Fuel Security (Temporary Reduction—Securing Regional Supply) Instrument (No. 2) 2026

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 (No. 2) 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:

1.    to meet Australia’s obligations under the International Energy Agreement; or
2.    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:

1.    to meet those obligations; or
2.    to prevent or alleviate the disruption or likely disruption.

Purpose

The purpose of the Fuel Security (Temporary Reduction—Securing Regional Supply) Instrument (No. 2) 2026 (the Instrument) is to temporarily reduce by 20% the quantities of diesel and gasoline (petrol) that an entity is required to hold from 1 July until 30 September 2026. This allows additional volumes of diesel and gasoline to be released into the market to support regional areas facing shortfalls. The Instrument creates an additional period of temporary reduction following the period of reduction created by the Fuel Security (Temporary Reduction—Securing Regional Supply) Instrument 2026 (the First Instrument). The First Instrument will be repealed at the end of 30 June 2026.

The temporary reduction will apply to entities subject to the MSO under section 7 of the Act for diesel and gasoline only (not kerosene). For the reduction to apply, entities must submit written plans which set out how they will supply the relevant MSO product to regional, agricultural and maritime customers that are facing or likely to face shortages. This ensures that fuel continues to flow where it is needed most. Additionally, entities must also explain in their plans how they will respond to any unusual surges in demand to assist in preventing further disruptions and commit to notifying the Secretary of any surges as soon as practicable. This is an additional requirement from the First Instrument.  

The reduction is only applied to an entity’s MSO once the Secretary gives written notice to the entity stating the minimum quantity in megalitres as reduced and the entity continues to take all reasonable steps to carry out the plan throughout the reduction period. This ensures they continue to deliver on both their commitments to regional supply from the First Instrument and the new commitments to prevent disruptions from any unusual surges in demand.

The Minister for Climate Change and Energy (the Minister) was satisfied that the reduction is necessary to alleviate the continued disruption to supply of diesel and gasoline in the Australian market due to ongoing conflict in the Middle East. Global markets remain volatile and highly uncertain. Disruptions and impacts on the fuel market are expected to continue beyond 30 June 2026, even if the Strait of Hormuz reopens. Sourcing of fuel remains more challenging for industry than in typical circumstances. The temporary reduction eases pressure on domestic fuel supply by allowing industry to supply more diesel and gasoline available to the market than they would otherwise if they had a higher minimum stockholding obligation. The reduction will also provide certainty and flexibility for industry to meet demand localised spikes if they arise during this period.

The Minister was satisfied that the 20% reduction to diesel and gasoline from 1 July until 30 September 2026 is reasonably necessary to continue to alleviate the disruption. The reduction accounts for the ongoing uncertainty in the global market and provides a buffer should conditions deteriorate further.  

Temporarily reducing the MSO will still require industry to hold a baseline level of stocks in Australia on a weekly basis (80% of their usual quantity) that will help safeguard Australia’s fuel in case of future supply constraints.

The Minister informed all State and Territory Energy Ministers of the proposed temporary reduction of the MSO in writing on 28 May 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 provides an early and targeted response mechanism to help the Commonwealth Government prevent or respond to a national or global fuel supply disruption.

In early March 2026, hostilities broke out in the Middle East and the Strait of Hormuz was directly impacted. Fears of an imminent fuel crisis triggered unprecedented domestic demand, causing stockouts at some retailers across the country. Regional areas were disproportionately affected. In response, the First Instrument was made that temporarily reduced the MSO for diesel and gasoline by 20% for each product. The initial reduction was targeted to support regional areas facing demand driven shortages to access more fuel and also served as Australia’s contribution to the International Energy Agency’s Collective Action. The First Instrument will be repealed at the end of 30 June 2026.

Ongoing events in the Middle East continue to disrupt global fuel markets and supply chains. The Strait of Hormuz remains effectively closed, with shipping volumes far below pre-conflict levels. If the Strait were to reopen, market stabilisation is expected to take several months due to damage and disruption to upstream facilities and lags associated with shipping through the Strait.

Impact and Effect

The Instrument will reduce the quantity of stock required to be held under the MSO by 20% for both diesel and gasoline. Kerosene is not part of this temporary reduction. This means that entities subject to the MSO for those fuels are required to hold a lesser amount on each obligation day (currently each Tuesday) during the temporary reduction period if the Instrument applies to them. This is the same reduction percentage that was applied under the First Instrument.

The reduction only applies to eligible entities if they submit a written plan detailing how they will ensure supply to regional areas and respond to any surges in demand. For entities that previously submitted a written plan under the First Instrument, they must also explain the effectiveness of the first plan. The reduction starts on the day the Secretary gives written notice to the entity of their reduced volumes and will end on 30 September 2026.

Entities would still be required to hold reduced stock levels and are expected to report on a weekly basis. If an entity has a reduction applied to their MSO under the First Instrument, the reduction available under this Instrument will operate continuously if that entity submits a new plan that meets the requirements of the Instrument and receives written notice from the Secretary before the first obligation day after 1 July 2026.

Reducing the MSO requirement for industry eases pressure on fuel supply by making more fuel available to regional areas and provides flexibility should global fuel market conditions deteriorate.

Consultation

In accordance with subsection 16A(5) of the Act, the Minister informed all State and Territory Energy Ministers of the proposed temporary reduction of the MSO in writing on 28 May 2026.

