EXplanatory Statement
Issued by the authority of the Minister for Climate Change and Energy
Fuel Security Act 2021
Fuel Security (Temporary Reduction –Securing Regional Supply) Instrument 2026
Legislative Authority
Subsection 16A(1) of the Fuel Security Act 2021 (Act) provides that the Minister may, by legislative instrument, reduce the quantity of stocks of a minimum stockholding obligation (MSO) product that an entity must hold on specified obligation days.
Subsection 16A(2) of the Act provides that the Minister may do so only if the Minister is satisfied that the reduction is necessary:
- to meet Australia’s obligations under the International Energy Agreement; or
- to prevent or alleviate a disruption or likely disruption to supply of the product.
Subsection 16A(3) of the Act provides that the reduction must not be greater, or apply to more obligation days, than is reasonably necessary:
- to meet those obligations; or
- to prevent or alleviate the disruption or likely disruption.
Purpose
The purpose of the Fuel Security (Temporary Reduction –Securing Regional Supply) Instrument 2026 (the Instrument) is to temporarily reduce the quantity of stocks of an MSO product that an entity must hold on obligation days by up to 20 per cent until 30 June 2026. This will allow the release of up to 762 million litres of petrol (known as gasoline under the Act) and diesel from Australia’s domestic reserves, where these can be targeted towards localised market disruption. That is constituted by up to 213 million litres of gasoline and up to 548 million litres of diesel.
The reduction will apply to entities subject to the MSO under section 7 of the Act for diesel and gasoline (not kerosene). The entities must be taking reasonable steps to ensure regional supply of the MSO product is prioritised and submit a plan for how they will do this. The entities should be taking steps to allocate reasonable additional supply to bulk customers, such as independent regional distributors, and providing volumes needed to help meet usual demand. However, they are not to be expected to supply uncontracted distributors or customers seeking to profiteer from global price spikes, panic purchasing or stockpiling with above normal quantities of fuel.
The reduction will apply from when the Secretary gives written notice that the minimum quantity in megalitres has been reduced until the end of the day on 30 June 2026, provided the entity is taking reasonable steps to carry out the plan.
The Instrument reduces the requirement for industry to hold diesel and gasoline stocks
to ease pressure on regional sectors that rely on fuel, such as agriculture, forestry, maritime, regional industry, and heavy transport uses. Temporarily reducing the MSO provides flexibility for importers and refiners to meet their reduction obligation, while continuing to maintain a baseline level of fuel stocks held in Australia on a weekly basis.
The Minister for Climate Change and Energy (the Minister) was satisfied that the reduction is necessary to alleviate the disruption to supply of fuel products in the Australian market due to global oil trade constraints arising from the geopolitical conflict in the Middle East. Temporarily reducing the requirement for industry to hold diesel and gasoline can help ease pressure on domestic fuel supply by making more fuel available to the market. The MSO requirements are lowered during the period of the instrument. However, the MSO will still maintain a baseline level of stocks held in Australia on a weekly basis. The reduction also forms part of and assists in Australia’s contribution to the International Energy Agency’s (IEA’s) voluntary collective action.
The Minister was satisfied that a temporary reduction was reasonably necessary to prevent or alleviate a disruption or likely disruption to supply of the product. The temporary reduction is intended to mitigate the disruption to supply, caused by an unprecedented demand stemming from domestic reactions to global events. The Minister was satisfied that a reduction until at least 30 June 2026 is necessary to alleviate the disruption and should allow time for industry to build stocks back up subject to the easing of pressure. The Government will continue to review the market and global circumstances to determine whether this needs to be extended.
To ensure supply flows through to regional areas, an entity’s obligation is only reduced if they provide a written plan to the Secretary that explains how they are taking steps to work with the Commonwealth, States and Territories to prioritise supply to regional customers experiencing supply shortages and supplying additional product to independent regional distributors. During the reduction period, the entity must take all reasonable steps to ensure regional supply is prioritised. The Department of Climate Change, Energy, the Environment and Water (the department) will issue a revised designated quantity to the applicable entity.
The Minister informed all State and Territory Energy Ministers of the proposed temporary reduction of the MSO in writing on 13 March 2026.
