In our previous article, Fuel Security: Recent changes to the minimum fuel stockholding obligation, we outlined the operation of the minimum stockholding obligation (MSO) under the Fuel Security Act 2021 (Cth) (Act) and the Fuel Security (Minimum Stockholding Obligation) Rules 2022 (Cth) (Rules), following the significant reforms that came into effect on 1 July 2024.

The Act and the Rules, enforced by the Department of Climate Change, Energy, the Environment and Water (Department), established the MSO for major importers and refiners of certain fuels.

What has happened since then?

However, since 5 December 2025, the Commonwealth has introduced a targeted legislative amendment to the Act through the insertion of section 16A, which provides a mechanism for the Minister to temporarily reduce MSO requirements in defined circumstances.

Importantly, that power has now been exercised.

On 16 March 2026, the Department made the Fuel Security (Temporary Reduction – Securing Regional Supply) Instrument 2026 (2026 Instrument), which commenced shortly thereafter and operates until 30 June 2026.

The introduction of section 16A, and its immediate use through the 2026 Instrument is in response to the current geopolitical developments, including conflict in the Middle East and disruption to global oil supply routes such as the Strait of Hormuz. These developments have placed pressure on Australia’s fuel supply chains and highlight the legal and operational significance of the MSO regime.

Under the International Energy Agency (IEA) framework, member countries are required to maintain emergency oil stocks equivalent to at least 90 days of net imports. By comparison, Australia’s stockholding levels are significantly lower. This creates a material gap of approximately 54-58 days below the IEA benchmark, depending on the product.

The threshold remains the same

At a structural level, the MSO regime continues to operate as previously described in our article. The key development is not a change to the underlying obligations, but the introduction of a mechanism that allows those obligations to be temporarily modified.

The trigger thresholds for importers and refiners remain unchanged under the Rules:

• Gasoline: 200 megalitres per calendar year
• Diesel: 250 megalitres per calendar year
• Kerosene: 250 megalitres per calendar year

The anti-avoidance provisions that allow the Department to reduce each of the thresholds to 10 megalitres remain in place. The Department has the power to reduce the threshold if it believes an entity has attempted to avoid the standard thresholds.

From a legal perspective, this means that the entry point into the MSO regime has not shifted, notwithstanding current global supply conditions.

The 2026 Instrument

Section 16A of the Act provides that the Minister may, by legislative instrument, reduce the quantity of stocks that MSO entities are required to hold, where satisfied that the reduction is necessary to meet Australia’s international energy obligations or prevent or alleviate a fuel supply disruption.

The 2026 Instrument is made expressly under section 16A and sets out a conditional reduction framework rather than a blanket reduction for all fuels.

Under the 2026 Instrument, the reduction will only apply if all the following are satisfied:

• An entity is subject to the MSO for a type of MSO product;
• The MSO product is diesel or gasoline (kerosene is not included); and
• The entity has submitted a compliant written plan to the Department.

Under section 6 of the 2026 Instrument, the written plan must do more than describe general supply intentions. It must set out, with a degree of specificity, how the entity will operationalise supply during the reduction period. This includes explaining how the entity will:

• coordinate with the Commonwealth, States and Territories to prioritise supply to regional, agricultural and maritime consumers who are facing, or are likely to face, fuel shortages;
• allocate supply to distributing entities that primarily service regional areas and are experiencing, or are likely to experience, shortages; and
• where the entity has historically supplied wholesale spot markets, take reasonable steps to continue allocating fuel to those markets.

In addition, the entity subject to MSO must take all reasonable steps to carry out the written plan and continue to comply with broader reporting obligations under the Act.

If the above conditions for a reduction are satisfied, the quantity of stocks of the MSO product that the entity must hold on each obligation day is reduced by 20% after the Department provides a written confirmation. An obligation day occurs weekly on Tuesdays, which are the benchmarks for assessment of MSO compliance.

Once confirmed by the Department in writing, this 20% reduction will apply from the date the entity provides the written plan to the Department until 30 June 2026. For ease of reference, the table below sets out a comparison of the total volume of each MSO product required to be held before and after the reduction:

The MSO for kerosene remains unchanged, as it is left out of the 2026 Instrument. However, this may be subject to change if the Middle East crisis worsens. This is because China, from which Australia imports a significant portion of its jet fuel, has reportedly ceased all fuel exports.

Assumption of MSO obligations?

The Act and Rules continue to provide a mechanism for another entity to assume MSO obligations, either partially or wholly.

This remains governed by the existing provisions (including Part 10 of the Rules), which require formal arrangements and approval by the Department.

There are no publicly available instruments or notices indicating that this mechanism has been exercised in a formalised manner.

MSO compliance and fuel supply

The introduction of the 2026 Instrument demonstrates that the MSO regime operates within a dynamic regulatory framework that is capable of directly influencing how fuel is allocated and supplied in the market. This has practical implications for fuel supply agreements.

Under a standard fuel supply agreement, the supplier may be subject to a number of core obligations, including:

• an obligation to sell and deliver agreed quantities of fuel to meet the buyer’s operational requirements;
• an obligation to take reasonable steps to ensure continuity of supply, including notifying the buyer of any matters that may impact supply; and
• in certain circumstances, an obligation to procure fuel from alternative sources, even at higher cost, to maintain supply.

In parallel, a supply agreement may also contemplate supply disruption scenarios, including force majeure events (this could include war, governmental intervention, or disruptions to supply chains) and situations where there is a shortage of fuel at a certain location, in which case the supplier may be required to allocate fuel across customers on a fair basis.

The operation of the MSO regime, particularly as modified by the 2026 Instrument, intersects with these contractual obligations in several important ways.

First, the requirement under the 2026 Instrument for MSO entities to prioritise supply to regional, agricultural and maritime consumers, and to allocate fuel to certain distributing entities, may affect how a supplier is able to perform its contractual obligations to aviation customers. A refinery supplier may be required, as a matter of regulatory compliance, to divert supply to priority sectors, even where this creates tension with contractual delivery expectations under existing fuel supply agreements.

Second, the obligation under the 2026 Instrument for an entity to take “all reasonable steps” to implement its written plan introduces an additional layer of compliance that may sit alongside, and potentially qualify, the supplier’s contractual obligations. For example, where a refinery supplier is required under its MSO plan to prioritise certain categories of customers, it may be necessary to consider whether this constitutes a permissible allocation of supply or a circumstance that gives rise to rights under force majeure provisions.

Third, the supplier’s obligation to notify the buyer of matters affecting supply, including changes to inventory levels, disruptions to supply routes, or issues affecting terminal operations, becomes particularly relevant in the current environment. In practice, compliance with both the MSO regime and the fuel supply agreement will require timely and transparent communication regarding the impact of MSO-related obligations and resulting changes to supply capability.

How can we help?

HWLE Lawyers has a dedicated Transport Group with experience in fuel stockholding and supply agreements who can assist you with fuel supply agreements and MSO compliance.

Please do not hesitate to contact us if you would like more information about the services we offer.

This article was written by Jayne Heatley, Partner, and Jerry Zhan, Associate.