries? E.g.

SRC Jurong Island

Refinery 285,000 bbl/d - 50% owned by Chinese oil giant

PetroChina

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SLOC issues depending on regional stability?

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Potential loss of ability to refine Australian Oils in country

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Loss of source diversity.

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Assumptions …

The recent findings of a Japanese Government panel reviewing the

Fukishima nuclear disaster, which followed the devastating tsunami that

struck Japan in 2011, are worth reflecting on:

“… The utility and regulatory bodies were overly confident that events

beyond the scope of their assumptions would not occur … and were not

aware that measures to avoid the worst situation were actually full of

holes.”

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So What ?

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This is but one example of growing systemic risk in global supply

chains

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e.g. US Dept of Homeland Security Supply Chain Analysis on Energy

/ Food

(supply and production

) / Medical Supplies

•

It is important for all of us to understand our growing systemic

vulnerabilities and conduct appropriate risk analysis / business

continuity planning

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What can Defence do ?

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Understand your supply chains, dependencies and risks

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Stock holdings - Defence vs Commercial / Public ?

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Much is outside Defence’s control - hence the need for your broad

based support to address the issues … it will be a team effort across

Government and Industry.

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NRMA Fuel Security Project Is there a problem? 28Feb13 Report How big is the problem? Strategies to deal with the problem?

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NRMA Fuel Security Project Is there a problem? 28Feb13 Report How big is the problem? Strategies to deal with the problem? 2014 NESA ? 2015 Energy WP ? Political Actions ? Energy Policy Political Actions ? Energy Policy

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Just in Time Just in Case ? Reliability vs Security of Supply …

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 As the world’s ninth-largest energy producer, Australia has abundant renewable and non- renewable energy resources.

 We are heavily dependent on imports of refined petroleum products and crude oil to meet our liquid fuel demand. This import dependency has increased in recent years.

 The very small consumption stockholdings of oil and liquid fuels in Australia, combined with what appears to be a narrow assessment of our fuel supply chain vulnerabilities, does not provide much confidence that the strategic risks to our fuel supply chain are well understood and mitigated by our nation’s leaders, the business community or the population at large.

 In essence, we have adopted a “she’ll be right” approach to fuel security,

relying on the historical performance of global oil and fuel markets to provide in all cases.

 Our society is at significant risk if any of the assumptions contained in the vulnerability assessments made to date prove false.

 We would not be the first country to get our assumptions wrong … in that

respect, history can be relied upon.

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Global Supply Chain Risks

AVM John Blackburn AO (Retd)

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John Blackburn

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How big is the problem?

The Proposed 2014 NESA Scope

•Broader risk assessment of Australia’s liquid fuel supply vulnerabilities to examine the supply chain risks:

• in a range of peacetime and conflict scenarios:

• wider maritime SLOC vulnerabilities

• EROI / price issues

•Encompass the whole of the liquid fuel supply chain import and refining infrastructure:

• port capacities / storage issues /ageing infrastructure

• lack of redundancy / single points of failure in supply chain?

• Dependencies – utilities – electricity

•Address Market factors, e.g.:

• lack of diversity in transport fuel types – i.e. oil dependence ?

• closed import markets ?

• market size – lack of competitiveness

•Assess implications of loss of refining capacity:

• lack of source diversity / ownership risks

• Ability to refining of Australian oil?

Participation by DRET, Defence, AGD, DAFF, Dept Transport, Industry and Consumer Group representation.

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Overseas Sources

Australian Sources

Australia’s Liquid Fuel Supply Chain - 2012

25 % 80 % 75 % 20 % Australia Export Refined Product Oil Oil Refining

A

B

71 days = commercial stocks /A - B net import rate

71 days @ 30% net imports =

approx 22 days consumption

There are no public stockholdings …

achieving “90 days” would only increase consumption by

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