Australia leveraging coal and gas exports to lock in petrol supply from Asia partners

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SYDNEY – Australia has been using its coal and gas exports to Asia as leverage with countries such as South Korea and Malaysia to encourage them to continue supplying it with fuel amid concerns that wartime-style rationing may be needed within weeks.

The war in Iran has highlighted a lack of energy security in Australia, which has minimal domestic petroleum supplies but has a heavy demand for fuel for transport and its farming and mining sectors.

Looming shortages of petrol and diesel in Australia have prompted calls from analysts and the International Energy Agency for various measures such as rationing, work-from-home arrangements, boosting uptake of renewable energy and electric vehicles, improving coordination with suppliers in Asia, and increasing domestic oil production.

Australia is the world’s third-largest exporter of liquefied natural gas (LNG) behind the United States and Qatar, whose supplies have been hit by Iran in recent weeks.

About 40 per cent of Japan’s LNG imports come from Australia; other major buyers include China, South Korea and Taiwan.

Australia is also the world’s largest exporter of coal, accounting for more than a third of global exports. Major buyers include Japan, China, India, South Korea, Taiwan and Vietnam.

A government source told The Straits Times that Australian ministers have spoken to their counterparts across the region to indicate that Australia would keep up supplies of gas and coal, and to call for other countries to keep oil exports flowing as a “quid pro quo”.

The source said Australia was trying to persuade other countries to not focus on domestic needs only and to back collective efforts to maintain energy exports.

“It’s in all of our interests to keep trade open,” the source said. “It is not hostile. We are advocating that continuing the supply will help all of us and the broader region.”

Engagement with partners

Worries in Australia about fuel supplies heightened after Malaysia, a major supplier, said on March 19 that it would prioritise its domestic needs over its trading partners. This followed moves by China to suspend some exports of jet fuel, diesel and fertilisers.

Australian Prime Minister Anthony Albanese told Parliament on March 23 that he and other ministers have held talks in recent days with officials from Singapore, South Korea, Malaysia and Japan about supplies of oil to Australia.

“We are engaged,” Mr Albanese said. “We are reliable partners when it comes to energy security, and we expect that to be a two-way flow.”

Mr Albanese and his Singaporean counterpart Lawrence Wong spoke on March 23 before releasing a statement saying that both countries would “support the flow of essential goods such as diesel, and liquefied natural gas between our two countries, and to notify and consult each other on any disruptions with ramifications on the trade of energy”.

“We call on other trading partners to join us in ensuring global energy supply chains are kept open, for the benefit of the security and prosperity of our peoples,” the statement said.

‘Lucky’ to have leverage

Mr Ben Picton, an analyst at Rabobank, told ST that Australia was ill-prepared for the current disruption to global oil flows, and needed to store greater reserves and reduce demand through measures such as promoting electric vehicles for consumers and trucking.

But he said Australia was “lucky” to be a net energy exporter, and should work with like-minded countries to secure one another’s supplies.

“We have a good bargaining chip in Asia,” he said. “We can say we will give you LNG and thermal coal and effectively give it as a barter in exchange for liquid fuel rather than for dollars.”

He added: “Countries like South Korea, Japan, Singapore and Australia will probably band together – they have what each other needs.”

Australia has only two oil refineries and is one of the world’s biggest importers of refined petroleum. More than 80 per cent of its refined petroleum imports – used for petrol, diesel and jet fuel – come from Asia.

About 29 per cent of Australia’s imports in 2024 – worth US$31.6 billion (S$40.6 billion) – came from South Korea, according to the Observatory of Economic Complexity (OEC). Another 20 per cent were from Singapore, 13 per cent from Malaysia, 10 per cent from India, and 8 per cent from Taiwan.

The road ahead

Panic buying of petrol and diesel in Australia, especially in rural areas, has left more than 200 petrol stations across the country without petrol or diesel, or both.

The federal government is considering potential rationing of petrol but insists that such a measure remains “a long way off”.

A report by the Institute for Energy Economics and Financial Analysis on March 23 said Australia should impose urgent measures to reduce demand, including allowing working from home, reducing air travel, dropping speed limits and imposing driving restrictions.

It also urged Australia to switch to renewables and electrification, and to use its LNG supplies to give priority for sales of non-contracted supplies to countries such as South Korea in exchange for refined oil.

“Australia needs to reduce its dependence on oil throughout the economy,” the report said. “Electrification is the most promising solution as it is mature, cost-effective and can deliver reductions in oil imports at scale.”

Australia produces about A$6 billion (S$5.3 billion) worth of crude oil annually but exports more than 90 per cent of it – mostly to Asia – to be refined offshore. The largest importers in 2024 were South Korea, Thailand, Singapore, Indonesia and Brunei, according to the OEC.

Australia’s domestic oil output has plunged in recent years, with most now coming from offshore basins in the North West Shelf, off the coast of Western Australia, and the Bass Strait, whose output has reduced as it nears depletion. Potential future sites could include Bowen Basin in Queensland and the Bedout Basin off the coast of Western Australia.

But analysts say Australia’s oil can be expensive to extract and its grade may not be suited to Australia’s two remaining refineries. In recent years, a series of refineries have closed due to their inability to compete with larger refineries in Asia.

Transport technology and sustainability professor Hussein Dia from the Swinburne University of Technology told ST that expanding Australian domestic oil production “would take many years and significant investment”. Likewise, he said, expanding refining capacity would be “costly and time-consuming – and would likely result in higher fuel prices for consumers”.

“Australia is structurally integrated into global oil markets, so complete self-sufficiency is neither practical nor economical,” he added.

“In that sense, energy security is not just about producing more fuel, but also about needing less of it.”