An Embarrassing Amount of Gas.

In last month’s Global Farmer, I discussed the possibility that a minor  conflict, or even just a few angry words on the South China Sea or in the Straits of Hormuz could cause Australia to at best ration petrol, diesel, AV gas and other fuels — or at worst, cause this country to grind to a halt within weeks. Why?  Because our current fuel reserves, in January of this year stood at 22 days’ worth of petrol, 17 days of diesel and 27 days of total petroleum products.

And the problem for Australia is that they nearly all our fuel oils start as crude oil in the Gulf region before they go to Japan, South Korea, Singapore and Australia to be refined. If supply stops our reserves will barely last us for thirty days. After that everything, everything, not could stop, will stop! Think Venezuela.

Estimated stock of vital supplies.

Everything we use, everything we eat, makes at least one trip on a truck.

Again, like last month and as I write, the tension is ratcheting up between Iran and the United States. America is sending a fearsome ‘Battle Group’ into the Gulf region led by a nuclear powered aircraft carrier.   The biggest long range bombers in its air force, the B52s are being sent to Qatar. Iran says it can stop all shipping in the Straits of Hormuz if it wants to. Thirty percent of the worlds oil, but virtually all of Australia’s oil passes through those waters.

Iran is asking how would America feel if it Iran stationed its warships off the coast of California?

The economy of Iran is collapsing, inflation is high and increasing daily as US imposed sanctions continue hurt everyone. America wants Iran to stop its nuclear bomb programme and Iran is resisting. Iran says the economic sanctions against it are ‘economic terrorism’.

Now the election in Australia is over. Neither the Prime Minister nor the new Leader of the Opposition have mentioned the potential for a fuel crisis in Australia if rattling of sabres between Iran and the United States, over which we have no control, gets out of hand.  Maybe they don’t want to frighten the natives? More likely is that they don’t want us to know about their incompetence. How the current and past governments have failed to keep our fuel supplies secure.

Is import substitution the answer to our reliance on oil from an unstable world?

Import substitution industrialization (ISI) is a trade and economic policy which advocates replacing foreign imports with domestic production. ISI is based on the premise that a country should attempt to reduce its foreign dependency through the local production of industrialized products.

So what about Natural Gas? We are all sitting on a very big gas tank.

We could run all of our vehicles in Australia on natural gas.

There are twenty five million vehicles in the world, from cars to trucks, running on natural gas. Twenty one million of that number are in just five countries; China with 5.3m. Iran 4.5m. India 3.0m. Pakistan 3.0m. Argentina 2.3m. Brazil 1.8m and Italy with 1.0m. In Australia there are only 3,110 vehicles running on natural gas. Now have a look at how much gas we already know about in Australia and then ask yourself why we remain reliant on an unstable Gulf Region for virtually all of our fuel oil:

An article in the Financial Review in 2017 shows the estimated future demand for natural gas in our region (Graph 2). What is of great interest is that those countries who supply about 50% of our refined oil products, Japan, China and South Korea, are all big purchasers of natural gas from Australia. At present Singapore, who refines the the rest of our imported fuel, uses natural gas for 95% of their power generation, all of which is sourced from Malaysia and Indonesia by pipeline (!). What on earth are we thinking about in Australia?

Just one small war will give us a big headache.

To recap — we need to remember that virtually all of our fuel oil has to pass through the Straits of Hormuz and the South China Sea as crude oil. That which is refined in Japan, South Korea and a small amount in China, has to return though the South China Sea to get to Australia. We have less than 30 days fuel in reserve in Australia, 30 days.

The Gulf War in 1990 caused crude oil prices to double from US$17 a barrel to US$37 within a matter of months. In 2003 the same thing happened, though to a lesser extent, and again during the global financial crisis there was a surge in crude oil prices, this time nothing to do with a war. Today, early June 2019, Brent crude is nearly US$70 barrel. In 2011 it was US$111 barrel.

How much Natural Gas does Australia have?

Just so we can understand all of this — how much gas are we sitting on? One trillion is one million, million, or ten to the twelfth power. Australia is using and selling annually one eightieth of our known gas reserves. If we continued at this rate of use, the combined identified stocks and prospective resources (stocks) there is about 357 years of gas, which is quite a lot.

Our combined sales and domestic usage in 2017 (Graph 2) was 200 million metric tonnes or 3.2 trillion cubic feet (TCF) and demand is predicted to not quite double in the next seventeen years to 6.4 TCF or 400 million metric tonnes per annum, which means if we were the only supplier in the market, which we are not, then our identified and prospect stocks used at the 2035 prediction will last 179 years.

What all this means is we are sitting on an enormous gas tank, apparently one of the biggest in the world. It belongs to the people of Australia first and foremost. If we don’t use it to give this country a comparative advantage over other countries, then we are fools.

Exploration and development companies are exporting this resource to countries like China to help it reduce its reliance on coal powered power stations and so reduce pollution. The comparative advantage that Australia could gain over its international competitors, especially in agriculture, has not as far as I can determine, been evaluated. So let us have a look at it.

