Peak oil isn’t the only looming energy crisis Canadian farmers should be thinking about, says an expert on sustainability.
Canada will hit peak natural gas supply within the next three years, said David Layzell, president of the Biocap Canada Foundation, a national organization helping the country move to a sustainable bioeconomy.
Peak supply is a popular theory in energy circles. It is the point of maximum production after which development of new sources is more difficult and production falls.
“This has huge implications for agriculture,” he said.
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There is a surplus of natural gas in North America, which is keeping prices near $7 US per gigajoule, or about 44 percent of the value of a gigajoule of energy produced from oil.
As the oversupply is mopped up, natural gas prices should return to their more typical 83 to 85 percent of the price of a gigajoule of oil energy.
“If eventually things get back in line, one might expect natural gas prices to be considerably higher than they are right now. Perhaps even twice as high,” Layzell said.
And if Canada reaches peak natural gas in the next few years as he predicts, that will put further upward pressure on prices.
One thing that will likely keep natural gas prices in check to some degree are the liquefied natural gas terminals cropping up along the coasts of Canada and the United States.
Those facilities allow for the import of natural gas from big producers such as Russia and the Middle East. The gas from those regions is heavily compressed until it turns into a liquid form that can be transported on ships. Upon arrival in North America the liquid gas is decompressed back into its original form and transported through pipelines.
The imported gas will help ease the looming North American supply problem, but prices will likely still rise because it costs more money to compress, ship and decompress the imported gas.
As natural gas prices increase farmers should brace for rising fertilizer costs because natural gas is a critical input in the production of nitrogen fertilizer.
It will also have ramifications for Canada’s fertilizer manufacturing sector.
“We may well see that we lose the fertilizer industry slowly as our natural gas prices creep up,” Layzell said.
Manufacturers may be forced to relocate their North American operations to countries such as Trinidad and Tobago in the Caribbean, where there is plenty of natural gas and minimal demand for the product.
Producing fertilizer in such places would be cheaper for manufacturers but more expensive for Canadian farmers who would be forced to pay the transportation costs.
On the flip side, soaring natural gas prices could create an opportunity for producers to grow dedicated biomass crops that could be converted into a renewable form of natural gas through an expensive gasification process.
Layzell has done an analysis that shows natural gas prices would need to be $15 to $20 per gigajoule to make that conversion process feasible, which would be two to three times today’s values.
Those kinds of prices would likely require global natural gas production to peak, which he doesn’t expect to happen until 10 years after the world hits peak oil supply.
Layzell advises farmers to adopt techniques such as precision farming to reduce the amount of nitrogen fertilizer they waste. Only 50 percent of the nitrogen put on farmland ends up in the crops.
They should also work on ways to reduce other energy inputs such as diesel fuel, which is likely going to be more costly in the future as well.
“Farmers have a demonstrated ability to control their inputs when the economics are right,” he said.
