The world’s insatiable appetite for oil may be catching up to it.
With oil prices soaring beyond $90 US a barrel, some economists and petroleum industry analysts argue that world petroleum production has reached its peak, or will do so soon, and a bidding war is set to erupt over what’s left.
The end of the era of cheap oil, which began in 1859 with the first commercial extraction in the United States, may be at hand, according to Larry
Martin, at the George Morris Centre agri-food think-tank.
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“Some of the people I’ve been listening to say we will have an absolute decrease in the amount of oil produced in the world starting in about 2011 or ’12,” he said.
“And the last time I checked, the Chinese and Indians are increasing their oil consumption a lot. If demand isn’t going down and the supply is going to stop growing, there’s only one thing that the price can do unless we can get much more efficient substitutes than we’ve got right now.”
Many analysts predict crude oil could hit $100 per barrel this winter and even $150 in coming years. Matthew Simmons, a well-known U.S. oil industry financier, said earlier this year that even $300 a barrel is possible if production from the world’s aging oilfields falls off dramatically in coming years and demand stays constant.
The Canadian dollar’s ascent shows that surprises are possible, Martin said.
“Just think about two months ago, when people were asking, ‘Is it really true that we could have a dollar at par?’ I think $150 (oil) is in the cards,” said Martin. He also believes that the “peak oil” theory is well documented. It contends that the world’s supply of cheap, easy-to-produce, quality oil is tipping into permanent decline.
“Unless somebody finds a whole bunch of oil that nobody knows about that is a whole lot cheaper to extract than anybody expects right now, how can you not believe it?”
Higher oil prices and energy costs will eventually force commodity prices higher, including those for agricultural products, he added.
But in the meantime, higher fuel and input costs will hurt farmers, unless they can find substitutes for oil or less energy-intensive methods of growing crops and raising livestock.
“There will have to be huge changes in technology down the road to make agriculture more efficient.”
Fred Kirschenmann, with the Iowa-based Leopold Center for Sustainable Agriculture at Iowa State University, operates a 3,500 acre organic farm in North Dakota. He said the industry must begin switching from cheap, concentrated fossil fuel to alternatives.
“If you read the people who have been studying this and are not beholden to the oil companies, they almost all say that we hit peak oil by 2005 or we almost certainly will hit it in 2008,” he said.
“Current trends seem to indicate that we produced about a million barrels less in 2007 than we did in 2006. The oil companies don’t want to tell their shareholders that the very resource upon which they are making money is going to be in short supply.”
Kirschenmann said it appears as though most farmers have given the idea of dwindling energy supplies little thought, or they find it too painful to contemplate.
“Almost 30 percent of our farmers are over age 65. For those guys, they are just hoping that this isn’t going to happen until they retire,” he said.
“The younger guys know that there are more difficult times ahead. But they don’t know what the answer is, so it’s easier to just not think about it than face up to it and really deal with it.”
Kirschenmann predicted a convergence of problems would hit agriculture, including energy scarcity, climate change and dwindling water supplies.
“Agriculture is going to change more in the next 25 years than it has in the past 100,” he said.
“Change will come. But my concern is that we are not doing the research on alternative systems that will function on much less energy, unstable climate and much less water.”
Kirschenmann also said that farmers are working on solutions, including ways to exploit natural processes. On his own farm, he said he hasn’t used off-farm fertilizer inputs since 1980. He replaced them with legumes and manure compost.
“It’s the way nature does it. Nature gets all its energy from the sun.”
He also wonders whether large-scale farming, with its dependence on cheap energy, could become a thing of the past.
“It’s not a matter of going back. What we really need to do is go forward, take the wisdom from the past and marry that with the best science that’s available to us. And then I think we can come up with some very creative systems.”
