While 2022 was about gas, this year’s energy crisis is about oil

Not all energy crises are the same, as the fallout from the Iran war currently shows. The risks to Australia are not the same either. 

The war has seen 25% of global oil seaborne trade and close to 20% of liquefied natural gas (LNG) trade cut off due to the closure of the Strait of Hormuz. Australian consumers and businesses are now highly concerned about petrol and diesel prices. However, when Russia invaded Ukraine four years ago, the prime concern was about gas and electricity prices.

The closure of the world’s main chokepoint for oil and LNG has had less of an impact on global prices for gas and electricity (given the strong link between the two in many markets). Qatar and the United Arab Emirates (UAE) account for a fifth of global LNG capacity (about 119 billion cubic metres (bcm)), but this only amounts to about 3% of global gas supplies because LNG makes up just 15% (around 670bcm) of global gas consumption (4,290bcm).

In comparison, Russia’s pre-war gas supply to Europe was about 155bcm in 2021, or 45% of the EU’s gas imports. Russia’s invasion of its neighbour in February 2022 triggered the EU to switch away from Russian pipeline gas and subsequently increased the demand for LNG. 

Furthermore, there are alternatives to LNG, at least for electricity generation, now or in the near future. The volume of gas shipped by Qatar and UAE could generate up to 1,250 terawatt-hours (TWh) of electricity (excluding energy losses). According to energy consultant Michael Liebreich, this could be replaced by other energy sources such as solar, wind and batteries in about nine months. Installations of solar photovoltaic (PV) panels added 636TWh of generation to global electricity capacity in 2025, bolstered by the addition of a further 205TWh of wind generation. Liebreich argues that wind and solar PV installation could be quickly ramped up based on existing manufacturing capacity.

“If you doubled the rate of installation of wind and solar, which you could do – the industry has the capacity – and you did that for nine months, it would actually… replace that Qatari and UAE LNG going through the Strait of Hormuz,” Liebreich said on the Cleaning Up podcast.

The International Energy Agency (IEA) also sees the share of renewables and nuclear in power generation increasing for the rest of the decade. The IEA forecasts renewables and nuclear to generate 50% of global electricity by 2030 from 42% last year. 

In contrast to LNG, the loss of the 20 million barrels a day of oil from the Middle East cannot be replaced by alternatives, such as electric vehicles (EV) or biofuels, over that same period. 

“It’s very difficult to replace 20% of global oil, of 20 million barrels per day, just by doing EVs. [It] will take you a very long time, many years, longer than a decade,” Liebreich said. 

This is concerning for Australia given it imports around 90% of its oil needs, due to declining domestic oil production and growing refined fuel demand. 

Australia is now on track to produce the lowest amount of oil domestically since the late 1960s. This is due to Australia’s geology rather than any restriction on oil drilling. Geoscience Australia estimates that Australian only has 229 million barrels of proven and probable crude oil reserves, equivalent to around seven months of consumption. Much has been made of the oil potential of the Taroom Trough in Queensland, but so far, the early drilling results show there is gas, condensate and light crude. So far , the exploration results published are insufficient to ascertain the scale of any of the potential hydrocarbon reserves.

Australia also has the lowest oil stockpiles of all IEA members. The IEA requires member countries to hold stocks equivalent to 90 days based on net cover of imports. At the beginning of the Iran crisis, Australia’s stockpile amount to little more than a month’s supply. 

Australia’s dependence on oil imports combined, with its relatively low stockpiles, expose it to global oil supply shocks. Australia has responded to the current crisis through an energy diplomacy push to effectively trade Australian gas for oil products with Asian trading partners that are home to major oil refineries. 

Australia has also responded to its low oil stockpiles by pledging AU$10 billion to boost inventories. This marks a significant shift in Australia’s energy policy away from economic efficiency to energy security, as increasing storage volumes will increase costs for consumers. Prior to the crisis, Australia had some of the lowest fuel prices among IEA member countries with the exception of the US and Canada, which are significant oil exporters.

However, Australia may not be the only country that intends to add oil storage capacity, which means oil demand to fill stockpiles is likely to add to broader oil demand. Moreover, building new refineries is unlikely to address oil security risks in Australia given we will still need to import oil to refine into products. 

One of the best opportunities for Australia to boost energy security would be to accelerate its adoption of EVs. This would lower oil demand, reduce our need for imports, and help Australia meet the IEA’s 90-day stockpile guideline. 

First published by Energy News Bulletin.