Author Archives: prosperitysaskatchewan
Sinking the myth of dangerous West Coast oil tanker traffic: Gwyn Morgan
As British Columbia’s looming change in government puts the Kinder Morgan expansion project in jeopardy, we need to realize just how safe oil tankers are
By Gwyn Morgan
May 26, 2017, 1:32 p.m.
A tanker arrives at Kinder Morgan’s Westridge Marine Terminal near Vancouver, which has been operating since 1956. Image: Kinder Morgan Canada
The expansion of the Kinder Morgan Trans Mountain pipeline system, to ultimately move Alberta crude oil by tanker through the Port of Vancouver, was a high-profile issue in the recent B.C. election.
Liberal Premier Christy Clark agreed to support the federally-approved project in exchange for Ottawa’s commitment to a substantially upgraded emergency spill response plan and financial compensation from Kinder Morgan that would see the province paid as much as $1 billion over the next two decades.
This didn’t appease spill-fearing Vancouverites, who shifted their votes to NDP Leader John Horgan in the May 9 provincial election after he vowed to use “every tool in the toolbox” to fight the project. Green Party Leader Andrew Weaver also voiced strong opposition.
Now that a New Democrat/Green coalition looms as strong possibility to be B.C.’s next government, the federal government’s resolve to enforce its approval of the project will be sorely tested.
Prior to the election, Vancouver Mayor Gregor Robertson stated that expanding Kinder Morgan’s tanker traffic from five to 35 per month isn’t worth the “disastrous risks’’ of a spill.
But does the project actually pose such risks?
Let’s move beyond the rhetoric to some hard facts.
While there has never been a serous oil tanker spill on Canada’s Pacific coast, the truly disastrous environmental impact of the 1989 Exxon Valdez accident in Alaska’s Prince William Sound is the most often cited reason to oppose the Kinder Morgan expansion.
Paradoxically, the Exxon Valdez spill proved to be a powerful catalyst that set off a spill-prevention movement in the global oil shipping industry.
Investigators concluded that the spill wouldn’t have happened if the Exxon Valdez had been a double-hulled vessel. As a result, 150 countries mandated a 25-year phase-out of single-hull tankers and a requirement for all new vessels to be double-hulled by the end of 2014.
That phase-out began soon after with new, greatly improved ships progressively replacing older ones. The new double-hulled ships, combined with advanced navigation systems and other safety measures, have resulted in a precipitous drop in global seaborn oil spills from an annual average of 2,340 barrels per day in the 1980s to just 110 barrels per day since 2010.
That staggering reduction has been achieved despite a doubling of tanker shipments to 60 million barrels per day.
As a result, hundreds of times more petroleum from leaking vehicles, trucking spills, illegally disposed used oil and other land-based sources runs down municipal storm drains into the world’s rivers and oceans than from tanker spills.
That’s the global picture. What about in Canada?
Let’s start on our eastern coasts. Transport Canada data shows that more than 1.6 million barrels of petroleum is safely moved from 23 Atlantic Canada ports each day. Another 500,000 barrels per day moves up the St. Lawrence to Montreal and other Quebec ports. Overall, Eastern Canada’s ports berth some 4,000 inbound petroleum tankers each year without any major incidents.
Due to the proximity of the Vancouver and Seattle areas, analysis of tanker movements on the West Coast must include Canadian and American traffic. Essentially all tankers must transit the Strait of Juan de Fuca bordered to the north by Vancouver Island and to the south by Washington State.
Of the approximately 1.2 million barrels per day of oil that goes though the Strait of Juan de Fuca, about 500,000 barrels per day of mainly Alaskan oil similar in grade to Canada’s diluted oilsands crude moves south to the Seattle area.
About 700,000 barrels per day moves from the Vancouver region transported by various means, including tugboat-towed barges, refined fuel tankers and, five days a month, an outbound tanker carrying crude from Kinder Morgan’s Vancouver pipeline terminus. Despite hundreds of millions of barrels of seaborn petroleum movements over many decades, the only significant spill on the West Coast didn’t come from a tanker. It occurred when the BC Ferries vessel Queen of the North foundered near Price Rupert with 1,750 barrels of fuel on board.
The Kinder Morgan capacity expansion would see its tanker shipments grow to 35 per month. The company’s spill prevention measures go far beyond employing the strongest and safest double-hulled tankers. Certified Marine Navigation Pilots will be on the bridge until the ships reach open ocean. Powerful ocean tugs, one of which will be tethered to the tanker and the other available to assist, will keep the ships safe, even in the highly unlikely event of engine failure.
