The Solution To Our Fuel Crisis
by David Archibald
19 March 2026
The author has had over 50 years in and out of the oil industry. His first oil industry role was as a juggie on a seismic crew in the Channel Country of far western Queensland in 1974.
The fuel crisis is another thing that should be blamed on John Howard. As prime minister 25 years ago, he announced that Australia didn’t have to worry about fuel security as long as we were a net exporter of energy, including coal and uranium. That hasn’t worked in practice. When you are short of diesel, everything comes to a stop until you fix that shortage. Without diesel you can’t do anything at all, so it concentrates the mind on the most important task.
Figure 1: Australian monthly refinery diesel production in millions of litres per month (source Scott Ashton)
Monthly refinery production of diesel, assuming we can get supply of heavier crude oils, is a third of what it was 15 years ago. The production fall in 2021 was the closure of the Kwinana refinery, an unforced error.
Figure 2: Australian diesel consumption cover in days (source Scott Ashton)
Australia is delinquent with respect to our obligations to store liquid fuels as a signatory to the International Energy Agency. We are the only country to be delinquent. We are also the most diesel-intensive economy in the OECD. Anecdotally, some Middle Eastern crudes with high middle distillate contents, such as Omani, are currently trading as high as US$150 per barrel, a significant premium to Brent.
Figure 3: Australian fuel flows in 2015 in billions of litres per annum (source Morgan Stanley)
Australia’s fuel supply situation is worse than it appears. We produce 21% of the inputs into our liquid fuel supply, but we export the same amount. That is because most of our domestic liquids production is on the west coast, where we don’t have any refineries. And most of that produced on the west coast is condensate, which the remaining refineries on the east coast aren’t configured to process. So we are effectively 100% reliant upon imported crude oil and imported refined product.
Figure 4: Australian diesel consumption by state in billions of litres 2018 – 2025
Diesel is the economy. Half of the Country’s diesel consumption is in two states, Queensland and Western Australia, which combined have a quarter of our population. To paraphrase Chairman Mao, take diesel as the key link.
By comparison, China has stockpiled 1,200 million barrels of oil because they are preparing for a war. China’s war of choice will involve Japan. Japan’s stockpile is 470 million barrels. The latest news from our north is that Xi Jinping had wanted to attack Taiwan in 2024, but was held up by opposition from the military. He spent the last two years purging the Peoples’s Liberation Army (PLA) of anyone opposed to his war. Starting that war is not constrained by considerations such as the state of the Chinese economy or the PLA’s ability to successfully conduct it. Xi is messianic about it.
The first thing to do to fix our fuel problem is to utilise the oil and condensate we are producing but not refining. Onshore and offshore, Western Australia produces 50,000 barrels of oil and 250,000 barrels of condensate per day. The condensate is a byproduct of gas production for the LNG plants 1,300 km north of Perth.
There used to be an oil refinery run by BP at Kwinana, but that was closed in 2021. It had a capacity of 140,000 barrels per day. It was running at a profit and didn’t need upgrading. At the time, BP was run by a bloke called Bernard Looney, who “became CEO in February 2020 and served until September 2023, during which time he spearheaded a strategic pivot toward renewable energy and set net-zero ambitions.” In effect, the Kwinana refinery was sacrificed on the altar of global warming. As a modern refinery with the ability to handle a range of crude types it would have a replacement cost approaching $6 billion. The WA and Federal Governments could have stopped the refinery’s closure but they both worship at the same altar of global warming.
The nearest refinery is the Viva refinery in Geelong, 3,300 km to the east.
The solution is simple. Install distillation columns to take the diesel, petrol and jet fuel out of the condensate and export the remainder. As a rough guide, the product yield will be:
Petrol 40%
Jet Fuel 20%
Diesel 20%
LPG 5%
Light Naphtha 15%
The whole 300,000 barrels per day of oil and condensate would yield 120,000 barrels per day of petrol. West Australian petrol consumption is 23,000 barrels per day so the balance of 100,000 barrels per day could be shipped to the east coast.
We have 300,000 barrels per day to process and we need to get that organised by the time that Xi Jinping starts his war. For a simple condensate splitter/topping refinery, the capital cost would be $1.2 billion for a capacity of 50,000 barrels per day and $2.0 billion for 100,000 barrels per day. Unnecessary fuel specifications should be relaxed to reduce capital costs. Sulphur specs, for example. Most Australian soils are sulphur-deficient and the more sulphur that falls from the sky, the better. Nothing is achieved by requiring low-sulphur diesel in the middle of nowhere.
