No Worries, Mate
Australia’s refining crisis is an underappreciated risk to the global economy.
“If you don't have a refinery operating, it's hard to use oil that's available.” – T. Boone Pickens
In his 1957 science-fiction novel, On the Beach, Nevil Shute tells a haunting tale of a group of Australians facing certain death. When life in the northern hemisphere is wiped out by nuclear war, the Aussies are stuck waiting for the deadly radiation cloud to envelop them. How each character confronts their surreal acknowledgement of the inevitable is gripping and horrifying. The book was later made into a movie with a star-studded cast, and both works were commercially well-received.
Australia’s geographic isolation, an ideal setting for Shute’s novel, has permeated the country’s cultural development over the centuries. Building a modern society in a rough and inhospitable land was a tough slog, and Australians understandably pride themselves on their self-sufficiency. When necessities are weeks or months away by ship, it’s best to keep enough of the stuff you need on hand, be capable of producing it yourself, or be prepared to do without.
Fortunately for the country, Australia does not have to do without much. Despite its comparatively tiny population – it ranks 55th on the global list – it generates approximately $1.7 trillion in gross domestic product as the 13th largest economy in the world. The country is blessed with an excess of natural resources, and the world has come to depend on continued access to its vast supply of energy, minerals, and forestry products. Australia is a major producer of liquified natural gas (LNG), coal, iron ore, aluminum, gold, lead, zinc, lithium, uranium, silver, nickel, copper, cobalt, and timber – just to name a few. It is a resource superpower.
The country does have a singular and critically important resource weakness, one that it leans heavily upon faraway lands to assuage. Without this externally sourced input, its entire economy would grind to a halt within days, and it would take substantially less than a full-blown nuclear war to throw Australia into just such a crisis. In the past decade, this risk has swelled to dangerous levels, causing a quiet but growing panic among Australia’s domestic industry captains. Were it to lose access to this all-important feedstock, the resulting economic emergency would quickly reverberate well beyond the country’s borders.
What is the Achille’s heel of one the world’s most important economies? Australia has practically no capacity to refine oil and relies on imports to meet the vast majority of its demand for diesel, the fuel that makes its entire supply chain work:
How did Australia get into this situation, and just how acute is the crisis? What are government officials doing about the problem? Will their solutions fully alleviate the risk in time? Let’s head south and find out.