[Rhodes22-list] Energy, Farming, High School Geopolitics

[Brad Haslett]

Here is one last stab at energy, farming, and high school geopolitics.
I'm very busy the rest of the month so everyone can breathe easy.
First, let's clear the air about some numbers.



Bill and Dave don't like my Straight of Hormuz numbers and attack the
whole argument about what a strategic choke point it is based on their
numbers.  My number was a quick and dirty number from memory based on
Gulf oil reserves times the shipping rate past Hormuz.  Bill and
Dave's number are based on the percentage of total world production,
20% plus.  Allow me to be specific.  Roughly 40% of the worlds traded
oil flows past Hormuz.  That is a lot.  Using the lowest number tossed
out, 20% of the total production, would cause a worldwide shortage and
price spike that would make the previous OPEC created shortages seem
mild in comparison.  If you look down the road, two-thirds of the
world's oil reserves are in the Gulf region.



Dave doesn't think based on his Wikopedia research Hormuz can be
closed.  Yet, the same articles he sites clearly explains that the
tanker shipping routes are 1 mile wide with a 2 mile buffer.  What
happens if you sink a tanker, or a US aircraft carrier, in the middle
of the shipping channel?  The Iranians have Russian submarines and
Chinese gunboats.  They also have mines. Wally wonders why they would
do this when they need to ship oil as well.  Good question.  Why does
their leader openly state that Israel should be wiped off the map and
the Holocaust never happened?  They're crazy perhaps?  Another
question, why do they need a nuclear reactor? Is it because they are
concerned about damaging the environment by burning oil for
electricity?



Now Bill thinks the US and Russia produce more oil than all the Gulf
countries that ship through Hormuz.  Actually, the Gulf production in
2004 (DOE data) was 21.76 million barrels per day versus 17.96 for the
US and Russia.  The US does not export oil, we consume all we produce,
as does China.  Russia exported 6.67 million barrels a day.  But let's
look further down the road at reserves.  Russia and the US combined
have 81.4 billion of reserves (JAN 06 DOE) compared to 711.1 billion
for the Persian Gulf.  Hardly comforting.  More discomforting, the
Chinese are cutting deals everywhere.  Everywhere!  Now as to some of
those other big oil countries, Nigeria, Venezuela, Libya, and Algeria
are also members of OPEC.  Nigeria and Venezuela are both having their
internal political problems that have affected oil production.



Let's talk about tar sands.  If you count Canada's tar sands into
reserves, Canada has the second largest reserves behind Saudi Arabia.
Only one small problem, the extraction of oil from tar sands requires
huge amounts of energy (currently natural gas) and creates enormous
environmental damage.  If the sands were to be fully developed, Canada
would be forced to withdraw from Kyoto.  If Al Gore is correct, the
inconvenient truth is that mining tar sands will accelerate our
journey to New York City being innundated with the Atlantic Ocean.
But let's assume Al is full of it and the environmentalists will give
Canada a bye.  Who is one of the biggest investors in tar sands?
China!  In fact, the Chinese are exploring building a pipeline to the
West Coast of Canada for shipment to China. There has been talk of
building a nuclear reactor in Alberta to replace natural gas as the
hot water source.  Let's hope so.  If production of tar sands ramps
up, our largest outside source of natural gas, Canada, will compete
with the winter heat source for many of us.  Oh yeah, and don't forget
all those clean burning electric peaking plants encouraged by the
Clinton administration that burn natural gas.



Bill is correct when he states that the Saudis are worried about the
price of oil.  At current prices, biodiesel, Dave's synfuels, and
Brazilian ethanol start to look attractive.  The Saudis have always
been the swing producer in the market and for years tried to keep oil
in the $22 to $28 basket range.  Oil has moved to a new whole range
and the world economy hasn't tanked.  We'll probably never see oil
less than $30 again, ever.  The Saudis would love to keep oil at just
under the level where alternatives look attractive.  I assume Dave's
synfuel includes coal to oil.  Only one small problem there as well,
coal demand is at an all time high.  We produce over 50% of our
electricity (you can look up the exact number) and no new nuclear
reactors have been built in over 30 years.  Let's say nukes are bad
and coal is good.  We can sacrifice West Virginia and some other
places and press on with our happy selves.



Now what the hell does any of this have to do with farming?  Well, for
one thing, farming takes a lot of fuel, not only for tractors and
combines but for fertilizer as well.  If biofuels becomes a
significant part of the mix, those crops will compete with food crops.
 We couldn't replace our current crude consumption if we planted every
square inch of farm ground in the US.  But, we could make a dent.  The
problem is, the USDA has focussed on a handful of cerial grains and
cotton to the exclusion of other crops.  Small family farmers have
been forced to suck on whatever teat the USDA was offering in any
given year rather than choose what the next best crop in rotation
would be.  Not good for the land and not in the long term best
interest of the farmer.  The program is set up to reward the biggest
and most aggressive. What do we do with all this excess grain?  We
export it at prices that harm small farmers in third world countries.
Farmland prices are inflated according to what subsidy is available.
This prevents new farmers from entering the market and existing small
farmers from expanding.  The rich get richer.  What started as a
safety net for family farms has become a perverse redistribution of
wealth.  This is bad social policy and bad economic policy.  Where it
really gets perverse is when you combine agricultural policy with
energy policy.  Brazil makes ethanol from sugar beets rather than
corn, a much more efficient process.  We consumers pay well above
world market prices for sugar to protect US growers of sugar crops and
there is an import restriction on Brazil ethanol imports.  We like
corn; we subsidize it, export it, and convert it into fuel even though
the net energy gain is only about 1.1 to 1.  If we put less emphasis
on corn and grew rapeseed, we could get about 3.3 to 1 energy
efficiency out of biodiesel.  We currently make biodiesel out of
soybeans, another subsidized crop.  If you are a farmer choosing what
to grow next year, what will you choose?  Subsidized corn, soybeans,
cotton, or an energy crop?

It is impossible to discuss energy independence from bio fuels without
discussing farm policy.



So where are we now?  Let's just assume that alternatives are
available that are competitive at current prices.  We make ourselves
energy independent and let China have the rest of the world's oil.
Oil prices would drop, we would have to compete with China in the
world market with say, $75 a barrel equivilent cost to whatever new
lower crude price per barrel.  Not a very sunny prospect.  So here is
my high school geopolitical analysis.  Two thirds of the world's oil
is located in a region that hates us no matter how nice we play.  That
oil has to flow through choke points.  China doesn't give a hoot about
policing the world as long as oil flows to China.  Countries like Iran
have influence well beyond what they would otherwise because they
convert their oil into weapons.  I don't have the solution, and
Congress is more than happy to pander to their constituents and tell
them what they think they want to hear rather than look for viable
solutions.  You figure it out.



As John Lennon said, Imagine!  Imagine if instead of one sane and
rational democracy in the Middle East, Israel, we had two, Israel and
Iraq.  What if the other countries in the area envied their standard
of living and freedoms and called for revolution?  Someone got a
better idea?  Anyone?  If not, we'd better get busy farming and
mining, building nuclear reactors, drilling ANWAR and the coastlines.
Based on my knowledge of China, they don't give a shit about
environmental problems or who shoots at whom, as long as the oil keeps
flowing.



BTW, I haven't tried Wally's baloney sandwich yet but I have eaten a
great deal of crow in my lifetime.  If you prepare it just right it
tastes just like chicken.



Brad