How Much Natural Resource Is Adequate For A Country?

Mushfiqur Rahman

A very commonly asked question is "How much natural resource is enough?" In our country there is a popular ongoing debate on coal extraction to meet the present pressing demands for energy versus the suggestion for keeping the resource underground for the future needs, until we will learn how to mine the coal resources without causing any interference with activity on the surface (above the resources) and until we have home grown technology and local financing. Hard to believe? Certainly the recent announcement that the research level in our universities has waned doesn't instill confidence that we Bangladeshis can do it all alone at least in the foreseeable future. At times a section of people relate the coal extraction issues with the questions of resource adequacy paradigm. A section of activists have successfully established the perception that we have consumed almost all our natural gas resources and only a small amount of coal should be extracted for beneficial use in the future. So we need to promote the strategy of coal extraction only by ‘local miners (?)’ so that the extracted resources can be used locally. At the same time the fact remains unchanged that there is no local miner and investment to facilitate any serious coal mining and we don't see plans materializing for enough coal (to help solve our energy crisis) to be mined in the foreseeable future. So the country has been systematically moving from shortages of commercial energy to disastrous crisis, almost like someone is planning to hold back our country's economic development. Simply put we have an eager workforce and the urge to do better, but without energy industry and human development can't move forward. The discovery of coal resources in our country is not new, but for the last forty years of the knowledge of having coal we could hardly secure much and only one million tonnes has so far been realised from our only commercial coal mining operation. Even then the cost of producing this coal has been enormous and difficult to economically justify. Although this existing coal mine has been dependent on foreign funding, technology and manpower support, its performance demonstrates inadequate studies were carried out and choice of mining method was not made based on proper analysis of the ground conditions and nature of the coal seam(s), especially the large thickness. There is now speculation that this underground mine which apparently will extract less than five million tones of coal from the total 390 million tonnes coal reserve, will be wound down and the Government may invite new investors to develop the coal deposit using the open pit mine method. This will obviously negate the existing underground operation and its infrastructure will be demolished to make way for a much higher production and recovery of our precious coal. So the coal exploration and mining with its more than forty years history followed inadequate strategies and has failed to secure any practical mining which is economically, environmentally and socially sustainable. The country has been badly suffering from commercial energy supply shortages but ironically is still sitting on good quality coal resources estimates to be at least 2.5 billion tonnes. So the possession of vital natural resource in the country (remaining safely under the ground) does not necessarily automatically mean the resources will be available for its economic use, ie; that we Bangladeshis will get any benefit. While the people of our country and our Government continue to debate the adequacy of natural resources we are running out of time and denying ourselves the benefit from the coal resource, ie; a reliable new energy supply, new power stations, no load shedding, industrial development and jobs, no problem with power for irrigation pumps, etc etc. If we recall the natural resource related fundamental studies, we see the longest running issue in natural resource economics is resource adequacy. The conventional approach towards natural resources as ‘input’ to production always leads to the simple conclusion that the existing natural resources are not adequate for any nation and it can never be adequate in the long term. The reason is simple; the growth required for economic development will always require more and more inputs so in time the needs of our future generations will not be indefinitely met by our existing natural resources. A section of people within the society always try to project the ideas that the existing natural resources are extremely limited specially those which are non renewable. They love to believe that the natural resource scarcities will restrict economic growth in future. In 1914 the US Bureau of Mines estimated that there would be oil left over for only ten year's consumption. In 1939 the Department of the Interior projected that oil would last only 13 years, and again in 1951 it was projected that oil would run out 13 years later. Even if we were to run out of oil, this would not mean that oil was unavailable. Rather it would become more and more expensive. If we want to examine whether oil is getting more and more scarce we simply have to look at whether oil is getting more and more expensive, ie; supply and demand. A similar analogy can be drawn for other natural resources and their scarcity projections. Before the industrial revolution when the economic activities were tied more closely to local natural resources, fears for shortages of items like forest resources and water were common. With the industrial revolution becoming obvious through the significant contribution of in 1769 of James Watt’s steam engine invention, the reliance on coal grew manifold. Accordingly concerns shifted to the possibility that the depletion of coal will lead to the collapse of development. In the Twentieth Century coal was partially replaced by oil as it is easier to transport, store and use. As recent as the mid 1970s petroleum crisis there were no shortages of scaremongering about natural resource scarcity and economic collapse.In 1973 and 1979 a pair of sudden price increases awakened the industrial world to its dependence on cheap crude oil. Prices first tripled in response to an Arab embargo and then nearly doubled again when the Shah's of Iran Regime was overthrown resulting a major recession worldwide. Many analysts warned this crisis as a proof that the world soon will run out of oil. But the reality was different. The dire predictions were emotional and reactions political. By 1973 the world had consumed only about one eighth of its readily accessible crude oil. The five Middle Eastern countries (members of OPEC) could make the price hike for crude oil worldwide not because the oil was growing scares, but because they had managed to corner 36% of the market. Later, when the