While Australia scrambled for fuel, millions of litres were being exported offshore

Australia is exporting tens of millions of litres of biofuels that could instead add at least three days of supply to the nation's petrol and diesel stocks.

Petrol prices have risen again to an average $2.42 per litre as the war in Iran drags on longer than anticipated. 

There are fresh concerns about Australia's vulnerable fuel stocks heading into the summer holidays as the United States mulls a ban on diesel exports.

Australia currently holds 41 days of petrol supply and 33 days of diesel, more than when the Iran war began because of emergency measures imposed earlier in the year, but still well below the international requirement to hold 90 days of supply.

With the country's fuel security vulnerabilities exposed, the government is looking at whether to force petroleum companies to buy Australian-made fuels that are being sold overseas to help buffer the country from price and supply shocks.

Australian fuel being sold overseas instead

A new alliance of Australian biofuel producers has formed to encourage the federal government to require the major petroleum importers and refiners to buy Australian biofuels, made from the waste by-products of wheat, sugarcane, cooking oils and other farming "feedstocks".

The Biofuel Producers Alliance, made up of Manildra Group, Wilmar Sugar, and three biodiesel companies, already has about 470 megalitres of ethanol and biodiesel capacity, which amounts to about three days' extra supply.

But in the first six months of the year, when Australia was scrounging for additional fuel, more than 60 megalitres produced in Australia was sent overseas instead, because there is little demand from petroleum importers and refiners to buy Australian biofuels.

"When we were sitting in March and April, and all of this was unfolding, E10 was one of the first fuels to drop out in service stations, and at the same time we shipped out 24 million litres of ethanol to South-East Asia, Korea and other places for them to use with their cars," chief executive of the Biofuel Producers Alliance Matt Hobbs said.

"At a time of a fuel crisis we ignored fuel that we made here and instead sent it to other countries."

Mr Hobbs said if the federal government introduced a "national biofuel blending requirement" from 2027 it could shore up stocks and ease the pain at the bowser by several cents a litre during price shocks.

"It's good for consumers because you have got good supply, it doesn't go on a boat. Fuel made in Australia should be used in Australia, and not shipped overseas."

The federal government is consulting on whether to make fuel companies purchase "low carbon liquid fuels", including biofuels, which it acknowledges may be the only pathway to reduce CO2 emissions for some current fuel uses, including in aviation.

The government's consultation paper proposes to introduce a "volumetric mandate" that would begin in 2029, requiring certain amounts of alternative fuels to be supplied or acquired in order to create demand and support domestic fuel production.

Once the sector has been established, after 2035 the requirement would shift to require more efficient fuels based on "carbon intensity", rather than prescribing specific fuel types and amounts.

The Biofuel Producers Alliance said there was capacity for a mandate to begin now, and quickly soften fuel pressures, rather than wait until 2029.

The Australian Chamber of Commerce and Industry (ACCI) said Australia's current project pipeline could potentially support 2 billion litres of domestic low-carbon fuel production, and as much as a fifth of the country's fuel imports could be replaced with domestic production by 2040 with further investment in fuel refining.

However ACCI said the government should not impose demand-side measures to develop the sector, but rather temporary assistance.

"Broader demand-side market obligations should only proceed where it is proven that sufficient fuel is available at a competitive price and … that the market, infrastructure and compliance systems are ready," the business group said in its submission to government.

ACCI also said that as the vehicle fleet electrified, any policy should be increasingly focused on hard-to-abate sectors including aviation, heavy freight, mining and defence.

The Australian Institute of Petroleum, whose members include Ampol, BP, Mobil Oil and Viva Energy, said in August it supported policies to "stimulate demand for low-emission fuels".

"AIP members have long been advocating that low-carbon liquid fuels, such as renewable diesel and sustainable aviation fuel, can substantially cut emissions from 'hard-to-abate' sectors such as heavy transport, agriculture and mining," its chief executive Malcolm Roberts said.

"Fuel suppliers have robust international supply chains which have ensured continued supply to Australia despite the Middle East crisis. Local refining and in-country fuel reserves also strengthen our fuel security."

Iran war fuel crisis 'proved' demand failure

More than 60 countries have mandates requiring petroleum companies to purchase biofuels, including the United States, United Kingdom, Canada, European Union nations and Singapore.

The alliance says Australia is exporting nearly 80 per cent of its cooking oil and canola, mainly to Europe and Asia, where it is refined into renewable diesel and aviation fuel, and then sold back into markets including to Australia.

Just 0.1 per cent of Australia's diesel last year came from biodiesel, one-fiftieth of the rate consumed in the US and EU, where there are established local biodiesel industries, produced from the by-products of soybean oil, animal fats and other goods.

But Mr Hobbs said when the fuel crisis began in February and fuel prices skyrocketed, ethanol-blended petrol recorded its weakest month since 2010 outside of the pandemic.

He said the four major fuel companies in Australia did not have commercial reasons to buy Australian biofuels, since they are vertically integrated and it was financially advantageous for them to buy their own supplies.

"There's great opportunity with current facilities to expand supply, and for farmers and others to get good prices for their commodities … at a good price for consumers," Mr Hobbs said.

In August, the Manufacturing Workers Union, Australian Workers Union, National Farmers' Federation, grain and sugar farmers jointly wrote to Prime Minister Anthony Albanese advocating for a national ethanol and biodiesel mandate.