Background
The MSO establishes a national level obligation for the fuel industry (importers and refiners) to hold a minimum quantity of key transport fuels (gasoline, diesel and kerosene). The temporary reduction power is a targeted mechanism that provides an early and targeted response mechanism to help the Commonwealth Government prevent or respond to a disruption to national or global supply of liquid fuel.
Regional areas in Australia have been disproportionately affected due to unprecedented demand stemming from domestic reactions to global events, combined with increased seasonal demand. As a result, in some areas agriculture, maritime and heavy transport users have been unable to access the fuel they require.
On 11 March 2026, the IEA requested a voluntary collective action of 400 million barrels of emergency oil stocks. This is the largest ever release since the inception of the IEA in 1974.
Impact and Effect
Reducing the quantity of stock required to be held under the MSO for diesel by 20% and for gasoline by 20% means that entities subject to the MSO for those fuels are required to stock a lesser amount on an obligation day (currently each Tuesday) during the temporary reduction period. Reducing the MSO requirement for industry to hold gasoline and diesel stocks eases pressure on fuel supply by making more fuel available to regional communities and end users.
MSO entities that receive a temporary reduction under section 16A of the Act are still required to report on a weekly basis, albeit with a reduced MSO requirement. Overall, temporarily reducing the MSO for entities will reduce regulatory burden. It will enable entities to hold and meet MSO requirements with greater flexibility.
Subsection 16A(4) clarifies that, where the Secretary has temporarily reduced stocks under section 18 and the Minister has reduced the obligation under section 16A, the decision which would require the greatest reduction will prevail. For example:
(1) An entity has been granted a temporary reduction of 20 megalitres (ML) by the Secretary under section 18 of the Act.
(2) A temporary reduction by the Minister under s16A grants the entity a reduction of 70 ML.
In this example, the larger reduction (2) would apply. This situation may apply to 3 entities who have temporary reductions approved by the Secretary for diesel and/or gasoline during this period.
Consultation
The Minister informed all State and Territory Energy Ministers of the proposed temporary reduction of the MSO in writing on 13 March 2026 and publicly announced that the MSO would be reduced.
The department has been consulting importers and refiners subject to the MSO about the broader impacts of a disruption to supply of fuel products to regional areas. Several fuel suppliers requested a temporary reduction or suspension of the MSO to support them to meet regional requirements. MSO entities are supportive of the temporary reduction which will provide further flexibility to manage their supply chains and account for the increased demand for diesel and gasoline during the period of the instrument.
All MSO entities impacted by the MSO temporary reduction of 20% to diesel and 20% to gasoline were informed of the Government’s intention to undertake a temporary reduction and the text of the proposed legislative instrument.
Details/ Operation
Details of the Instrument are set out in Attachment A.
Other
The Instrument is compatible with the human rights and freedoms recognised or declared under section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011. A full statement of compatibility is set out in Attachment B.
The Instrument is a legislative instrument for the purposes of the Legislation Act 2003.
Authority: section 16A of the Act.
Attachment A
Details of the Fuel Security (Temporary Reduction – Securing Regional Supply) Instrument 2026
Section 1 – Name
This section provides that the name of the instrument is the Fuel Security (Temporary Reduction – Securing Regional Supply) Instrument 2026.
Section 2 – Commencement
This section provides for the instrument to commence on the day after it is registered on the Federal Register of Legislation.
Section 3 – Authority
This section provides that the instrument is made under subsection 16A(1) of the Fuel Security Act 2021 (Act).
Section 4 – Definitions
This section provides for definitions of terms used in the instrument.
Section 5 – Minimum stocks of diesel and gasoline to be reduced
The purpose of this section is to provide for the 20% reduction, but limit the entities that the reduction applies to only those who meet a number of criteria to ensure that regional supply is prioritised.
Subsection 5(1) provides that section 5 applies to an entity if:
- the entity is subject to a minimum stockholding obligation in relation to an MSO product
- the MSO product is diesel or gasoline (noting that kerosene is not covered)
- the entity has given the Secretary a written plan in accordance with section 6 (explained below).
