The magic of $60 oil...

As predictions for alternative fuels glow brightly on the horizon, it is useful to scan the footnotes of the forecasts. Just as farmers have been told corn (or beans or whatever) have "reached a new plateau" before, much of our planning for the future has been based on a world where oil remains stubbornly expensive.

While it can be argued this is the most conservative case, it may be that an assumption of expensive oil is just the opposite. Many alternative fuel ideas collapse when cheap petroleum becomes available. Note the comments on this idea:

Researchers at UC Riverside have unveiled a new process that can convert sewer sludge, wood, agricultural waste, plain old trash or even plastics into diesel oil for $1.00 a gallon. Viresco Energy, will pay $15 million for a pilot plant to be built in the next two years. [More]

If alternative fuels are successful in significantly reducing oil demand, what would that mean to oil-producing countries? Now it starts to get interesting:

It is possible that we see well over a 20% reduction in oil consumption by 2020 due to a combination of alternative energy production, carbon taxes, political considerations, oil peaking and (of course) greater use efficiency. 50% seems outrageously high, but I'm not willing to say that's impossible; the situation we're in now, with the overlap of climate crisis, energy security concerns, and markets looking for new sources of innovation seems ripe for a "tipping point" transition. With a big chunk of oil revenues gone, the nations with economies built entirely upon petroleum exports would find themselves in serious economic and political straits.

This is not hard to predict; in fact, it's almost a certainty (few of the major oil exporting countries have demonstrated a real aptitude for managing rapid change). The OPEC ministers would see this as readily as we do. This is a tremendous threat to their well-being. Some of the oil exporting nations will become more accommodationist in order to secure support from richer countries (although it strikes me as likely they'll turn to China before they turn to the US or Europe). But some will spiral apart, using the increasingly-common tools of global disruption to weaken neighbors and trip up the West. [More]

Two points:

1. We are not running out of oil - we're just tired of paying so much for it.
2. As we are successful with other energy sources, the returns for them will diminish.

The big factors are the BRISC [Brazil, Russia, India, South Korea, China] nations. (Note the snappy new acronym - I think I saw it in the Financial Times). Most forecasters are counting on their demand to soak up all the oil we don't use - and more. That seems reasonable, but so much money is being bet on these assumptions that a small hiccup in the balance of supply and demand could cause enormous energy price swings.

This will not be an easy road for farmer-energy producers. Even with the goverment guarantee of a market, ethanol prices could fluxuate wildly. Nor will the handsome profits of ethanol producers in recent months go unnoticed by investors who have increasing few attractive places to put their money.

The fuel future for agriculture will have to be earned, not won.

[Thanks, Tim]