Why the price of 'peak oil' is famine

This evening was a fascinating presentation on biofuels - Dave Cockcroft and Martin Quick gave talks and showed the film "The Myths of Biofuels" - see it here.

Photo: Martin and Dave with David Fridley of Lawrence Berkeley Labs and San Francisco Oil Awareness on the video.

Apart from explaining the differences between the types of biofuels and the very grave concerns attached to some we also got treated to data about Stroud District - basically even if we covered all the available land with biofuels we could not produce enough for our own transport needs - so conclusions seemed to be moving towards the Transition Energy group putting its energy behind projects that use biofuels for heat ie 4 or 5 times the energy.

The Telegraph today had an article by Ambrose Evans-Pritchard - who became one of the first mainstream journalists to point out the grim corollary between oil depletion and famine. I enclose it below but there is still a way to go as the article was surrounded by an advert for the new Porsche Cayenne 4x4 sports car! It also hasn't got all the analysis of the film we saw this evening....

Nevertheless it should highlight the absurdity of DEFRA who are increasingly deprived of funding while the UK government is shrugging off its responsibility towards home grown food, farming and food safety. Indeed it's policies are more and more crafted towards relying on cheap imports that look set to become ever scarcer.

Why the price of 'peak oil' is famine
By Ambrose Evans-Pritchard Wednesday 13 February 2008 Daily Telegraph

Vulnerable regions of the world face the risk of famine over the next three years as rising energy costs spill over into a food crunch, according to US investment bank Goldman Sachs.

"We've never been at a point in commodities where we are today," said Jeff Currie, the bank's commodity chief and closely watched oil guru.

Global oil output has been stagnant for four years, failing to keep up with rampant demand from Asia and the Mid-East. China's imports rose 14pc last year. Biofuels from grain, oil seed and sugar are plugging the gap, but drawing away food supplies at a time when the world is adding more than 70m mouths to feed a year.

"Markets are as tight as a drum and now the US has hit the stimulus button," said Mr Currie in his 2008 outlook. "We have never seen this before when commodity prices were already at record highs. Over the next 18 to 36 months we are probably going into crisis mode across the commodity complex. The key is going to be agriculture. China is terrified of the current situation. It has real physical shortages," he said, referencing China still having memories of starvation in the 1960s seared in its collective mind.

While the US housing crash poses some threat to the price of metals and energy, the effect has largely occurred already. The slide in crude prices over the past month may have been caused by funds liquidating derivatives contracts to cover other demands rather than by recession fears. Goldman Sachs forecasts that oil will be priced at $105 a barrel by the end of 2008.
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The current "supercycle" is a break with history because energy and food have "converged" in price and can increasingly be switched from one use to another. Corn can be used for ethanol in cars and power plants, for plastics, as well as in baking tortillas. Natural gas can be made into fertiliser for food output. "Peak Oil" is morphing into "Peak Food".

Land use for biofuels has shot up from 12m to more than 80m hectares worldwide over six years. Biofuel provides 3pc of global energy needs, which will rise to an estimated 10.6pc by 2030. In a pure market, sugar cane would be the only viable biofuel with a cost of $35 a barrel (oil equivalent). The others are sugar beet ($103), corn ($81), wheat ($145), rapeseed ($209), soybean ($232), cellulose ($305). Subsidies drive the business. The US offers tax relief of $1 a gallon for biodiesel. The EU has a 10pc biofuel target by 2010.

Graphic: showing increase in land given over to biofuels

The crop switch comes just as China and India make the leap to an animal-based diet, replicating the pattern seen in Japan and Korea, where people raised their protein intake nine-fold as they became rich. It takes 8.3 grams of soya or corn feed to produce a 1g weight gain in cattle - compared with 3.1g for pigs, 2g for chicken and 1.5g for fish.

Mr Currie said investment cycles in energy typically last about 10 to 12 years as producers struggle to catch up with demand. However, this cycle has been short-circuited by politicians after barely six years.

"The political environment is extremely hostile. The world is looking like the 17th century under mercantilism when countries saw economics as a zero-sum game. They exported as much as they could to get gold, and erected enormous barriers. China looks like that, so does Russia, the Mid-East and most of Africa and Latin America," he said.

While the West has much of the skill for developing energy projects, it is blocked by nationalist petro-states from investing directly.