synthesis

Oil on the way to a C-note per barrel

Over the last several months I have had the opportunity to talk to a good number of oil and gas executives.  Way back, say, just last summer,  when oil was only at $65 per barrel, it still seemed like a stretch for the oil guys (yes, all guys) to claim oil would hit $100 by the end of 2007.  Now, according to Reuters, oil has just hit $92 per barrel, up 30% since August alone.  It seems the C-note per barrel may arrive quite soon.

Part of this run up in price is due to the decline of the dollar, which may further encourage a shift to trading oil in euros.  The follow on effect of moving so much trade away from the dollar can't be seen as a good sign for the U.S. economy.  Yes, it is still true that foreign governments still hold large amounts of U.S. government debt, which will always be denominated in dollar and which gives many nations an interest in propping up U.S. currency.  But slippage in international use of the dollar for trade makes me even less interested in keeping any business I do here in the U.S.  I have just accepted my first project from Canada, and the contract stipulates pay in Canadian currency.  I might even ponder leaving it in that currency, as the Canadian dollar has been appreciating with respect to the U.S. dollar at a fairly decent rate.

Anyway -- back to oil -- a significant motivation in the increase in price is limitation of supply and increased demand.  Some of this will get fixed as new refining capacity comes on line.  Shell, for instance, is investing US$ 7 billion in doubling the capacity of a refinery in Texas, though this will take many years to come on line.

Bio-era's numbers suggest that by 2020, given current plans, biofuels will amount to 10% of global liquid fuel use.  That doesn't seem like much, but the increase from ~2% to 10% of use will account for 50% of the global increase in use, which is a big deal.  I am beginning to wonder if this is already an underestimate.  Many companies are making good progress in producing various liquid fuels using microbes (see previous posts here and here), and any shift away from the dollar in trading oil will cause further substitution within the U.S.

It will be interesting to see what effect this has on the economics of distributed fuel production.

China and Future Resource Demands

It isn't news that China has a huge and still growing population, nor that the economy is growing rapidly in the context of an enormous trade surplus.  But looking at what China is today importing, and extending a few trends out into the future a decade or two, gives an interesting slant to food and energy markets that everyone should be thinking about.

I've been digging into these issues as part of Bio-era's consulting practices on biofuels and emerging biotechnologies.  What follows are some notes on trends to watch.

Arable Land:  China is actively moving farmers off the land in an attempt to slow desertification:

The relocation program is part of a larger plan to rein in China's expanding deserts, which now cover one-third of the country and continue to grow because of overgrazing, deforestation, urban sprawl and droughts.

The shifting sands have swallowed thousands of Chinese villages along the fabled Silk Road and sparked a sharp increase in sandstorms; dust from China clouds the skies of South Korea and has been linked to respiratory problems in California.

Since 2001, China has spent nearly US$9 billion planting billions of trees, converting marginal farmland to forest and grasslands and enforcing logging and grazing bans.

The policy is driven in part by concerns over food, as farmland yields not only to the deserts but also to pollution and economic development. China has less than 7 percent of the world's arable land with which to feed 1.3 billion people -- more than 20 percent of the world's population. By comparison, the United States has 20 percent of the world's arable land to feed 5 percent of the population.

...The battle against deserts is playing out across much of western China. Desertification has caused as much as US$7 billion in annual economic losses, the China Daily reported.

Over the past decade, Chinese deserts expanded at a rate of 950 square miles (2,460 square kilometers) a year, according to Wang Tao of the Chinese Academy of Sciences in Lanzhou.

...Global warming also threatens to make a huge dent in grain production, which has already slipped from 432 million tons in 1998 to 422 million tons in 2006 because of desertification. At the same time, grain consumption has risen about 4.4 million tons a year to 418 million tons, in part because of rising demand for beef, chicken and pork.

The production declines have forced China to draw down its grain stocks, and eventually it will need to buy a massive 30-50 million tons a year on the world market, Brown said.

Fresh Water Supplies:  According to an article at Yellow River Conservancy Commission, evidently a Chinese government endeavor:

China has been a production marvel when it comes to labor costs, but not for water costs. To produce a unit of GDP, China uses approximately six times more water than the Republic of Korea and ten times more than Japan, according to Zhai Haohui, vice minister of water resources.