Like many West Coasters, my wife and I treasure the unique and beautiful environment of the region, spending time kayaking its waters and anchoring our boat in its myriad coves.
I’m not worried about adding one more oil tanker per day. But I do worry about the boat diesel, heavy bunker fuel and chemical pollutants pumped from the bilges of the other 6,000 large ships that travel our waters each year, ships that are not nearly as closely scrutinized as those 35 Kinder Morgan tankers are sure to be.
© 2017 Distributed by Troy Media
Saudi Arabia and Russia stuck in unlikely alliance to rescue oil price
This week saw the two countries strengthen an alliance that was initially meant as a temporary move
Anjli Raval and David Sheppard
May 26, 2017
An oil tanker off Marseille. The benchmark Brent crude price fluctuated throughout 2016, prompting Opec to agree a production cut © FT montage; Reuters
An oil alliance between Saudi Arabia and Russia was once deemed unthinkable. Now a prolonged partnership looms in the face of their shared adversary — the oversupply created by the rise of the US shale industry.
The two oil superpowers, which pump one in every five barrels of crude, demonstrated in Vienna this week that their joint management of the market will remain a fixture of the industry long after an extended deal to curb supplies expires in March 2018.
Comments from Khalid al Falih, Saudi Arabia’s powerful energy minister and his Russian counterpart Alexander Novak, at a meeting of Opec and other big producers, imply that what was once a short-term pact designed to tackle an oil crash is strengthening.
Together they spearheaded the plan to keep supply cuts equal to roughly 2 per cent of global demand split between 24 Opec and non-Opec countries, believing it will shrink swollen oil inventories that built up during the downturn.
The decision this week cemented the end of Opec’s previous strategy of trying to crush rival higher-cost producers — chief among them US shale — by opening the taps in November 2014.
“Saudi Arabia and Russia are essentially now co-pilots of this operation and they’ve made it clear there will be no going back to chasing market share,” says Helima Croft of RBC Capital Markets.
Ministers from both countries this week travelled in the same car, held press conferences together and publicised visits to oilfields in each others’ countries in a show of their alliance.
“It’s a huge change from two years ago when Russia would not co-operate with Opec and even questioned its relevance in the age of shale,” adds Ms Croft.
The deal six months ago to have Opec and big non-Opec producers — together responsible for more than half of world oil supplies — was only supposed to be a temporary fix to accelerate the oil market’s recovery from its slump.
But since cuts came into effect in January the US shale industry has shown that it can thrive in a world of $50 a barrel oil, with companies shrinking costs and accelerating drilling. US companies are set to add as much as 1 per cent of global consumption next year — a huge amount in an industry that can be derailed by small swings in the supply-demand balance.
Jamie Webster, fellow at the Center on Global Energy Policy at Columbia University, says the Saudi-Russia alliance underlines a need to live with US shale. While the plan to squeeze the upstart industry in a market share war had failed, they were now trying to adapt to its growth.
“They’re not just going to say ‘well shale’s now the king’,” says Mr Webster, adding they still wanted Opec to be producer with the power to balance the market. “They’re just trying to figure out how to do that.”
“It’s definitely a signal that they have not given up,” he says.
Both countries have much at stake. Saudi Arabia is pushing through a radical transformation of its economy and the initial public offering of its state energy giant Saudi Aramco, using higher oil revenues today to pave the way — politically and financially — for reduced dependence on its main resource in the future.
Russia too seeks stability ahead of an important election next March.
Delegates from Gulf Opec countries emphasised that there is a changing vision of what victory for Saudi and its newfound ally looks like. They believe that if they can reach a point when US shale is still growing but global inventories of crude are falling they will have demonstrated they still have the power to manage the oil market. They recognise it’s a long-term commitment.
“After the nine month deal the cuts don’t just end,” says one Gulf Opec delegate. “This is ongoing.”
Nigeria’s oil minister Emmanuel Kachikwu acknowledges Opec had slightly diminished ambitions, however, saying they did not want prices to rise too far back above $60 a barrel as it may further boost US shale.
Some oil traders remain unconvinced that they will succeed in stabilising prices even above $50 a barrel and doubt Russia’s resolve for long term oil market management. They see Moscow as opportunistic; willing to reap the benefits of higher prices for now but also keen to keep expanding its own energy industry.