demand sagged, the Alaskan and North Sea oil weakened OPEC’s economic firm control, the price curve of oil collapsed. Ever since we have been depending on naturally occurred fuel we have been worried about running out of fuel.The pessimists are not infamous. We may recall at least Thomas Malthus who became famous for his treaties that human population growth would inevitably outstrip the ability of nature to provide sustenance in ever-increasing amounts. With the assumptions of exponential growth and limited resources, we can easily make a doomsday prophecy. Our present day energy supply is mainly based on coal, oil and natural gas which were created over millions and millions of years. Many people believe that consuming the wealth created over millions of years within a few hundred years is just not right. We should consume our natural resources in a way that our future generations effectively get their share of these resources through developing our country's economy and human resources to the best of our ability, and positioning our country and people so that our nation is able to afford whatever is required in the future. The argument of "sustainable resource use" sounds attractive, however, it is inevitable that at some stage in the future a generation of people will be left with no fossil fuel at all, even if we slow down consumption and use just one barrel of oil a year! The strong counter argument is that although we can't preserve our natural resources for future generations we have an obligation to leave for them the knowledge and capital such that they can secure a quality of life that is better than ours, ie; this is the definition of 'progress'. The same argument furthers the logic that if our society, while using coal and other fossil fuels in the near term, can further its technical know-how and economy, then it should be able to develop longer term energy resources (some of which are yet to be identified) to ultimately sustain our nation.The former Saudi oil minister and founding architect of OPEC genuinely pointed out: ‘the Stone Age came to an end not for lack of stones, and oil age will end but not for a lack of oil’. Thus we can appreciate that eventually better substitutes and superior materials will and do replace the conventionally used natural resources over time. We stopped using stone because bronze and iron were superior substitute materials. The patterns of natural resource use have changed dramatically. History shows that substitution does occur in response to changing conditions, scarcity of supply and price. In the 1970s high energy prices encouraged substitution for energy inputs including the pursuit of energy efficient machines. Today we see this happening in the car industry where we are now able to buy cars that are no longer restricted to use conventional fossil fuel but can run on bio-fuels, battery power and hydrogen.In the backdrop of the new ‘oil crisis’, analysts say that the world contains enormous caches of unconventional oil that can substitute for normal crude oil, with the rising oil price to making such alternatives profitable to manufacture. The Orinicco oil belt in Venezuela has been assessed to contain 1.2 trillion barrels of sludge known as heavy oil. Tar sands and shale deposits in Canada and the former Soviet Union may contain the equivalent of more than 300 billion barrels of oil. The United States Energy Information Agency estimates that based on today's oil price, it would be possible to economically produce about 550 billion barrels of oil from tar sands and oil shale which would have the effect of increasing the present global oil reserves by some 50%. It is further estimated that within 25 years we could be able to access commercially twice as much oil than the world currently has available. The total size of oil shale resources is staggering. It is estimated that globally there is about 240 times more oil shale than the conventional petroleum resources. In addition the development of technology for conversion of coal to synthetic oil, especially the ‘rejected’ low quality coal, will add a volume of oil to the world's reserve. Theoretically these unconventional oil reserves could quench the world's thirst for liquid petroleum as conventional reserves are depleted. The above potential substitutes are an addition to the current conventional oil reserves that (based on existing finds) will last at least another 40 years at present consumption rates. There is also an estimated at least 60 years worth of gas and 230 years worth of coal. Consequently, there is no need for immediate worry about running out of fossil fuels. But the industry will be undergoing difficulties for some time and investment will be needed to ramp up production of unconventional oil.From a macroeconomic standpoint, natural resources are neither necessary nor sufficient for achieving high growth rates. Countries like Japan, Korea, and Singapore for instance have achieved high growth rates despite relatively poor natural resource endowments. On the other hand, many countries like Nigeria, Venezuela, and Zambia with very substantial resource endowments have not only failed to secure high growth in recent decades but have rather regressed. On the other hand, history clearly shows many examples where natural resource endowments have been instrumental in supporting economic growth. Some countries of the Middle East, for example the United Arab Emirates, have achieved high incomes and significant national development based on their petroleum resources. Economic growth in any country is related to the growth in its productive capacity and relative to the growth of its population. Productive capacity is a function of several factors including the quality of productive inputs, (labour, traditional capital, natural capital etc.) available to the economy and the productivity of those inputs in turning out useful goods and services. Natural resources may be linked to economic growth and we can consider them as natural capital, the quantities and qualities are gifted by the nature. But the human being is to make use to this natural capital to produce goods and services combining with other inputs. So the burning issue remains: we will promote using our natural resources to develop our human resources and industrial productive capacity to rocket our economic growth and build the necessary knowledge and financial means for our future generation's well-being or will we continue our never-ending debate and procrastination thus leaving our natural resources buried and depriving our nation of a better present and even better future?

Mushfiqur Rahman: A mining engineer. The views are of the authors and do not necessarily reflect the opinions or views of the organization where he works or with which he is associated in any form.

Energy & Power
16/06/08
Link: http://www.ep-bd.com/