Senate Foreign Affairs, Defence and Trade Legislation Committee, , 4:42:08 to 5:09:32
Analysts from CREA and the Australian Institute of Petroleum explain the technical challenges of tracking refined fuel products back to Russian crude feedstocks.
Topics: Trade policy, Electricity grid
Speakers: Malcolm Roberts, Vaibhav Raghunandan, Raff Ciccone, Hon Sarah Henderson, Unknown Speaker, Anton Moiseienko, Senator Raff Ciccone
The committee is now in session and I am pleased to welcome representatives from the center for research on energy and clean air and the Australian Institute of Petroleum. I understand that information on parliamentary privilege and the protection of witnesses giving evidence to Senate committees has been provided to you. Uh for the Hansard record, would you please each state your full name and the capacity in which you appear today? Starting for with the center for research on energy and clean
>> Good afternoon. I'm vehunan. I'm an analyst at the center for research and energy and clean air abbreviated as ka.
>> Uh thank you very much and and I you have just to note you have asked us to call you by your first name vib. So thank you so much Vibav for your appearance here today. I I don't you're in Europe I understand.
>> Yes we're based in Europe.
>> I hope it's not too early depending on where you are. So, thank >> Whereabouts are you and and what time is
>> Um, I'm based in Amsterdam. It's a bit of an ungodly hour, but I'm really glad
>> Well, thank you so much for your attendance. We're we're very very grateful. And I'd also like to welcome the Australian Institute of Petroleum. If you could provide your names and the capacity in which you appear.
>> Oh, thank you, Chair. I'm Malcolm Roberts and I'm the CEO of AIP.
>> Thanks Mr. Roberts.
>> Thank you chair. I'm Peter Gil and I'm the deputy CEO.
>> Uh thank you Mr. Gill Vib. Do you have an opening statement for uh the committee?
>> Yes. Uh thank you first of all for inviting us to make a submission for this inquiry and giving us an opportunity to present our findings. Korea is an independent research organization that provides data analysis, research, investigations, and policy insights on how fossil fuel revenues enable Russia's full-scale invasion of Ukraine. We believe global reliance on fossil fuels perpetuates conflict, energy insecurity, as well as air pollution and climate change. Our submission focused on the committee's enquiry into curtailing the importation into Australia of fuels derived from Russian crude. Korea has been advocating for closing this loophole for over three years now. This is coincidentally actually a good moment to discuss sanctions on this trade. In 3 days time, the EU's ban would have been in place for a complete month. We can already see some signs of success. One indicator of this success has been the decline of Russian crude sales globally. Russian crude exports have dropped by 9% month-on-month in January and are on track to drop further by an estimated 8% in February. The volume of crude aboard vessels has also climbed to a record high and these vessels have also slowed speeds in transit. Both signs of buyer hesitation. At the same time, there's been no major disruption in supplies to the EU. EU imports since the sanctions kicked in have held the same volumes month. Imports from India and Turkey identified by the guidance as high-risisk countries have dropped by 56% and 25% respectively. But these lost volumes have been absorbed by Saudi Arabia and the US. Members of the committee, it's necessary to iterate that sanctions do not work in isolation. We've seen them fail when not imposed by allies equally or where enforced weekly. A lack of coordination between Ukraine's allies has helped Russia find circumvention techniques that requires further sanctions adaptation. We therefore encourage all of Ukraine's allies to plug this loophole together and the UK and the EU have done this in tandem in some ways. Australia is the single biggest buy of oil products refined from Russian crude. They have purchased a fourth of all the volume from refineries Korea has identified as using Russian crude in 2025. Some refineries that do not consider the EU an important market do consider Australia to be one. A lack of Australian sanctions therefore mean they have continued to and will continue to buy Russian crude and sell the refined products onward. Australia therefore holds a unique position of being able to further constrict Russian revenues from crude by banning this trade. Buyers of Russian seaborn crude remain concentrated in a few regions of the world. In 2025, there were only 13 countries buying the commodity. To attract new buyers, Russia will need to provide deeper discounts, ship larger volumes to recover losses and avoid production cuts while risking leaving all these volumes out at sea. At the very least, it'll severely reduce the amount of tax the Kremlin generates from them and prevent their funding of the full-scale invasion of Ukraine. I'm happy to take any questions. Thank you.