...The water shortage nationwide will reach 50 billion cubic meters by 2030 -- up from the current 6 billion cubic meters, according to the Ministry of Water Resources.

A recent article in the Independent claims that glaciers in the Tibetan plateau, which provide freshwater to much of the country, are now melting at 7% annually.  I've seen that number as high as 13% elsewhere.

Commodities Imports:  The USDA simply says, "China's Demand for Commodities Outpacing Supply".  Demand for corn has exceeded supply in recent years, and I've read that this is the first year they might wind up importing corn.  China already imports enormous amounts of soy; just before I went to Asia in June, the quarterly Chinese buying trip to the U.S. purchased four times as much soy as markets were expecting, $3 billion in one week. 

Meat Consumption: A recent report from the UN FAO, "Livestock's Long Shadow", points out the repercussions from increasing meat consumption around the world: inefficient use of grains, massive consumption of fresh water, increased pollution and greenhouse gas emissions.  Here is a summary from the FAO magazine, carrying the title "Livestock impacts on the environment", which has a link to the full report at the bottom of the page.

Among the most remarkable tidbits from the report, and a key part of the analysis Bio-era is giving to investors in Asia, the U.S., and Europe about the future of commodities usage in regards to biofuels, is related to future Chinese meat consumption.  If China maintains the historical relationship between per capita income and meat consumption (See figure 1.4, page 9 of the FAO report.), by the time it reaches average European income levels supplying all that meat will require 40% of world grain supplies.  40%. 

This is one of those numbers that makes you wonder where and when the current system will break down.  China today has ~15% of world population, and will probably max out at about 18%, with only ~7% of the globe's arable land.  And yet supplying them with mean could consume 40% of the world's production of grain.  Either very strong cultural practices related to meat consumption will have to change (a hard thing to do), or China will be importing a huge fraction of the world's commodities.  Is that the future use of China's massive foreign currency holdings?

Fuel Mix:  According to the USDA FIA "China Bio-Fuels Annual 2007" (PDF), diesel dominates the fuel market in China.  In 2006, 120,000,000 MT of diesel and 40,000,000 MT of gasoline were used across the country (see figure on pg. 8).  Gasoline consumption appears to have leveled off, while gasohol usage has jumped considerably over the last 4 years.

Biofuel Use: The government has put a moratorium on using corn to make ethanol, and may in fact ban that use of corn altogether, but the USDA predicts, "China Fuel Ethanol Production Projected to Increase 12% in 2007":

A report from the US Department of Agriculture Foreign Agricultural Services (USDA FAS) estimates that the production of fuel ethanol in China will reach 1.45 million tonnes (484 million gallons US) in 2007, up 12% from 1.3 million tonnes in 2006. Official production of fuel ethanol in China began in 2004.

...Now, according to the FAS report, plans are to increase ethanol feedstocks from non-arable lands making the use of tuber crops and sweet sorghum. Given the new constraints, a realistic 2010 target appears to be between 3 and 4 million tonnes (1 billion and 1.33 billion gallons US).

...Diesel is the primary fuel used in China. In 2006, China consumed 120 million tonnes of diesel and 40 million tonnes of unblended gasoline. A rise in the use of E10 has caused gasoline consumption to plateau over the last four years. During this time, automobile use in China has increased on average 11.8% annually.

A story at Green Car Congress speculates that, compared the US, cellulose to ethanol may move faster in China because of labor costs.  It's interesting as well that, "China Oil and Food Corporation (COFCO), the country’s largest oil and food importer and exporter, is partnering with Novozymes on the production of cellulosic ethanol."

Offshore Land Deals:  Early this year, Chinese companies signed deals worth US$ 4.9 billion to secure growing rights on 1.2 million hectares (~3 million acres) (Here's the version from Bloomberg, via the IHT).  A similar deal was signed between China National Offshore Oil Corp (CNOOC) and Indonesia, to the tune of US$ 5.5 billion for land to grow crops for ethanol and biodiesel and for processing plants (U of Alberta China Institute,  Biopact).

