In 2021, the Australian Government introduced the Fuel Security Act 2021 (Cth) (the Act) to establish a national fuel reserve, aiming to minimise the impact of supply disruptions on fuel users and industries, including in the construction, transport and resources sectors.
The Act and the Fuel Security (Minimum Stockholding Obligation) Rules 2022 (Cth) require persons importing or refining gasoline, diesel, and kerosene in quantities exceeding 200 megalitres for gasoline and250 megalitres for diesel and kerosene, to ‘hold’ a minimum quantity of those fuels (the Minimum Stockholding Obligations). The Minimum Stockholding Obligations are set at levels which are aimed at ensuring that there is sufficient fuel in reserve to meet several days of national demand.
These requirements have led importers and refiners to make significant changes to their operations, which previously prioritised a reduction in overheads by minimising storage costs. As part of this, importers and refiners have been required to invest significantly in infrastructure for increased storage capacity (albeit with some government support through the ‘Boosting Australia’s Diesel Storage Program’).
The second stage of implementation of the Minimum Stockholding Obligations took effect on 1 July 2024 and increases the time fuels are required to be held by importers and refiners as follows:
| Product | Threshold between 1 July 2022 and 30 June 2024 | Threshold from 1 July 2024 |
| Gasoline – Importing | 24 days | 27 days |
| Gasoline – Refining | 24 days | 24 days |
| Diesel – Importing | 20 days | 32 days |
| Diesel – Refining | 20 days | 20 days |
| Kerosene – Importing | 24 days | 27 days |
| Kerosene – Refining | 24 days | 24 days |
Transitionary measures are in place to assist refiners and importers in complying with the increase in the Minimum Stockholding Obligations. This includes the ability to apply for a reduction in the required storage quantity before 1 July 2025, provided the refiner or importer has, among other things, taken all reasonable steps to prepare to meet the Minimum Stockholding Obligations. After 1 July 2025, this will apply in a narrower range of circumstances, such as during periods of repair of infrastructure or loss of contract.
Impacts
A key difficulty for fuel importers and refiners is in predicting the future capital investment required to meet the Minimum Stockholding Obligations due to the shift from carbon-based fuels to cleaner energy sources. To address this uncertainty, we may see importers and refiners making use of customer storage facilities or adjusting their contracting models to manage their stock more effectively, for example, by moving away from contracting models that require delivery of fuel ‘on demand’.
In the shorter term, we have already seen importers seeking to pass through the cost of compliance with the increased thresholds to end-users, and we expect these costs to be reflected in increased fuel prices under large-scale supply contracts moving forward.
For more information, contact Strati Pantges.