Australia's foreign fuel reliance
Australia imports 77 per cent of its refined fuels. Just three countries supply about 60 per cent of Australia’s diesel and over 70 per cent of aviation fuel. Australia’s two refineries are currently 83 per cent dependent on imported crude oil.
Even in 2011, when Australia had seven refineries producing 41 GL of refined fuels, this supply was neither sovereign nor secure, because only 21 per cent of the refinery feedstock was supplied by domestic crude oil. Over the past 15 years Australia has been overwhelmingly reliant on imported crude oil to operate its refineries.
Australia relies on imported refined fuels and imported crude oil, with very low sovereign fuel supply
Domestic refining alone does not solve Australia’s fuel security problem. Refineries only increase sovereign supply when they process Australian feedstocks; otherwise, they shift the import dependence from refined fuel to imported crude oil.
The fuel security task is to replace imported fossil fuels with Australian energy sources. TSI identifies three practical levers for doing this.
Australia's fuel security levers
There are three 'levers' for replacing imported fossil fuels with Australian energy sources that have not yet been employed at large scale or ambition: electrification, Australian low-carbon liquid fuels, and domestically sourced and refined crude oil.
A fourth component of fuel security – strategic stockpiling of fuels – does not increase sovereign supply but provides a buffer against short-term disruption.
These levers differ in their potential scale, time to production and the lifespan of the resource. Electrification and LCLFs are the levers that can make the largest contribution to fuel security, within the shortest timeframe, and with ongoing capacity to provide fuel security. They are also compatible with Australia's emissions reduction commitments: reducing carbon emissions is an additional benefit of pursuing fuel security.
Lever 1 – Electrification can displace most of Australia’s liquid fuel demand
The most effective way to reduce Australia's dependence on imported liquid fuels is to stop using liquid fuels where possible.
Every vehicle powered by domestically generated electricity, rather than imported diesel or petrol, directly increases Australia's sovereign fuel supply and permanently reduces import dependence.
Land-based uses are ready to electrify
Land-based uses of fuel collectively account for 79 per cent of Australia's liquid fuel demand: cars, light commercial vehicles and trucks (57 per cent), mining equipment (14 per cent), agricultural machinery (5 per cent) and rail (3 per cent).
Electric alternatives exist in all these sectors, at various levels of maturity, supported by rapid advancements in battery, electric powertrain and charging technologies.
By 2040, TSI’s central scenario finds electrification can displace 67 per cent of land-based liquid fuel use.
Electrification can displace 67 per cent of land-based liquid fuel use by 2040
Electric vehicles
To date, electrification has displaced about 1 per cent of Australia's liquid fuel demand – one of the lowest rates among comparable developed economies. For passenger vehicles, this is shifting – EV uptake is accelerating. Thanks to technological improvements and cost competitiveness, and nascent fuel efficiency standards bringing new models to Australia, recent electric vehicle sales have ticked up to 15 per cent. Since the Hormuz closure, EV sales have jumped to 25 per cent in April 2026 and 30 per cent in May 2026.
The total cost of ownership for light EVs – cars, utes, and SUVs – is now lower, on average, than the total cost of ownership for the fossil-fuel based alternatives. Recent fuel price rises have also made consumers increasingly aware of and sensitive to the higher running costs for cars using petrol and diesel, making EVs progressively more attractive. The priority for Australia's fuel security policy should be maintaining EV sales momentum.
Australian sales of passenger electric vehicles can be expected to follow international ‘S-Curves’
Heavy Freight
Electric freight vehicles are increasingly competitive across medium and heavy duty segments. Small urban electric trucks are already cost-competitive; heavier trucks require higher utilisation rates to justify higher upfront costs, but falling battery prices, longer ranges and new models are closing the gap. Australia has existing models of electric articulated trucks that match diesel on range and power at a lower total cost of ownership.
