Singapore Peak Oil

With the recent flooding situation in Thailand (Link), the price of rice is going to increase. This is only the beginning of a multi-decade long increase in the price of food as climate change, peak oil and a growing population make it increasingly difficult to feed everyone satisfactorily (850 million people are chronically hungry according to FAO). Mr Lee KY thinks that it is no problem because we can pay for it if our economic growth is strong.

Lee Kuan Yew in TODAYONLINE:

Student: In the next 20 to 30 years time, what if global demand for food outstrips supply, then what will be of our food security plan?

Mr Lee: It doesn't matter whether you grow your own food or you buy your food. The question is the price. If there is a food shortage worldwide, the price of food, produce will go up. And the answer for a country like Singapore is to make sure that our incomes rise, our total GDP rises faster than the food prices.

It does not matter whether you grow your own food or you buy your food. The question is the price? Really, Mr. Lee? Let's go back a few years in history and consider the following news headlines from 2008:

Brazil May Curb Rice Exports to Boost Inventory

Vietnam to cut rice exports to curb inflation

Cambodia Halts Rice Exports to Curb Rising Domestic Prices

India introduces rice export ban

And also from 2011

Myanmar Puts Lid on Its Rice Exports

Egypt says rice export ban to Oct 2011

It is often said that money makes the world go round, but when times are desperate and push comes to shove, governments around the world are going to restrict their food exports to protect their domestic supplies and to calm any local food unrest. When that happens, it does not matter how rich you are because no country is going to sell any food to you. Your dollars and cents will just be worthless pieces of paper or electronic entries in a bank's vault or computer database.

It was fortunate that Thailand did not ban any rice exports in 2008:

Thailand will not ban rice exports (2008)

With the recent catastrophic floods in Thailand and Vietnam (AFP Link), there is a huge chance that their governments might just introduce curbs or restrictions on the amount of rice that they export.

Now consider this plausible scenario a few years from now: 1. Extreme weather patterns destroy the production of all the major rice exporting nations; 2. Oil production in the Middle East plummets due to Peak Oil and political unrest. Results? Food prices soar and every major food exporting nation bans food exports completely to protect their domestic markets. What becomes of Singapore's food supply? Are you going to chew your paper Singapore dollars? In light of this, is it not important to grow your own food, Mr Lee?

Also, some intelligent responses from a reader in that TODAYONLINE report:

david

Updated 05:42 PM September 06, 2011

When there is global food shortage, it is no longer a matter of price. We may not be able to get any food, or enough food, at any price.

Even if Singapore owns the farm overseas, the foreign government (where the farm is located) may not allow the farm produce to be exported. Even if the foreign government allows the farm produce to be sold to Singapore, the workers at the farms or trucking firms or dockyards may sieze the produce to feed their own families first. Do you think they care about Singapore's survival or the rule of law?

It may not be sexy or wonderful for our economic numbers to produce our own food, but it is time that Singapore placed more importance to food security.

What was wrong with Lee Kuan Yew's reasoning? His typical, mainstream economic way of counting everything in dollars and cents and his strong belief in the free market system. Some comments that I left on Gerald Giam's blog are worth repeating here:

The way I see it, the main problem is that mainstream economists have a wrong set of units for accounting. They reduce everything to dollars and cents which are nothing more than abstractions divorced from the material world. Oil prices hit a low in 1999 at $17/barrel but the price did not tell us what was left in the ground for us to extract. All it did was to create the temporary illusion that oil was plentiful, and that alternative sources of energy were therefore uneconomic and unnecessary – in dollar terms – according to the self-deluded economists.

Had they learned to calculate the economic inputs/outputs of a nation in terms of energetic units (Watts, BTUs, etc.), biocapacity and ecological footprint, they would have realized that our entire growth-centric-consumerist economic paradigm is one giant energy sink and resource blackhole that is squandering away at unsustainable rates the earth’s natural capital and natural resources that have taken eons to form.

