Peak Oil v Peak Carbon v Giant Carbonised Insects

More on how the rug rats of today are going to live as adults, dodging the gnashing jaws of carbonised giant insects:  is it just me or is the oil peak being pushed out further and further?

Over the last few months, and despite limited interest in the industry (other than to shut it down), there seem to be a plethora of new oil deposits found / exploited.  Big ones.  Some media refer to them as giant fields.  If this observation is correct, then Peak Oil is a thing of the past and we are definitely all going to be gobbled. 

As an aside, with so many giant carbonised insects – such as the meter long centipede referred to in an earlier blog – we will also have a new source of food /protein to feed the masses tipped to hit 10 billion in my [old already] lifetime. 

But back to the new oil sources.  Some months ago I read about BP (and others) making a large find off the northern coast of the UK.  Or was it the end of last year?

Anyway another has been announced only last month.  UPI reports “British energy company Premier Oil announced that it made an oil discovery in the Catcher area of the country's territorial waters of the North Sea.”

And remember a few months ago the announcement of the large oil deposit find off the coast of Ireland;  poor ol’ Ireland that has lost its wealth, its income, and a whole generation to austerity??  Exploration company Providence Resources announced the find off the coast of Cork.  The find was referred to as “major”.  The article went on to say ”The coastal Basins surrounding Ireland have long been known to harbour valuable natural resources. It’s estimated that they could produce 10 billion barrels of oil and an unquantifiable amount of gas. In the past, exploration has been held back by a lack of technology and low oil prices.”

As probably more of a political statement, Kurdistan has started shipping oil to Turkey.  Whilst in east Africa, “Tullow Oil, a London-based explorer with the most licences in Africa, said it planned to accelerate drilling in Kenya after making the East African (Kenya) state’s first discovery earlier this year.  Tullow forecast Kenya has the potential to exceed Uganda, where with Total and CNOOC it plans to invest more than $10bn to unlock an estimated 2,5-billion barrels of oil. $4 per barrel.”

But wait, there’s more.

The Norwegian oil firm DNO International said it is ramping up oil production in Iraq as it confirmed an oil discovery in the country's resource-rich Tawke field and has resumed drilling operations in Yemen. DNO, which explores and produces oil and gas in Iraq and Yemen and plans to expand activities in North Africa and the Middle East

And more.

“Online PR News – 05-July-2012 –PierMax Energy Exploration is pleased to announce that, it has made a significant oil discovery in current onshore Kurdistan oil exploration project.”

And so it goes on and on.

And to crown my paranoia about never reaching Peak Oil (which has been forecast to be occurring around now) and thus never reigning in the carbon problem, I read George Monbiot recent article False Summit (meaning oil summit or ‘peak’).  The great eco campaigner. 

His first sentence is “We were wrong about peak oil: there’s enough in the ground to deep-fry the planet.”  And ends with “But right now I’m not sure how I can look my children in the eyes.”

In between those two emotionally charged sentences, is a great article, and as usual well researched.  Citing various article, he asserts that the recent sustained high price of oil has triggered to new oil resource boom.  That indeed, it is not so much how much oil, but at what price. With US$2.6 trillion spent over this three year period in exploration etc (end 2012).  Some of it extracted using fracking, the environmentally fraught polluter.

Yeah gads!!

So back on the research car and this was found.  Published in 2006, so it overlooks the recent massive investment in oil production and discoveries;  by the way, all of which are found and delivered from very difficult methods / places (fracking, deep sea). These five key points are believed at that time to be irrefutable and the basis of Peak Oil. 