>> Uh thank you so much. And to the Australian Institute of Petroleum, do you have an opening statement?
>> Uh yes, we do, Chair. Thank you. Uh and it goes without saying that we welcome the opportunity to appear before the committee today. Uh in the interest of saving the committee's time, we have tabled our opening statement with the secretariat and so we'll just make some grief brief comments now.
>> Thank you.
>> Uh the Australian Institute of Petroleum represents the four leading fuel suppliers in Australia. Aole, BP Australia, Mobile Oil Australia and Beaver Energy. and our members supply about 85% of the fuels used in Australia and operate Australia's two refineries. Members also own and operate about one in three service stations in Australia. The committee has been asked to consider if Australia's sanctions against Russia uh should be extended to ban fuels refined in third countries from Russian crude oil. And this is obviously a decision for the federal government. Our submission of the inquiry canvas the practical issues which would have to be addressed if this decision was made. And we identify these issues uh to help policy makers understand the nature of the problem and to help ensure that any new sanctions will be effective with minimal risks to fuel security and prices. And of course Austral members will comply with Australia's current sanctions and will comply with any future sanctions. The three main points AP would like to make today are first Australia relies on imported fuel. Any changes to our sanctions uh must be designed to avoid disrupting supply or inflating prices. Uh second to be effective sanctions must be clear, consistent and comprehensive. Australian sanctions should align with our major trade uh sorry our major trading partners. Um a point that's already just been made. And third, the EU's latest sanctions are intended to target imports refined from Russian crude oil in third countries. At this stage, those sanctions are a work in progress and they may need tweaks to fit Australia's circumstances. Now, identifying and banning the import into Australia fuels refined overseas from Russian crude oil will be challenging given the complex supply chains in our region and some possible risks to fuel security and prices. AIP believes that effective sanctions require appropriate regulation which can create consistent rules across the industry ensuring a level playing field. Give importers a trigger to reopen term contracts. Support industry advocacy for changes to improve the transparency and certification requirements for the regional trading platform for spot cargos and give the community confidence that we have sanctions that are working. the alternative of ad hoc company initiatives will not be effective given the limited market power individual companies have. So if the government decides to extend sanctions to imports from third countries, AIP members are here to assist. Thank you chair.
>> Uh thank you so much. I'll now go to questions from senators and give the call to Senator Ciccone.
>> Thanks chair and uh thanks to our witnesses and good morning fat. I know it's quite early where you are at the moment. Hope you got yourself a very strong cup of coffee. Um can I just start off with you? I just wanted to ask and get a better understanding about the research that that your um center does. How do you source the data that underpins uh your research?
>> Um yeah, thanks for your question. So there's various databases that uh under undertake ship tracking, cargo tracking and are able to identify exactly the cargo being carried by certain ships to the destinations as well as the origins. These databases are used by traders, commodity brokers, research organizations like ours as well as mainstream media. I want to be careful and not name specifically the database that we use because I don't want to come across as uh advertising a certain product. I'm happy to take this as no account and provide written information on all the databases available. Uh I will say that our the database that we use uh we've tracked the error rate margin that it has while comparing it to Russian Russian ministry's official figures and the error range is usually between 4%. Uh yeah and they're they're very good and easily identifiable and very easily available.
So a lot of the data or all the data is open source or do you have other data
>> No, it's not all open source. Um at a certain level you have ship tracking u databases that are open source but they will not be able to give you accurate information on the cargo itself. uh they will not be able to give you accurate information on exactly the installation that has imported the cargo that the databases that can provide this information are paid for and they have a subscription of well subscription prices range for different organizations and depending on your needs of course.
