A billionaire natural gas baron loses it all in a declining market. A New Jersey ammonia plant closes. A South Dakota farmer explains the correlation between the use of nitrogen fertilizer and wheat protein percentage.
Tens of thousands die in Haiti.
The first three have happened. The fourth has not yet come to pass but I'm hard pressed to envision a scenario where it doesn't happen.
Natural Gas
We have limited supplies of methane, commonly called natural gas. When found alone it is described, curiously, as being in a 'pool'. Oil fields often have a natural gas cap which is left in place to pressurize them, then perhaps harvested once the oil production is deemed to be complete. Methane also forms in sanitary landfills, sewage lagoons, and today we're starting to create biological processing systems to digest the waste from large scale livestock feeding operations to produce commercial volumes of the substance.
Due to its gaseous nature methane has to either be taken from a well connected to a pipeline network or simply abandoned; that which is left behind is referred to as stranded gas, and the Stranded Wind Initiative takes its name from this concept.
Aubrey McClendon, CEO of Chesapeake Energy Corporation, was forced to liquidate his holdings in the company last week.
"I am very disappointed to have been required to sell substantially all of my shares of Chesapeake. These involuntary and unexpected sales were precipitated by the extraordinary circumstances of the worldwide financial crisis. In no way do these sales reflect my view of the company’s financial position or my view of Chesapeake’s future performance potential. I have been the company’s largest individual shareholder for the past three years and frequently purchased additional shares of stock on margin as an expression of my complete confidence in the value of the company’s strategy and assets. My confidence in Chesapeake remains undiminished, and I look forward to rebuilding my ownership position in the company in the months and years ahead."
He had 30,000,000 shares that were worth $70 not so long ago – the liquidation was a two billion dollar loss. OK, so he is still very wealthy and why do we care? We care because this is about how much money Chesapeake has. They're going to dramatically scale back new wells.
Ammonia
Ammonia is a pungent, caustic gas at room temperature but it is easily pressurized and stored as a liquid. Ammonia itself, or various ammonia bearing compounds such as ammonium nitrate, ammonium carbonate, and urea are all used as fertilizer. Ammonia in its raw form also works tolerably well as a liquid fuel, performing rather like a low density diesel fuel.
Ammonia's formula is NH3. Our current production methods involve stripping hydrogen from a hydrocarbon, usually natural gas, then later using the carbon monoxide produced in that reaction to strip further hydrogen from water. Nitrogen is separated from the air and the two are combined in a Haber Bosch reactor, producing a good bit of heat as the ammonia is formed.
Ammonia plants have been subjected to gas price fluctuation, cheaper production costs off shore, and now the financial crisis has nipped at least one plant, a New Jersey based operation, and I'm sure there is more news like that coming.
Crop Protein Content
Biologically available nitrogen is the foundation of all protein formation. Fully 50% of all human protein gets its start in a Haber Bosch reactor somewhere in the world. Now we're losing both the input needed to make it and the ammonia plants themselves are suffering.
I knew corn required ammonia to make the astonishing yields we've seen in the last few decades; fields that would have produced fifty bushels an acre two generations ago currently produce four or five times that amount. I wasn't aware of the tremendous difference that ammonia made in crop protein as well as overall yield, but Bryan Lutter, a farmer and seed distributor in South Dakota, recently brought me up to speed on it.
"Farmers can't afford a thousand dollars a ton, so they've cut back on fertilizer. Wheat protein percentages will drop from 14% to 8%. People are going to starve."
There were already significant concerns regarding wheat supplies and a dangerous pathogen called Ug99 wheat rust is spreading.
Assuming we dodge the wheat rust and climate issues the 43% reduction in protein content we won't have much trouble here in North America but it is going to be awful for places like Haiti.
Implications
Haiti already had troubles related to food ... and the things people do when there isn't enough to go around. If the wheat they buy suddenly has dramatically less protein the effects will be awful.
Haiti is the obvious problem in this hemisphere and I'm going to pick Pakistan as the trouble spot in the east. They're already under the gun financially and if they escape an outright default they're still going to have reduction in imports ... and again we come back to the 43% decrease in protein.
There are some things we can technically do to avoid outcomes along the lines of what I suggest above, but I don't think we have the political will to do them.