2008 January 12 Saturday
Export Controls On Energy And Food Show Commodity Shortage Trend

Remember when the bigger obstacle to international trade was restrictions on imports? Here is a sign of the times. Countries are cutting off natural gas exports under various pretenses in response to a cold winter and rising demand.

Turkmenistan has halted daily deliveries of up to 23 million cubic meters to Iran since Dec. 31 because of ""technical problems"" and the need to undertake emergency repairs.

Turkmenistan cut off natural gas exports to Iran which cut off natural gas to Turkey which cut off natural gas exports to Greece. The last node in energy distribution networks is not the place to be.

On Jan. 8, Iran stopped all natural gas exports to Turkey as worsening weather boosted domestic demand, forcing Ankara to use as much as a third of its stored fuel. The following day, Turkey halted the flow of Azeri gas to Greece because of the suspension of gas supplies from Iran. Adding to Turkish anxieties, Russia, Turkey’s other main supplier of natural gas, also reduced exports, citing severe weather.

In the future Turkey will also be able to hold back Iraqi natural gas from Europe.

Turkish Energy and Natural Resources Minister Hilmi Guler says the natural gas produced in Iraq will be exported to Europe via Turkey.

Parenthetically, when Russian natural gas exports start declining Germany's opposition to the continued use of nuclear power is going to turn out as incredibly foolish. The big run-up in grain prices driven in part by demand for biomass energy already has Russia restricting grain exports.

The Russian government’s decree imposing a 40 percent export duty on wheat, meslin (wheat and rye mixed), and barley, but not less than EUR 0.105 per 1kg, will take effect on January 29, 2008. The document was signed by Prime Minister Viktor Zubkov on December 28. The measure, which almost quadruples Russia’s protective duties on grain exports, will apply until April 30, 2008.

On October 8, the Russian government decided to introduce export duties on wheat and barley, at the same time lowering import duties on milk, butter, cheese and sour cream. The export duty on grain was set at 10 percent of contract price but not less than EUR 22 per tonne, and at 30 percent for barley, but not less than EUR 70 per tonne.

Russia is not alone in placing restrictions on food exports.

All national governments are keenly aware of the possibility of civil unrest in the event of severe food shortages or famine, and many have taken minimal steps to ease the crisis in the short term, such as reducing import tariffs and erecting export restrictions. On December 20, China did away with food export rebates in an effort to stave off domestic shortfalls. Russia, Kazakhstan, and Argentina have also implemented export controls.

Argentina is restricting energy exports.

A threat this week from Argentina's top price controller to cut off fuel exports could further complicate Exxon Mobil's (XOM) widely reported bid to sell its Argentine assets.

Argentina is also restricting food exports.

Argentina's independent farm sector, famed as religiously laissez-faire and for bitter railing against U.S. and European Union subsidies and barriers, is no more.

Over the past year, the government has consolidated its hold on the sector, taking advantage of sky-high international commodity prices to raise export taxes on grains. While the rising grain values have been a boon to state coffers and flooded the Pampas with wealth, rising domestic food prices have challenged a government that has made controlling inflation a major element of its economic policy.

The government now opens and closes the grain export registries like a tap. Companies must register all grain exports before shipping the goods. When the government feels that domestic supply is close to being threatened, the nozzle is shut.

It also limits beef exports to 70% of 2005 levels. In addition, the export tax on soybeans was raised to 35% from 27.5%

What will go down faster? Food exports or oil exports or natural gas exports? Remember, crops have become sources of both food and energy. So as energy prices rise the demand for crops to make biomass energy rises and therefore so do grain prices and other food prices. Populations will respond to rising food prices by demanding restrictions on food exports. They'll do the same with energy exports.

Share |      By Randall Parker at 2008 January 12 02:44 PM  Economics Energy


Comments
Wolf-Dog said at January 13, 2008 5:25 AM:

Apparently Russia is stopping uranium exports and started importing uranium instead, in order to conserve its own uranium reserves, which are actually plenty, but they still want to make sure that they will have enough for the next century.

Kenelm Digby said at January 13, 2008 6:31 AM:

It's very strange that all these apocalyptic doosday scenarios from the 1970s are actually coming to pass now (come back Paul Ehrlich, all is forgiven!), when they lay dormant during the '80s and '90s.
The reason?
the 1980s - 90s wre a period of world economic stagnation engendered by the first oil shock and commodity boom.
It has only been the rise of China since the mid 1990s that has completely altered the picture.

Randall Parker said at January 13, 2008 9:33 AM:

Kenelm,

I read somewhere that if Julian Simon and Paul Ehrlich had repeated their famous commodity basket bet in 1998 or later then Ehrlich would have won. That makes sense. I've seen numbers for broad commodity price indexes (even posted one result here) and they've doubled and more since the late 1990s.

Ever since I saw charts showing how oil production in a country peaks within a 2 or 3 decades of the discovery peak I've know that the more optimistic forecasts for oil production are unrealistic. But more recently I've come to appreciate that not just natural gas but coal as well will become big problems for us. We can't count on coal so that we can switch transportation to electricity.

The decline in North American natural gas production, like that in the North Sea, will increase the need for coal for electric power. But coal is going to peak worldwide, probably in the 2020s if the Energy Watch Group is to be believed. In the US I'm less clear on the peak date.

So we need to shift current uses of oil, natural gas, and coal all to nuclear, wind, and solar and we've got to do this in the 2010s and 2020s. I expect declining living standards during this transition and a lot of lay-offs and stagflation.


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