The department consulted with MSO entities subject to the MSO for diesel and gasoline on a targeted exposure draft of the Instrument between 18 May and 20 May 2026. Entities are largely supportive of the temporary reduction instrument as it would provide further flexibility to manage supply chains in an uncertain global fuel market environment. One entity was supportive of MSO obligations returning to normal levels from 1 July and advocated for jet fuel to be considered for future temporary reductions. Other entities noted that MSO obligations should only return to normal levels once the conflict has been resolved and supply conditions stabilised. This feedback was considered in the development of this Instrument.

Additionally, most entities were supportive of the requirements of the instrument, including additional reporting to assist the Government’s planning and response to further fuel market disruptions.

Details/ Other

Details of the Instrument are set out in Attachment A.

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 No. 2 2026

Section 1 – Name

This section provides that the name of the instrument is the Fuel Security (Temporary Reduction—Securing Regional Supply) Instrument (No. 2) 2026.

Section 2 – Commencement

This section provides for the instrument to commence on 1 July 2026.
 

Section 3 – Authority

This section provides that the instrument is made under section 16A of the Fuel Security Act 2021 (Act).

Section 4 – 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 4(1) provides that section 4 applies to an entity if:

1.    the entity is subject to a minimum stockholding obligation in relation to an MSO product
2.    the MSO product is diesel or gasoline (noting that kerosene is not covered)
3.    the entity gives the Secretary a written plan in accordance with section 5 (explained below).

Subsection 4(2) provides that the amount of the reduction is 20% and that in order to benefit from the reduction, an entity must receive written notice from the Secretary stating the minimum quantity in megalitres as reduced and the entity must take all reasonable steps to carry out its written plan for the period of the reduction.

Subsection 4(3) provides that the period of the reduction commences on the day the Secretary gives the notice to the entity and ends at the end of 30 September 2026.

This means that an entity that has not submitted a written plan could not submit a plan in September and retrospectively obtain the benefit of the reduction for July and August.

Section 5 – Written plan on regional supplies etc

The purpose of this section is to set out the requirements for written plans pursuant to paragraph 4(1)(c). If an entity submitted a plan under the Fuel Security (Temporary Reduction—Securing Regional Supply) Instrument 2026 (the First Instrument), the plan under this instrument is intended to include revisions to the earlier submitted written plan, which include high-level commitments that take into account the entity’s particular business operations and prevailing supply conditions. The expectation is that these plans will include real commitments but can be put together quickly without unnecessary regulatory burden or delay.

The section provides that for the purposes of paragraph 4(1)(c), the plan must explain how the entity is to, throughout the reduction period:

1.    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
2.    respond to any unusual surges in demand for the MSO product to assist in preventing disruptions to supply of the MSO product; and,
3.    supply the MSO product to distributing entities that:

1.     primarily supply the MSO product to regional areas; and
2.   have or are likely to have a shortage of the MSO product during the reduction period; and

1.    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.

Paragraphs 5(1)(a), (c) and (d) are reproduced from the First Instrument. Paragraph (b) is a new requirement intended to address panic buying or other demand spikes attributable to the ongoing events in the Middle East that are beyond historical supply patterns.

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.

Subsection 5(2) provides that the plan must state that the entity is to give the Secretary written notice about the surges described in paragraph (1)(b) as soon as practicable after the entity becomes aware of the surges. This is a new requirement to help the Government more quickly respond to supply chain issues.

The plan requirements focus on the key needs to direct fuel to vulnerable areas and industries that are critical to Australia’s economy, with a particular role for wholesale spot markets that have been disrupted by the spike in demand. Wholesale spot markets are typically relied upon by small independent distributors.

Subsection 5(3) addresses entities that submitted a written plan under the First Instrument. All entities are required to submit a written plan under this Instrument, regardless of whether they also submitted a plan under the First Instrument. However, entities that submitted a plan under the First Instrument (the first plan) must also comply with the following requirements:

1.    these entities must explain why their first plan was or was not effective.
2.    if the first plan was not effective, the entity must explain how the first plan could be improved for the upcoming reduction period.
3.    if the first plan is not materially different from the plan submitted under paragraph 4(1)(c) of this Instrument, the entity must explain why this is the case; and,
4.    entities must provide evidence supporting the matters mentioned in the above three subsections.

The purpose of subsection 5(3) is to ensure that plans submitted under the Instrument are thoughtfully considered and adapted to the current fuel market circumstances. It is not sufficient for an entity to merely resubmit its first plan, or resubmit it with only minor amendments to address the new requirement relating to demand spikes in paragraph 5(1)(b).

Submitting a plan substantially similar to the first plan may not meet the requirements in subsection 5(1) because the new plan must explain the matters set out in that subsection for the reduction period ending on 30 September 2026. It is likely that the situation on which the first plan was based has developed since the first plan was submitted, making the first plan outdated.

This ensures that written plans will be appropriately adapted to the current circumstances and provides a fairly balanced regulatory burden between entities that submitted a written plan under the First Instrument and those that did not.

Subsection 5(4) provides definitions for section 5.

Section 6 – Repeals

This section provides that the instrument is repealed at the end of 30 September 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 (No. 2) 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 (No. 2) 2026 (Legislative Instrument) temporarily reduces the minimum stockholding obligations (MSO) for diesel and gasoline that an entity must hold by 20% on each obligation day between 1 July 2026 and 30 September 2026. To be eligible, the entity must have submitted 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, among other requirements listed in the Legislative Instrument.

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 Legislative 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