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Australia’s Oil Budget Blow-Out

May 11, 2011
 

Today, the Australian Government handed down a budget which looks forward to a surplus in two years.

However, there remains a significant prospect for deficit expansion for oil.  Much has been made of Australia’s energy exports.  Heaps of coal. Heaps of Gas.  The only aspect of the budget addressing fuel use was reform of the Fringe Benefits Tax aspect of the tax code – a reform which removes perverse incentives to drive more.  Australia’s liquid fuel deficit is large, and getting larger. 

Australia will be increasingly exposed to geopolitical and price risk associated with international oil markets.

Source: Australian Energy Projections to 2029-30, ABARE March 2010

 

Oil production is declining, and will continue to decline.

The main consumption driver is transport.  Australia has one of the highest vehicle kilometres travelled per capita in the world.

Road transport accounts for three-quarters of transport fuel consumption, of which 61% is accounted for by passenger vehicles. 

Source: ABARES (Dept of Resources, Energy and Tourism): Energy in Australia 2011

 

While Australia enjoys a net energy trade surplus, the expanding oil deficit will be an important determinant of inflation which will continue to contribute to inflation, and eat into household budgets and consumer demand.  There is no end in sight to this deficit, and no current prospect for the situation other than deterioration.

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