As Donald Trump would say, nobody does an announcement like Scott Morrison, nobody. What is the substance to the US oil reserve deal so praised by the PM and his energy minister Angus Taylor? Special correspondent Jommy Tee reports.
As Australia enters a “forever partnership” with the US and the UK – courtesy of the nuclear submarine deal – let’s hope the strategic outcomes of the partnership are more transparent than the oil deal Australia signed off on last year.
That quasi-secret deal inked by the Minister for Energy, Angus Taylor, in the first half of 2020 promised “many millions of barrels” of oil at “historic low prices”. The stated intent of the deal was for Australia to lease space in the US Strategic Petroleum Reserve (SPR) to store and access Australian-owned oil during a global emergency. Barrels and barrels of oil would be bought for the princely sum of $94 million ($US58 million).
Sounds great as an announcement (or two or three), but the deal, to this day shrouded in secrecy, appears to have delivered not much at all – a patented hallmark of the Morrison government.
The SPR deal, listed as an official accomplishment of the former US president Donald Trump, is described as a win for American taxpayers by providing a “return on this infrastructure investment”.
Cheap oil or cheap trick?
Trump’s words are far removed from the cheap and bountiful liquid earth Taylor had been promising since March last year.
Admittedly, if you could buy ultra-cheap oil in vast quantities and store it in a safe reserve that would make some strategic sense – notwithstanding the vast logistical problem of shipping the oil from the US to Australia in a time of emergency.
However, in-depth research and FOIs undertaken by Michael West Media (MWM) located a range of Australian and US government documents that show the Australian government appears to have kicked an own goal – buying very little oil, and massively underutilising the SPR storage capacity it had negotiated.
A previously undisclosed aspect of the agreement between Australia and the US is that Australia can store up to 25 million barrels in the SPR. This information was located in the back end of a US Department of Energy annual report.
The maximum storage capacity has never been made public by the Australian government – despite the multiple announcements it released. What we know is that Australia has thus far spent $US70 million buying a piddly 1.7 million barrels of oil (just under two days’ worth of supply).
Needle still just above empty
Much of that knowledge has also been kept hidden. In essence Australia has a large fuel storage tank, but Taylor filled it to a point where the needle is just floating above empty.
Australia bought oil in two tranches. The first tranche saw 1.5 million barrels bought in mid-2020 from an undisclosed private US producer. The name of the seller remains a secret, despite our repeated questioning of the minister’s office and his department.
The oil stock at the time was valued by the SPR at $US58.6m – or $US39 a barrel.
Even the amount of oil bought remained a secret until it was buried as a one-line reference in Scott Morrison’s National Energy Address last year.
Australia bought a second tranche of 0.2 million barrels direct from the SPR earlier this year for $US11.4 million, or $US58 a barrel.
Again, the government withheld this information. Only a search of oil sale data held by the SPR revealed the sale and purchase price.
Pricing schmicing
When Taylor first spruiked the deal in March last year, (West Texas Intermediate) oil was trading at $US28 a barrel. The price then plunged to minus $US38 a barrel in April 2020, before rebounding and rising upwards ever since – currently at approximately $US70 a barrel.
On the day when oil was priced at circa $US10 a barrel, Taylor was proclaiming Australia would spend “94 million (A$) to buy oil at the current low global prices”.
It really appears Australia missed the boat in filling up at super low prices, instead buying oil at an approximate average of $US40 a barrel.
As late as September last year, even the Prime Minister was still carrying on the pretence that Australia had bought the oil at super cheap prices when he announced a fuel security package which built on the government’s commitment “to purchase up to (A)$94 million of crude oil at record low global prices”.
The deal Australia did with the US also contains multiple fees associated with storing the oil in the SPR.
MWM was able to obtain a redacted version of the lease agreement, via FOI.
Redaction redux
The agreement is subject to daily lease fees, filling fees, drawdown fees, withdrawal fees and a fee escalation process contained within the lease.
The latter sees fees increasing on July 1, 2022, and annually thereafter, albeit with a fee escalation capping process. It is unclear whether the fees are based on cash payments or to be paid in barrels of oil.
Critical redactions in the lease agreement mean that the quantum of lease fees that Australia is paying to the US SPR remains unknown.
We asked the department to confirm that fees were capped at $A2.5 million – a figure it had publicly announced as lease fees – but no answer has been forthcoming.
If there was strategy behind this deal it’s hard to know what it is.
Strategy, what strategy?
The US Senate Committee on Energy and Natural Resources in September last year – coincidentally the same day Morrison let slip the 1.5 million barrel purchase – reported that the bilateral agreement that allowed Australia to purchase and store 1.5 million barrels in the SPR a positive development “but is mostly an accounting matter”.
Not only did Australia not fill up the tank, it didn’t do so at the historic low prices – a kind person would call that a lack of foresight.
A comprehensive set of questions were again put to the department and the minister this month, and remain unanswered.
The only response that MWM received was from his department which stoically stuck to the line that the government had “taken advantage of historically low oil prices” to purchase almost 1.7 million barrels of crude oil.
The department added that the total price paid per barrel is well below the long-term average for West Texas Intermediate oil.
Any deal that shuffles almost $A90 million out the door to a mysterious seller is yet another accountability and transparency fail by the Morrison government.
Texas tea sometimes leaves a sour taste.
Jommy Tee is a long-time career public servant, having worked in the policy development field for 25+ years as well as an independent researcher interested in politics, current affairs, and Nordic noir.