>> Do you have access then to information from uh specific refineries or
>> Yes. So these databases use a variety of different sources to get their information on imports. They rely on bills of leading. They rely on market sources which involve traders as well as installations and customs authorities reporting this information. Um in addition they also rely on exporters being able to identify and give information about these cargos.
Thanks for that. So, as I understand it, based on some of the evidence that we've had today and from submissions uh to the committee, uh I I from my um um reading, there isn't any clear or uh international system that can track crude oil once it's been refined and then blended.
At a molecular level, obviously it is diff difficult to differentiate the refined product and be able to identify exactly where what kind of crude was used to make it. Let's say for example the commodity being diesel. It'll be really tough to say which pump or which liter of diesel has been refined exactly from Russian crude. But at this stage after four years of the invasion and having seen the way that Russian crude flows have become extremely concentrated, it's not about the molecular division of refined products. is more about identifying the trades and being able to clearly say that if a refinery is buying Russian crude and they are going to be using Russian crude in the refining process if over 50% of their feed stock is made is Russian crude at least 50% of the refined product will have Russian crude molecules in it.
>> Yeah. And I and I appreciate that argument. I mean that's um something that I think we've heard a bit. I'm just trying to understand the other end once it is refined and then blended. I I again my limit understanding is there is no way of tracking once it's been refined and then blended.
>> Yeah, there's no way of tracking refined fuels molecular origin but obviously there is ways and there are significant ways of tracking the crude origin itself at a molecular level.
>> Yeah. Okay.
>> Which has been done by different countries.
>> Yeah, I'm not trying to put you on the spot here. I was just trying to get a good understanding about the situation. in terms of the volumes then and revenues that then derive from I guess Russian oil. H how confident are we and I say we collectively then about the specific volumes that are coming from Russia? And I I'll put that to both you and to the other witnesses at the table.
>> I can take that first. Again, the databases we use have a 4% error margin uh when compared with the Russian ministries's export figures uh for the total year or even every month. So, we are very confident that the figures being reported by our databases as going to certain destinations and to certain installations in terms of volumes are
>> Dr. Roberts, did you have anything to
add? I I think um it's clear that it's very difficult to be precise in these cases because we're dealing with a very large global market where large volumes of fuel change hands multiple times every day that there is a transformation of the product. Um so the problems are genuine in tracking uh the product from wellhead to shipping or pipeline to refinery to an import terminal into eventual use in in a new market. So it's very difficult um as I understand Korea's looked at the data they have access to which is shipping data and so forth and they've pratted um the information that they have to come up with some estimates. We do not doubt that there is um Russian crude oil appearing in exports in our region. uh our submission has highlighted how difficult it is to be precise about that because of the numerous import channels into Australia and also just the web of supply chains across the Asia-Pacific and and to make a a point which I hope won't be seen as legalistic um the trade legis the trade rules we've all operated under for many many years um treat the refined product as the product of the country where the refining has occurred. So to some extent customs legislation etc um means that the ownership of the product changes hands as as it goes through the process of being extracted refined and obviously then used.
>> So in the case of oil that comes from or the refined >> blended oil comes from India then it's considered Indian
>> it it is an Indian product. If um there's a substantial transformation test which is established under international customs law, it's also the same test we use here for country of origin labeling claims under Australian competition law and refining counts as a substantial transformation. So the product regardless of the constituent crud uh is recognized as the product of the country where the refining has
Is it then the case that most of the um uh refined product that comes to Australia is blended?
>> There'll be
>> I'm assuming there is nothing that's pure from let's say Russia. You're not getting 100% crude oil to Russ from Russia that's then refined and then sent to Australia.