After years of encouraging and pursuing a policy of higher birth rates for Singapore, I was a little surprised to read these comments by MM Lee at a dinner marking the Botanic Gardens' 150th anniversary in TODAYonline (see below). Apparently, even he understands our "sunshine limits to growth". So the question to ask, why does Singapore continue to pursue those very policies of economic and population expansion which will only lead to self-destruction due to the over-exploitation of the earth's resources?

We live in a momentous turning point in the history of human civilization where the converging crises of peak oil, climate change, overpopulation and a broken financial system threaten to throw us into an era marked by elevated levels of violence, crime, pestilence, famine and death. Sadly, many Singaporeans remain blissfully unaware of these impending events. I suspect this ignorance may be attributed in part to the frequent silence of the local media and our culture's over-reliance on the government to "fix it all".

The response of governments around the world has been the exact opposite of what they should be doing to tackle these problems. They have been adding fuel to the fire. Instead of downsizing and cutting back on growth and consumption, we have been urged to spend in order to stimulate the economy to meet growth targets. Replacing the GDP metric with the Genuine Progess Indicator is one of the first steps any country should take to measure true progress and wealth. Instead of "re-localising" our economy and our food and energy production to maximise our resilience to external shocks, we promote globalization and free trade to boost our production efficiency and capacity to the delight of the transnational corporations' bottom lines, but to the detriment of the environment, the middle class and the peasantry.

The Minister Mentor is right, we have outsmarted ourselves. So now i ask him, why is Singapore "still doing these stupid things?"

‘Humans are too clever’

MM LEE: I read an analysis ... This man said, for thousands of years of agricultural societies, the only source of energy was the sun which limits what they can grow, what animals can feed on the grass, what population you can sustain. Then came the industrial revolution ... (driven by) fire and coal. Coal is stored solar energy. Then they found oil; also stored solar energy..

Now ... they got this experiment to make two atoms collide and see whether they can generate power like the sun. So man is trying to generate mini suns, that can go on forever. But when you switch it on the whole thing burns up. So man has not found a way ....

And if we do find out what’s the way, will that solve it? I don’t think so. We’ve become too clever by far. If we find a solution to energy, the world will be overpopulated ... In 50 years, we are expecting 9.5 billion people from 6.3 billion now. You find a new energy source, we’ll become 80 billion people in the next century. Then what?.

So I think sooner or later, the human being must come to terms with the fact that this planet called earth can only sustain so much. You go beyond that, you destroy your habitat..

MODERATOR TOMMY KOH: Haven’t they learnt that already?.

MM LEE: If we’ve learnt that, why are we still doing these stupid things?

http://www.todayonline.com/articles/318489.asp

Juxtapose these two statements.

Lee Kuan Yew:

Mr Lee told his 800-strong audience of industry players and economists that he was convinced that Singapore was heading into its most promising decade yet.

"We're going to move into a new plateau, new platform. You can see it visibly before your eyes. In 5 years, it will be good. In 10 years, wonderful," he said. LINK

Energy Watch Group:

The major result from this analysis is that world oil production has peaked in 2006. Production will start to decline at a rate of several percent per year. By 2020, and even more by 2030, global oil supply will be dramatically lower. This will create a supply gap which can hardly be closed by growing contributions from other fossil, nuclear or alternative energy sources in this time frame.

The world is at the beginning of a structural change of its economic system. This change will be triggered by declining fossil fuel supplies and will influence almost all aspects of our daily life.

...The now beginning transition period probably has its own rules which are valid only during this phase. Things might happen which we never experienced before and which we may never experience again once this transition period has ended. Our way of dealing with energy issues probably will have to change fundamentally. LINK

I'm laughing and crying at the same time; laughing because both statements are diametrically opposed and crying because the minister appears to be detached from the physical world that we live in.

'Water is a precious resource, without it you will die,' Mr Lee said. 'YOU CAN LIVE WITHOUT ENERGY.'

LINK

Nothing new, really. As we have seen in previous posts (here and here), the Minister Mentor is out of touch with reality on energy issues.