They also believe Opec and its allies are underestimating US shale growth. Compliance with the production cuts could weaken over time, and some traders think they would have been better off agreeing a deeper cut for a shorter duration.
Brent crude fell more than 5 per cent in the wake of the meeting, setting a low of $50.71 early on Friday, before stabilising.
But the biggest threat traders see is that by emphasising the nine month duration of the extension and ambiguity about what happens after that, it implies production could flood back when the deal ends.
This is to misread the intention, however, says another Gulf Opec delegate. Both Saudi Arabia and Russia have pledged to do “whatever it takes” to balance the market. Historically, the cartel has rarely executed a hard stop to cuts, rather letting compliance weaken once there was demand for their crude.
“It is not a quick fix,” the delegate says. “[The extension] goes to show there isn’t a move to revert to another policy.”
BHP talks up Saskatchewan potash project
- The Australian
- 12:00AM May 23, 2017
- MATT CHAMBERS
Andrew Mackenzie envisages an initial stage of 4 million tonnes of potash a year. Picture: Aaron Francis
BHP’s board could have the most expensive single development approval decision in the miner’s history in front of it next financial year, in the form of a $US4.7 billion ($6.3bn) investment in the Jansen potash project in Saskatchewan.
Lost in the ramp-up of activist fund Elliott Management’s hostilities last week was the revelation that the miner is nearly ready to give approval to the first production stage of the Jansen project, where it has approved $US3.8bn to sink 1km-deep shafts to get to the big potash deposit.
The enthusiastic BHP mood around potash will create trepidation among some investors that the Elliott push to create value through an oil and gas restructure and share unification is accelerating potash development, while Canadian analysts have queried whether the global potash market can support it.
But if it does go ahead, and BHP is right in thinking the market can support production from the world’s best undeveloped potash deposit, it will be the foundation of a new Saskatoon-based BHP business unit with the potential for four other mines the same size as the huge Jansen.
“We are looking at a phased expansion into Jansen, with an initial stage of 4 million tonnes per annum, which will generate competitive returns,” BHP chief Andrew Mackenzie said last week at a presentation to a Barcelona conference on the same day Elliott stepped up its campaign to get more value from BHP.
“It could be something that we seek board approval of as early as June next year, with possible first production in 2023.”
The biggest single project investment decision approved by the BHP board during the boom — outside of acquisitions such as the $US15.1bn takeover of US shale company PetroHawk — was the iron ore Rapid Growth Project 5, in the Pilbara. BHP’s share of this was $US4.8bn, but $US930m had already been spent before it was approved, meaning the future outlay the board ticked off on was $US3.9bn.
On its shale ground, BHP has spent more than $US16bn but it has never been announced as a major board decision. And had the boom not abruptly ended in 2012, Jansen would have paled in comparison to BHP’s original plans for a $US30bn expansion of Olympic Dam or a $US20bn Outer Harbour expansion of Port Hedland, meaning the board has considered bigger projects.
BHP is betting that growing demand for higher-quality food at the same time the availability of farming land shrinks will bring growth in global potash demand of 2-3 per cent. The market is oversupplied but the growth rates are similar to the long-term view of Potash Corp, the US producer the Saskatchewan government stopped BHP buying in a $US30bn takeover attempt in 2010. Potash is a crop nutrient.
And BHP says the supply side dynamics are also on side.
“There are a limited number of players able to bring on additional capacity,” BHP said in potash presentation slides this month.
In Canada, Bank of Montreal analyst Joel Jackson wrote that he thought the market would struggle to absorb four new potash mines starting this year and next, let alone more production from Jansen, Reuters reported after Mr Mackenzie’s speech.
Mr Mackenzie said the project would be approved only “when the time is right” and that it would be measured against other uses of capital, including cash returns.
The first Jansen stage, not including the $US3.8bn already spent, would have an internal rate of return of 12 per cent. The next stages, which could bring Jansen to 10 million tonnes a year, would be in the high teens.
The slides say BHP’s potash ground in Saskatchewan, the world’s biggest and highest-quality potash basin, could yield 60 million tonnes of potash a year for more than 100 years.
SECOND HIGHEST WEEKLY EARNINGS GROWTH AMONG CANADA’S PROVINCES
Released on May 25, 2017
On a year-over-year basis, Saskatchewan’s average weekly earnings saw a 2.6 per cent increase in March 2017 (seasonally adjusted), the second highest among Canada’s provinces, according to new figures released by Statistics Canada today.
The province’s average weekly earnings grew by 1.1 per cent, compared to the previous month, above the national increase of 0.2 per cent and also the second highest increase among the provinces.