>> Well Senator I would say that virtually every refinery in the world is using a mix of crude oils from different sources. So if we looked at Jamanga uh which is the main focus of commentary uh you will see that they've used I think 200 different grades of crude oil over the life of that refinery that they import crude oil from Russia from the Middle East uh and probably from other sources as well. And and so this is part of the problem in that crude oil I is routinely uh stored, shipped, blended, processed u without physical separation of individual um sources.
>> And then can I just then ask is it then found um predominantly in petrol or are we talking diesel? Like what type of
fuel are we? We are we're talking the three main fuels obviously are jet fuel, diesel and petrol.
>> Okay. So all three.
>> Yes.
>> Um my last question before I hand back to the chair then I just want to ask the what research um and this can go to both both of you gentlemen. Um, have you done any potential impacts on fuel prices that could flow on from recommendations that you've both uh or that you have either provided to the um the committee today or we'll discuss with the
>> Uh well, I'm happy to go first if if that's >> Thanks. >> Thank you. Uh well the first point is that we uh import fuel from about 20 countries and and that's to diversify our fuel mix and to ensure we have a secure supply. It's also to take advantage of whatever opportunities might be there to obtain slightly cheaper or more readily available cargos. So we we have a very diverse supply into Australia. Uh it's very difficult to know what the impact would be until we know the reaction of overseas refiners to a change in Australia's sanctions. So the industry has been having discussions with our suppliers to try and identify if they're able and willing to um provide us with imports which haven't um had Russian crude in their supply chain. We've been having those conversations. Uh until we know how different refineries in other countries are going to respond to a change in our sanctions, we're not quite sure how that mix would change. But having said that, uh we've got at the moment a supply mix that's pretty much optimized to ensure our fuel security and to ensure that we can bring in the most competitively priced fuel. If there are significant changes and we have to change our sources of supply that will probably have effects on prices and the example I might give is if for example we began to take less product from let's say India and we had to go further a field to the Middle East or Africa to replace that loss supply uh you'll have additional shipping and other costs. So, I can't give you a um a firm estimate, but I would say that at the moment, there would probably be a price impact.
>> And it's also hard to eliminate Russian oil. I mean, in terms of what you mentioned to me earlier around the global oil markets and how it works, I think, as I understand it, the spot market, and I was hoping that you might elaborate just a little bit further on
market's essential for Australian importers because it gives us the flexibility to ensure we can meet demand spikes or any other short-term issues. Uh, but the spot market is far less transparent than direct trade between a refinery and an import terminal in Australia. uh and uh the platform in Singapore that we use um I should say the entire region uses uh marries up cargos between sellers and buyers but it doesn't give us any line of sight on the origin of those cargos
>> and does your association or your members um take any steps to ensure that the supply chains that you have any oversight or involvement with don't contain Russian oil.
>> We uh have had conversations with Reliance um going back some months now uh to test their willingness and capacity to provide us with product that has not been derived from Russian crude oil. They obviously have come under pressure from uh other buyers particularly the EU and we've seen effectively the sledgehammer of trade sanctions from the United States supplied as well. So I'm quite pleased to say that the IEA has reported that since mid December, Jimanga has ceased to take Russian crude oil. Um so that's progress. uh and uh you know we would hope that the industry can continue to have those negotiations but we but we see the need for converging advocacy by industry and governments to bring about a change because we shouldn't lose sight of the fact that most the product being imported from Russia into those overseas refineries that's probably ending up in the domestic market of those importing countries. So where where we hear the the phrase that Australia is the number one buyer, the number one buyer is most probably India and China because most of the product going into those refineries will find its way into their domestic market. So um they've got a reason to continue to bring in um crude oil. That's their decision. We're hoping to persuade our suppliers that because of community issues and possibly changing government policy in Australia, they should reassess um what they supply us.