---

TWO incidents drove home to Minister Mentor Lee Kuan Yew the need for Singapore to strive for self-sufficiency in water.

The first was when the island fell to invading Japanese troops who blew up pipes transporting water from Johor to Singapore in February 1942.

The second incident happened a few days after Singapore's separation from Malaysia in August 1965. Then-Malaysian prime minister Tengku Abdul Rahman remarked that 'if Singapore doesn't do what I want, I'll switch off the water supply'.

Since then, the 'quest for water independence' has dominated every facet of urban development here, he told an audience of 650 international officials and water experts.

http://wildsingaporenews.blogspot.com/2008/06/rising-to-water-challenge-from-day-1.html

What about the quest for food independence? What would it take to drive home the point that depending on foreign farmers hundreds and thousands of miles away for 90 percent of our food is a sign of poor resilience? Empty supermarket shelves? Food rationing?

The Singapore government and a majority of Singaporeans are going to be caught off-guard when the oil crisis hits home.

Giving subsidies will not cure high prices for food and oil, and neither will a "dynamic economy" as MM Lee indicated. Will more money alone solve our problems? Will more paper dollars guarantee that we can continue to buy food at market prices as MM Lee suggested? Will Vietnam and Thailand sell any rice to us if they have a poor harvest? Can money buy you food that is not available? Can money buy what is not for sale? Instead of a "dynamic economy", we ought to be thinking of how to increase local food production so that we can be more self-sufficient.

MM Lee Kuan Yew is holding on to a fundamental error held by conventional economists:

Error: Economic activity as a function of infinite "money creation", rather than a function of finite "energy stocks" and finite "energy flows". In fact, the economy is 100% dependent on available energy -- it always has been, and it always will be.

Economic students are taught that banks "create" money every time they make a loan, and that the economy is powered by money instead of energy. The juxtaposition of these two data (the first is true, the second is false) leads even Nobel Prize-winning economists to conclude they have discovered a perpetual-motion machine:

"Should we be taking steps to limit the use of these most precious stocks of society's capital so that they will still be available for our grandchildren? . Economists ask, Would future generations benefit more from larger stocks of natural capital such as oil, gas, and coal or from more produced capital such as additional scientists, better laboratories, and libraries linked together by information superhighways? ... in the long run, oil and gas are not essential." [ p. 328, ECONOMICS, Nobel Laureate Paul Samuelson and William Nordhaus; McGraw-Hill, 1998; http://www.amazon.com/exec/obidos/ASIN/0070579474/brainfood.a ]

No person has had a greater influence on the thinking of experts who have become government regulators of the world's oil and gas industries than economist Morris Adelman: "There are plenty of fossil fuels and no limit to potential electrical capacity. It is all a matter of money." [ p. 483, THE ECONOMICS OF PETROLEUM SUPPLY, by M. A. Adelman; MIT, 1993; http://www.amazon.com/exec/obidos/ASIN/0262011387/brainfood.a ]

But of course, economists like Samuelson, Nordhaus, and Adelman are wrong. The First and Second Laws of thermodynamics tells us there is a limit to potential electrical capacity -- it's not all a matter of "money", it's all a matter of "energy".

The money supply is not constrained by the laws of matter-energy (ecosystem/biosphere) within which our economy must operate. When the physical constraints of our production are reached, the disparity between our monetary and physical system will manifest itself as price inflation, which is what we are witnessing today.

It is lamentable that our leaders do not recognize the errors of the conventional economic system, which explains why I will continue to be pessimistic about our future until there is a fundamental shift in their worldview. They are still trapped in their old mindsets and change will not come easily as they were taught and trained to think "economically" instead of "thermodynamically". Modern economics is not based on scientific laws.

MM Lee: Because with a good currency, 'however much the price of rice goes up, or meat, or whatever, we will not go hungry'.

Modern industrial agriculture is highly dependent on high energy inputs. When oil production begins its irreversible decline, large-scale agricultural outputs will follow suit. In view of the recent news that several countries have curb their grain exports, do you think food exporting nations will sell any food to us if they are unable to satisfy their citizens' stomachs?

