It is something of a truism that rising energy prices cause inflation throughout the economy. This is because while this is correct at the macro level, it tells us very little about the details. Exactly who will shoulder the costs? Which countries and which sectors of the economy will be hit? And – if you are a Guardian editor – how can we blame it on Brexit?
Very few people – myself included – would have imagined that one of the first casualties of rising energy prices would be a UK beer shortage just when Britain is basking in one of its hottest summers in living memory. Nevertheless, today the BBC is reporting that:
“Some Wetherspoon pubs are temporarily without draught John Smith’s and Strongbow cider.
“Many pub landlords are unable to pick and choose which brands they can sell because of restrictions. It comes ahead of England’s World Cup group match with Belgium on Thursday, and predictions that the current UK heatwave could continue into the weekend.”
What, you might ask, has this to do with gas prices?
The shortage of beer is, in fact one of the end points on a chain of dominoes that can be traced back to the increase in gas (and oil) prices in the first quarter of 2018, that have brought them back to levels last seen four years ago, when they had a severe impact on western economic growth. Corporate industrialised beer, lager and cider (unlike the real thing) requires additional carbon dioxide to be added to make it fizz. And while there is more than enough carbon dioxide in the atmosphere and the oceans, it turns out that it is not an easy gas to manufacture and transport. Moreover, despite the claims of the carbon capture and storage lobby, nobody knows how to extract CO2 from the atmosphere or from power station smoke stacks at a price that anyone would be able to afford.
Yes, yes; but what has this got to do with gas prices?
There is just one place where carbon dioxide can be manufactured at a cheap enough price to make it worthwhile… the global fertiliser industry. Perhaps the biggest single invention that propelled humanity into the modern age was the Haber-Bosch process for producing ammonium nitrate from natural gas; which was finally scaled up to industrial size in 1910. Had it not been for this artificial fertiliser, there is simply no way that we could have had 3 billion humans on the planet at the beginning of the “Great Acceleration” in 1960; still less the 7.5bn mouths that have to be fed today.
Carbon dioxide is a waste product of the process by which natural (methane) gas is converted into the ammonia that provides the chemical base for modern fertilisers. But rather than simply vent the greenhouse gas into the atmosphere – something that would involve bad PR today – the agrichemical industry found a number of buyers for their waste product; including a meat processing industry that uses it to – among other things – stun animals. The corporate drinks industry was another willing buyer because it turns out that we love fizzy drinks enough to destroy our habitat just for the experience.
Ordinarily, carbon dioxide is in shorter supply in the northern hemisphere summer simply because agricultural demand falls during the growing season. As a result, many of the agrichemical plants that produce it schedule their maintenance at this time of year. As Anna Mikhailova at the Telegraph notes:
“Because farmers need little fertiliser over the summer, ammonia plants often close down for essential maintenance, and the current crisis has been caused by too many plants shutting at the same time across Europe.
“At least five producers in northern Europe are reportedly in closed due to a combination of technical failures and planned repairs.”
Understandably, falling demand is accompanied by falling prices. But that happens every year, and will be followed by a seasonal increase in the price of ammonia later in the year when farmers begin to treat the ground in preparation for next year’s crops. The question, therefore, is why something that happens every year should have resulted in shortages this year? Mikhailova points to the most likely suspect:
“The UK is the worst hit country – only one of its plants is currently operational. The gas is difficult and expensive to import, meaning food and drink producers tend to depend on local suppliers.
“The high price of natural gas, which is a key raw material in ammonia production, has also had a knock-on effect in limiting production in Europe.
“At the same time, a fall in global ammonia prices means the British fertiliser industry has increasingly found it cheaper to source ammonia from abroad than to produce it in the UK.”
Britain is heavily dependent upon gas to balance the intermittency of its renewable electricity generation. And since the closure of the Rough storage facility in the North Sea, generators – who set the wholesale price for gas – are unable to store cheap gas when the wind is blowing for use when demand for gas rises.
It would appear that Britain is in the middle of a – admittedly trivial – perfect storm of a high pressure (i.e. low-wind, see above) heatwave that has driven up the wholesale price of gas (which was already at a four-year global high) and demand for fizzy drinks; just at the point when ammonia prices are at their seasonal low. The result? Not enough carbon dioxide to go around.
The corporate drinks industry and the corporate meat processing industry have taken steps to source alternative supplies of carbon dioxide… at a price. As the BBC report:
“Heineken said last week that the CO2 scarcity had caused production problems. A spokeswoman said on Wednesday: ‘We’d like to reassure beer drinkers that all our breweries are operating at full capacity, and we’re working 24/7 to get beers to our customers as quickly as possible’.”
We will have to see whether the extra costs of alternative supplies of CO2 will be borne by the affected industries or whether they will be passed on to customers who are already struggling to afford them. Either way, it is an example of the way that rising energy prices can impact sectors of the economy in ways that nobody can predict in advance. It is also an example of Liebig’s law of the minimum:
“Growth is dictated not by total resources available, but by the scarcest resource (limiting factor).”
With the days of cheap fossil carbon fuels receding in our rear-view mirror, and with renewables like wind and solar barely scratching the surface of global energy demand, unexpected shortages like this one are going to be a more frequent fact of life. However, as the severity of the situation worsens, breakdowns will not be limited to relatively trivial goods like corporate fizzy beer. In future life and death supply disruptions – such as to the 85 percent of the UK’s pharmaceuticals that are imported from China – will become inevitable… which is precisely what living in an unsustainable civilisation is like when it reaches the end.
As you made it to the end…
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