“Saskatchewan’s strong and resilient economy is producing increased wages in the province,” Economy Minister Jeremy Harrison said. “This is in contrast to Alberta where weekly earnings actually declined by 0.8 per cent year-over-year.”
Average weekly earnings were $1,008.48 in Saskatchewan, the third highest among provinces, an increase of $25.45 from March 2016. With inflation factored in, Saskatchewan’s real wage increased by 2.0 per cent year-over-year, reflecting the highest growth in real wages among Canada’s provinces.
Nationally, the real wage (with inflation factored in) declined by 0.7 per cent.
For more information, contact:
Trans Mountain construction to proceed pending successful completion of IPO next week
By Deborah Jaremko
May 25, 2017, 6:01 p.m.
Image: Kinder Morgan Canada
Kinder Morgan has issued its final investment decision for the Trans Mountain Pipeline Expansion, and it’s a yes—contingent on successful completion of the closing of its Canadian subsidiary’s initial public offering, which is expected on May 31.
The company expects to raise C$1.75 billion in the IPO, which prices 102.9 million shares in Kinder Morgan Canada at a price to the public of C$17 per share. It is one of the largest offerings in Canadian history.
Kinder Morgan says that while the political climate is not ideal, the process proceeded at this time because the Trans Mountain Expansion Project financing contingency period, as specified in shipper agreements, concludes at the end of May.
The recent B.C. election leaves the Trans Mountain-supporting Liberal party with a minority government against the province’s NDP and Greens, which both campaigned against the project.
Nevertheless, the project has the federal green light to proceed, as well as approval from B.C.
“Our execution planning is complete, our approvals are in hand, and we are now ready to commence construction activities this fall generating thousands of direct jobs for Canadians, including significant benefits to Indigenous communities in Alberta and British Columbia,” said Ian Anderson, president of Kinder Morgan Canada, in a statement on Thursday.
Kinder Morgan CEO Steve Kean added that, “Upon the completion of the IPO, we will have secured satisfactory financing for the Trans Mountain Expansion Project. We are excited to be moving forward on this tremendous project which is expected to benefit KMI and KML as well as our Trans Mountain shippers and Canada.”
Construction of the C$7.4 billion project to transport an additional 590,000 bbls/d on the Trans Mountain system to tidewater markets is now expected to begin in September 2017 with completion expected in December 2019.
WTI crude to average around $61 a barrel by Q4: RBC Capital Markets
May 25, 2017
Helima Croft, RBC Capital Markets, and Michael Rothman, Cornerstone Analytics, discuss the impact of news out the OPEC meeting on the price of crude.
WTI Today and past 3-years
Cameco to play key role in Bruce Power Life Extension Program to secure low-cost electricity & jobs
May 25, 2017
PORT HOPE, ON – Bruce Power and Cameco Corporation announced long-term arrangements today in support of Ontario’s Long Term Energy Plan (LTEP) which will help ensure the Bruce site continues to provide low-cost electricity to families and business through 2064.
The two companies extended their exclusive fuel supply arrangement for an additional 10 years, and entered an arrangement for Cameco to provide reactor components for all six of Bruce Power’s Major Component Replacement (MCR) projects starting in 2020. The total value of the arrangements is estimated to be approximately $2 billion to 2030.
“By entering into a long-term arrangement for fuel now while the market conditions are favourable, we are in a position to deliver an estimated $200 million in ratepayer savings over the next decade based on current forecasts, while also giving Cameco business certainty which is important to both Ontario and Port Hope,” said Mike Rencheck, Bruce Power’s President and CEO. “We are also leveraging Cameco’s proven capability in Ontario to manufacture key components for our MCR program with production beginning in the near future and representing a spend of up to $60 million across our fleet.”
The fuel cost savings realized through this new arrangement will go directly to reduce the cost of electricity to ratepayers. As a private sector operator, Bruce Power is responsible for meeting all investment requirements for its life extension project, including the procurement of reactor components from Cameco for future MCRs.
“We are delighted to extend our fuel supply arrangement with Bruce Power to meet 100% of their requirements out to 2030 and participate in their Life Extension Program by supplying reactor components,” said Tim Gitzel, Cameco’s president and CEO. “Bruce Power’s commitment to continue delivering clean, reliable and affordable nuclear power provides a bright future for 700 people employed at our Ontario operations.”
Lou Rinaldi, MPP for Northumberland-Quinte West, said Bruce Power’s Life Extension Program will deliver a major contribution to the regional economy for decades to come.
