Buy oil high, sell it low.

I just finished reading a couple of articles about 3rd world biodiesel production, here and here.

Researchers at the University of Wisconsin at Madison looked at current vegatable oil production and petroleum imports in 3rd world nations. An example they gave was Fiji, where petroleum was imported at a cost of $20 per gallon at the same time that coconut oil was being exported at 50 cents a liter. That means that they are paying over ten times as much to import essentially the same thing that they are exporting. The reasearchers looked at current vegatable oil production and diesel fuel consumption and noted that current production would fill about 5% of the current demand.

Of course, bringing more money into a depressed economy is good news for those nations and an overall conversion from a non-renewable carbon plus energy source to a sustainable carbon neutral one is great, I wonder about the secondary effects.

Consider that if more of these contries convert, what effect this will have. The demand for the oil will increase, raising the price. There will be hugh incentive to convert to biodiesel production while at the same time there will be hugh demand to increase production. Remember that the current most common use for all this vegatable oil is food. The cost of vegatable oil as food will inevitably raise while at the same time availability will decrease.

Furthermore, as production demands grow, more and more areas will be converted to production. This will lead to de-forestation. Indeed the report notes that this has already happened. And that is not
good news on the global warming front.

The researchers warn against these problems as well, but I don’t see any solution. We are talking about regulation of production, but the nations that must do the regulating will be sacrificing their own short term gain for a long term world wide gain. Somehow I don’t see that happening, do you?


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