Two barriers hold back faster electrification of long-distance heavy freight: weight restrictions that penalise the extra mass of electric trucks, and gaps in public charging along freight corridors. Overnight depot charging covers most use, but Australia's 140,000 articulated trucks – each burning an average of 42,000L of diesel a year – need common-user megawatt-scale charging on routes like Melbourne to Sydney. That infrastructure requires high utilisation to justify the capital cost, creating a coordination problem: early investors must build before the fleet is electric enough to pay for it.
“Once regulatory and infrastructure barriers are cleared ... trucking can electrify faster than passenger vehicles”
Once these regulatory and infrastructure barriers are cleared, the IEA finds trucking can electrify faster than passenger vehicles, because trucking companies are far more sensitive to operating costs. International sales show it is already happening: global electric truck sales have reached 10 per cent of heavy freight, and in China a quarter of new heavy trucks sold in 2025 were electric, peaking at half in December.
Electric trucks are following a similar pattern to EV adoption
Mining and Agriculture
Mining is one of the largest drivers of Australia's growing diesel use. As mines deplete, extraction becomes more diesel-intensive. Diesel use from mining has risen from around 6 GL in 2022 to 9 GL in 2026.
Despite significant purchasing power and clear potential savings, few mining companies are building the infrastructure to electrify, citing equipment availability, remote energy access, and a lack of incentives. Some progress is emerging: Liontown Resources at Kathleen Valley and Lynas Rare Earths at Mt Weld are investing in renewables, and first-movers like Fortescue Metals Group are using purchasing power to bring battery electric mining equipment to market.
Agriculture faces many of the same challenges – large machines in remote areas with constrained energy access – but is less capital-intensive and more dispersed. As the renewable rollout continues, these constraints will ease.
The interaction between Australia’s fuel excise and diesel fuel rebate creates a barrier to electrification, particularly in mining and agriculture. Because fuel taxes and rebates do not reflect the social cost of carbon, they do not create an efficient incentive to switch to lower-carbon – and sovereign – EVs or LCLFs. There is a clear role for government in addressing externalities from carbon emissions, which complements the goal of fuel security. The fuel excise should be reformed to separate the policy objectives of a road user charge and pricing pollution.
Lever 2 – Low-carbon liquid fuels can close much of the the security gap for hard-to-electrify sectors
Electrification can dramatically reduce Australia's foreign fuel dependence by 2040. But some sectors are hard to electrify because batteries are not as energy dense as liquid fuels. This imposes range and cargo limitations which are most acute for long-haul aviation and shipping. Battery or hybrid electrification may serve short-range regional flights and some coastal or port maritime operations, but both sectors will require liquid fuels to meet the range and performance demands of commercial operations.
Aviation and maritime account for a smaller share of Australia’s total liquid fuel demand than land transport. 14 per cent of Australia's liquid fuel demand is from domestic and international aviation and 3 per cent from maritime shipping.
TSI’s central scenario finds that, by 2040, Australian-produced LCLFs could meet almost all aviation fuel demand and nearly one-third of maritime fuel demand.
By 2040, LCLFs could meet 95 per cent of aviation demand and 30 per cent of maritime demand.
What are LCLFs?
LCLFs are alternatives to liquid fossil fuels. They can perform many of the same functions as liquid fossil fuels, but are made from lower-carbon, renewable plant- or animal-based carbon feedstocks – such as oils, sugars, and waste biomass – and renewable carbon dioxide and green hydrogen.
LCLFs can be produced in Australia with Australian feedstocks, reducing dependence on imported oil while producing significantly lower lifecycle greenhouse gas emissions than their fossil fuel equivalents.
There are three major LCLF products that together cover most hard-to-electrify applications in aviation, maritime, land transport and land-based machinery:
Sustainable aviation fuel, or SAF, is a low-carbon substitute for fossil jet fuel. It is chemically similar to conventional aviation fuel and can be used in existing aircraft engines and fuelling infrastructure.