Finally, China recently announced an increase of planned biofuels use to 20 MMT by 2020.  This is absolutely enormous, as a story at Biopact notes:

The total production of biomass energy from non-grain crops will grow to 500 million tons of coal equivalent, worth some 3 trillion yuan [€290/$385 billion], which will account for 24 percent of the nation's total energy consumption.

In the end, given the shortage of water, the decrease in land suitable for crops, the increase in meat consumption, etc., it just isn't clear where all the biomass is going to come from.  Clearly a great deal of it will be imported, and we can now see where some of China's foreign currency reserves are going to go over the next couple of decades.  Commodities markets are going to get tighter worldwide as a result.

From Paris :: France 1 : Portugal 0

The streets of Paris are all nuts.  Fortunately, this isn't Detroit, so only a few cars will be burned tonight.  No sense in even going to bed tonight.

From Paris :: World Cup Mania

Zidane has just scored against Portugal, and the entire city of Paris has errupted in cheers.  But they can't take to the streets just yet, oh no, because it's only the first half.  I don't expect to get much sleep tonight...

Here Comes China

The NatureJobs section in this week's Nature has a short news piece on science funding, education, and investment in China:

The US National Science Foundation's Science and Engineering Indicators 2006 could perhaps be renamed 'Here Comes China'. The biennial report shows an increasingly international science and technology workforce, with China showing large gains in internal investment in R&D, investment by multinational corporations, and numbers of Chinese nationals earning science and engineering doctorates in the United States.

China has increased its R&D investment 24% per year over the past five years, compared with 4–5% for the United States. This growth, from US$12.4 billion in 1991 to $84.6 billion in 2003, puts the country behind only Japan and the United States. Meanwhile, investment by US-based multinationals into Asian markets outside Japan has more than doubled, from $1.5 billion in 1994 to $3.5 million in 2002, with more than $1 billion going into China alone. Finally, Chinese students earn more US science and engineering PhDs than those of any other foreign nation.

These statistics are impressive, but they tell only one side of the story. What do they mean in terms of jobs and who will get them? The United States, Europe and Japan still produce many PhDs and create a host of jobs. But China is coming on strong. One wild card is whether Chinese PhDs will stay in the United States or return home. While China's PhD production in the United States has increased, PhDs by US white males has dropped from its peak of about 8,900 in 1994 to just over 7,000 in 2003.

It would be premature to say this marks the end of US dominance in science and engineering employment, but it does show that the United States is producing less of its own scientists and may have more difficulty recruiting from abroad as other nations, particularly China, ramp up funding and infrastructure. As the report says, these trends point to a "potentially diminished US success in the increasing international competition for foreign scientists and engineers".

The Death of Innovation, or How the NIH is Undermining Its Future

Donald Kennedy's latest editorial in Science notes that the vast majority of NIH grants are going to older investigators.  Writes Kennedy;

In 1980, despite a tightened academic job market..."new" investigators held 50% of competing new grants, and 23% of all awards were going to scientists under 35. Now, alas, that percentage has shrunk to less than 4%, with a huge corresponding increase in the proportion going to older researchers.

This despite the fact that the NIH budget has at least doubled since 1980.  (The figure is from an interesting article on how to fund science and innovation by Kei Koizumi for the AAAS.)  A rough Google search suggests 80% of PhD's in the US are held by people under 40 (does anybody have good numbers for biology?), which means that the vast majority of NIH dollars are going to investigators who have been around awhile.

Now, of course, I don't mean to imply that "older researchers" aren't innovating.  Few brand-spanking new PhD's can keep up with Sydney Brenner.  A characteristic of biology that distinguishes it from theoretical physics is that doing good biology requires the grasp of a great many facts and stories.  Whereas a the guts of a PhD in physics can be derived over a weekend (or so I was told upon arriving at Princeton -- mine took rather longer) the combination of biological lore and experimental art accumulates over time.  But if we aren't funding young scientists with new ideas then we are missing out.  New methods and tools are the key to progress in biology.

Why should young scientists from abroad bother to come here?  Why should any young scientist bother to stay here?  Yes, yes -- the US still has the biggest budget and a tremendous diversity of research.  But even Sydney seems to be spending most of his time in Europe and Asia these days.  If we fail to ensure proper funding and opportunity for young biological scientists, then the innovation is simply going to happen elsewhere. 