“Each year through to 2064, Bruce Power will create and sustain 22,000 direct and indirect jobs and generate $4 billion in economic benefit in Ontario through direct and indirect spending on operational equipment, supplies, materials and labour. That’s a huge contribution that will be felt by thousands in Northumberland-Quinte West and across the province,” he said.
Kim Rudd, Parliamentary Secretary to Canada’s Minister of Natural Resources and MP for Northumberland-Peterborough South, recognized the positive economic impact of the partnership.
“This agreement between Bruce Power and Cameco will continue to bring major long-term economic benefits to the Northumberland region,” she said. “I applaud both of these organizations on their ongoing success as they continue to produce clean, greenhouse gas emissions-free electricity in Canada.”
Minister of Energy Glenn Thibeault emphasized the Ontario government’s commitment to the essential role nuclear power plays in the province’s electricity supply mix. “The refurbishment project at Bruce Power is a significant driver of our province’s economy,” said Minister Thibeault. “Our investments in nuclear generation will continue to help deliver clean and reliable electricity to all Ontario families and businesses.”
These arrangements are subject to the negotiation and signing of definitive agreements.
About Bruce Power
Bruce Power operates the world’s largest operating nuclear generating facility and is the source of roughly 30 per cent of Ontario’s electricity. The company’s site in Tiverton, Ontario is home to eight CANDU reactors, each one capable of generating enough low-cost, reliable, safe and clean electricity to meet the annual needs of a city the size of Hamilton. Formed in 2001, Bruce Power is an all-Canadian partnership among Borealis Infrastructure Management (a division of the Ontario Municipal Employees Retirement System), TransCanada, the Power Workers’ Union and the Society of Energy Professionals. A majority of Bruce Power’s employees are also owners in the business.
Cameco is one of the world’s largest uranium producers, a significant supplier of conversion services and one of two Candu fuel manufacturers in Canada. Our competitive position is based on our controlling ownership of the world’s largest high-grade reserves and low-cost operations. Our uranium products are used to generate clean electricity in nuclear power plants around the world. We also explore for uranium in the Americas, Australia and Asia. Our shares trade on the Toronto and New York stock exchanges. Our head office is in Saskatoon, Saskatchewan.
– End –
For more information, contact:
Saskatchewan to offer $75 million incentive credits for oil processing
Two refinery projects in the works could benefit
BRIAN ZINCHUK / PIPELINE NEWS
MAY 15, 2017 12:06 AM
Regina– In all the furor over the austerity budget brought down by the provincial government on March 22, one item could have a substantial impact on the two refinery proposals currently in the works for Saskatchewan’s oilpatch.
Husky Energy Inc. is proposing a 30,000 bpd asphalt refinery at Lloydminster, adjacent to its upgrader and ethanol plant. Startup Dominion Energy Processing Group, a Canadian subsidiary of Tempe, Az.-based Quantum Energy, Inc., is proposing a 40,000 bpd light oil refinery near Stoughton. Both have held open houses in recent weeks in their respective areas. The Stoughton refinery is now pegged at approximately $750 million, whereas Husky has not yet given a dollar figure for theirs.
Combined, the two refineries would be able to process a little under one-sixth of Saskatchewan oil production.
On page 10 of the budget document, under the heading of “Modernizing and Expanding the Tax System,” it states, “… the Oil Processing Investment Incentive encourages processing of our oil resources in the province, with royalty credits on new production.”
Pipeline Newsspoke to Energy and Resources Minister Dustin Duncan by phone on March 23, asking him to elaborate on what this means.
Duncan said, “It is a new growth incentive that will target value-added oil processing. It’s basically designed to attract new investment into the province, to add value to oil through processing.
“It’s basically for approved investment projects. They’ll have the ability to receive a royalty credit on new production, up to 10 per cent. So all new oil production, up to 10 per cent. There’s a maximum in terms of how much. There’ll be a cap on it.
“Earned royalty credits in the construction phase can also be transferred to an oil producer, so the value-added investor need not produce their own oil feedstock, but they could transfer that credit to whatever oil company that does provide the feedstock for processing.”
When he says processing, refining and asphalt plants operations are included. Saskatchewan currently has the Regina Consumers Co-op Refinery, Lloydminster Upgrader and Moose Jaw asphalt refinery within its borders. (Lloydminster’s existing 30,000 bpd asphalt refinery falls just across the line, in Alberta.) This new incentive would not apply to existing projects, but would apply on expansions to existing facilities.