1. The biggest oilfields in the world were discovered more than half a century ago, either side of the Second World War.

2. The peak of oil discovery was as long ago as 1965.

3. There were a few more big discovery years in the 1970s, but there have been none since then.

4. The last year in which we discovered more oil than we consumed was a quarter of a century ago.

5. Since then there has been an overall decline.

So anything written since then to confirm this thesis?  Well in May this year, there is a long post on oil and the industry on scepticblog.org by a reasonably senior academic geologist.  It is extremely lengthy, however sufficiently erudite and simplistic (for this oil idiot) for it to be recommended to all.  These are just a few extracts of interest: 

Academic geologists are nearly 50% women now, and they are distributed across all age classes. Oil geologists, by contrast, are nearly all old white guys in their 60s or older, with a lot of young men (and a few women) just recently hired in the business. The entire generation that would now be in their 40s and 50s is missing because of the attrition during the oil busts of the late 80s-90s. [I just thought this was interesting].

As the Time magazine article pointed out, now they’re spending most of their time and money on increasingly risky and expensive operations like fracking, pumping water in old fields to push out the last drops of oil, or mining oil sands with all their environmental costs. The biggest push is in offshore oil platforms—and the 2010 Gulf oil disaster (along with previous oil disasters on platforms around the world) shows just how risky it is to drill so far offshore.

So what about the world discovery rate? That answer has been known for a long time. World discovery rate peaked in 1965, and has been steeply declining ever since, even though more and more exploration is conducted in the farthest reaches of the globe in the past 47 years. The “peak oil” effect has probably already occurred, and we are likely on the slow downward decline in discoveries of cheap, easy-to-pump oil.

……in recent years most of the estimates place the total volume of ultimately recoverable oil in the range of 1.8 to 2.6 trillion barrels, with most estimates around 2.0 trillion barrels.

The booming economies of China and India, along with some other developing nations, are greatly exceeding any increased production due to new discoveries. The numbers are truly staggering. From only 50,000 barrels/day in 1980, world consumption is now almost 100,000 barrels/day. As oil executive Peter Tertzakian pointed out in his book title, we’re nearing the once-unimaginable consumption rate of a thousand barrels a second! Even as the U.S. finds more oil in unconventional places, we cannot keep our domestic prices down because demand outside the U.S. is driving the world price upwards.

So by my calc that is ~55,000 years of oil supply at today's consumption levels if we use the 2 trillion estimate with current consumption at 100k barrels per day.  At that level we are toast!! Something doesn't seem to be adding up here.  Then we look at the next argument, of 1,000 per second.  That equals about 86 million barrels per day; being 60,000 per minute;  3.6 million barrels per hour; etc.   So I think he meant 1,000,000 not 100,000.  Which brings the ~55,000 back to ~55 years of supply at today's consumption level.  Phew!!

There is also the fact that the peak of discovery of major oil fields occurred 47 years ago, and there have been no giant oil fields found in a long time, and most of the world’s older oil fields are nearing their ends.

An acre of corn consumes 80 gallons of oil in the form of pesticides, fertilizers, and fuel for the tractors.  Without [oil], our food supply would collapse, and the world would be looking at a global famine. The end of cheap oil will force everyone to re-examine agricultural practices, since you can’t make most pesticides or fertilizers out of coal. 

And thus cannot replace lost oil with biofuel. 

So rug rats.  There are your choices:  eaten by giant carbonised insects or die of starvation.  Blame the old white guys in the oil industry. 

However, I believe that we can confirm that peak oil has definately come and gone.  So that is hopeful.  Right?

Food and Borders

It is a crazy juxtaposition when the meat in USA is increasingly shifting towards ground beef (mince – burgers) as the hungry shift to lower cost protein;  whilst the meat shipped to the advancing countries in Asia is for steaks as the new middle class upgrade their protein meals.  

Updating the FAO Food Price Index for March, it is always surprising at how results are reported as “benign”.  It is quite correct to say that the March 2012 figure (216) came in barely above the February figure (215).  But as this graph shows, the index has grown by more than 14% per annum in the last three years.  That is not benign.

And of course the index over times shows that global food in both nominal and real terms remains near all time highs.  

Food prices remain critical for the world’s societal security and stability, which has been taking a beating lately (oh you know, the Arab Spring, Occupy, Mediterranean Austerity policies, and my household budget – if I had one).  And I have been banging on about it in my Peak food blogs, and inflation expectations.  