The solution starts with a 50,000 barrel per day refinery near Karratha with the balance of 250,000 barrels per day piped south in a 28 inch diameter pipeline at one metre per second. At US$60,000 per inch-kilometre, the pipeline cost would be $3.6 billion. Western Australia consumes 126,000 barrels per day of diesel. To make that from 250,000 barrels per day of condensate feedstock requires oligomerisation/hydroprocessing of some of the naphtha component. The refinery to do this at that scale would cost of the order of $12 billion.
Figure 5: Pavo Oilfield structure map on the top of the Caley Formation
The next thing to do to secure Australia’s fuel security will be to develop the Pavo oilfield, which is located 100km off Port Hedland. This is a 109 million barrel oilfeld discovered in 2022. Before Pavo-1 was drilled, the prospected was judged to be a 100 million barrel target. Once it was discovered, it was proclaimed to be a 43 million barrel discovery because the well had drilled the northern culmination of the prospect and there is a big saddle between it and the southern culmination. The southern culmination is rated as a 66 million target for a combined 109 million barrels. There is a high probability that the 109 million barrel number is real because there is a paleo oil-water contact 41 metres below the current oil-water contact, meaning that both culminations were filled at the same time. The situation is explained in the following cross section which is the line A-A’ in Figure 1 above:
Figure 6: Pavo Oilfield cross section
The situation with Pavo is that the equity interests are Santos 80%, Carnarvon Energy 10% and OPIC (owned by the Taiwanese state oil company) 10%. The Pavo discovery was preceded by the Dorado discovery in 2018. This is a big field at 162 million barrels of oil (half of Australia’s annual consumption) with 748 BCF of gas. The gas meant that it was going to be an expensive development, with a capital cost of US$2.5 billion and initial production of 100,000 barrels per day of oil. With the discovery of Pavo, that was going to be processed through the Dorado facility from year three of production as decline left room for other fields to be tied in.
Santos dragged its feet. Then, instead of plucking a number like 100,000 barrels per day out of the air, the Dorado project was re-sized around the actual characteristics of the field. The answer came out at initial production rate of 60,000 barrels per day and a capital cost of US$1.7 billion. Which is fine but, because of the complications of the development, initial production is still five years away at best. And because of the lower production rate, initial production from Pavo as a feed-in to Dorado is another five years after that. So the Nation may not get the benefit from Pavo production until the late 2030’s at this rate. Australia needs the Pavo oilfield online tomorrow. Pavo is a national security issue now.
Pavo is a simple, uncomplicated development. It is in 88 metres of water and has a low gas to oil ratio. It has the same API gravity (a measure of oil density) as the Dorado field of 52˚ which means that they came from the same source kitchen. The reason why Pavo has a low gas to oil ratio is that the methane and ethane components were washed out by passing groundwater. This the cause of the paleo oil-water contact, which is an artefact of the maximum extent of the field before the gas-washing began.
One of the partners in Pavo, Carnarvon Energy, has bid Santos for its equity in the field. Carnarvon believes it can develop Pavo for a capital outlay of US$300 million with initial production of the order of 25,000 barrels per day. The proposed production rate is driven by reservoir support considerations. Pavo South-1 won’t be drilled prior to the Pavo jacket installation. Enough drill slots will be incorporated into the platform to optimally develop Pavo South, saving perhaps $60 million on an exploration well. Incorporating Pavo South into the development would like lift the production rate towards 60,000 barrels per day. Once Pavo has been developed, small discoveries in the region could be tied back to it and brought online quickly.
Carnarvon has structured its prospect inventory on the basis of clusters around the largest, most prospective prospects. If the large prospects come in as discoveries, all the prospects around it get rerated and become potential feed to its development. This is Carnarvon’s assessment of the prospectivity of the area around Pavo:
What the table means is that development of the Pavo oilfield is expect to unlock a further 108 million barrels (oil equivalent) in the average case.
For Western Australia, the proposal outlined above totalling $24.4 billion is the best possible near-term outcome. For the three million residents of the State, the per capita cost is only $8,815 (what they spend annually in Bali, on average) and well worth it for things that will operate with a positive cash flow. When the oil and gas fields run out, as they will, liquids production can switch to applying the Bergius liquefaction process to the lignites that exist in a belt from Salmon Gums, north of Ravensthorpe, wrapping around the Yilgarn Craton towards the South Australian border. When the lignites run out, as they will, the feedstock for the Bergius plant will switch to the eucalypts of the high rainfall forests of the southwest. Ideally this conversion from useless wood to precious liquids will be powered by breeder reactors.