The keywords to our future survival are "self-sufficiency" and "redundancy". It may not be economical to produce our own food and to ramp up solar energy production now, but these steps will increase our resilience in times of food and oil disruptions which look increasingly likely each passing day. Unfortunately, redundancy is often at odds with economic efficiency - a "sacred cow" in the Singapore context. When it comes to food and energy production, being "economical" and "efficient" increase our vulnerability to external shocks.

MM Lee's typical "money-will-solve-all problems" thinking is best summed up by Richard Heinberg who was writing hypothetically from the future:

The economists had been operating on the basis of their own religion - an absolute, unshakable faith in the Market-as-God and in supply-and-demand. They figured that if oil started to run out, the price would rise, offering incentives for research into alternatives. But the economists never bothered to think this through. If they had, they would have realized that the revamping of society's entire energy infrastructure would take decades, while the price signal from resource shortages would come at the exact moment some hypothetical replacement would be needed. Moreover, they should have realized that there was no substitute capable of fully replacing the energy resources they had come to rely on.

The economists could think only in terms of money; basic necessities like water and energy only showed up in their calculations in terms of dollar cost, which made them functionally interchangeable with everything else that could be priced -- oranges, airliners, diamonds, baseball cards, whatever. But, in the last analysis, basic resources weren't interchangeable with other economic goods at all: you couldn't drink baseball cards, no matter how big or valuable your collection, once the water ran out. Nor could you eat dollars, if nobody had food to sell. And so, after a certain point, people started to lose faith in their money. And as they did, they realized that faith had been the only thing that made money worth anything in the first place. Currencies just collapsed, first in one country, then in another. There was inflation, deflation, barter, and thievery of every imaginable kind as matters sorted themselves out.

In the era when I was born, commentators used to liken the global economy to a casino. A few folks were making trillions of dollars, euros, and yen trading in currencies, companies, and commodity futures. None of these people were actually doing anything useful; they were just laying down their bets and, in many cases, raking in colossal winnings. If you followed the economic chain, you'd see that all of that money was coming out of ordinary people's pockets...but that's another story. Anyway: all of that economic activity depended on energy, on global transportation and communication, and on faith in the currencies. Early in the 21st century, the global casino went bust. Gradually, a new metaphor became operational. We went from global casino to village flea market.

With less energy available each year, and with unstable currencies plaguing transactions, manufacturing and transportation shrank in scale. It didn't matter how little Nike paid its workers in Indonesia: once shipping became prohibitively expensive, profits from the globalization of its operations vanished. But Nike couldn't just start up factories back in the States again; all of those factories had been closed decades earlier. The same with all the other clothing manufacturers, electronics manufacturers, and so on. All of that local manufacturing infrastructure had been destroyed to make way for globalization, for cheaper goods, for bigger corporate profits. And now, to recreate that infrastructure would require a huge financial and energy investment ---- just when money and energy were in ever shorter supply. (Peak Everything, pp. 175-177)

http://www.straitstimes.com/Free/Story/STIStory_241154.html

OIL and food prices are at record highs and look set to stay that way.

At the same time, there are Singaporeans who want subsidies for a range of items, from rice to bus fares.

But Minister Mentor Lee Kuan Yew made clear yesterday that subsidies are no way to solve problems caused by rising costs.

He argued that subsidies reduced the incentive for people to be competitive - which is what is needed to keep the economy growing in order to better pay for costlier essential items:

'As long as we have a dynamic economy, we can solve our problems. Subsidies cannot solve them.

'I read the newspapers and the simplest thing is to write and say, subsidise. Rice, oil, bus fares, even putting seat belts on school buses. That is the surest way to go downhill.

'Multiple subsidies have led to a welfare system that has trapped Europe in slow growth. Europe's welfare systems have lowered incentives for people to strive and to excel.'

Speaking to 6,000 constituents at the Tanjong Pagar GRC Family Day at the Queenstown Stadium, he dwelt on why the problem of rising costs is here to stay and how Singapore plans to deal with it.