And all these issues have a real – meaning material – input into investment decisions these days.  Far more than they did in the past.  Not just as an indicator to investing in rural assets, or processors, or inputs (such as potash), but also where to put your assets so they will return a reasonable risk adjusted rate, but also protect capital.  My view is that a risk (including liquidity risk) and inflation adjusted return of zero percent with capital preservation over the next 5 years would be a winner in financial assets.  But the return on cattle is up near the 70% per annum.  With capital preservation.  Only subject to disease, which can be insured at a reasonable cost.  

In what countries will your investments be secure if food insecurity starts to rampage?

The CRB Index is down since the beginning of 2011, from a peak of nearly 700 (recorded peak) to 583 at present.  However, the pace of inflation in commodities since the mid 2000’s when it moved from about 250 (a cyclical high / range ceiling) to ~700 in 7 years.  

Commodities represent a significant input to the cost of food in developed economies, and to a lesser extent urbanised countries such as China, which recently passed 50% of the population living in urban centres.  By way of comparison, in the USA, the comparison is 82%.  Why?  Because food needs to be transported, requiring fuel inputs.  Crude oil is off its highs, but still at much higher levels than traditionally, when GDP is so soft everywhere.  

The Economist reported on the urban trends around the world here in January past.  So there are a number of issues pointing to food inflation rising faster than official inflation (which I do not believe for a moment) everywhere.  Increasing global population; shift to more dense protein diets by the new middle classes in the BRIC countries (less the middle classes in the so called advanced economies as their middle classes shrink – but at a slower pace); and rising urbanisation requiring greater input of fuel and energy for delivery and ag mechanisation to meet this growing need.  

In the USA food inflation in 2011 was officially 3.7% per the USDA and forecast to be 2.5-3.5% this year.  Right!   But this Bloomberg report suggests that corn and soy reserves are the lowest in years and could push food inflation to be at the higher end.  As I keep banging on – we have stagflation in the essentials:  food and energy.  

And then of course there is the other side of the story.  The USA’s food banks that feed the nations 49 million hungry people (16% of pop) are reporting they may be unable to feed these people due to higher food costs.  They argue that food inflation was 6% in the last 6 months of 2011 (putting the lie to the official rate), and that the healthy foods (fruits, veges, meat and dairy) provided to them fell 30%.  No wonder burgers are booming. 

And Sarkozy is complaining about the border controls of the EU member countries.  And of course picks on poor old Greece.  But zerohedge is reporting that this flow of immigrants are returning home, because frankly things are better there than in Europe.  Gate and horse bolted comes to mind, Sarkozy.  If you continue to impoverish the Mediterranean  countries with your austerity measures, border control done and dusted!

But the important point is that as the hungry grow, borders will become a problem.  Would Sarkozy be as tetchy if it were Americans arriving in hoards looking for work and a better life?  

Food inflation is going to change how we manage borders, how we manage safety within borders, and how we invest our savings as people and where we invest our capital as companies. 

Directors and Officers and Peak Food

Lack of transparent disclosure has been an aggravation since my days as an international equity analyst.  In my experience, there is only one solution to this aggravation:  research. (Occasionally a sharp stick poked at the company directors worked.) The following was prompted by attendance at the ASrIA conference in Hong Kong in September 2011. The challenge to learn as much about the environmental sector in one week for three reasons: (1) How quickly may a Director and Officer become “reasonably” informed? (2) Do Directors and Officers need to know about it to survive? (3) If so, what should they be disclosing to shareholders and how?  This is what I learnt….. The series runs sequentially over various subjects.

-------------------------------------------------------------------------------------------------------------

Peak Food

So I am Director and Officer and I am not in the food industry; I am not in the transport industry that moves food hither and thither; I am not in the packaging industry that wraps it; I am allergic to chooks and cow pads; and I am not interested in the food poor.

Agriculture accounts for approximately 71% of global water withdrawals today and the water challenge is closely tied to food provision. Inefficient and inappropriate irrigation accounts for much of this water use.  In its One Planet Business report, the WWF states that each US$1 million spent by consumers on food has an ecological footprint of approximately 1,500 hectares. Food and drink are reported to have the highest ecological footprint per dollar spent, followed by household equipment and housing.

