Peak oil’s entry into mainstream discourse: now complete

The Independent had an interview with International Energy Agency chief economist Fatih Birol a week ago, in which Birol was unequivocal about peak oil. He said:

The UK Government, along with many other governments, has believed that peak oil will not occur until well into the 21st Century, at least not until after 2030. The International Energy Agency believes peak oil will come perhaps by 2020. But it also believes that we are heading for an even earlier “oil crunch” because demand after 2010 is likely to exceed dwindling supplies.

More on the prospect of a near term oil price crunch here, here and here. In other news, Will Whitehorn and Jeremy Leggett had an op-ed on peak oil in the FT yesterday, querying why the UK government’s recent Wicks review of energy security made next to mention of peak oil.  This passage was a beautifully crafted broadside:

The Wicks review mentions peak oil only once. The relevant passage concludes: “Few authors advocating an imminent peak take account of factors such as the role of prices in stimulating exploration, investment, technological development and changes in consumer behaviour.”

If we imagine a review of financial security in 2006, the equivalent of the cursory dismissal of peak oil in the Wicks review might have read as follows: “Few authors advocating the toxicity of derivatives take into account factors such as the investment banking industry’s sophisticated treatment of risk, and the extent of the due diligence involved in awarding triple-A investment grading.”

There go the supply chains

The FT has a big splash this morning on how concerns about future climate policy and the global downturn are both driving a move away from global supply chains and towards more regional ones.

Companies are increasingly looking closer to home for their components, meaning that for their US or European operations they are more likely to use Mexico and eastern Europe than China, as previously. “A future where energy is more expensive and less plentifully available will lead to more regional supply chains,” Gerard Kleisterlee, chief executive of Philips, one of Europe’s biggest companies, told the Financial Times.

Mr Kleisterlee said businesses needed to find ways to build an economy on a sustainable basis ahead of the Copenhagen summit on climate change later this year, with “a review of global logistics and transport” one of the important steps. He said that until now cheap transport costs had meant “Mexico wasn’t competitive with China for supplying the US”. But he now forecasts that companies such as Philips will use countries such as Ukraine for supplying Europe rather than Asia.

Nor are climate regulation and the downturn the only drivers towards a more regional world – there’s also the prospect of a return to very expensive oil in the near future. If you’re wondering what that means for global supply chains, look no further than what started to happen during 2007:

…competitiveness in steel had already shifted away from Chinese exports and back to North American producers. Soaring transport costs – first on importing iron ore to China from Australia or from halfway around the world in Brazil, and then on exporting finished steel overseas to North America – added as much as an additional $90 onto the cost of what was then $600 per ton of hot rolled steel. That more than offset the Chinese wage advantage on what, thanks to technological change, had become as little as an hour and a half of labor time for that ton of steel.

For the first time in over a decade, made-in-America steel had become cheaper than Chinese imports in the US marketplace. Long before the recession blew up the US steel market, Chinese exports to the US fell 20% between July 2007 and March 2008 – and US steel production was up 10% over the same period. All of a sudden American steel producers were winning back their home market. Who would have thought that tripil digit oil prices could breathe new life into America’s rust belt?

That’s Jeff Rubin, in his very highly recommended new book on what peak oil will mean for globalisation (regular readers will remember his CIBC World Markets research paper on Could Soaring Transport Costs Reverse Globalisation a little over a year ago) – go buy it.

If I were the Chinese government, I’d be worried. First you see your export sector getting hammered by triple digit oil prices.  Then even when they crash to less than half of their pre-spike levels (though n.b. still way above their pre-2000 average of 10 or 20 dollars a barrel, even in the biggest recession since 1929), you find that the downturn’s still driving a shift towards regionalisation in trade.

Time to start investing heavily in a more endogenous growth model, perhaps…

If international relations were a John Hughes movie

Dan Drezner sets it out:

CLOSING SCENE OF “THE SECURITY COUNCIL CLUB“:

INT. SECURITY COUNCIL CHAMBER – DAY — we see the U.N. SECRETARY-GENERAL enter the Security Council room and pick up an essay. 

CHINA (voice-over)

Dear Mr. Secretary-General, we accept the fact that we had to sacrifice a whole Saturday in Security Council session for whatever international problem that we failed to address.  But we think you’re crazy to make us write an essay telling you who we think we are. What do you care?

You see us as you want to see us… In the simplest terms, in the most convenient definitions.

But what we found out is that each one of us is an economic engine…

UNITED STATES (voice-over)
…and a military power…

RUSSIA (voice-over)
…and a basket case…

EUROPEAN UNION (voice-over)
…and a princess…

IRAN (voice-over)
…and a rogue state…

CHINA (voice-over)
Does that answer your question?
Sincerely yours, the Security Council Club.

We see SUSAN RICE walking across the football field as she thrusts her fist into the air in a silent cheer and freezes there.

Moo hoo

I’ve just been having another look at FAO’s seminal 2006 report about the environmental impact of meat consumption, Livestock’s Long Shadow. I figured I knew most of the stats about meat’s massive contribution to scarcity issues – but nope, I found myself astonished once again by the report’s headline stats.  Livestock:

  • Uses 26% of the ice-free terrestrial surface for grazing, and 33% of the planet’s arable area for feedstock – in total, 70% of all agricultural land, and 30% of the land surface of the planet;
  • Accounts for 70% of previously forested land in the Amazon (and that’s just the pasture – feedcrops are another big chunk again);
  • Are responsible for 18% of greenhouse gas emissions in carbon dioxide equivalent – that’s larger than transport – and for 37% of methane emissions (23 times as potent as CO2 in its warming effect);
  • Uses 8% of global human water use, mostly in irrigation for feedcrops, and is probably the single largest sectoral source of water pollution;
  • Accounts for 20% of total terrestrial animal biomass – squeezing out space for other species and hence contributing massively to biodiversity loss, mainly through destroying habitats (30% of the land surface of the planet, remember)?

I love eating meat, but since I wrote The Feeding of the Nine Billion, I’ve been aiming to cut it out for 3 days a week.  Having re-read FAO’s report, I’m going to up that to four or five – as ways of reducing your carbon footprint and wider environmental impact go, this is a very low hassle,high impact option (especially if you have Sophie Grigson on your shelf).

Also, if you haven’t seen coverage of Tristram Stuart’s new book on food waste, then take a look

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