Nesa identified Issues: Strait of Hormuz



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NESA Identified Issues: Strait of Hormuz




An economic assessment of a disruption to shipping in the Strait of Hormuz on the Australian economy




Prepared for the Department of Resources, Energy and Tourism

25 July 2012




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Reliance and Disclaimer

The professional analysis and advice in this report has been prepared by ACIL Tasman for the exclusive use of the party or parties to whom it is addressed (the addressee) and for the purposes specified in it. This report is supplied in good faith and reflects the knowledge, expertise and experience of the consultants involved. The report must not be published, quoted or disseminated to any other party without ACIL Tasman’s prior written consent. ACIL Tasman accepts no responsibility whatsoever for any loss occasioned by any person acting or refraining from action as a result of reliance on the report, other than the addressee.

In conducting the analysis in this report ACIL Tasman has endeavoured to use what it considers is the best information available at the date of publication, including information supplied by the addressee. Unless stated otherwise, ACIL Tasman does not warrant the accuracy of any forecast or prediction in the report. Although ACIL Tasman exercises reasonable care when making forecasts or predictions, factors in the process, such as future market behaviour, are inherently uncertain and cannot be forecast or predicted reliably.

ACIL Tasman shall not be liable in respect of any claim arising out of the failure of a client investment to perform to the advantage of the client or to the advantage of the client to the degree suggested or assumed in any advice or forecast given by ACIL Tasman.


ACIL Tasman Pty Ltd

ABN 68 102 652 148


Internet www.aciltasman.com.au


Melbourne (Head Office)

Level 4, 114 William Street

Melbourne VIC 3000

Telephone (+61 3) 9604 4400


Facsimile (+61 3) 9604 4455

Email melbourne@aciltasman.com.au



Brisbane

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Brisbane QLD 4000
GPO Box 32
Brisbane QLD 4001

Telephone (+61 7) 3009 8700


Facsimile (+61 7) 3009 8799

Email brisbane@aciltasman.com.au



Canberra

Level 2, 33 Ainslie Place


Canberra City ACT 2600

GPO Box 1322


Canberra ACT 2601

Telephone (+61 2) 6103 8200


Facsimile (+61 2) 6103 8233

Email canberra@aciltasman.com.au



Perth

Centa Building C2, 118 Railway Street


West Perth WA 6005

Telephone (+61 8) 9449 9600


Facsimile (+61 8) 9322 3955

Email perth@aciltasman.com.au




Sydney

Level 20, Tower 2 Darling Park


201 Sussex Street
Sydney NSW 2000
GPO Box 4670
Sydney NSW 2001

Telephone (+61 2) 9389 7842


Facsimile (+61 2) 8080 8142

Email sydney@aciltasman.com.au







For information on this report

Please contact:

Alan Smart
Telephone (02) 9006 1164
Mobile 0404 822 312
Email a.smart@aciltasman.com.au


Contributing team members








Ken Willett




Yuan Chou




Guy Jakeman






Contents


Executive summary 5

1Introduction 13

2Methodology and approach 16

2.1Overall approach 16

2.2Estimation of elasticities 16

2.3Estimation of price impacts 18

2.4Economic modelling 18

3Significance of Middle East production 22

3.1The Strait of Hormuz 22

3.2 Production and exports 23

3.3Australia’s dependence on Middle East petroleum 24

3.4Alternative routes to the Strait of Hormuz 27

3.5Conditions leading up to closure 29

3.6Conditions during closure 31

3.7Policy responses 34

3.7.1International cooperation 34

3.7.2Liquid Fuels Emergency Act 1984 35

3.8Impact of different oil refinery scenarios 36

3.9Overall impact and aftermath 38

4The shock sequence 39

4.1The shock 40

4.2Elasticities 41

4.3The shock effects – elasticities and prices 42

4.3.1Weeks 1 to 4 43

4.3.2Week 5 44

4.3.3Week 6 46

4.3.4Week 7 47

4.3.5Week 8 and beyond 47

4.4Summary of effects 48

4.5Other possible scenarios 50

4.5.1Other analysts views 50

5Economic impacts 53

5.1Measures of macroeconomic impacts 53

5.2Results 54

5.2.1Impacts for Australia 55

5.2.2Impacts on other countries 58

5.2.3Liquid fuel consumption 58

5.3Comparison with Singapore product supply shock 59

5.4Implications of IEA collective action 61

5.5Implications of departure from the assumed scenario 64

6Key findings and conclusions 66

ATerms of reference 70

BMethodology 75

CAnalysis of Oil Shocks 81

BBibliography 116



List of boxes

List of figures

List of tables

Executive summary

ACIL Tasman was commissioned by the Department of Resources, Energy and Tourism to undertake an analysis of the economic impacts of a temporary closure of the Strait of Hormuz using our computable general equilibrium (CGE) model, Tasman Global.



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