Does Australia – and our PM – have what it takes to drill baby drill?

Across the same two-decade period, the US has achieved the reverse and both Japan and Germany have absorbed a bitter lesson in energy vulnerability.

Lessons from the US, Europe and Japan

Two Gulf wars and the ingenuity of a wildcat driller, George Mitchell, transformed the US from being dependent on the Middle East for crude oil to being the world’s biggest producer and an energy export superpower. The transformation is due to Mitchell’s discovery in 1997 of how to drill wells horizontally and liberate oil and gas held deep underground in rock formations.

The energy crisis theory also works in reverse. During the same period, the Japanese tsunami in 2011 and associated Fukushima nuclear disaster up-ended the power equation and energy security of industrial powerhouses Japan and Germany. Both countries swore off nuclear energy as a result of the Fukushima nuclear accident – despite the fact it did not cause any deaths – but both have now changed their minds.

Japan has restarted 15 nuclear reactors and another 10 are in the process of restart approval. Energy market disruption caused by the war in Ukraine spurred Japan to further reconsider nuclear because without it Japan must import about 90 per cent of its energy requirements. This is why debate in Australia about changes to gas production, exports and the prospect of super profit taxation is watched closely and of great concern in Tokyo.

The loss of Russian gas because of the invasion of Ukraine also left Europe badly exposed.

Germany had turned to Russia for gas as it shut its last three nuclear power plants in 2023, but German Chancellor Friedrich Merz told business leaders this year it had been a “serious strategic mistake” and the country would rebuild nuclear production.

In 2025, nearly 70 per cent of Germany’s energy needs were met through international imports despite the many billions of dollars that have been spent on a world-leading renewable energy transition. “I want us to eventually have acceptable market prices for energy production again and not have to permanently subsidise energy prices from the federal budget,” Merz said. His answer is nuclear.

Australia’s feat of energy self-harm

It can be argued that, like Germany and Japan, Australia has performed its own feat of energy self-harm. Exploration for oil has been allowed to falter and production of liquid fuels has been sent offshore by a combination of economies of scale, lack of investment and strict environmental mandates from government.

In Australia, climate change has become the crisis that drives energy policy. But, as the war in Iran has shown, energy security is about a lot more than phasing out coal-fired power stations to make electricity. Australia runs on diesel fuel. Fossil fuels produce the fertilisers we need to grow our food and export crops. Fossil fuels make plastics that are ubiquitous to construction and modern life. Diesel-powered cranes unload containers at the wharves and diesel-powered machinery mines the coal and iron ore we export and fuels the trucks that keep our supermarket shelves stocked.

Work is being done on electric-powered trucks but they have their limits. They are more expensive to buy and their small range is not suited to Australia’s long-haul routes. Heavy batteries lessen the payload that can be carried and presumably further increase the cost of freight.

Big miners are exploring ways to shift production to electric diggers and dump trucks, but while Andrew Forrest’s Fortescue is talking a big game about what the future holds, BHP and Rio have slashed spending on green initiatives. This mirrors a global trend to get back to basics.

The evidence is that Australia must work to encourage future investment in the energy and resource projects that pay the bills against strong competition from Canada, the US, South America, Africa and elsewhere. And we must decide if we want to re-establish domestic energy security or remain dependent on extended import supply lines at a time of global upheaval and potential conflict.

There have been plenty of opportunities lost. The failure of the much-hyped hydrogen revolution to work at cost and scale has left us without a clear pathway to replace liquid fuels.

Deepwater Horizon and our last best chance

The failure of the last best chance to replace the dwindling oil reserves from Bass Strait can be traced to another crisis: BP’s Deepwater Horizon disaster in the Gulf of Mexico. The Deepwater crisis gave environment groups the leverage they needed to campaign against BP’s ambitions to drill for oil in the deep waters off the Great Australian Bight.

Deepwater Horizon in 2010 was the world’s biggest oil spill in which 800 million litres of oil was spewed into the Gulf of Mexico across 87 days. Only about 25 per cent of the oil was recovered, leaving half a billion litres of oil in the Gulf. BP said economics, not environmental politics, caused it to pull out of the bight project but its own oil spill modelling showed a Deepwater Horizon-style spill in the bight could take more than six months to control, would be certain to hit land and would spread oil for thousands of kilometres. If a spill happened there was a “high probability” it would affect important marine species, including sperm whales and pygmy blue whales.

After BP pulled out, Norwegian energy giant Equinor was given permission to drill for oil in the Great Australian Bight but it also pulled out in February 2020, citing poor project economics. Equinor said the project did not stack up financially with other global energy projects. This is despite estimates that more than nine billion barrels of oil could be extracted from several fields, making it – despite the much deeper waters – the logical replacement for dwindling reserves in Bass Strait.