Apparently every vehicle on the road today including scooters and motor bikes can and do run on natural gas. Everything from cars to trucks, both petrol and diesel, locomotives are also running on the stuff, so the question has to be why do we in Australia only have 3,110 vehicles running on natural gas? There is a source of natural gas in every mainland state. I think the answer is complacency and a lack of government willpower for change.

Transition to running vehicles on natural gas, particularly motor cars, is no more difficult than transitioning to liquid petroleum gas or LPG and we have been doing that for fifty years. The big benefit is that cars converted to natural gas will also run on any other fuel as the Fiat Siena demonstrates, so journey distance as in Brazil and in Australia is no longer a problem. Run the vehicle on the cheapest fuel available at the time. This does not only apply to vehicles that run on petrol and petrol ethanol mix, the same apples to diesel vehicles, they will also automatically switch from one fuel to another depending on availability, how good is that? In a country where long journeys are common for many, with natural gas being available first in the cities and then in the country, we could slowly reduce our dependence on the world for oil.

In Brazil when I was there more than twenty years ago there were cars running on petrol, diesel, ethanol and ethanol blends. Now they have included CNG into the equation. We are no longer the smart country, Brazil is.

Biofuels -Ethanol.

Before I go any further there is a great article by Colin Bettles on this subject. Colin’s article seems to concentrate on the production of ethanol.

Bob Katter, quite rightly claims that his Queensland sugar cane growers should be able to grow cane for ethanol production, but there needs to be a mandate for a percentage of ethanol inclusion in petrol. Other counties have 5%, 10% mandated inclusion. Why haven’t we done it already? God only knows. As Colin rightly claims we are lagging behind the rest of the world and it seems to be due to political inertia. Again vehicles that run on an ethanol mix can also run on natural gas.

The UK boasts one of the biggest ethanol plants in the EU capable of producing some 420 million litres of ethanol  a year from 1.1 million tonnes of low grade (feed) wheat. The wheat byproduct is a high protein stock feed, which in the UK reduces the importation of soy, cotton seed and the like for dairy and winter stock feeds.

The plant opened (again) in April 2018 and then closed again in December claiming that the British Government was slow in introducing the promised 10% ethanol inclusion rate in all UK petrol. Probably due to pressure from the oil companies.

In the United States ethanol production in 2018 was 16 billion US gallons or 60 billion litres. Ethanol inclusion in petrol is mandated state by state. Is it any wonder that the United States is now self sufficient in energy?

Biodiesel.

To start we need to reduce our reliance on imported oil. In agriculture this could quite easily be done. Oil seed crops can be grown and are being grown throughout arable Australia. At present, because broadacre agriculture in Australia has always considered that adding value to our agricultural produce largely beneath its status, think wool, we haven’t done very much about producing biodiesel.

Like the miners we export the raw materials in this case oil seeds to other counties, even to the UK, where Australian canola is crushed into bio-fuel and the high protein meal goes into their livestock industries. Isn’t it time we started crushing and refining the oil for use on farm? Nearly every vehicle engine on farms these days is a diesel and it’s not difficult to make biodiesel.

Not every grower would want to or perhaps should refine their own oil, so growers could form a cooperative, build a crushing and refining plant in the local Shire town. At present canola meal is fetching ~$220 a tonne in Australia. From a tonne of canola one could reasonably expect to get close to 400 litres of oil. Canola futures at present are around and below $500 tonne delivered port and costs about $400 a tonne to grow. The average price of retail diesel fuel this year has been around $1.30/l, at present it is $1.48/l. Do the sums add up yet? What would a crushing and refining plant cost? Don’t know, but this is a long term strategy not a short term tactic. It’s all about the future, it’s about import substitution. It’s about having an oil reserve and not being reliant on an unstable world for fuel for seeding and harvest.

There is an interesting government website which as far as I can see encourages the purchase or production of cleaner fuel oils and removes the necessity to pay duty, so nothing would change. It would also seem that there is some assistance, grants being offered for those who embark upon a programme of helping themselves. What would be best for the farm business growing your own oil for your own use, maybe even selling some to the locals, or being reliant on the oil industry who only have less than a month’s supply in the country?

What could be done with the oil seed meal? With canola meal it could go straight into livestock as a source of high protein. Australia currently imports 70% of all the pig meat consumed in the country. Why is this? We grow the grain, we grow the protein. Maybe the current generation of farmers don’t like the smell of pigs, maybe pigs are beneath them, like sheep? Pigs don’t fit the image and they certainly can smell when kept indoors.

Today’s farmers are not like their forebears, their ancestors, who had learned to believe in diversification the hard way, they learned that reliance on a single crop, like grain, was fraught with danger. Pigs were kept throughout the West Australian wheatbelt fifty years ago, and pig sales were conducted in wheatbelt towns alongside sheep and cattle. So what would be wrong with setting up an elite pig production scheme and starting to help ourselves? Import substitution helps the balance of payments.

Mustard.

