The Political-Economy of Gas and Food Security in Developing Countries

Istanbul, Turkey | April 12, 2009 by D-8 Secretariat

D-8 recently had a special Ministerial Meeting on Food Security in Kuala Lumpur, Malaysia, to solve the asymmetric situation of the gas potency and investment of the member countries

The share of the world’s proven reserves of natural gas is led in the first rank by Russia, with about 25 percent of the world’s total. With this strategic resource that is needed by many countries for energy, industry and transportation, we can see how Russia has played its role in the global arena.

Its role is not only played through its capability of advancing its military technology but also by showing its muscle in the world economy and its geopolitical surroundings, particularly neighboring European Union countries.

Natural gas, after it is processed to become liquefied natural gas (LNG), is also the main feedstock for producing primary fertilizers such as urea, which is needed by the world’s farmers not only for producing sufficient quantities of staple foods, but also for growing plantation sources to respond to the world’s increasing demand for bio-fuels and bio-energy.

Meanwhile, the impact of soaring food prices, especially on undernourished people, is worrisome. UN Food and Agriculture Organization (FAO) data show that the number of chronically hungry people in 2007 increased by 75 million over the FAO’s estimate of 848 million undernourished in 2003-05. Of these undernourished people, 65 percent live in large populous countries.

One “positive” effect of the high prices of rice in 2008 was that farmers and governments took up the challenges and opportunities and planted more, boosting production despite high fuel and fertilizer costs. It is anticipated that the world’s fertilizer supply and demand will increase by about 3.1 percent and 2 percent, respectively, between 2008-2009 and 2010-2012.

In terms of its reserves, however, LNG as the feedstock of fertilizers is an “odd” situation, as shown in Table 1. Of 15 countries that have proven gas reserves, nine are developing countries. These countries, lacking the technological capabilities, contract out their major gas production — together with their investor partners from developed countries — exporting their natural gas. Meanwhile, these developing countries are not optimally using this gas to produce needed fertilizer, when the high demand for fertilizer has been increasing throughout the world.

Table 1: The “odd” situation in gas reserves and LNG exports (Source: BP, 2007)

The Developing Eight Organization for Economic Cooperation (D-8) — a trade alliance of developing countries comprising the 930 million people of Bangladesh, Egypt, Indonesia, Iran, Malaysia, Pakistan, Nigeria and Turkey — recently had a special Ministerial Meeting on Food Security in Kuala Lumpur, Malaysia, to solve the asymmetric situation of the gas potency of the member countries and its relation to the need to produce enough food by conducting joint investment in the fertilizer industry and other efforts.

Four of D-8 member states have proven gas reserves: Iran ranks number two after Russia, which reflects 15.7 percent of the world’s total proven gas reserves; Nigeria ranks seventh with 3.0 percent; Indonesia ranks 11th with 1.7 percent; and Malaysia ranks 15th with 1.4 percent of the world’s gas reserves. If we see Table 1, however, Indonesia and Malaysia are the highest LNG exporters, followed by Nigeria and Egypt (including phosphate fertilizer). But this is not the case for Iran, which has more gas reserve potency than those four countries, but not as an exporter of LNG (just in 2009 it made an LNG deal with China for $3 billion). Faced by US and UN economic sanctions for several years, it seems Iranian gas production is not yet optimized for the needs of the region and other parts of the world for energy, food and transportation.

If Iranian gas and Nigerian gas could be optimized to produce fertilizer, as planned by the D-8, it is expected that the supply of sufficient fertilizer to developing countries could significantly help feed the world’s hungry people. In addition, for example, trade between Iran and Turkey, Pakistan and Bangladesh will boost the economy of the Mediterranean region, South Asia and Central Asia.

Still, in natural gas, besides LNG for fertilizer, assuming trade in gas between Iran and Turkey goes smoothly, their trade volume will increase to $20 billion by 2011. This will also increase intra-trade between D-8 countries, which last year was $65 billion of their $1.2 trillion trade with the world.

Therefore, amid this current global crisis in food, energy and finance, which has led to a global recession, wouldn’t it be nice if the world paid attention to relaxing political tension by reducing very costly wars and conflicts, lifting economic sanctions and instead exerting effort, hand in hand, to solve the world’s problems?

*) Personal opinion of D-8 Secretary General based in Istanbul, as published in Turkish Today’s Zaman

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