Duncan added it would also include “anyone else that is looking at doing a capital project that would see value-added processing to oil. It’s not limited to two companies, but we know of at least two that are in discussions that would potentially benefit from this.”
“As a ministry, we’re looking to see if we can attract those types of investments to the province. Those are two that are known, but the program isn’t limited to the two that are publicly known. There may be opportunities for other to take advantage of the processing program.”
The royalty credit would be capped at up to 10 per cent, to a maximum of $75 million per approved project. Duncan explained, “If a company was going to transfer it to an oil producer because they don’t have their own feed stock, they may have one producer, or they may have multiple producers that they would be transferring it to on the feedstock side, but it would be maxed on the feedstock side.”
In the case of a merchant refinery which processes feedstocks it doesn’t produce, that credit could be spread among the producers, but it is $75 million in total for the project, not $75 million per producer.
Those numbers are also in total for the project. There is also a sunset clause. Projects have five years to cash in, after implementation. The government of the day can then decide to continue or allow it to sunset, he explained.
This incentive has been in the works for quite a while. Duncan noted it predated his appointment as Minister of Energy and Resources in August 2016. “I wasn’t involved in the initial concept. My understanding was, certainly on the Husky side, we knew they were interested in doing something on the asphalt side. It was a natural discussion between government and the proponent on what we need to do to be competitive. We know Alberta had announced similar transferable royalty credits for petrochemical processing facilities. I think they announced that last year. We wanted to be in the game, and be competitive to get these types of investments.”
New methane rules aim to cut emissions from Canada’s oil and gas sector
CALGARY — The Globe and Mail
Published Thursday, May 25, 2017 11:30AM EDT
Last updated Thursday, May 25, 2017 11:52AM EDT
New rules to reduce methane emissions and air pollution from Canada’s oil and natural gas industry are coming down the pipe.
Federal Environment and Climate Change Minister Catherine McKenna announced new regulations in Calgary Thursday morning. Ottawa’s pan-Canadian climate change plan includes a goal of reducing methane emissions by 40 per cent to 45 per cent by 2025.
Government officials say that as a result of these rule changes, the value of conserved gas from 2018 to 2035 could hit $1.6-billion – alongside billions in avoided climate change damage costs. The costs to the oil and gas industry over the same time frame are pegged at $3.3-billion.
Methane is the primary component of natural gas, used to heat homes and run industrial factories, and is released into the air through natural-gas processing, transmission and oil production. The new regulations will cover more than 95 per cent of industry methane emission sources, according to government officials. Methane emission limits are being proposed in areas including equipment leaks, venting, pneumatic devices, compressors and well completions.
The government is also proposing new regulations to curb the release of volatile organic compounds from oil and gas sites, including petrochemical facilities, refineries and oil sands upgraders.
The regulations are expected to come into force between 2020 and 2023. But the government said it will continue to consult with provinces, territories, industry, environmental groups and indigenous groups on the proposed changes in the months ahead, before the new regulations come into force.
Farming the World: China’s Epic Race to Avoid a Food Crisis
By Bloomberg News
May 22, 2017
China’s 1.4 billion people are building up an appetite that is changing the way the world grows and sells food. The Chinese diet is becoming more like that of the average American, forcing companies to scour the planet for everything from bacon to bananas.
But China’s efforts to buy or lease agricultural land in developing nations show that building farms and ranches abroad won’t be enough. Ballooning populations in Asia, Africa and South America will add another 2 billion people within a generation and they too will need more food.
That leaves China with a stark ultimatum: If it is to have enough affordable food for its population in the second half of this century, it will need to make sure the world grows food for 9 billion people.
Its answer is technology.
China’s agriculture industry, from the tiny rice plots tended by 70-year-old grandfathers to the giant companies that are beginning to challenge global players like Nestle SA and Danone SA, is undergoing a revolution that may be every bit as influential as the industrial transformation that rewrote global trade.
The change started four decades ago when the country began to recast its systems of production and private enterprise. Those reforms precipitated an economic boom, driven by factories, investment and exports, but the changes down on the farm were just as dramatic.
Land reforms lifted production of grains like rice and wheat, and millions joined a newly wealthy middle class that ate more vegetables and pork and wanted rare luxuries like beef and milk.
When Du Chunmei was a little girl, pork was a precious gift only for the elders of her village in Sichuan during the Lunar New Year holiday. The family pig would be slaughtered, and relatives and neighbors would pack their house for a feast.
