Australia secures extra supply of diesel as supply chain shock hits
In Part Three of our explainer series on oil prices, Kids News examines the effect high prices and reduced supply are having on supply chains and what the Government is doing about it
READING LEVEL: ORANGE
A massive haul of fuel has been secured for Australia as tensions continue to flare in the Middle East.
While the US has extended its ceasefire with Iran, it has continued its military blockade* of the Strait of Hormuz*, preventing Iranian oil tankers from leaving the strait. While there have been positive steps in the form of a ceasefire*, continued tensions have meant the strait has effectively remained closed, preventing the shipment of oil, gas and fertiliser through the vital route. Let’s take a look at how Australia is continuing to be affected despite the ceasefire and why we need to keep securing more oil.
AUSTRALIA SECURES MORE DIESEL
The Prime Minister announced on Wednesday that an extra 200 million litres of diesel was on its way to Australian shores.
Two cargoes will be sent from South Korea, one will be sent from the Asian nation of Brunei and another from Malaysia, Anthony Albanese told reporters in Sydney.
Energy Minister Chris Bowen said the additional cargoes would provide “extra supply to give us an extra buffer*.”
The new shipments have been slated to arrive in Australia in the last week of May or the first week of June, Mr Bowen said.
“A total of just over 200 million litres going to Brisbane, to Geelong, to here in Sydney, and importantly, to Kwinana* in Perth,” he said.
WHY AUSTRALIA IS STRENGTHENING SUPPLY
Mr Albanese said there was a “great deal of volatility*” as a result of the conflict in the Middle East. A reduction in global oil supply has led to local shortages across the world, including in Australia. A reduction in supply, when coupled with high demand, means prices tend to go up – which is why petrol and diesel prices have been soaring at the pump.
But it’s not just motorists who have been affected. The price of fertiliser has also soared, affecting farmers already hit by skyrocketing fuel prices.
“We’ve been very clear about the consequences of this volatility. What we can do here in Australia is to do everything we can to secure supply,” Mr Albanese said.
SUPPLY CHAIN SHOCK
The Middle East conflict has started to filter through the supply chain*, affecting the price of basic goods, such as food.
Major milk company, Norco, has announced a price hike to its dairy products, as surging diesel, fertiliser and transportation costs continue to cripple farmers across the country.
Norco confirmed on Monday it would be hiking its prices by five cents per litre to tackle the rising costs.
The increase has been forecast to add about 30c per week to the average household grocery bill. The dairy business said it would deliver an additional $1m per month back to farmers.
Norco chief executive Michael Hampson said the cost increases for farmers were “unprecedented*”.
“Our farmers are paying double for diesel, triple for fertiliser and 40 per cent more for freight,” he said. “These pressures are simply unsustainable without meaningful support across the supply chain – and this price increase is a small but important step in helping to offset those measures.”
Farmers have warned the price of milk will soon become much more expensive, which will also increase the price of other dairy products such as cheese.
While Woolworths recently announced it would pay the 20 farmers directly linked to its Farmers Own brand 10 cents more a litre, Australian Dairy Farmers president and dairy farmer Ben Bennett warned the current support from the supermarkets didn’t go far enough to help the industry.
He said there should be a 20 per cent permanent rise in the price of milk to help farmers struggling with recent surging costs.
A 20 per cent rise would see the price of milk increase from $1.65 a litre to almost $2 per litre for the home brand product.
TRANSPORT COSTS
Australia’s transport and delivery services industries have also been hit hard by rising fuel costs. Truck drivers have seen their fuel costs skyrocket as diesel soared above $3 per litre.
However, a landmark ruling by the Fair Work Commission on Monday could help take the pressure off struggling truckies, with companies at the top of the transport supply chain, including supermarkets, mining companies and retailers, now forced to cover the fuel cost increases of owner drivers and transport businesses.
The new ruling was made after an application was launched by the Transport Workers Union and the Australian Road Transport Industrial Organisation. The new law will also apply to Uber, Uber Eats and Door Dash drivers and will require parties across road transport contractual chains* to update the rates they pay for road transport services every fortnight to reflect changes in fuel prices that have skyrocketed due to the Iran war.
It will be pinned to diesel prices as published by the Australian Institute of Petroleum and stay in place while diesel prices are above $2 per litre.
POLL
GLOSSARY
- blockade: when the military blocks a coast, port or road to prevent the entrance or exit of people and supplies in order to disrupt business and communication
- Strait of Hormuz: an important, narrow waterway between Iran and Oman through which 20 per cent of the world’s oil travels from the Middle East to other countries
- ceasefire: when warring sides in a conflict agree to stop fighting for a defined period of time
- buffer: an extra amount of fuel that will be useful to have sitting there if we get very low or run out
- Kwinana: a Perth city known for mining and manufacturing, particularly aluminium and steel making
- volatility: when a situation is likely to change very rapidly, making it unpredictable, difficult to plan for and risky
- supply chain: the whole network of people and processes involved in producing and distributing a product to the end user
- unprecedented: never seen or experienced before
- contractual chains: the agreements that are created when people are contracted to do jobs
EXTRA READING
Are we running out of petrol?
Why petrol prices are soaring
US and Iran ceasefire under threat
QUICK QUIZ
1. What is causing the continued oil supply disruption?
2. Where will Australia’s latest shipment of diesel come from?
3. What other commodities are in short supply because of the Middle East conflict?
4. Why are Australian farmers doing it tough at the moment?
5. Which new ruling will take some pressure off truckies facing higher fuel costs?
LISTEN TO THIS STORY
CLASSROOM ACTIVITIES
1. News: condensed
Identify the most important pieces of information in this article and write a condensed version of it using 50 words or less.
Draw a picture or diagram to support your condensed news story.
Time: allow 25 minutes to complete this activity
Curriculum Links: English, Science
2. Extension
Compare your condensed news story with a classmate. Did you both include the same information or are your stories quite different? Discuss your choices and then work together to create a final condensed version of the story that you both agree tells the important parts that a reader would need or want to know.
Time: allow 20 minutes to complete this activity
Curriculum Links: English
VCOP ACTIVITY
Down-level it
When you up-level a sentence, you do things to it to improve it: make it more interesting, or more complex.
But sometimes, when we read something it can be too complex and we don’t understand it very well. You ask someone to explain it to you, they do (in a simpler way) and you think, well why didn’t they just say that?
Go through the article and find a sentence or two that is complex, or hard to read.
Ask an adult what it means, or try and look some of the words up in the glossary.
Once you know what it means, see if you can rewrite it in a simpler way- down-level it.
Make sure you don’t change the meaning of the sentence in any way though.