Lock, Stock, and Barrel

Modern civilization runs on oil. Everyone knows this, but they do not realize what the implications are. A significant portion of the energy in the food we eat comes from oil, but how vulnerable are our food sources to supply fluctuations of oil.?

From corporate mega farms to family farm operations, most farmers are heavily reliant on fertilizer. Modern intensive farming techniques would fail within a season or 2 without the constant application of fertilizers, and many areas that are currently farmed would be unsuitable with out current fertilizer application methods. If you take fertilizers out of farming, no amount of crop rotation or organic (as in non-oil based) fertilizers would be able to maintain the level of intensive farming or the high yields per acre that are depended on today. Like modern economies farming is all about increasing yields and any decrease in yields can have disastrous impacts on world food markets.

The basis of fertilizer is NPK (Nitrogen, Phosphorous, Potassium). These are 3 base elements that nearly all modern crops need to one level or another. The level of nutrients required for intensive farming practices is beyond what natural nutrient cycles can provide, hence farmers step in with fertilizer. The fourth member of this group is Sulfur. Sulfur is used heavily in the fertilizer industry, both as a nutrient that is directly applied to crops, as well as a critical component in the processing of NPK into its final fertilizer products

Nitrogen:

Nitrogen is produced using the Haber-Bosch process to create ammonia. The ammonia can be applied directly to crops or it can be further processed into urea/ ammonium nitrates. Ammonia is also used as part of the Odda process that creates NitroPhosphates

Phosphorous:
Phosphorous is mined in the form of phosphate rocks. The phosphate rock is then further processed into phosphoric acid as well as used in the Odda process.

Morocco holds 50% of the worlds reserves of phosphate rocks, the USA holds 10%

Potassium:
Potassium is mined as potash

85% of the world reserves are held in North America (mainly Canada, and some in the USA) and in Russia.

Sulfur:

Sulfur can be applied directly to some crops but the majority is used in the production of H₂SO₄ (sulfuric acid). Sulfuric Acid is a primary component in the benefaction of NPK. That is the chemical alteration of NPK into forms that plants can readily use.

Approximately 60% of the world’s sulfuric acid is used in fertilizer production. The majority of the world sulfur currently comes from the de-sulfurization of sour oil (oil that has high sulfur content) and from the stack collection of sulfur compounds from industrial operations as is required by environmental laws in the USA and Europe.

How does this tie into oil? As of the mid 90's 2% of the world’s energy consumption and 5% of the worlds natural gas consumption went to fertilizer production

Another factor to consider is that Phosphorous and Potassium are both generally considered to be non-renewable. This means that over time as supplies of these nutrients becomes constrained; you will see similar volatility and political strife over the sources of these critical nutrients. It also means that as the easy sources of these nutrients are exhausted and producers are forced to go after lower quality/ harder to access sources that prices will rise even though supply may be maintained. Like oil, the demand for fertilizer is relatively inelastic.

For a piece on the idea of peak phosphorous take a peak here

Peak Phosphorus

For additional information of the link between natural gas and ammonia check this article:

Natural gas prices impact nitrogen fertilizer costs

The following article gives very good data showing a tight link between nitrogen fertilizer and the cost of natural gas.

Energy agriculture - where’s the nitrogen?

While this post isn’t on quite the level of my previous ones I plan on exploring this link further in a near future post. But the take away here is that ultimately, the food we eat is dependent on oil. If you remove oil from the equation there will be significantly less food available and at a much higher price on a global scale. While this may not appear dire to a country that is capable of growing its own food,; this linkage of food and oil poses a dire risk to nations and populations that import any significant amount of their food. This will be the root of large-scale starvation as the supply of oil becomes more constrained.

For who are more financially minded, this also means that there will likely be substantial run ups and drops in prices of material directly tied to the food industry and fertilizer. One good example is the recent behavior of sulfur.

In only a year the price of sulfur has risen more than tenfold from $50/metric ton to $500, according to ICIS, the chemicals-pricing service. Editor Stephen Burns writes to clients today that Mideast sellers have mentioned $900/metric ton as minimum target for second-half sulfur contracts, with up to $1,000 possible…..

Demand for sulfur, long an ugly yellow waste product of petroleum refining, is surging because it's needed to make sulfuric acid, which in turn is essential to the production of fertilizer. U.S. market continues to see a long-term slowdown in sulfur supply from reduced production at oil refineries.

The rabbit hole goes deeper…

To Be Continued