Renewable diesel, or RD, is a low-carbon substitute for petroleum diesel. It is chemically similar to conventional diesel and can be used in existing diesel engines and fuel infrastructure.
Bio-methanol and e-methanol are low-carbon marine fuels suitable for use in modified marine engines. Methanol can also be used as an input to produce sustainable aviation fuel.
Australia has abundant renewable resources to support an enduring LCLF capability, helping to meet residual fuel demand while reducing import dependence. Australia currently exports about 80 per cent of its HEFA feedstocks, mostly to European and Asian refineries producing SAF and RD.
A guide to LCLF feedstocks and production pathways
Australia already has a substantial LCLF project pipeline of about 2.2 GL. The three main LCLF refining pathways – HEFA, Alcohol-to-Jet and Gasification for Methanol-to-Jet – are each represented by potential Australian projects at advanced stages of development.
As international decarbonisation lifts demand for LCLFs, and as broader sustainability concerns become more important, LCLF certification schemes will be essential for producing market-ready LCLFs. The government's Guarantee of Origin (GO) certification framework creates opportunities for robust, transparent and Australian-specific carbon intensity factors based on lifecycles and land-use changes, rewarding sustainable practices. Well-designed certification that is inter-operable with international standards will allow the international market to correctly value Australian LCLFs.
Lever 3 – Domestically sourced and refined crude oil cannot provide fuel security
Domestically sourced petroleum is the least effective lever to increase sovereign fuel supply.
Sovereign diesel, petrol, and jet fuels requires two things: domestic refining capacity, and a sufficient supply of suitable Australian crude oil and condensate ('crude oil'). But Australia's refineries rely on imported crude oil, Australia's existing reserves of crude oil are low and declining, and remaining resources are scarce and internationally uncompetitive.
There are no fuel security benefits from domestic refining unless domestic crude oil displaces imported crude. Four constraints rule out a domestic crude oil revival.
1. Existing supply is modest, declining and mismatched to Australia's fuel needs.
In 2025 Australian refineries processed 2.4 GL of domestically sourced crude oil, equivalent to only 17 per cent of their crude oil feedstock and about 4 per cent of annual liquid fuel demand. The Bass Strait fields that once underpinned eastern Australia's oil supply are substantially depleted, and from 2020 to 2025 Australia's crude oil and condensate production fell from 20.4 GL to 14.2 GL – an annual reduction of 7 per cent.
The majority of Australia's production in 2023 was condensate from offshore gas fields, with 94 per cent of crude oil, condensate and natural gas liquids exported because they are physically and contractually locked into LNG production. Condensate is a very 'light' petroleum and mostly produces petrol, yielding little of the diesel or jet fuel Australia actually needs. Even under a scenario in which all suitable Australian crude is diverted to domestic refineries, this lever could supply only 4.3 GL per year at peak, or around 7 per cent of current demand.
2. New fields take too long.
Fuel insecurity is an urgent problem, but new oil and gas fields take an average of around 15 years from discovery to first output.
3. Conventional resources are scarce and costs are uncompetitive.
Australia's total demonstrated resources of conventional oil, most of which is unsuitable for Australia's fuel needs, are equivalent to a little over nine years of current demand. Less than four years of demand sits in 'proven and probable' reserves.
Production is not falling because companies aren't looking: the federal government opens offshore areas for exploration each year, Geoscience Australia provides data to de-risk it, and companies continue to nominate areas of interest — but exploration efforts have not yielded commercial discoveries.
The lowest-cost conventional fields were developed first and are depleting. The Great Australian Bight is the clearest example: between 2016 and 2020, BP, Chevron and Equinor all abandoned plans to drill, with Equinor stating its approved well was not commercially competitive. The Liquid Fuel Security Review Interim Report concluded that large new refineries in Australia are likely to be internationally uncompetitive.