And >> did you have anything to add? I guess my initial question around potential impacts on fuel prices, but anything else that Dr. Roberts has also
>> Yes, absolutely. Like I just took this opportunity to just do a quick bit of sifting through my database and I see that about 10% of Australia's about 10% of Australia's total imports of diesel in 2025 came from India. Um and this came at according to the Australian petroleum statistics database this came at a 4% discount compared to the biggest such supplier which is South Korea. Now my understanding is that none of this 4% discount is being translated for buyers at the pump because again just the way that you can't differentiate uh the origin of the crude in the refined product you can't differentiate the origin of the diesel at the pump itself. So the buyers are not getting that 4% discount. It's the companies that are making profits off it. So my assumption is that again we've seen this in the EU too where we've seen that they have a very low reliance on uh importing products from refineries using Russian crude and the cut offs have not impacted supply in a massive way again simply because the sanctions came in at the end of a month and we are only a part of the way into the other month the data on the prices itself hasn't come but I can take this into consideration and submit evidence once once the data is available. Uh I'll also just make a small point about uh yes I agree that Australia is is in technically the single biggest consumer of products refined from Russian crude. Uh I'll amend that statement to say it's the single biggest uh country sanctioning country that buys refined Russian crude. And in terms of uh imports being cut at Jamnagar itself, uh we have seen cut offs in Jamnagger supply of Russian crude. We've seen that happen partly in December and we've seen a complete cut off in January. But at the same time, we see a few shipments on route from Russia to Jamaga right now. But again, it's not one refinery that is the problem because there's going to be multiple other refineries that continue to rely on Russian crude and are facing Australia, are exporting to Australia. We know a refinery in Brunai for example which did not buy Russian crude for many months in 2024 suddenly started buying Russian crude. The entire dependency on Russian crude rose to as much as 60% uh last year and about 50% of their total diesel exports have been to Australia. We also know that there are refineries on the eastern coast of India that are facing Australia and not the EU for example that have started uh exporting to Australia and continue to rely on Russian crude. So the again to reiterate the problem is not one refinery, one installation. We're not focused on targeting any of that. We put the onus on sanctioning countries like Australia to clean up their supply chains and do due diligence there end.
And I appreciate that.
>> Chair chair, if I could respond just to the point around the alleged 4% discount that um um Korea has put forward. I haven't seen the analysis. I I presume they've looked at aggregate volume and value numbers for supply from Korea and India. That I think that's a fairly crude way of looking at it. Uh we would also make the point that uh if people if the decisions are being made to source Russian crude, we believe that's probably being made by the refiners uh to improve their margins and they're not in the business of improving their margins to pass on a discount to Australian customers. Uh Australia is a price taker in the regional market. We have so little of our own uh production and refining. We're taking the regional price. that price will vary sometimes uh reflecting the market conditions and we'll also end up with a with differences in shipping and other costs. So I don't accept that the industry has been taking a discounted product from India and pocketing the differences. I don't think we're being offered a discounted product from India. And I I would probably uh make the comment as the market here is very very competitive. We have great transparency around petrol prices at the pump. Uh consumers know what the prices are. They can check that in a moment. They know where to go. Uh so we don't we're not only just the regional price taker. We're also operating in a very competitive retail market where those margins will be competed away if they
>> All right,
questions there. Chair,
>> sorry. Sorry, Senator Ciccone. Had you finished or do you have further questions?
>> That happy to hand back to you.
>> Okay. Thanks very much, Senator Jaconei. Uh before I hand over to Senator Schub, did you just Sorry. Um Vibav, did you want to respond to the comment just made by Dr. Roberts there.
>> Um I appreciate like again our methodology is very transparent. All our research methodology is always listed publicly and uh if there are any errors in the way that we've done it, we appreciate feedback and I accept uh the point that maybe Australian buyers are not getting any discount when buying from India. But then that that's that's a great reason to not buy from refineries using Russian crude if you're not even availing of the discount.
>> All right. Thank you. I'll now hand over to Senator Shubach. You have the call.