Choices are more constrained on the east coast. There is no easy oil and gas left but there are plenty of coalfields from Cape York to the southern margin of the continent, and then around into South Australia. There is also plenty of oil shale, in Tertiary half grabens such as the Gladstone deposit and the Cretaceous Toolebuc Formation in a sheet covering a big chunk of north Queensland.
The solution for the east coast is installing Bergius coal liquefaction plants. There is plenty of coal that is too low grade for export, either due to ash content or water content, which would be ideal because it is next to worthless. There was a Japanese research Bergius plant in the Latrobe Valley that operated until 1991. Victorian brown coal has a high reactivity and thus a low residence time. This Japanese effort determined a price hurdle of US$40 per barrel for development in 1991 dollars (oil was US$24 per barrel at the time). That equates to US$95.20 in 2026 dollars which is less than the current Brent price of US$102 per barrel. To quote from the movie Aliens:
The readouts are all in the green.
There are no impediments to Australia becoming completely autarkic in liquids fuel production, petrochemical precursors and LPG, and ammonium sulphate for fertiliser. Well, no impediments apart from the current State and Federal Governments. But those can be overcome by the will of the People, once the People have suffered enough to get organised.
The current diesel price in one of the better suburbs of Perth is currently $2.92 per litre, which equates to $464 per barrel, which is US$325 per barrel. Besides getting out of the way, there is something positive the Federal Government should do. There is a $0.526 per litre levy on retail diesel and petrol, equating to US$58 per barrel.
Some people are expecting the oil price to fall after the current problems of the Middle East are resolved. We know that because the quote today for the oil price futures market for December 2026 is US$75.69 per barrel. The big, positive contribution the Federal Government could make is to apply the fuel levy towards price support for all oilfield and Bergius plant developers selling into the domestic market, with a price floor of, say, US$105 per barrel. That would cover developers down to US$47 per barrel and take most of the risk out of these projects. Funds raised from the fuel levy currently go into general revenue. If the oil price support mechanism was triggered, the funding for that could be taken out of the NDIS and nobody would actually be any worse off.
The contretemps in the Middle East is masking a big development in the world’s oil supply. US tight oil production has peaked and tipped over into a decline, which should be just as steep as the rise. At the county level, the first sign of what was to come was Howard County in Texas:
Figure 7: Howard County, Texas oil production versus gas/oil ratio
Production from Howard County peaked near 420,000 barrels per day July 2023. Little Howard County, with an area of 2,341 square kilometres, produced well in excess of Australia’s effort in that year. Then the reservoir pressure dropped below the bubble point and oil production followed. It is now down 60% in the two and a half years from that peak. The rest of the Permian Basin of Texas and New Mexico will mimic Howard County to some extent. For example, the following is for District 8 of Texas:
Figure 8: District 8, Texas oil production versus gas/oil ratio
Oil production from District 8 rose to 3.6 million barrels per day, equivalent to some large Middle East producers, in November 2023. Production went sideways for almost two years while the gas to oil ratio blew out, but then started dropping rapidly in late 2025. The tightening of the world oil market due to declining Permian Basin production is well in train. How fast will the decline be? The following graph is a pointer as to what to expect:
Figure 9: Five countries that provided production growth over the last 10 years
The red line is production from Argentina, Canada, Brazil and Guyana over the last 10 years. The green line includes those countries with the addition of the United States. Be aware that the two lines have different scales. US production growth added a consistent 600,000 barrels per day to world oil production. According to resource extraction theory, falling US production will now take 600,000 barrels per day from world production, each year for the next 10 years.
The future is coal liquefaction by the Bergius process. That involve a lot of stainless steel, because the Bergius reaction takes place at 300˚C, 250 atmospheres of pressure with hydrogen. Hydrogen causes embrittlement of carbon steel above 200˚C, so stainless steel must be used. How it works is shown in this graphic from Bergius’ Nobel Prize acceptance speech in 1931:
Figure 10: Bergius process flow diagram
Addition of 5 kg of hydrogen to 100 kg of coal turns it from a low value solid into precious liquids. The hydrogen is made by steam reforming of part of the gas stream. Oil has a specific gravity close to 0.8 so 100 kg of coal converts to 81 kg of oil, which has a volume of 100 litres. On that basis, one tonne of good quality coal will convert to 6.3 barrels of oil. Lignites, with a 40% water content, would produce 40% less.
How much stainless steel? A length of stainless steel pipe 50 metres long, 900 mm in diameter and with a wall thickness of 10 mm will allow a one hour residence time to produce 5,000 barrels per day. Learn to weld stainless steel. Everyone needs to do their part.
David Archibald is the author of The Anticancer Garden in Australia.