Why the price of 'peak oil' is famine -
By Ambrose Evans-Pritchard International Business Editor
Last Updated: 2:54am GMT 09/02/2008
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.
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Sugar cane on a bullock cart in India.
Rising energy costs spill into food crunch.
Sugar cane on a bullock cart in India -
the commodity is popular as the basis of biofuel, as
it is a cost-effective and cleaner alternative to oil
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.
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.
telegraph.co.uk
bottom basement bargain -
siliconinvestor.com
Imo. Tia.
God Bless |
