Drilling for more oil will do nothing to protect Australian households from higher petrol prices

The Coalition’s solution to the energy crisis is to double down on fossil fuels. But is this a real solution, or are they merely adding more fodder to the culture wars?

The new Nationals leader, Matt Canavan, has been telling everyone who will listen that the way Australia can reduce the risks of a future energy crisis is to, as Trump likes to say, “drill, baby, drill”.

The new Liberal leader, Angus Taylor, has said “We must dig, and we must drill. We need more Australian oil for Australians. We have the resources beneath our feet to secure our future.”

Superficially, this makes sense. If we drill and refine more oil, then we would not need to rely on foreign oil and international prices.

But that’s not how it works in reality.

Fortunately, we have the perfect test case: the US. They’re a country that is self-sufficient and independent from Middle East oil.

The US produces more crude oil than it consumes. They produce 22.8 million barrels a day, but only consume 20.5 million barrels a day.

But because different refineries use different types of crude oil, the US ends up exporting and importing oil.

Around 60% of its crude oil comes from domestic production, with the other 40% from imports, almost all of which is from its two neighbours, Canada and Mexico. This means almost all US oil comes from North America.

As Trump has said many times, the US hardly gets any oil from the Strait of Hormuz and won’t be getting any in the future.

This is presumably the kind of position the Coalition wants Australia to be in: able to produce more oil than it consumes, with any shortfalls covered by oil imported from short supply chains close by.

Unfortunately for the “drill, baby, drill” crowd, this hasn’t helped Americans. The price of US petrol, or “gas” as the Americans call it, has increased substantially.

Since just before the war, Australian petrol prices have increased 22%, while prices in the US over the same period have gone up 40%.

The increase has been smaller in Australia purely because the government has cut the fuel excise in half, reducing prices by 26.3 cents a litre. If they had not cut the excise, then Australian petrol prices would have risen 37%, almost the same as the US increase.

The two increases are almost identical because both Australia and the US pay the same international price.

US oil companies are private enterprises that maximise profits for their shareholders. If the international price jumps, then they charge that higher price.

The Australian resource sector works the same way. Just look at the Australian gas industry. Despite being one of the world’s largest suppliers of LNG, Australians still pay the world price for gas.

If Australia were to rapidly expand oil production and allow companies to drill and frack wherever they wanted to, those same oil and gas companies would still demand the world price of oil.

The Australian Government could spend billions subsidising uneconomic oil fields like those in the Great Australian Bight and, when the next oil crisis hits households, would still be paying more at the pump.

What the Coalition is proposing would do nothing to decrease the price of petrol in Australia.

So, what could the government do to protect Australia from future oil shocks?

If we want to insulate households, the government could introduce policies that reduce our need for oil. They could more rapidly electrify our transport sector by, for example, introducing more incentives to buy electric vehicles, increasing funding to help electrify heavy transport, and improving public transport.

If Australia reduces its demand for oil, then oil shocks will have less impact.

The Federal Government could also work with the states to fast-track new renewable generation projects that will be needed for the increase in demand for electricity. This includes incentives for more battery storage.

The Coalition’s plan is to do the opposite.

They proposed paying for halving the fuel excise by scrapping the subsidy for electric vehicles and the home battery scheme.

They wanted to scrap two policies that would reduce Australia’s reliance on oil.

“Drill, baby, drill” is just code for increasing the profits of multinational oil and gas companies. It has nothing to do with helping Australians with the cost of living.