Global Resource Crunch

The Chinese are Coming

By
Friday, September 23rd, 2011

I want to make this as simple as possible.

The world is in for a serious resource crunch.

That stark reality may be lost on you as we trudge through the other problems that have come to dominate day-to-day American life. It's also a hard concept to grasp when dealing with so much data and propaganda.

Today, let's throw all the reserve data out the window. We're not going to talk about shale salvation. We're not going to look at our supposed hundred-year supply of coal.

Instead, let's look at just one country: China — and how its growing appetite will affect natural resources in the very near future.

For this exercise, you only need to know one thing: By 2035, income per person in China will reach the current U.S. level. If they spend that money like we do, here's how the resource picture will look in about twenty years' time.

In 2035...

China's 1.38 billion people will use 80% as much paper as is produced globally today. That will leave 20% of the paper for the remaining 84% of the population.

Hello, forestry boom.

Chinese Paper DemandChina would also need 1.5 billion tons of grain annually to feed those 1.38 billion people. That's 70% of what the world produces annually.

Will the remaining 30% of grain be enough to feed the remaining 7.1 billion people in the world?

Hello, agriculture boom.

Chinese Grain ConsumptionChina will also have 1.1 billion cars by then. That's as many as are currently in the world, so imagine every car in the world today being in China...

To host that many cars, China would needs roads, highways, and parking lots currently equal to 66% of the land it uses to grow rice.

If it has to pave all that land, how will it meet its demand for all that grain?

Hello, infrastructure boom.

Chinese InfrastructureFinally, the most revealing statistic and the reason we're all here...

By 2035, China would need 85 million barrels of oil per day. That's about equal to the TOTAL daily global production.

Yes, China will need all the oil in the world.

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The U.S. currently uses 19 million barrels per day. Europe uses 14 million. Japan uses 4.5 million. India uses 3 million. Russia uses 3 million.

That's 43.5 million barrels per day right there.

Assuming no increase in demand from those regions and adding China's 85 million barrel per day appetite in 2035, the world would need 128.5 million barrels per day. And that's not counting demand from every country I didn't mention.

You have to realize that this is an impossibility.

In its most recent International Energy Outlook, the Energy Information Administration says we'll be getting 85 million barrels per day in 2035. It simply ain't enough.

Hello, oil boom.Chinese Oil ConsumptionSo here's the summary from the Earth Policy Institute report, from which I lifted all this information:

What China is teaching us is that the western economic model — the fossil-fuel-based, automobile-centered, throwaway economy will not work for the world. If it does not work for China, it will not work for India, which by 2035 is projected to have an even larger population than China. Nor will it work for the other 3 billion people in developing countries who are also dreaming the “American dream.”

And in an increasingly integrated global economy, where we all depend on the same grain, oil, and steel, the western economic model will no longer work for the industrial countries either.

The Point

Of course, the point is to prosper as all this plays out.

You do that by investing in the glaringly bright bull markets highlighted above. Buy forestry, agriculture, infrastructure, and energy.

We focus mostly on the latter, but all are thoroughly intertwined. Cheap energy makes industrial forestry, agriculture, and infrastructure possible and profitable. You can't have one without the other.

And that's why, as we approach this resource crunch, all forms of energy will be on the table. Oil (conventional and unconventional), natural gas (fratured or otherwise), nuclear, and renewables are all in for a groundswell.

The entire world will be battling for these resources.

It's why I'm headed to Fort McMurray the tar sands capital of the world early next week with Angel Publishing owner Brian Hicks to check out what we think will be a ten-bagger resource play...

It's also why many of the signs there are in Chinese.

Call it like you see it,

Nick Hodge

Nick Hodge
Editor, Energy and Capital

P.S. Don't forget to follow me on Twitter @nickchodge.

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