Many commentators state that the Oil Crisis of 1973, after the Yom Kippur War, cat­alyzed the interest in and then sustained the development of biofuels on the national and international stages. This is an overly simplistic analysis. The following words were spoken by Senator Hubert Humphrey in May 1973, some five months before war in the Middle East broke out:12

I have called these hearings because … we are concerned about what is going on with gasoline; indeed, the entire problem of energy and what is called the fuel crisis. Gas prices are already increasing sharply and, according to what we hear, they may go much higher. … We were saved from a catastrophe in the Midwest — Wisconsin, Iowa and Minnesota — and in other parts of the country, by the forces of nature and divine provi­dence. We had one of the mildest winters in the past 25 years, and had it not been for the unusually warm weather, we would have had to close schools and factories, we would have had to shut down railroads, and we would have had to limit our use of electrical power.

Security of oil supplies and the pressures of price inflation have, since the 1970s, been major issues that continue to the present day.

Even a cursory glance at figure 1.1 will show how disadvantaged were the Ger­man, Austro-Hungarian, and Ottoman empires in comparison with the Allied powers in World War I, especially after the entry of the United States in 1917, with only Polish and some Romanian oil fields beyond the vagaries of naval blockade and interception; the ingenuity of the German chemical industry was severely stretched by the effort to substitute imports (including fuel oils) by innovations with synthetic, ersatz prod­ucts. Since then, and throughout the twentieth and early twenty-first centuries, any state entering into global or regional wars faces the same strategic imperatives: how to ensure continued oil supplies and how (if possible) to control access to them. From the naval blockades of 1914 to the air strikes of the 2006 Hezbollah-Israel conflict, oil refineries and storage tanks are to be targeted, sea-lanes interdicted, and, if possible, foreign oil fields secured by invasion. In those 90 years, wars and economic depressions often demanded attempts to substitute ethanol for gasoline. In the 1920s and 1930s, several countries (Argentina, Australia, Cuba, Japan, New Zealand, the Philippines, South Africa, and Sweden) used ethanol blends in gasoline; alcohol-fueled vehicles became predominant in Germany during World War II and, by 1944, the U. S. Army had developed a nascent biomass-derived alcohol industry.11 Such programs were, however, mostly of a contingency (or emergency) nature, highly subsidized, and, once oil began flowing in increasingly large amounts after 1945, generally abandoned.

In the decade immediately preceding 1973, the United States had lost its domi­nance of world oil production (figure 1.2). Other major players were expanding (e. g., the Middle East reached 30% of world oil production) and new producers were appear­ing: Africa (Libya, Algeria, and Nigeria) already produced 13% of world oil.13 Allow­ing for inflation, world oil prices slowly decreased throughout the 1960s (figure 1.3). At the time, this was perceived as a “natural” response to increasing oil production, especially with relative newcomers such as Libya and Nigeria contributing signifi­cantly; global production after World War II followed an exponential rate of increase (figure 1.2). Political changes (especially those in Libya) and a growing cooperation between oil-producing states in the Organization of Petroleum Exporting Countries (OPEC) and the Organization of Arab Petroleum Exporting Countries (OAPEC) led to new agreements between oil producers and oil companies being negotiated in Tehran (Iran) and Tripoli (Libya) in 1970 and 1971, which reversed the real oil price erosion.

Then, Libya and Kuwait began to significantly reduce oil output in a structured, deliberate manner. In Libya, average production was reduced from a peak of 3.6 million barrels/day before June 1970 to approximately 2.2 million barrels/day in 1972 and early 1973; the Kuwaiti government enforced a ceiling of 3 million barrels/ day in early 1972, shifting down from peak production of 3.8 million barrels/day.10 Structural imbalances in the global supply of oil had by that time become apparent because of short — and medium-term causes: [3]

World Middle East ——— USA

FIGURE 1.2 Oil production. (Data from BP Statistical Review of World Energy?0′)

• Accidental damage resulted in the prolonged closure of the pipeline carry­ing oil from Saudi Arabia to the Mediterranean.