The discovery of oil in Bass Strait in the Gippsland Basin off Victoria in 1965 by Esso and BHP fundamentally changed the nation by delivering energy self-sufficiency. More than five billion barrels of oil have been produced from Bass Strait across five decades but production has been in steady decline since peaking in the 1980s.

Export exposure

Rather than being self-sufficient, Australia today is a major exporter of energy, principally coal and gas, but a net importer of liquid fuels. According to the federal Department of Climate Change, Energy, the Environment and Water, in 2022-23 Australia produced 771 petajoules (equivalent of 131 million barrels) of crude oil, condensate and LPG, of which more than 94 per cent was sent offshore.

In return about 90 per cent of refined products including petrol and diesel were imported, mostly from refineries in South Korea and Singapore. Australia now has only two operating oil refineries – the Lytton Refinery in Brisbane and the Geelong Refinery in Victoria – which provide only about 17 per cent of domestic demand. Australia consistently falls short of the International Energy Agency requirement to hold 90 days of net oil imports, typically maintaining roughly half that amount.

Opting to import our liquid fuel requirements was a conscious decision. The Australian Institute of Petroleum, an industry lobby group set up to promote self-regulation, argued in 2017: “Australia’s transport fuel security depends on flexible supply chains and diversity of product supply, not domestic refining of domestic crude oil.”

Its members were Ampol Limited, BP Australia, Mobil Oil and Viva Energy Australia.

The AIP argument was that Australia did not need to subsidise local refineries or a new nationally owned refinery.

It said if Australia had more refineries to meet domestic fuel demand, this would simply result in more crude imports as domestic crude production was insufficient and unsuitable by itself to achieve “self-sufficiency” in transport fuels.

The AIP said substituting crude oil imports for petroleum product imports would not increase transport fuel security.

It said no new refinery had been constructed in an industrialised/Western nation for more than 20 years. And Australia offered none of the capital or operating cost benefits available in many developing countries.

“Compared to refineries across Asia, Australian refineries suffer from substantial disadvantages in operating and capital costs that preclude Australia from consideration for major new refinery projects,” the AIP said.

“In the context of Australia’s demonstrated efficient and reliable access to large-scale refineries in Asia (and excess Asian supply currently and forecast), it is difficult to see any case for the very significant cost of a taxpayer-funded refinery (for example, at least $US5bn for a minimum efficient scale refinery).

“High coastal shipping costs would make domestic distribution from a ‘central’ refinery uncompetitive against imported cargoes of fuel.”

Many of these things still may be true. But the Iran war crisis has exposed our vulnerability. We are dependent on much more than fuel and if the war continues the economic costs will continue to escalate.

How we can turn this dependency around

Like the US, Australia is well placed to turn around our import dependency.

At present, Australia’s oil production is heavily concentrated in a few offshore regions, with most of the remaining crude resources located in the continent’s northwest and southeast.

According to Geoscience Australia, the Northern Carnarvon Basin in Western Australia is Australia’s most prolific oil-producing region, accounting for nearly 70 per cent of the country’s remaining identified crude oil resources.

The Gippsland Basin, which includes Bass Strait, is in a significant state of decline and transitioning towards decommissioning.

The Cooper-Eromanga Basin in South Australia and Queensland is the largest onshore oil and gas province in Australia.

The Bonaparte and Browse Basins in Western Australia and the Northern Territory are massive gas hubs but produce large quantities of condensate, which is used as a refinery feedstock.

There is renewed interest in Queensland’s Surat and Bowen basins, where the Taroom Trough has been identified as a “new oil frontier”, with major exploration and appraisal drilling under way.

This week Queensland Premier David Crisafulli said the field had the potential to produce “hundreds of millions of barrels” of oil.

“There’s potential for a veritable sea of domestic oil right here in Queensland,” he told the Liberal National Party’s annual State Council. “We must promise ourselves, as a nation, never again will we be vulnerable entirely to foreign conflicts injuring our energy security. For too long, the national conversation about mining has treated the industry as something we should be embarrassed about.”

The Iran war is a wake-up call and a chance to rethink national priorities.

To succeed, however, it would be necessary to match crude oil production with refining capacity, create large stockpile reserves and to develop an efficient way to distribute product around the country. And, as in the US, this might involve leaning into unconventional technologies such as fracking that have proved highly controversial.

There is still work to do to prove up reserves in the Taroom Trough in Queensland. And there are bitter fights to be had about the environmental risks of deep-sea drilling in the Great Australian Bight.

But, as in the US, shale oil could be our big untapped potential. The Beetaloo Basin is a massive, highly prospective shale gas field in the Northern Territory that is transitioning from exploration to commercial production, with first gas sales to the NT domestic market targeted for mid to late 2026. Several key wells in the Beetaloo Basin have confirmed the presence of liquid hydrocarbons with estimates of hundreds of millions of barrels.

The same is true for the Canning Basin in Western Australia.

The question is whether Australia still has the institutional and political wherewithal to drill baby drill.