“Meat used to be such a rarity,” said Du, now 47 and an employee of state oil company PetroChina Co. whose family celebrated the holiday this year at a restaurant. “Now it’s so common we try to cut back to stay healthy.”
But the breakneck pace of the country’s development brought some nasty side effects. Tracts of prime land were swallowed by factories. Fields were polluted by waste, or by farmers soaking the soil in chemicals. The country became a byword for tainted food, from mercury-laced rice to melamine-infused milk powder.
So how can China produce enough safe food for its growing population if they all start eating like Americans?
The simple answer is it can’t.
It takes about 1 acre (half a hectare) to feed the average U.S. consumer. China only has about 0.2 acres of arable land per citizen, including fields degraded by pollution.
So China’s Communist government has increasingly shifted its focus to reforming agriculture, and its approach divides into four parts: market controls; improving farm efficiency; curbing land loss; and imports.
A bucolic scene of goatherders returning with their flock in the evening is just one part of Penglai Hesheng Agricultural Technology Development Co.’s 70,000 hectare showcase farm that is rearing local breeds of livestock and experimenting with the cultivation of dozens of types of crops.
In each case, technology is the key to balancing the food equation. The nation is spending billions on water systems, seeds, robots and data science to roll back some of the ravages of industry and develop sustainable, high-yield farms.
It needs to succeed quickly, because China’s chief tool during the past decade for boosting domestic production is backfiring.
China has a goal of being self-sufficient in staple foods like rice, corn and wheat. To ensure farmers grew those crops, it paid a minimum price for the grains and then stored the excess in government silos.
Farmers responded, saturating their small plots with fertilizers and pesticides to reap bumper crops that filled government reserves to bursting.
Total state grain reserves were estimated to be to be more than 600 million tons last year, enough for more than a year’s supply. About half the stockpile is corn, which the government is trying to sell before it rots, forcing provinces to turn the grain into motor fuel.
“We have exhausted our resources and environment and used as much fertilizer and pesticide as possible to address supply shortages,” Han Jun, deputy director of the Office of the Central Rural Work Leading Group, wrote in the government-backed People’s Daily on Feb. 6. “We urgently need to increase production of green and good-quality agriculture products.”
But first it needs to preserve what little farmland it has.
China only has about 0.2 acres of arable land per citizen, including fields degraded by pollution. Areas like this one on the outskirts of Shanghai are becoming typical with small farmed plots being gobbled up by encroaching construction.
China lost 6.2 percent of its farmland between 1997 and 2008, according to a report by the United Nations’ Food and Agriculture Organization and the OECD. And local governments continue to swallow fields for more-profitable real-estate developments. The Chinese Ministry of Agriculture did not respond to requests for comment on this story.
Officially, the rate of land conversion has slowed since 2007, when China announced a goal of “maintaining 1.8 billion mu of farmland” (120 million hectares). But local governments that have relied for years on land sales to fund growth can circumvent restrictions by counting marginal land as arable, or re-zoning urban areas as farms.
More alarming for the nation’s planners are reports that almost 20 percent of China’s remaining arable land is contaminated.
China is shifting from building grain stockpiles to focusing on quality, efficiency and sustainable development, said Tang Renjian, a former official at the Central Rural Work Leading Group, the country’s top rural decision-making body.
Government studies in 2014 found that some vegetable plots were dosed with high levels of heavy metals such as cadmium, just one of a series of poison scares that has made the public wary of domestically produced food.
Over the years, local TV stations and social media fanned the fears, reporting a sickening array of scandals, from soy sauce produced with human hair to tofu made with sewage, and cat and rat meat passed off as rabbit and lamb.
“Chinese people are much more aware of food-safety problems today than a decade ago,” said Sam Geall, a research fellow at the U.K.’s University of Sussex who focuses on China’s environment and agriculture. “They pay more attention to where their food is coming from, and they are often willing to pay more for safety.”
Chinese-owned businesses are taking notice, seeking out overseas investments that they can turn into premium brands on supermarket shelves at home.
Ningbo chemical baron Lu Xianfeng’s Moon Lake Investments Pty bought Australia’s biggest dairy operation last year, while Wan Long’s WH Group Ltd. became the world’s largest pork producer with the purchase of Virginia-based Smithfield Foods Inc.
WH Group’s 2013 purchase of Virginia-based Smithfield was part of a $52 billion overseas spending spree by Chinese food companies since 2005 as China’s population became wary of home-produced food. This WH Group factory in Zhengzhou, China, makes American-style pork products from imported Smithfield meat.
