Australia faces significant exposure to global energy price shocks due to its heavy reliance on imported oil products and the interconnectedness of domestic and international energy markets, according to a report by the Institute for Energy Economics and Financial Analysis (IEEFA). The IEEFA is an independent research organisation that examines issues related to energy, the environment, and financial markets. It conducts in-depth analysis to accelerate the transition to a more sustainable energy economy.
Escalating tensions in the Middle East, particularly concerns over the Strait of Hormuz, have heightened these risks. The strait, a critical route for approximately 20% of global daily oil consumption, sees 30% of Australia’s refined oil transit through it. With domestic oil production declining, Australia now imports 90% of its oil requirements, resulting in expenditures exceeding $55 billion in 2024. Furthermore, Australia’s stockpiles of petrol and diesel are below the International Energy Agency’s recommended levels.
Despite these vulnerabilities, the IEEFA suggests Australia can mitigate these risks by accelerating its transition to renewable energy sources. Increased reliance on wind and solar generation can reduce the influence of gas and coal prices on wholesale electricity, while incentives to prioritize domestic gas markets over liquified natural gas (LNG) exports could further stabilise prices. Australia is one of the world’s largest LNG exporters. Higher international LNG prices create financial incentives for spot sales, potentially exacerbating domestic gas market tightness.
The IEEFA advocates for measures such as an export tax on spot sales of LNG to address these issues, arguing that Australia needs to seriously consider improving its energy security to better insulate itself from global energy shocks. By prioritising renewables and domestic gas supply, Australia can reduce its vulnerability to international market volatility.