If a Director or Officer is not in the food production or delivery then they may think this is not a critical issue for them.  However, they may need to think again.

Peak food completes the golden circle of Peak Oil, Peak Carbon and Peak Water. Or maybe peak population completes the circle.  A large proportion of whom, are presently hungry; malnourished.[i] Much of this is because of the rising costs of grain, the largest food group consumed in the world.  By way of example the cost of wheat has doubled in ten years.[ii]

As the FT reports[iii], “From transporting food and manufacturing fertilisers, to powering tractors and machines that turn wheat into bread and pigs into bacon, the stability of the global food supply chain relies heavily on the availability of crude oil and natural gas”.

So as the price of oil rises, so does the price of soft commodities – food, with an increasing correlation. Further, as the aquifers and rivers become more and more polluted or drained, food production will increasingly be limited to renewable water resources, that is, rain.  However with the clearly near and present danger from GHG induced climate changes, where that future rain falls we do not know. 

And so it goes.  Solutions to oil consumption are limited by food constraints.  Solutions to food production / supply are limited by climate changes.  And allowing climate changes will have a deleterious effect on the supply of food.  And limiting water, most of which goes towards agriculture and food, we are, frankly, stuffed.

Arguments against Peak Food

There is an excellent dynamic graph of the limit of all things published by Scientific American.[iv] It does go some way towards many of the issues covered in this series.  For food, the main concerns is of course the depleted seafood, or in some cases near extinction. As it mentioned few other issues of food, it does correspondent with quite a body of work that suggest that there is sufficient food, just poor management.  That does not seem contentious.

Let’s look deeper.

The dominant food market in the world is the grain market, the production of which has four competing challenges it seems from the research. 

The first challenge is the growing population, forecast to reach 9 billion by 2050[v].  Today, it is 7 billion (reputedly as we speak, so to speak), up one billion in just 12 years.  Of that forecast of 9 billion, Worldmapper forecasts that “62% of the people will live in Africa, Southern Asia and Eastern Asia - numerically this is the same as if all the world's current population lived just in these regions. In addition another 3 billion will be spread across the rest of the world.”

However there is another story to this.  It is reported by trusty old Wikipedia (with sources) that the population range is as low as 7.4 billion to 10 billion by 2050.  We know that it took just 12 years to produce another billion; that is an annual growth rate of 1.4%.  Plus 42% of the world’s population has a sub replacement Total Fertility Rate, or 2.33 per woman. 

 First up, it is difficult to believe that net new people each year is going to fall to 13 million per annum from the current 83 million (over the last 12 years).  So I believe that we can shut out the 7.4 billion forecast for 2050.  At the current rate, the 2050 number would be 10,154 million.  However with low birth rates in half the world, aging populations, and increasing climate catastrophes affecting food and water supplies, it is possible that the number will sit at about 8.5 billion.  That’s about another 1.5 billion people, however over a much longer time frame (38 years) to enable adjustment.  However we already have a billion people suffering malnutrition.  And the birth rate has been slowing for nigh on 50 years already.  If you have a billion people hungry, wouldn’t this signal we have already passed peak food?

To back test that back of the envelope assumption, the recent report by the World Business Council for Sustainable Development suggests 9 billion by 2050[vi]. They also go on to suggest that a sustainable world for a sustainable lifestyle of middle income is 6 billion; and for elite lifestyle is only 1.8 billion people.  Both population levels way below current population let alone future population.

The second competing challenge for food is of course the new biofuel industry.  It is said to have doubled from 9% a decade ago to 18% today. 