• Supply and demand became very much more closely matched, impos­ing acute pressures on shipping and refinery kinetics; the estimated spare capacity in crude oil shrank from 7 million barrels/day in 1965 to less than 0.5 million barrels/day in early 1973.

A rapid response to the outbreak of war in October 1973 continued the politically motivated reduction in crude oil output: OAPEC proposed with immediate effect to cut back output by 5% with a further 5% each month until a settlement in accord with United Nations resolutions was effected. In addition, the Gulf States of OPEC, together with Iran, imposed unilateral price rises of up to 100%. The immediate effect on world oil prices was severe (figure 1.3). More importantly, however, the effect was

— $ price ——— “Real” (2005 $ basis) FIGURE 1.3 Historical oil price. (Data from BP Statistical Review of World Energy.20)

not transitory: although prices decreased from the initial peaks in 1973-1974, prices began a second wave of rapid increase in 1979 after the Iranian revolution, to reach a new maximum in 1981. From more than $50 a barrel in 1981, prices then con­founded industry analysts again, despite the subsequent conflict between Iran and Iraq, and crashed down to $20 by the late 1980s, but for over a decade real oil prices had been continuously threefold more (or greater) than those paid in 1970. Although not reaching the real prices recorded in the 1860s during the American Civil War (when industrialization was a new phenomenon for most of the world), the oil price inflation between 1973 and 1981 represented a markedly different scenario from any experienced during the twentieth century — in dollar or real terms — despite world wars and major depressions (figure 1.3).

Across the industrially developed states of the Organisation for Economic Co­operation and Development (OECD) — the United States, Japan, Germany, France, United Kingdom, Italy, and Canada — while the real price of imported crude oil had decreased between 1960 and 1973 by an average of 1%/annum, the inflation-adjusted price increased by 24.5%/annum between 1973 and 1980; the result was that the oil crisis soon developed into a deep economic crisis even in those economically and technically advanced OECD nations.14 Because gasoline prices were “buffered” by the (frequently high) taxes included in the at-pump prices in the OECD countries, gasoline prices to motorists increased by only two — to threefold between 1970 and 1980, whereas crude oil prices rose by more than eightfold; in contrast, industrial and domestic oil prices increased by approximately fivefold.14

Furthermore, viewed from the perspective of 1973, the future for oil supplies to net oil importers was highly problematic. Although known oil reserves amounted to 88 x 109 tons, more than 55% of these lay in the Middle East, and mostly in OAPEC countries (figure 1.4). In the days of the then-Cold War, the Soviet Union (USSR), Eastern Europe, and China accounted for only 16.3% of world oil production but

were net exporters of both crude oil and oil products, whereas the United States had become a net importer of both (figure 1.5). In the United States, oil represented 47% of total primary energy consumption.15 In other OECD countries, the dependence on oil was even more marked: 64% in Western Europe and 80% in Japan. The developed economies of the OECD countries responded to the oil price “shocks” of the 1970s by becoming more oil-efficient: while total OECD gross domestic product (GDP) increased by 19% between 1973 and 1980, total oil imports fell by 14%, and the oil used to produce each unit of GDP fell by 20% — to offset the reduced use of oil, however, coal and (especially) nuclear energy source utilization increased greatly.16 Energy conservation became a priority (“energy-demand management” measures), and technologies for the improved efficiency of energy use were much developed, advertised, and retrofitted to both domestic and industrial premises. “Fuel switch­ing” was much less obvious in the strategies adopted by OECD countries. While the substitution of gasoline for road transport by alcohol, liquefied gas, and so forth was widely advocated, by 1980, Canada was unique in having adopted a comprehensive policy (the “off oil conversion programme”) covering all aspects of oil use and pro­viding oil reduction targets as well as financial incentives.