He noted that the consumption of oil had risen, with few new oil discoveries. And as once-poor countries like China and India prospered, they needed fuel to make goods to export.

The world's population, now over six billion, is forecast to hit nine billion by 2050. But climate change is drying up agricultural areas.

'What are we going to do? We can see the signals,' he said.

'We can't grow tapioca, or corn; we can't compete in making Nike shoes or sewing gowns. We have to move up to more complicated jobs and services.

'We have to earn enough money by working hard and smart in manufacturing and services to pay market prices for food, rice, wheat, maize, vegetables, fruits, fish, meats, chicken and eggs.'

Because with a good currency, 'however much the price of rice goes up, or meat, or whatever, we will not go hungry'.

Singapore had to remain a competitive society to generate growth.

'The Government must ensure that everyone has the highest-paid job he is qualified to do. If his salary is below the minimum for a decent life, the Government will top up with Workfare,' he said, referring to the national income supplement for low-wage workers.

And if people know the cost of what they consume or use, they will spend their money 'more to (their) benefit', he said, instead of over-using or abusing subsidised items which they did not know the real cost of.

Mr Lee said neighbouring countries now had to grapple with the economically-necessary task of cutting fuel subsidies. In Indonesia, for example, there were riots.

But he noted that opposition leaders there also encouraged demonstrations over the cuts and rising food prices to weaken the chances of President Susilo Bambang Yudhoyono winning re-election next year.

'In Malaysia, determined efforts by former PM Mahathir to unseat PM Abdullah Badawi have not weakened his (Abdullah's) hold on the reins of power because he commands a decisive majority in Parliament, just short of two-thirds,' he added.

'But not to upset the electorate, his government has not reduced the subsidy on oil.

'Of our other neighbours, Thailand faces the danger of another coup. In the Philippines, charges of corruption hover over President Gloria Arroyo, damaging for investors and the economy.'

Citing recent natural disasters in Myanmar, he said Singapore had 'no earthquakes, no tsunamis, no typhoons because of our favourable geographic location'.

'Let us be grateful that we have long-term stability and therefore continuing high-value investments and good growth,' he said.

'In five years, we will have a more lively and beautiful city.'

He was also confident that other big cities in Asean - Bangkok, Kuala Lumpur, Jakarta, Manila, Ho Chi Minh and Hanoi - would flourish with the advent of the Asean free trade area and other free trade pacts.

MM Lee then apologised to the audience for not being able to speak too long last night, as he had a 'bad throat' and is scheduled to take the stand in court today.

The hearing is to assess damages that Singapore Democratic Party chief Chee Soon Juan, his sister and the party have to pay for defaming Mr Lee and Prime Minister Lee Hsien Loong in 2006.

'I've got to save part of my voice to let him cross-examine me,' Mr Lee said. 'Of course, in the course of the cross-examination, I have a few things to say.'

http://www.channelnewsasia.com/stories/singaporelocalnews/view/349929/1/.html
http://www.todayonline.com/articles/255800.asp

In a recent Bloomberg interview, MM Lee said that the Government of Singapore Investment Corporation Pte Ltd, or GIC, may hold their stakes in western financial institutions for 20-30 years. Some of the institutions that GIC has invested in recently are Citigroup and UBS.

Once again, I believe this highlights our Minister Mentor's poor sense, or lack of understanding, of the direction in which the world is heading. We are no longer living in the 1950's or 60's when oil discoveries flourish and world energy production per capita grew rapidly. We are now entering the twilight of oil extraction and energy production.

When oil supplies cannot keep up with demand, economic growth will stagnate and decline. It should be obvious that financial institutions will suffer since their earnings are predicated on robust economic activity; I expect Citigroup, UBS and many major financial institutions to sink in the not too distant future.

Our Industrial Civilization runs on oil, period. Anyone who thinks we can easily transition to an economy that runs on alternative energy without major disruptions to our lives is delusional. Geologist Walter Youngquist explains clearly the myths and realities of alternative solutions.

