Friday, March 14, 2008

The Return of Limits to Growth

We are now experiencing something that few remember occurred in the early 1970s, a simultaneous surge of both food and energy prices, which are interlinked, the era in which the book, The Limits to Growth came out to much attention. Grain prices more than doubled in late 1972 and remained high until 1975, with that runup preceding the quadrupling of crude oil prices that hit at the end of 1973, giving us the staglation of 1974 and after. What is going on today has come on more gradually, but combined with the financial market problems and the appearance of finally running out of any serious spare capacity in the crude oil sector, looks potentially a lot worse.

I note a similarity between The Great World Food Crisis of then and now, besides the role of rising energy prices. That is a surge of demand for meat, which is wasteful in terms of grain use. In 1972 it was Russia, with Nixon quietly approving a stealth major purchase of massive amounts of US grain by the Soviets as part of his early detente. The Soviets were interested in increasing the amount of meat in their diet and were also facing some grain shortage problems due to bad weather. Today, China in particular is buying more grain to feed a rising demand for meat, and we also have bad drought in Australia pinching supply, quite aside from all the assinine shifting of corn production to ethanol in Iowa driven by subsidies, and propped up by the presidential politics of having Iowa go first in the selection process.

6 comments:

juan said...

13 March, 2008, Michael Klare made this comment in the Asia Times:

At one time, the world's major oil producers could compensate for a downturn in output in any area by ramping up production from the "spare" (or reserve) capacity at their disposal. This was critical in 1990, following the Iraq invasion of Kuwait, and again in 2001, following the attacks of 9/11. Both times, Saudi Arabia simply upped production, adding hundreds of thousands of barrels per day in spare capacity, thereby averting a catastrophic energy crisis in the United States. But the Saudis and the other members of OPEC no longer possess significant spare capacity. They're pumping oil for all they're worth in order to benefit from the current surge in prices. Hence, any sudden loss of production in conflict-torn areas translates quickly into rising prices.

3 September, 2007, Petroleum Intelligence Weekly
noted that:
Opec Spare Capacity Keeps On Rising
[...]
The call on Opec crude next year is projected by PIW sister publication Oil Market Intelligence to be 29.4 million barrels per day, down from a 30.1 million b/d average expected for 2007. Current Opec spare capacity is rated by OMI at nearly 4.4 million b/d at end-July, excluding Iraq and Angola..


More, but no one knows with any degree of certitute just how much spare capacity exists.

Platts though did report that January OPEC production rose by 220,000 b/d to 32.25 mb/d, which I think came down slightly in Feb.

Association for the Study of Peak Oil-Europe, in its February Oilwatch, brought out that total liquids production had risen by 745,000 b/d from October through December. The roughly two year plateau of 84-85 mb/d decisevely surpassed with the rise to 87 mb/d.

Latest IAE report, global oil demand to be weaker than expected this year.

OECD stocks have built to 52.9 day forward cover.

I don't think this is the 1970s when, as you know, the pricing regime was not at all the same as that of today.

juan said...

Sorry, make that IEA.

Myrtle Blackwood said...

I've been keeping tabs on the global food shortages. I've read it's linked to the following:

- the switch to meat eating (as Barkley said);

- cnstraints on oil production (ditto);

- drought, or is it permanent climate change, in the world's grain growing regions;

- In the Murray-Darling wheat and rice growing regins in Australia there has been unsustainable levels of irrigation-based cropping for decades. the water resources simly aren't there for business as usual. Same in China.

- the massive expansion on monoculture tree plantations (mostly in the Southern Hemisphere). Also a similar scenario in biodeisel crops. They are a major drain, not just on cropland but also on the already-over-depleted stocks of water for the remainng ag land;

- the ever-grater preponderonde of the agribusiness model for agriculture and forestry. Farmer cooperatives have collapsed, governments have withdrawn support for family farmers and moved to subsidies to heavily favour absentee corporate models of land management. This is an extremely inefficient model, being excessively dependent on energy, water and other natural resources;

- changes to laws in relation to land ownership and land-use. Governments have introduced bans on the use of land for certain food crops as well as rural housing.

- changes to land ownership.

Likely other factors I haven't thought of tonight.

The essential point I wanted to make is that the food shortages are perfectly predictable; they could have been avoided. they can be fixed but it won't be that easy because the change in land use has resulted in very long-term depletion of water quantity and quality. 100 years for tree plantation areas even if the trees are ripped out today.

I can't see a way out of this predicament unless agriculture becomes far more hands on, and quickly.

My internet access it not that good lately. Trying to fix. Will check in as I can.

Thanks for the interesting post, Barkley. And Juan for his always-interesting coments.

Robert D Feinman said...

Brenda:
One other factor that may be important is the shift by farmers in the third world from producing food for the local markets, to producing cash crops to be sold elsewhere.

A couple of examples include flower growing for the US and European cut flower markets, and one I heard yesterday, sorghum to be sold to the local Guinness brewery in Nigeria.

Both activities get recorded as agriculture, but do nothing to eliminate shortages of essentials.

rosserjb@jmu.edu said...

brenda,

Thanks for laying out some of the details, especially regarding Australia. Its problems seem to have been especially relevant for wheat, whereas the ethanol demand story seems to be more important for corn/maize.

Juan,

I am not a definite peak-oil person, but along with the very careful Jim Hamilton I am increasingly convinced that we are near it. The five biggest pools of oil in the world seem to all be in decline. Iraqi and Saudi production were both up in recent months, with Iraq having some major upside potential. But the Saudis spent huge amounts to get their prodcution up. I frankly do not believe the claims regarding their production capacity. I think they are more or less nearly at it, and can only increase further with lots more investment. Northern al Ghawar is just plain giving out.

Barkley

juan said...

Barkley,

Being 'increasingly convinced' may have more to do with levels, types and duration of doomer propaganda than reality.

All peakers are convinced and most do not bother too much with anything that contradicts that religious convinction but discover/produce whatever required to support it.

At the time, I read through all of the OilDrum study, and comments, re. N. Ghawar and then read the referenced SPE papers. Bias seemed evident as sections contradicting the theme were never mentioned.

According to Simmons, some proprietary info. is not even shared within Saudi Aramco, but 'peakers' have access to this?

They do not. Why should they?

It is well known that S Aramco has greatly increased investment activities. Making the leap from this to assumptions about production capacity limits fails to take planning into account and is, at the very least, problematic.

Way too often it seems that people assume that high price and 'pumping flat out' are necessary partners as though there is no such thing as production (and field) management.

There is a reactionary, neo-Malthusian, quality to the peaker/doomer 'arguments' which tends to disturb me but that's nothing compared to these people's inability to admit that what they seek to prove can't be proven until after the fact.