For an “emerging” economy like Brazil’s, the economic dislocation posed by sustained oil price rises was potentially catastrophic. In November 1973, Brazil relied on imports for more than 80% of the country’s oil consumption; in the course of the following year, the total import bill rose from $6.2 billion to $12.6 billion, and the trade balance collapsed (figure 1.6). For the preceding decade, the Brazil­ian economy had enjoyed high growth rates (figure 1.6). Industrialization had pro­ceeded well, and the inflation rate had reached its lowest level since the 1950s.17 The Brazilian government opted against economic stagnation; rather, it aimed to pay

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9

7

5

3

1

-1

-3

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for the higher oil bills by achieving continued growth. To meet the challenges of energy costs, the Second National Development Plan (1975-1979) decreed the rapid expansion of indigenous energy infrastructure (hydroelectricity) as well as nuclear power and alcohol production as a major means of import substituting for gasoline.

In the next decades, some of these macroeconomic targets were successfully realized. Growth rates were generally positive after 1973, and historically massive positive trade balances were recorded between 1981 and 1994. The counterindicators were, however, renewed high rates of inflation (reaching >100%/annum by 1980) and a spiral of international debt to fund developmental programs that made Brazil the
third world’s largest debtor nation and resulted in a debt crisis in the early 1980s. Arguments continue concerning the perceived beneficial and detrimental effects of the costs of developmental programs on political, social, and environmental indices in Brazil.17

Cane sugar was the key substrate and input for Brazil’s national fuel alcohol program. Sucrose production from sugarcane (Saccharum sp.) in Brazil has a long history, from its days as a colony of Portugal. Brazil had become the world’s leading sugar supplier by the early seventeenth century, but sugar production was based initially on slave labor and remained (even in the twentieth century) inefficient. This, however, represented a potential for rapid growth after 1975 because large monocul­ture plantations had been long established in the coastal regions of the northeast and southeast of the country. Expansion of cultivated land was greatly encouraged for the “modern” export crops — sugarcane, cotton, rice, corn, soybeans, and wheat — at the expense of the more traditional crops, including manioc, bananas, peanuts, and cof­fee. Sugarcane cultivation increased by 143% between 1970 and 1989 when expressed as land use, but production increased by 229% as Brazil’s historically low use of fertil­izer began to be reversed.17

Brazil is also the southernmost producer of rum as an alcoholic spirit, but cachaga is the oldest and most widely consumed national spirit beverage, with a yearly produc­tion of ca. 1.3 billion liters.18 The primary fermentation for cachaga uses sugarcane juice, and large industrial plants had been established after the end of World War II; a variety of yeasts had been developed, suitable for continuous or discontinuous fer­mentations, the former reusing and recycling the yeast cells.18 Before distillation, the fermentation is (as are all traditional potable alcohol processes) allowed to become quiescent, the yeast cells settling and then being removed (along with other residual solids) by, in technologically more advanced facilities, centrifugation; batch (“pot still”) and continuous distillation are both used, and final alcohol concentrations are in the 38 to 48% range (by volume). Predating the oil crises of the 1970s and 1980s, the first moves toward using cane sugar as a substrate for industrial ethanol produc­tion independent of beverages dated from 1930, when the Sugar and Alcohol Institute (Instituto do Agucar e do Alcool) was set up; in 1931, a decree imposed the compul­sory addition of 5% ethanol to gasoline, and the blending was increased to 10% in 1936. Four decades of experience had, therefore, been garnered in Brazil before fuel substitution became a priority on the political agenda.19

The final element in Brazil’s developing strategy to produce “gasohol” was, iron­ically, petroleum itself. Brazil had produced oil at a low rate from at least 1955, but the offshore deposits discovered by the state-owned company PETROBRAS were so large that by 1998 domestic oil production equaled 69% of domestic consumption.17 Production continued to increase (figure 1.7), and by 2005, Brazil had become a sig­nificant global producer, accounting for 2.2% of world oil production, equivalent to that of the United Kingdom, considerably higher than either Malaysia or India (both 0.9%) and approaching half that of China (4.6%).20 Indigenous refining capacity also increased during the 1970s and again after 1996 (figure 1.7). The ability to produce alcohol as a fuel or (when mixed with gasoline) as a fuel additive became — if need be, at an unquantified ecological cost (chapter 5, section 5.5.3) — an ongoing feature of Brazilian economic life.

Production — — — — Refinery capacity ———————— Consumption FIGURE 1.7 The Brazilian oil economy up to 2006. (Data from BP Statistical Review of World Energy.20)