It's a Flat World

UPDATE (19 April, 05):  I completely forgot to link this entry to my previous post, Geographical Distribution of Biological Technologies, in which I comment on William Hoffman's World Stem Cell Policy Map.  Biological technologies are spread all over the planet already, and our current economic and technological lead (if we are still in the lead) cannot be maintained without siginificantly more investment and hard work.

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I don't always agree with Thomas Friedman.  Current affairs a la Friedman often seem to me oversimplified.  But in the last week or so he has a couple of very nice pieces about the economic status of the United States.

In "Bush Disarms, Unilaterally" (15 April, 05) he argues that the Bush administration is heading in the wrong direction with its policies on investment in science, education, and economic development.  To wit;

One of the things that I can't figure out about the Bush team is why an administration that is so focused on projecting U.S. military strength abroad has taken such little interest in America's economic competitiveness at home - the underlying engine of our strength.

...We have a Treasury secretary from the railroad industry. We have an administration that won't lift a finger to prevent the expensing of stock options, which is going to inhibit the ability of U.S. high-tech firms to attract talent - at a time when China encourages its start-ups to grant stock options to young innovators. And we have movie theaters in certain U.S. towns afraid to show science films because they are based on evolution and not creationism.

The Bush team is proposing cutting the Pentagon's budget for basic science and technology research by 20 percent next year - after President Bush and the Republican Congress already slashed the 2005 budget of the National Science Foundation by $100 million.

When the National Innovation Initiative, a bipartisan study by the country's leading technologists and industrialists about how to re-energize U.S. competitiveness, was unveiled last December, it was virtually ignored by the White House. Did you hear about it? Probably not, because the president preferred to focus all attention on privatizing Social Security.

... Economics is not like war. It can be win-win. But you need to be at a certain level to be able to claim your share of a global pie that is both expanding and becoming more complex. Tax cuts can't solve every problem. This administration - which often seems more interested in indulging creationism than spurring creativity - is doing a very poor job of preparing the country for that next level.

In the Times Magazine a week ago Sunday, he made a broader argument about the state of global economic and technological competition in, "It's a Flat World, After All".  He writes;

In 1492 Christopher Columbus set sail for India, going west. He had the Nina, the Pinta and the Santa Maria. He never did find India, but he called the people he met ''Indians'' and came home and reported to his king and queen: ''The world is round.'' I set off for India 512 years later. I knew just which direction I was going. I went east. I had Lufthansa business class, and I came home and reported only to my wife and only in a whisper: ''The world is flat.''

And therein lies a tale of technology and geoeconomics that is fundamentally reshaping our lives -- much, much more quickly than many people realize. It all happened while we were sleeping, or rather while we were focused on 9/11, the dot-com bust and Enron -- which even prompted some to wonder whether globalization was over. Actually, just the opposite was true, which is why it's time to wake up and prepare ourselves for this flat world, because others already are, and there is no time to waste.

...Here I was in Bangalore -- more than 500 years after Columbus sailed over the horizon, looking for a shorter route to India using the rudimentary navigational technologies of his day, and returned safely to prove definitively that the world was round -- and one of India's smartest engineers, trained at his country's top technical institute and backed by the most modern technologies of his day, was telling me that the world was flat, as flat as that screen on which he can host a meeting of his whole global supply chain. Even more interesting, he was citing this development as a new milestone in human progress and a great opportunity for India and the world -- the fact that we had made our world flat!

...When the world is flat, you can innovate without having to emigrate. This is going to get interesting. We are about to see creative destruction on steroids.

...We need to get going immediately. It takes 15 years to train a good engineer, because, ladies and gentlemen, this really is rocket science. So parents, throw away the Game Boy, turn off the television and get your kids to work. There is no sugar-coating this: in a flat world, every individual is going to have to run a little faster if he or she wants to advance his or her standard of living. When I was growing up, my parents used to say to me, ''Tom, finish your dinner -- people in China are starving.'' But after sailing to the edges of the flat world for a year, I am now telling my own daughters, ''Girls, finish your homework -- people in China and India are starving for your jobs.'' I repeat, this is not a test. This is the beginning of a crisis that won't remain quiet for long. And as the Stanford economist Paul Romer so rightly says, ''A crisis is a terrible thing to waste.'' 