4. Unconventional resources cannot fill the gap.
80 per cent of Australia's total demonstrated oil resource is oil shale — a rock deposit requiring expensive surface mining and intensive processing, which Geoscience Australia classifies as subeconomic. Other contingent unconventional resources amount to only about 25 GL of condensate and LPG, which are not suited to domestic refining. There are currently no unconventional oil reserves or production in Australia.
Geoscience Australia, Australia's Energy Commodity Resources (AECR), 2025 Edition"Australia's domestic crude oil production continues to decline rapidly, and without new commercial discoveries, production is projected to cease within the next 7 years."
Strategic stockpiles can play a small role
Strategic stockpiles do not produce or replace fuel; they hold fuel in reserve as insurance against short-term supply disruption. The international benchmark is the IEA's 90-day stockholding obligation, which requires members to maintain emergency reserves equivalent to 90 days of net imports.
Australia currently holds approximately 52 days of strategic stocks, well below the IEA benchmark, equivalent to about 7 GL. The Government's recently announced $10 billion Australian Fuel Security and Resilience package will add approximately 3 GL of strategic reserve storage to a total of 10 GL. This reduces the gap but is not sufficient to achieve fuel security.
Stockpiles are necessary but not sufficient for Australia’s fuel security. The larger Australia's import dependence, the larger and more expensive the stockpile needed to provide any given level of security. Conversely, reducing import exposure through electrification and domestic LCLF production reduces the size of the stockpile required for the same level of resilience. The two work together: sovereign supply addresses the underlying import exposure, while stockpiles manage the residual risk of short-term disruption.
Policy options for Australia's fuel security
Australia's fuel security is a public good and so it is the government's job to meet Australia's fuel security objectives. People and businesses systematically underinvest in fuel security because they cannot capture its public benefits, face coordination problems in building shared infrastructure, discount low-probability catastrophic risks, and lack durable demand signals to underwrite long-lived investments in domestic alternative fuels.
To support fuel security the government should:
- Resolve coordination failures: regulation and common-user infrastructure
The government should reform regulations on electric heavy trucks that are a barrier to sales and use. It should also fast-track efficient investments in common-user charging infrastructure for heavy vehicles, recognising that there is a coordination problem that holds back private investments in infrastructure and sales. There is a role for the government as an investor in and potential regulator of common-user infrastructure for LCLFs, supporting investments at an efficient scale and ensuring access is priced efficiently. - Provide innovation grants for positive spillovers: FOAK support
First-of-a-kind (FOAK) LCLF projects face higher costs and risks than subsequent projects. Because the benefits of technical learning and commercial demonstration cannot be captured by the first mover, there are positive knowledge spillovers that benefit later producers. Targeted capital grants for FOAK facilities that use Australian feedstocks are justified by these positive externalities. The FMIA Innovation Fund LCLF tranche and ARENA SAF Initiatives are steps in the right direction; the scale is insufficient. - Progress towards Australia's IEA 90-day strategic stockpile obligation
Australia's strategic stockholding remains structurally below the IEA benchmark, currently sitting at approximately 52 days against the 90-day requirement. Progress towards the 90-day benchmark is a necessary part of the policy architecture, both for compliance with Australia's international obligations and as insurance during the period in which sovereign supply is being built. - Secure export markets through regional diplomacy
Australia's LCLF industry will be more attractive to investors if it supplies both domestic and export markets. Japan, South Korea, Singapore and several ASEAN economies are developing SAF and low-carbon maritime fuel mandates. Working with trade partners to align certification standards, harmonise mandates and establish green fuel trade corridors is a natural extension of Australia's broader Indo-Pacific strategy, and it mirrors the energy partnership Australia built with Japan for LNG and coal trade after the 1970s oil crisis.
All of these recommendations are within reach and realistic for introduction in the next year or two. The government should also introduce a demand mechanism for sovereign fuel sources. TSI has identified a suite of potential demand-side measures that would help displace imported fuel, focusing on the areas of most potential: electrification and LCLFs. TSI will produce detailed work on preferred demand mechanisms in the coming months.