I know little about mustard. I know the oil is used in Asian cuisine and the meal is used for all manner of purposes in horticulture and organic systems as a fumigant and weed depressor. There is an interesting article on mustard oil being used with jet fuel and a spokesman for QANTAS saying they will shortly use 100% mustard oil if they can obtain it. So what is good for the goose must be good for the gander, the meal might be a problem though. If you put ‘mustard seed meal’ into your search engine there are a multitude of uses claimed for it, none of which might be attractive to the average grower, but, for those interested in land care and ameliorating damaged soils it does seem to have a place.

Oil Mallee

The oil mallee project in Western Australia is on its way back. Before I go on, I just learned the other day why a friend of mine in the UK grows Willow and sells it to the local power station for a very good price. Apparently the CO2 generated from burning wood is different from that generated from burning coal, why? Because wood is a renewable resource and coal isn’t. Now explain that one. I always thought CO2 was CO2, apparently not!

I was enthusiastic about the oil mallee project, would you believe that was thirty years ago. Now I learn, lo and behold, there is light at the end of the tunnel for oil mallee. I can do no more than point you to an excellent short film by ABC Rural, made by a young lady from Geraldton . It’s wonderful news that the future looks promising to good for the mallee eucalyptus oil industry and for its by-products like bio char.

The wheat belt desperately needs a new industry and for the life of me I cannot see why, as a bloke on the ABC film says, why many more oil mallee plants could not be built around the wheatbelt, it would provide another income, another industry and the source of electrical power for small towns so they don’t have to rely on what is rapidly becoming an old, tired and very expensive pole and wire system.

I hope it all works for them. It is distressing for me to get less than an hour out of Perth heading north and not see a sheep or a cow. It is distressing to see fences pulled out, not just in the paddocks but alongside the road. Fences have gone so of course roadside vegetation had to go as well. Water tanks and windmills seem to have suffered the same fate — all in the name of driving in straight lines and I am told, making more money. Trees in paddocks have also gone and that is rural vandalism.

The same thing happened in the UK forty years ago. Hedges and fences were ripped out in the name of progress and efficiency and what followed was a steep decline in birds and wildlife, many to the point of extinction. Now farmers in the UK are being paid to replant hedges to help bring back wildlife.

The wheat belt is now the wheat and canola belt. I don’t see the global future for wheat any differently than I saw it in 2017. At that time I questioned the long term future of the wheat industry in Australia.

There are too many countries that can produce wheat cheaper than we can and many who also receive government subsidies. To add insult to injury they are closer to some of our traditional markets than we are. Now the world demand for animal protein is increasing, more goats are eaten in the world than sheep. What have we done? Got rid of both.

I can now add to that gloom and pose a question or two regarding the future for canola this coming season. The Chinese have cut back on soy imports from America in retaliation to the imposition of tariffs on their goods into America.  President Trump has responded by giving some compensation to American farmers.

The massive problem facing China is African Swine fever which is running like an uncontrollable fire through the country and has the potential to affect global pork prices.

China, per capita, is the biggest consumer of pig meat in the world and the forecasts are that as millions of pigs are slaughtered, global pig meat prices could rise by up to 70% as China searches the world.

Here in Australia we import 80% of the pig meat we consume. That means if you buy fresh pork or the ridiculously high priced Australian bacon, especially if it is claimed as organic, then what you have purchased is home grown. Just about everything else is imported. I had my say about domestic pig production earlier, but if the shortage in China lifts the market price, once again we shall be paying too much for something we could easily produce ourselves. Why do we import food we can grow ourselves? Are we just lazy? Australian agriculture could make a major contribution to the balance of payments.

How much of the unsold soy crop will be crushed remains to be seen, but if it competes with the canola oil market you can bet your bottom dollar it will, where will that leave canola prices? There are reports coming out of America that some of the soy crop could be crushed for bio-diesel, both for domestic and export markets.

Constant Change.

Can grain farmers change? Do they want to change? According to an experienced wheat belt consultant, many don’t have enough head space left to take on a new enterprise or project, their work load is already too big. The financial gymnastics required to keep a wheat/grain growing enterprise afloat these days, have startled me.

I’m sure they take up a lot of ‘head space’ when we consider that the wheat industry is Australia’s second biggest agricultural export earner (2017), it is appalling that so many growers are balancing their business on a financial knife edge, with over 50% of them showing a negative profit (loss), every year.

Negative farm business profit means a farm has not covered the costs of unpaid family labour or set aside funds to replace depreciating farm assets. Many farms occasionally record negative farm business profits as their incomes fluctuate. However, ongoing low or negative profits affect long-term viability because farms have reduced capacity to invest in newer and more efficient technologies. Over the 10 years to 2015–16, the proportion of grain farms recording negative farm business profits averaged 56 per cent a year.

The reality for our wheat farmers is that wheat yields are in decline and and forecast to further decline over the next 20 years or so, and at one and the same time international yields, the yields of our competitors are continuing to increase. To stay competitive we need a comparative advantage.