Indeed.  China and India aren't waiting around for people in the US to lay the groundwork for the next generation of technologies, whether new materials, new software, or biological technologies.  They have economic power, huge and highly educated populations, and a motivation to innovate themselves into the first world.  From my experience in both industry and academia, it looks to me like we are already at least a decade behind in our investments in education and R&D.

Environmental Heresies

Stewart Brand has an article, "Environmental Heresies", in the May, 2005 Technology Review, suggesting ways the environmental movement needs to adapt to changing demographics and technology.  I liked this piece so much I had to drop Mr. Brand a note to tell him so, along with a few questions.  I like what he responded with so much I asked if I could post it here.

At 2:47 PM -0700 4/14/2005, Rob Carlson wrote:

Dear Stewart,

Well done on the Tech Review piece.  I like and agree with most of what you said, though I am still on the fence about nuclear power.  Disposing the waste is the sticking point for me.  So is the tendency to offload the real costs onto the back end, which corporate interests tend to escape.  Everything near the reaction becomes deadly radioactive, so the fuel isn't the only problem.  The volume and the mass are not small.  I think the long term solution to this is the space elevator, but that is another conversation.

I do have a question about one of your points, however.  I appreciate the observations concerning urbanization, though my drives through California's Central Valley come to mind.  As you know, farmland, some of which is fallow, is being sacrificed for housing.  Wetlands are under threat all over the place.  This is the sort of sprawl we are fighting in the NW, too.  How densely can we convince people to live?  Sarah and I made the conscious choice to buy a small townhouse within walking distance of work, grocery stores, a kayak launching point (which I walk my boats to on a small cart), etc.  But I am not sure how many other people will choose to live like this.

Perhaps my scale is completely out of whack, as my lifestyle is much closer to the Central Valley McMansion than to that lived by all but the most wealthy in central and east Asia.  I suppose the question is how density in American cities is changing as a function of distance from the urban core.  That is, are people actually moving to the core, or are the tails of the distribution just reaching further away as people move to the burbs?  What do the figures look like for big Asian cities?  And are all those increasing numbers of city dwellers as well off as the generally well-educated Indian women, or are there just a lot more urban poor -- those billion urban squatters?  Is the number density of rural populations decreasing, or are we just getting a whole hell of a lot more people being born and living their lives in the cities?

More questions than answers, as usual.  Once I get going, it's hard to stop.

- Rob

Here is what Stewart responded with:

There's a fair amount in this summary of a talk I gave last week in San Francisco to the Long Now crowd.  Two books:  THE CHALLENGE OF SLUMS (from the UN), and SHADOW CITIES, by Robert Neuwirth.

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I started with a spectacular video of a stadium in Philadelphia being blown up last year.  The announcer on the video ends it, "Ladies and gentlemen, you have just witnessed history!"  Indeed demolition is the history of cities.

Cities are humanity's longest-lived organizations (Jericho dates back 10,500 years), but also the most constantly changing.  Even in Europe they consume 2-3% of their material fabric a year, which means a wholly new city every 50 years.  In the US and the developing world it's much faster.

Every week in the world a million new people move to cities.  In 2007 50% of our 6.5 billion population will live in cities.  In 1800 it was 3% of the total population then.  In 1900 it was 14%.  In 2030 it's expected to be 61%.  This is a tipping point.  We're becoming a city planet.

One of the effects of globalization is to empower cities more and more.  Communications and economic activities bypass national boundaries.  With many national governments in the developing world discredited, corporations and NGOs go direct to where the markets, the workers, and the needs are, in the cities.  Every city is becoming a "world city."  Many elites don't live in one city now, they live "in cities."

Massive urbanization is stopping the population explosion cold.  When people move to town, their birthrate drops immediately to the replacement level of 2.1 children/woman, and keeps right on dropping.  Whereas children are an asset in the countryside, they're a liability in the city.  The remaining 2 billion people expected before world population peaks and begins dropping will all be urban dwellers (rural population is sinking everywhere).  And urban dwellers have fewer children.  Also more and more of the remaining population will be older people, who also don't have children.

