By John Karoly
Chicago, IL, USA
Years ago, just the mention of the word “commodities” threatened to put most people to sleep. The formation of The Club of Rome in 1968 was not widely known until the publication of its bestselling book in 1972, Limits to Growth, which predicted that economic growth could not continue indefinitely because of limitations of natural resources. The book, the organization and the Club were subsequently ridiculed, attacked and worse, ignored.
John Karoly
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With the birth of the seven-billionth human later this year, it is hard to ignore the implications of the tremendous success our species has had in multiplying and dominating our environment and our resources. Furthermore, with the rise of China, and to a somewhat lesser extent India and the rest of Asia, the quest for an improved standard of living by many millions or billions of people will put great demand on resources as those people move into better homes and buy cars. In addition, people worldwide are consuming more protein rich foods that require livestock/feed materials substantially greater than what was needed prior to the acquisition of wealth.
So we hear about commodities every day, every hour and on all media. The number one topic was and still is energy. The major question is whether we are running out of crude oil. “Peak Oil,” a theory established by a geologist, states that we are running out of oil because we are beyond the point where new discovery of oil fields is greater than the oil we consume. We may be entering an era of diminishing world supply that is diminishing at a faster pace because of the growing fuel appetite of the world. We do not know for sure that we cannot find more oil than we consume, but there is one thing we do know for sure: most, if not all, new crude oil deposits are either in more difficult locations or the quality of the crude is inferior to that of the existing fields. That means recovery and/or processing is getting more and more expensive, which conversely means, the price of fuel/gasoline is increasing irreversibly and steadily when world economies are expanding.
However, this is also true for other commodities. Gold is mined at greater depths and at a much higher cost than even a decade ago. We have to dig deeper for many new mines and process much higher tonnages of earth. On the other hand, we are certainly not running out of natural gas. Albeit at higher cost and at more difficult locations, we are finding plenty of gas that can be extracted with improved technologies. The price of natural gas is not expected to rise, because of the abundant supply. But we need to be careful and make sure the appropriate rules, agencies and inspections are in place as gas wells are very prone to leaks and natural gas is a very potent green house gas - worse than carbon dioxide.
It is in our nature to fight and invent our way out of any bad situation. This is very good; unfortunately, we may not be knowledgeable enough to choose the best option or to select the option with the least bad side effects or unintended consequences. For instance, in an effort to increase the fuel efficiency of our automobiles, we are building and buying more hybrid cars. These cars do save fuel under many conditions, but they are built with a relatively large amount of rare earth metals. A Toyota Prius requires twenty-three pounds of rare earth metals for its batteries and uses a total of nine different rare earth metals throughout the car. Now rare earth elements are found all over the world, but the largest amount is in China. Over 95% of the rare earth metals today are supplied by China because production is a manpower intensive, dirty and hazardous process. China is now starting to limit the supply of rare earth metals to other countries in order to keep them for its own use. Thus, the available supply is decreasing while prices and demand are rapidly increasing. In the end, what nice and well-meaning consumers think is environmentally positive - driving a hybrid car and saving fuel - could be a real problem for Japan and other countries and may diminish the benefits of the hybrid car.
Other uses of the rare earth metals are in computer hard drives, cell phones, televisions, wind turbines, earphones, magnets, etc. None of these devices would perform the way they do without these metals. The Prius would not function well, your earphones would still be the clunky old headsets, wind turbines would be inefficient and so on. Without rare earth metals our lives would be different in very noticeable ways.
We are now scrambling to restart our own rare earth mines, a process that will take a long time and is very unlikely to yield enough materials to supply our growing needs. Ironically, The Club of Rome’s predictions are coming true today, not so clearly with oil, but with exotic metals that had no known use when the Club was formed or the Limits of Growth was published.