Subsection 5(2) provides that the quantity of the MSO product that the entity must hold (the minimum quantity) on an obligation day specified in subsection 5(3) is reduced by 20% if:
- the Secretary has given written notice to the entity stating the minimum quantity in megalitres as reduced under this subsection; and
- the entity is taking all reasonable steps to carry out the plan.
The purpose of subsection (2) is to ensure that the entity knows their revised obligation (with the Department satisfied that they meet the criteria in this instrument) and they are taking reasonable actions to implement their commitments, recognising the relevant circumstances and prevailing supply conditions over time.
Subsection 5(3) specifies, for the purposes of subsection 5(2), each obligation day that occurs in the period:
- starting on the day the plan is given to the Secretary under section 6, and
- ending at the end of 30 June 2026.
Therefore, if a plan was received on 17 March 2026, it could apply to the 17 March obligation day and each subsequent obligation day until and including the Tuesday 30 June 2026 obligation day.
Section 6 – Written plan on regional supplies etc
The purpose of this section is to outline the key expectations for the plans, which are intended to be substantive, reflecting the need for immediate action. They are intended to outline reasonable operational changes to achieve the prescribed outcomes, taking into account the entity’s particular business operations and prevailing supply conditions. The expectation is that these can be put together quickly without unnecessary regulatory burden or delay.
The section provides that for the purposes of paragraph 5(1)(c), the plan must explain how the entity is to, throughout the reduction period:
- work with the Commonwealth, States and Territories to prioritise and facilitate supplying the MSO product to regional, agricultural or maritime consumers who are or are likely to face shortages of the MSO product during the reduction period; and
- supply the MSO product to distributing entities that:
- primarily supply the MSO product to regional areas; and
- have or are likely to have a shortage of the MSO product during the reduction period
- if the entity has been regularly supplying the MSO product to wholesale spot markets – take reasonable steps to allocate the supplies of the MSO product to those markets.
The plan requirements focus on the key needs to get fuel into impacted communities quickly, with a particular role for wholesale spot markets that have been disrupted by the spike in demand.
A note to the section provides that the entity may need to give other information to the Secretary under section 36 of the Act. This is a reference to the requirement to provide MSO compliance plans.
Section 7 – Repeal
This instrument is repealed at the end of 30 June 2026.
ATTACHMENT B
Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Fuel Security (Temporary Reduction –Securing Regional Supply) Instrument 2026
This Legislative Instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview of the Legislative Instrument
The Fuel Security (Temporary Reduction –Securing Regional Supply) Instrument 2026 (Legislative Instrument) temporarily reduces the minimum stockholding obligations (MSO) for gasoline and diesel that an entity must hold by 20% on each obligation day until 30 June 2026. To apply, the entity must have and be carrying out a plan to work with Commonwealth, States and Territories to prioritise and facilitate supplying the MSO product to regional, agricultural or maritime consumers who are or are likely to face shortages of the MSO product during the reduction period.
Human rights implications
The Legislative Instrument engages the right to an adequate standard of living and to continuous improvement of living conditions – Article 11 of the International Covenant on Economic, Social and Cultural Rights (ICESCR).
While the instrument primarily regulates entities rather than individuals, it nevertheless engages positively with the right to an adequate standard of living and to continuous improvement of living conditions. This is achieved by implementing a temporary reduction to the MSO for diesel and gasoline to alleviate the disruption to supply of these MSO products in the Australian market due to global oil trade constraints arising from the geopolitical conflict in the Middle East. Temporarily reducing the requirement for industry to hold diesel and gasoline, where they are carrying out reasonable steps to ensure regional supply is prioritised, is expected to ease pressure on domestic fuel supply by making more fuel available to the market.
The Legislative instrument is expected to improve the availability and accessibility of the energy resources that are essential to the realisation of the right to an adequate standard of living. They will also help to fulfil Australia’s obligation under Article 2.1 of the ICESCR to take reasonable measures within its available resources to progressively secure broader enjoyment of this right.
Conclusion
This Legislative Instrument is compatible with human rights as promotes the protection of human rights.
The Hon. Chris Bowen MP
Minister for Climate Change and Energy