I conjured some with a diagram showing a pace-layered cross section of civilization, whose components operate at importantly different rates.  Fashion changes quickly, Commerce less quickly, Infrastructure slower than that, then Governance, then Culture, and slowest is Nature.  The fast parts learn, propose, and absorb  shocks; the slow parts remember, integrate, and constrain.  The fast parts get all the attention.  The slow parts have all the power.

I found the same diagram applies to cities.  Indeed, as historians have pointed out, "Civilization is what happens in cities."  The robustness of pace layering is how cities learn.  Because cities particularly emphasize the faster elements, that is how they "teach" society at large.

Speed of urban development is not necessarily bad.  Many people deplored the huge Levittown tracts when they were created in the '40s and '50s, but they turned out to be tremendously adaptive and quickly adopted a local identity, with every house becoming different.  The form of housing that resists local identity is gated communities, with their fierce regulations prohibiting anything interesting being done by home owners that might affect real estate value for the neighbors (no laundry drying outside!).  If you want a new community to express local life and have deep adaptivity, emphasize the houses becoming homes rather than speculative real estate.

Vast new urban communities is the main event in the world for the present and coming decades.  The villages and countrysides of the entire world are emptying out.  Why?  I was told by Kavita Ramdas, head of the Global Fund for Women, "In the village, all there is for a woman is to obey her husband and family elder, pound grain, and sing.  If she moves to town, she can get a job, start a business, and get education for her children.  Her independence goes up, and her religious fundamentalism goes down."

So much for the romanticism of villages.  In reality, life in the country is dull, backbreaking, impoverished, restricted, exposed, and dangerous.  Life in the city is exciting, less grueling, better paid, free, private, and safe.

One-sixth of humanity, a billion people, now live in squatter cities ("slums") and millions more are on the way.  Governments try everything to head them off, with total failure.  Squatter cities are vibrant places.  They're self-organized and self-constructed.  Newcomers find whole support communities of family, neighbors, and highly active religious groups (Pentacostal Christians and Islamicists).  The informal economy of the squatter cities is often larger than the formal economy.  Slum-laden Mumbai (Bombay) provides one-sixth of India's entire Gross Domestic Product.  The "agglomeration economies" of the burgeoning mega-cities leads to the highest wages, and that's what draws ever more people.

So besides solving the population problem, the growing cities are curing poverty.  What looks like huge cesspools of poverty in the slums are actually populations of people getting out of poverty as fast as they can.  And cities also have an environmental dimension which has not yet been well explored or developed.

There has been some useful analysis of the "ecological footprint" that cities make on the landscape, incorporating the impacts of fuel use, waste, etc. but that analysis has not compared the per-person impact of city dwellers versus that of people in the countryside, who drive longer distances, use large quantities of material, etc.  The effect of 1,000 people leaving a county of 1,000 people is much greater than that of the same 1,000 people showing up in a city of one million.  Density of occupation in cities has many environmental advantages yet to be examined.

At present there's little awareness among environmentalists that growing cities are where the action and opportunities are, and there's little scientific data being collected.  I think a large-scale, long-term environmental strategy for urbanization is needed, two-pronged.  One, take advantage of the emptying countryside (where the trees and other natural systems are growing back fast) and preserve, protect, and restore those landscape in a way that will retain their health when people eventually move back.  Two, bear down on helping the growing cities to become more humane to live in and better related to the natural systems around them.  Don't fight the squatters.  Join them.

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Next month, Friday, May 13, Will Jarvis, author of TIME CAPSULES: A Cultural History, will speak on "Time Capsule Behavior."  There will be more about the vibrancy of squatter cities on Friday, June 10, with Robert Neuwirth, author of SHADOW CITIES, talking about "The 21st-century Medieval City."  Jared Diamond, author of COLLAPSE, will speak on a Friday this summer still being determined.

--Stewart Brand

I still wonder whether that increase in the urban population is from people "moving to cities", or whether they are being born there.  I guess I have some reading to do.

Here is the link to the Long Now Foundation Seminars.