Four lessons from the energy crisis of 1970s

I was in Canberra this week, in part to hear International Energy Agency head Fatih Birol warn that today’s oil price shock will rival the twin Middle East energy shocks of the 1970s.

The 1973 and 1979 shocks promoted using smaller and more fuel-efficient vehicles. And it prompted a wave of nuclear energy development in Japan, Europe and North America. Today’s oil price shock will have comparable repercussions, Birol predicts.

Here’s the four take-outs I picked up at a National Security College conference, where I was on a panel, and the annual Minerals Council of Australia Minerals Week Conference, where I moderated a session:

First, the take up of electric vehicles will increase, mostly because petrol-fuelled cars will be seen as more expensive to run, rather than for pure environmental concerns;

Second, governments will shore up sovereign fuel security. While Australia is a net energy exporter, we import 80% or more of our petrol, diesel and jet fuel. We are about to find out how well global supply chains will be crunched by the Iranian chokehold on the Strait of Hormuz.

Consumers are feeling the start of that pain now, with  accusations by One Nation leaderPauline Hanson of oil company ‘price gouging’ and calls for fuel rationing , Yet, as CIS director of energy  research Aidan Morrison pointed out on SkyNews’s Sharri this week prices need to rise to avoid panic buying and hoarding. “In a time of crisis prices have to rise; this is basically the market’s method of rationing,’’ he said

As geopolitics reshapes economics, though, subsidising self-sufficiency will come with an expensive insurance price tag. Too much sovereign protection could make us less, not more, resilient.

The new sovereign capability protectionism has quickly lapsed into this week’s federal and Queensland governments’ expensive political subsidies to keep open Rio Tinto’s electricity-hungry Boyne Island aluminium smelter.

At the least, we could remove artificial barriers to domestic liquid fuel supply, such as the effective political veto on drilling for oil in the Great Australian Bight;

Third, governments should promote Australia as a reliable gas supplier, helping both Asia and Europe wean off Russian and Middle East energy dependency. We should have done this after Vladimir Putin’s invasion of Ukraine in early 2022, rather than maintaining passive-aggressive restrictions on tapping more of Australia’s gas reserves.

Just over a decade ago, Labor championed Australia’s hopes to become the world’s biggest exporter of LNG. But that gave way to its now-muted vision of becoming a renewables-based ‘clean energy superpower’. There’s even talk of a new ‘war profits’ tax on gas producers that would pile more political risk onto further gas development that could shore up Australia’s security.

Fourth, Australia could join a second wave of nuclear power that IEA executive director Birol forecasts will follow today’s global oil shock. Australia opted out of the 1970s nuclear push because we had so much cheap coal to generate electricity, instead punting on a wave of coal  development in NSW and Queensland.

Already, state governments are being forced to keep coal-fired power stations open for longer to keep the lights on. Australia should end its pointless legal ban on nuclear power so the market can determine whether we join the wave of small modular nuclear reactors that Birol predicts will arrive in the early 2030s. That might help meet the increased power demands from the explosion of AI-fuelled data centres. And we should end the political ban on developing the world’s largest deposits of uranium to help supply the renewed global demand for nuclear energy. To promote our national security, we’re building nuclear-powered submarines, while also restricting our supply of the essential feedstock into this emissions-free source of baseload power.

No government planner predicted that the cautious lifting of Australia’s ban on selling iron ore abroad in 1960 would produce our biggest export industry. Our policies for transitioning to cleaner power and for dealing with geo-political shocks still pointlessly restrict letting the market work out our least-cost options.