Beyond the barrel: Why Australia needs to build a domestic sustainable aviation fuel industry – and fast

Current conflict in the Middle East has brought Australia's vulnerability to disruptions in the global crude oil supply chain into sharp focus. Fuel shortages are being felt across the country and across industries. Australia has a declining upstream oil industry, with domestic oil production trending downwards over the past 20 years. The closure of five refineries since 2012, including two in 2021, has left the country with just two operational facilities: the Viva Energy refinery in Geelong, and the Ampol Lytton refinery in Brisbane. Australia is now heavily reliant on oil product imports, a dependency that leaves the nation vulnerable to any further disruption, as demonstrated by the fire at Viva's Geelong refinery.

Sustainable aviation fuel (SAF) is a viable pathway to reduce Australia's dependency on imported oil product, strengthen fuel security and support new jobs in the net zero economy. Although industry momentum and government policy frameworks are emerging, the pace of change is slow. Against this backdrop, the case for accelerated structural reform of Australia's fuel security architecture is both urgent and compelling.

This article examines supply chain dependencies, geopolitical risks associated with such dependencies and the commercial case for accelerating the development of a domestic SAF industry as a strategic response to Australia's fuel insecurity.

Australia's dependence on imported crude oil and refined fuels

Sourcing and distributing fuel around Australia is complex. Both crude and refined products are transported to Australia by ship; they also enter the Australian supply chain from domestic oil fields and two refineries. Fuels are then stored in terminals awaiting distribution. Fuel is moved around Australia, mostly by tanker trucks, to industrial users and retail stations. Jet fuels are piped directly from terminals to most major airports in Australia or transported by road.

Australia imports 90% of its domestic crude oil product. According to a fuel security report prepared by the Department of Climate Change, Energy, the Environment and Water in 2020, in 2018–19, Australia's largest crude oil supplier was Malaysia, followed by the UAE, Brunei, Algeria and Indonesia. Australia sourced refined product from 66 countries, with Singapore providing the largest amount, followed by the Republic of Korea and Japan. However, as with crude, 80% of refined product was sourced from five countries, many of which themselves rely heavily on crude oil sourced from the Middle East.

The financial incentive for the onshore production and refining of crude oil is low as it is cheaper to import from large-scale, efficient and export focused refineries in Asia and the Middle East. Australia's relatively small and aged refineries have struggled against this competition. This was seen in 2020 when BP closed WA's Kwinana Refinery, citing economic viability and structural changes to the Australian market. The Federal Government recognises this challenge and has committed to ongoing subsidies for the two remaining refineries through the Fuel Security Services Payment.

Geopolitical risk

The current conflict in the Middle East has amplified vulnerabilities in Australia's fuel supply chain that were progressively exposed by the Covid-19 pandemic, global supply chain dislocations, and Russia's invasion of Ukraine, each of which generated a distinct set of energy security challenges. In 2022, Australia's domestic gas and electricity markets experienced supply disruptions and rising prices as a direct consequence of the upheaval in global energy markets triggered by the war in Ukraine. The International Energy Agency's executive director has characterised the present oil shock as worse than the two oil crises of the 1970s and the impact of Russia's invasion of Ukraine combined.

Much of the oil exported from the Middle East transits the Strait of Hormuz. The effective cessation of commercial traffic through Hormuz has not merely caused higher global oil prices; it has constrained the crude supply available to refiners in Singapore, South Korea and Japan that produce the petrol, diesel, and jet fuel that Australia imports.

Australia's vulnerability extends beyond the Persian Gulf. Even if Middle Eastern crude can eventually be rerouted or sourced from alternative origins, refined fuel imports must still traverse maritime channels of Southeast Asia before reaching Australian ports. If disruption in the Middle East constrains crude supply to Asian refineries while simultaneously maritime coercion or conflict affects shipping routes, Australia will have even more limited access to refined oil product.

As UN Secretary-General Antonio Guterres recently said, the fastest path to energy security, economic security, and national security is clear: speed up a just transition away from fossil fuels and toward renewable energy.

SAF as a strategic response

As part of its fuel security framework, the Australian Government acknowledges that although traditional liquid fuels are expected to play an key role in Australia’s energy diversification over the coming years, Australia will transition to Low Carbon Liquid Fuels (LCLFs) over time. SAF is a type of LCLF, produced from biomass such as agricultural waste, feedstocks and crops, and can be processed in different ways.

In a 2024 World Economic Forum Insight Report, Australia was identified as a favourable production location for SAF, given the availability of green energy and type and quantity of potential feedstock. Due to the volume and quality of domestic SAF inputs (feedstocks and energy resources), Australia could produce SAF for both domestic consumption and export at a competitive advantage relative to international jurisdictions, subject to appropriate policy incentives which support projects without creating ongoing subsidy dependence or favouring established technologies over innovation.

SAF is not currently produced in Australia; globally its cost is approximately two to five times that of conventional jet fuel. To assist in addressing this cost differential the Australian government is investing a record $1.1 billion in a ten-year Cleaner Fuels Program. Through competitive grant funding, the Program aims to stimulate private investment in Australian onshore production of LCLFs, such as SAF and renewable diesel. The CSIRO is also working to support the development of Australia's SAF industry, releasing a SAF Roadmap in 2023, which they continue to review and report on.

However, supply side incentives alone will not build a self-sustaining industry. The Government must also consider introducing demand-side measures, such as usage mandates for domestically produced SAF, to provide the market certainty that private investors and project developers require to commit capital at the scale necessary for commercial production. Regulatory reform must also occur, including the expansion of the Guarantee of Origin Scheme to certify and track LCLF emissions, the finalisation of fuel quality standards for renewable diesel and SAF, and the streamlining of planning and environmental approvals for biorefinery construction.

Investment in a domestic SAF industry is strategically necessary to bolster Australia's sovereign refining capability which has been progressively eroded. The potential future commerciality of SAF is underscored by international need and investment, from which Australia could benefit. Predictable and well communicated policies will increase confidence are required for the investment needed to develop the industry.