The program, announced in September, aims to boost security of fuel supplies and support local refiners.

Up to $200 million in competitive grants will be on offer over three years to support the construction of 780 megalitres of on-shore diesel storage nationally.

Successful projects will receive up to $33.3 million. The government will cover up to 50 per cent of total eligible project expenditure. The grants will be issued quickly with the government saying construction will commence from mid-2021 and be completed within three years.

The government is targeting projects in strategic locations or those connected to existing fuel infrastructure.

The Newcastle Herald reported in September that the Port of Newcastle had identified Walsh Point, the Kooragang and Mayfield precincts as sites capable of hosting extra diesel storage facilities.

Park Fuels, which built a state-of-the-art terminal at Kooragang five years ago and currently stores 54 million litres of diesel on the island, put its hand up shortly after to host one billion litres.

There are three existing fuel terminals at the port, which have a combined capacity of 268 megalitres and a further 253 megalitres of approved storage for future growth. A fourth terminal, Caltex, which has 32 megalitres of storage capacity, is indirectly connected to a deepwater berth via a pipeline.

Minister for Energy and Emissions Reduction Angus Taylor said Australia's fuel storage was essential for national security and underpinned the economy.

"The Morrison government will oversee the roll-out of the diesel program this year, which will not only create jobs but will help to make sure Australian families and businesses can access the fuel they need, when they need it," Mr Taylor said.

"Fuel, and diesel in particular, is the lifeblood of so many sectors in our economy, including our farmers, truckies and tradies. It is essential that we get the right balance and location of our onshore stockholdings.

"Increasing Australia's capacity to store diesel complements our other fuel security measures. This will strengthen our ability to manage potential disruptions, protect Australian motorists from future high prices, and keep our economy moving."

The government predicts the projects will create 1000 jobs. The program will also assist industry in meeting new minimum stockholding obligations, which requires it to hold around 40 per cent more diesel than current levels, by 2024.