A Security Focused Global Petroleum Trading Model

Abstract

Without liquid petroleum, either jet fuel, diesel, or other products such as lubricants and fuel oil, the Defence force ceases to function. Furthermore, the national support base, the bed-rock of the Defence force stops as well. Petroleum products will continue to form an energy source of choice for Defence because of superior energy density for decades to come. While Australia is seen as a regional power, its energy resilience is in a state of change and is generally seen as declining. Currently the Government sees market forces as providing petroleum supply security, given the nation stores 50–55 days of stocks which is below the mandatory 90 days required by the International Energy Agency. With this context, the Defence Science and Technology (DST) Group has developed a security-based global petroleum simulation, called SPECULA, in order to model the effects of regional and global changes in oil production, refining, shipping or distribution of petroleum products during conflict or significant environmental events. SPECULA is a simulation model, where petroleum is transported globally, based on regional variations in price. Price here is modelled as a “pseudo-price” which has a global component and a regional component. The global component is based on the difference between global supply and demand. The regional component is based on the regional inventory level. If the inventory level is low, the regional price rises. Trading, or the movement of petroleum from one region to another occurs because of inter-regional price differences, commonly known as arbitrage. The SPECULA model is spatial, as tankers move cargos along inter-regional seaborne routes. This paper briefly describes the security context of the petroleum supply chain in the Asian region. Then previous economic models of Australia’s petroleum supply security are reviewed and critiqued in terms of their ability to model conflict scenarios. The SPECULA model is then described along with model parameters and outputs. Finally, the future challenges of this model are addressed in the discussion/conclusion.