“…a small think tank with a knack of spotting new trends…” – Geoffrey Lean, Telegraph.co.uk.
Chapter 2. Deteriorating Oil and Food Security: Introduction
The twentieth century was the oil century. In 1900, the world produced 150 million barrels of oil. In 2000, it produced 28 billion barrels, an increase of more than 180-fold. This was the century in which oil overtook coal to become the world’s leading source of energy. 1
The fast-growing supply of cheap oil led to an explosive worldwide growth in food production, population, urbanization, and human mobility. In 1900, only 13 percent of us lived in cities. Today half of us do. The world grain harvest quadrupled during the last century. Human mobility exploded as trains, cars, and planes began moving people at a pace and over distances scarcely imaginable when the century began. 2
Today, we are an oil-based civilization, one that is totally dependent on a resource whose production will soon be falling. Since 1981, the quantity of oil extracted has exceeded new discoveries by an ever-widening margin. In 2006, the world pumped 31 billion barrels of oil but discovered fewer than 9 billion barrels of new oil. World reserves of conventional oil are in a free fall, dropping every year. 3
Discoveries of conventional oil total roughly 2 trillion barrels, of which 1 trillion have been extracted so far, with another trillion barrels to go. By themselves, however, these numbers miss a central point. As Michael Klare notes, the first trillion barrels was easy oil, “oil that’s found on shore or near to shore; oil close to the surface and concentrated in large reservoirs; oil produced in friendly, safe, and welcoming places.” The other half, Klare notes, is tough oil, “oil that’s buried far offshore or deep underground; oil scattered in small, hard-to-find reservoirs; oil that must be obtained from unfriendly, politically dangerous, or hazardous places.” 4
At some point in the not-so-distant future, world oil production will peak and turn downward. When it does so, it will be a seismic event. The only world we have known is one where oil production is rising. In this new world, where oil production is no longer expanding, one country can get more oil only if another gets less.
We are witnessing a fundamental shift in the relationship between oil and food, one that has been in the making for several decades. From 1950 to 1972, a bushel of wheat could be traded for a barrel of oil on the world market. The price of each during that period was remarkably stable, averaging just under $2 per bushel of wheat and per barrel of oil. Since then, oil prices have climbed. In late 2007, even with the recent run-up in wheat prices, it took eight bushels of wheat to buy one barrel of oil. 5
Agricultural analysts have long been concerned about the effect of the coming rise in oil prices on food production costs, but now the price gap is so wide that the United States is starting to convert grain into fuel for cars. When the price of oil rises above $60 a barrel, it becomes highly profitable to do this. An estimated 16 percent of the U.S. grain harvest was converted into automotive fuel in 2006. For the 2008 harvest, the figure could be close to 30 percent. 6
The line between the food and energy economies is becoming blurred as the two begin to merge. As a result, the world price of grain is now moving up toward its oil price equivalent. If the food value of a commodity is less than its fuel value, the market will move it into the energy economy.
1. Oil production data from International Energy Agency (IEA), Oil Market Report (Paris: August 2001), includes oil, natural gas liquids, and processing gains; historical data from U.S. Department of Defense, Twentieth Century Petroleum Statistics (Washington, DC: 1945), cited in Christopher Flavin and Seth Dunn, “Reinventing the Energy System,” in Lester R. Brown, Christopher Flavin, and Hilary French, State of the World 1999 (New York: W. W. Norton & Company, 1999), p. 25; coal from Seth Dunn, “Coal Use Continues Rebound,” in Lester R. Brown et al., Vital Signs 1998 (New York: W. W. Norton & Company, 1998), pp. 52–53.
2. U.N. Population Division, World Urbanization Prospects: The 2005 Revision (New York: 2006), p. 1; U.N. Population Division, World Population Prospects: The 2006 Revision Population Database, at esa.un.org/unpp, updated 2007; grain production in 1900 is author’s estimate based on historic trends.
3. IEA, Oil Market Report (Paris: October 2007); Colin J. Campbell, “Short Written Submission to the National Petroleum Council,” e-mail to Frances Moore, Earth Policy Institute, 14 August 2007.
4. Michael T. Klare, “Entering the Tough Oil Era,” TomDispatch.com, 16 August 2007; Campbell, op. cit. note 3.
5. Historic data from International Monetary Fund, International Financial Statistics, on-line database, at ifs.apdi.net, updated July 2007; recent wheat prices from Chicago Board of Trade, “Market Commentaries,” at www.cbot.com, viewed various dates in September and October 2007.
6. Gary Schnitkey, Darrel Good, and Paul Ellinger, “Crude Oil Price Variability and Its Impact on Break—Even Corn Prices,” Farm Business Management, 30 May 2007; 2006 grain used for ethanol from U.S. Department of Agriculture (USDA), Economic Research Service (ERS), Feed Grains Database, at www.ers.usda.gov, updated 28 September 2007; 2006 grain harvest from USDA, Production, Supply and Distribution, electronic database at www.fas.usda.gov/psdonline, updated 12 September 2007; 2008 ethanol requirement from Renewable Fuels Association, “Ethanol Biorefinery Locations,” at www.ethanolrfa.org, updated 28 September 2007; 2008 grain harvest from Interagency Agricultural Projections Committee, Agricultural Projections to 2016 (Washington, DC: USDA, February 2007).
Copyright © 2008 Earth Policy Institute