“The Chinese consumer has grown very cynical about the safety of food from their own country,” said Sean Shwe, managing director of Moon Lake, which flies fresh milk from Tasmania to China. “The food trade into China has become very lucrative.”
A change in diet is accelerating the search for overseas supplies. Beef sales to China have risen 19,000 percent in the past decade. Imports of soybeans, used in animal feed, have grown so fast that the government quietly dropped the grain from its self-sufficiency list in 2014.
“China needs to import as it is unable to produce everything from its limited farmland,” said Li Xiande, a researcher with the Institute of Agricultural Economics and Development, Chinese Academy of Agricultural Sciences, who said the country bought 106 million tons of cereals and soybeans abroad in 2016. “The country aims at self-sufficiency in staple grains and all other imports would be based on market demand.”
But China will face increasing competition from a population explosion across dozens of countries in the Southern Hemisphere.
By 2050, 14 of the world’s 20 biggest metropolises will be in Asia and Africa, with Jakarta, Manila, Karachi, Kinshasa and Lagos joining Tokyo, Shanghai and Mumbai, according to a projection by Demographia.
By then, the planet could have as many as 9.7 billion mouths to feed, according to a United Nations report. Factor in changing diets and we will need to raise global food output by 70 percent from 2009 levels, according to an FAO estimate.
The world got a taste of what might be to come a decade ago, when smaller harvests and a rapid adoption of biofuels led to a global food shock, with riots over price increases in some developing nations.
Constrained by a shortage of land and the effects of pollution, Chinese farms are adopting methods of indoor cultivation that can produce a lot of food safely in a limited space. In this Hesheng greenhouse, workers develop techniques to grow organic tomatoes.
That was one impetus behind China’s so-called land grab, where it bought or leased land in countries like Mozambique to secure grain supplies. Yet many of the projects backed by the Chinese government are aimed more at increasing production in poor countries and building China’s global influence than supplying its supermarkets.
The real effort to create another green revolution is happening back home, where entrepreneurs are embracing technology to transform the nation’s rural landscape.
China’s new breed of farmer isn’t staring at the sky to predict rain, he’s using a micro-irrigation system based on an array of soil sensors that feed data wirelessly to his smartphone. He’s growing vegetables in climate-controlled shipping containers and using drones to apply computer-formulated doses of pesticides.
Such farms are still a tiny minority, partly because of the difficulty in acquiring enough land to run an efficient operation. Beijing’s policy since 2014 has been to promote “appropriate sized” family farms of about 13 hectares or less depending on location.
But most Chinese farms are much smaller. China’s 260 million rural households work 120 million hectares of farmland—making the size of the average plot per rural family less than half a hectare, according to Zhong Funing, head of the International Research Centre for Food and Agricultural Economics at Nanjing Agricultural University.
New laws in November have eased the ability of companies to acquire larger tracts of land, but the government remains wary of change that would unsettle its vast rural population.
Even with a modest average farm size of 13 hectares, the country would need fewer than 10 million families working the land.
“How can the rest of farmers find jobs in cities if they abandon the land?” Zhong said. As a result, the development of large, high-tech farms may be slow, he said.
In the meantime, China’s best option may be the same as for many developed nations—improve people’s diet.
“The demand among the middle class in China to move up the food chain is a matter of status and wealth,” said Jeremy Rifkin, author of “Beyond Beef: The Rise and Fall of the Cattle Culture.” “It’s not sustainable.”
In China, the National Health and Family Planning Commission began a campaign in 2015 to encourage citizens to cut back on meat and unhealthy foods and eat more vegetables and fruit to counter rising levels of obesity and diabetes.
The cycle has brought Du in Chengdu full circle.
Du Chunmei tends her organic farm on the roof of her husband’s factory in Chengdu after becoming disillusioned with the quality of supermarket food. “Being able to plant your own food is a luxury. You need to find space.”
Now her family again buys a pig each year, but not for the New Year feast. She does it to be sure of what the animal ate, insisting the farmer feeds it only corn and vegetables for eight months before slaughter.
With the help of her 75-year-old mother, Du grows peppers, cabbage, eggplants and pumpkins on the roof of her husband’s factory. Some two dozen chickens and ducks share the space, pecking on organic feed.
“There’s so much pesticides, pollutants and fertilizer in the food sold in supermarkets,” Du said. “Being able to grow your own food is a luxury.”