Oil is currently selling for about $115 a barrel. Oil production appears to have peaked at about 85 million barrels a day. See chart below. Taken from http://gailtheactuary.wordpress.com/files/2007/06/world-oil.jpeg





Oil prices have climbed more than 400% since 2000. During this period, oil production was able to meet growing demand from China and India. I cannot imagine what prices will be like when production begins to decline. See chart below. Taken from http://upload.wikimedia.org/wikipedia/en/2/2f/Oil_Prices_Medium_Term.png





The German-based Energy Watch Group predicts that world oil production will fall by 30% as soon as 2020, a mere 12 years away.

Using the Export Land Model developed by Jeffrey Brown, oil exporting countries will go from peak exports to zero exports in nine years. In other words, if all oil exporting nations were to hit peak production today, they will export zero barrels of oil in nine years because of domestic oil consumption.

GIC, which manages Singapore's foreign reserves, is going to regret they ever made this investment.

Because our Minister Mentor, whom I believe still wields great influence on our ministers and MPs, shows no hint of understanding our current ecological crises (peak oil, overshoot, overpopulation, high entropy), I fear Singapore will be in for very hard times.

Marketwatch report on the Bloomberg interview

Link

THE STRAITS TIMES
March 8, 2008

Oil prices 'unlikely to rise further'

OIL prices are not likely to go higher, Minister Mentor Lee Kuan Yew said yesterday.

As crude oil prices hit US$105 (S$145) per barrel, MM Lee believes it is not likely to creep further up to US$110.

'The oil suppliers are testing the limits. They believe that China and India now form a new long-term base demand. They may be right,' he said.

'I don't think it can go up US$110, US$120, US$150 and the world economy goes on. Inflation will go through the roof.

'Economies of the West will go down, hyper-inflation in many developing countries. So it will go into reverse. There's no projection right to the end.'

He said there is little Singapore can do as it is a price taker and not a price giver.

'We cannot influence Opec, we cannot influence the price of oil or gas.

'All we can do is to adjust our consumption, minimise the amount of power we use to provide the same unit of either goods or services. That's all we can do. What else can we do?' he said.

But, MM Lee said, people should not be rattled by the increase in price. Instead, they should remain alert and adjust to changes.

'We have remained a vibrant economy because we adjust to the market. Whether we panic or don't panic, I think it would be foolish not to be alert to the changes and to take steps to meet them,' he said.

'If the world economy goes into reverse, we are going to be hit. And it's not just us. China, India, the whole region will be hurt. So, this is a worldwide problem.

'Food prices, oil, gas, it's not specific to Asia or South-east Asia. It's worldwide.'


PEH SHING HUEI

Dear MM Lee, I have great respect for what you have done for Singapore, but your comments here highlight your ignorance of peak oil. Oil is the foundation of our industrialization. It is oil that powers our world and our lives. If rice is too expensive, you can turn to other staple foods like wheat, corn or potatoes. Now that oil is getting more pricey, what can we turn to? Unfortunately, there are no substitutes that can equal oil in energy density and industrial versatility. Because there are no good alternatives to oil, demand destruction will not come easily. Oil prices hit $120 recently and I believe it will go much higher before demand destruction sets in.

Related Link.


Geologist Walter Youngquist wrote:

"Oil in its various refined derivative forms, such as gasoline, kerosene, and diesel fuel, has a unique combination of many desirable and useful characteristics. These include a current availability in abundance, a currently high net energy recovery, a high energy density, ease of transportation and storage, relative safety, and great versatility in end use. Oil is also useful as more than an energy source. It is the basis for the manufacture of petrochemical products including plastics, medicines, paints, and myriad other useful materials. Finally, the asphalt "bottoms" from refineries have converted millions of miles of muddy trails around the world into paved highways on which transport vehicles fueled by oil run.

Alternative energy sources must be compared with oil in all these various attributes when their substitution for oil is considered. None appears to completely equal oil"