The third competing challenge is land conservation;   Land being bought up by private philanthropists and returned to its natural state.  For example, in Australia Bush Heritage Australia has raised more than $100 million to buy almost one million hectares of high-conservation-value private land in Australia.[vii]

The fourth competing challenge is fodder for animals.  And it is this component that is the most critical and with little reported analysis.  The global middle class is set to quadruple by 2050, mainly in China and India, but also the other BRIC countries.  And this new middle class increase their meat consumption, by many multiples.  Whereas they may eat meat, dense caloric nourishment, once a week, it becomes 7 times a week as their prosperity improves.  That is an increase from 52 times a year, to 365 times a year. 

And it is a reasonably well known fact that it takes seven meals of grain to produce one meal of dressed meat.  So in essence that is like adding another 3.5 billion people to the planet by 2050 in addition to the 9 billion mentioned above in terms of input to food production.  All up, 12.5 billion. 

Yikes, somehow this is not working out as an against argument for Peak Food.

Strategies Peak Food

This research shows that all businesses have oil, carbon, water and food interests.  It is difficult to have arrived at this point in the paper and wonder which is the likely worst scenario and which to manage first from a risk mitigation perspective. 

Of course there is always the strategy of do nothing.  Apparently this could well be the outcome if you do…...ZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZZ

Whether in the food business at any level, you are still intrinsically linked through your using / producing at Peak Water, Carbon or Oil.  Measuring, managing and reporting it must have some value to the food chain. 

How much?  Don’t know.  As a Director or Officer, you will have to do the numbers. 
As I write this, in today’s Independent newspaper they publish :

Across the world, the indignant rise up against corporate greed and cuts

By David Randall and Matt Thomas, Sunday, 16 October 2011

Protests against corporate greed, executive excess and public austerity began to gel into the beginnings of a worldwide movement yesterday as tens of thousands marched in scores of cities. The "Occupy Wall Street" protest, which started in Canada and spread to the US, and the long-running Spanish "Indignant" and Greek anti-cuts demonstrations coalesced on a day that saw marches or occupations in 82 countries.

They live in a world of plenty, but one in seven will go hungry today

Enough crops can be grown to feed the planet. But spiralling grain prices, stock market speculation, climate change and corrupt and failing governments have left almost a billion people facing starvation.

By Emily Dugan and David Randall Sunday, 16 October 2011

Today is World Food Day. It might, if one heeds the words of Ban Ki-moon, be more suitably designated Global Lack of Nutrition Day. For, according to a statement by the Secretary-General of the United Nations this weekend, in a world that can produce enough food to feed everyone, nearly a billion people will go hungry today. And that is one in seven of us.

---

[i] FAO

[ii] http://www.investmenttools.com/futures/soy/chicago_wheat_futures_market.htm.  This is a simple and easy to use graphingr service.  However the United Nations FAO has exception data bases, and are available for free.  Whether you want to know about global trade  / production of tangerines from Tunisia or rice from Burma, it is all there.

[iii] Financial Times, FridayOctober 14 2011, World Food, Link Between Fuel and Crop Prices grows stronger.  Javier Blas.

[iv] Scientific American, How Much is Left, by Michael Moyer 2010 http://www.scientificamerican.com/article.cfm?id=interactive-how-much-is-left

[v] http://www.worldmapper.org/display.php?selected=11

[vi] Sustainable Consumption Facts and Trends from A Business Perspective.  World Business Council for Sustainable Development.  http://docs.google.com/viewer?a=v&q=cache:r3K9L9yz6hsJ:www.wbcsd.org/DocRoot/I9Xwhv7X5V8cDIHbHC3G/WBCSD_Sustainable_Consumption_web.pdf+spending+on+sustainability+trends&hl=en&gl=au&pid=bl&srcid=ADGEESjXzjo12xpjFX6ibawweP0NrvrBr35ySmRcI_pA39HXN_nUo0qlIUk_I4PWCdO0UQr3Sv_iR5SB3M7FLi947SElMDO1IR_Zut0__c-3vDselZlimZp2LRw5079WARa-uLUhIu1g&sig=AHIEtbSVpgwj0YNRNF9qyIK4yn7FP8XI-Q

[vii] Read more: http://www.smh.com.au/environment/the-most--man-in-australia-20111017-1lsle.html#ixzz1b1kcKxHJ