Ali Samsam Bakhtiari and Peak Oil
Whiskey & Gunpowder
May 2, 2007
By Byron King
Pittsburgh, U.S.A.
Greg's Note: In this article, our Peak Oil correspondent Byron King brings us up to date on the views of Ali Samsam Bakhtiari, a retired director of the National Iranian Oil Co. We at Agora Financial and Whiskey & Gunpowder are pleased to present this important perspective on the world's energy situation from one of the world's leading and most respected authorities. If you have any comments, please send them to your managing editor, greg@whiskeyandgunpowder.com.
Bakhtiari's Event of the Century
I HAVE RECEIVED more correspondence from Ali Samsam Bakhtiari of Tehran, Iran. I want to bring Dr. Bakhtiari's important work to the attention of the readers of Whiskey & Gunpowder.
Ali Samsam Bakhtiari
I wrote about Dr. Bakhtiari last August, when Whiskey & Gunpowder published a set of articles that I wrote about his views on Peak Oil. In "Nothing Like Business as Usual," I explained that Bakhtiari is a retired "senior energy expert," formerly employed by the National Iranian Oil Co. (NIOC) of Tehran, Iran. During his long career with NIOC, between 1971 and his mandatory retirement due to age in 2005, Bakhtiari held a number of important positions of immense trust and responsibility.
At the time he retired, Dr. Bakhtiari was attached to the director's office in the Corporate Planning Directorate of NIOC, specializing in issues related to the global oil, gas, and petrochemical industries. Bakhtiari is now an independent consultant with no official affiliation with NIOC. He spends his time writing and speaking to a worldwide audience on the subject of oil depletion in general, and Peak Oil in particular. Dr. Bakhtiari is far too humble to say it, but of course you may presume that his views on Peak Oil are published in Iran. This helps to understand certain strategic assumptions in the realm of energy that inform the Iranian governing bodies.
"An Era in Which We Know Nothing Much"
Last year, in an address to the senate of Australia, Bakhtiari stated that "I can see a range of $100-150 [per barrel of oil] not very far into the future." He amplified this statement as follows:
"We are entering an era in which we know nothing much, where we have a brand-new set of rules...One of these new rules, in my opinion, is that there will be in the very near future nothing like business as usual. In my opinion, nothing is usual from now on for any of the countries involved. And the lower you are in the pile, the worse it is going to get."
Four Phases of Decline
Dr. Bakhtiari views the future of worldwide oil extraction in terms of four phases of transition, or, as he puts it, T1, T2, T3, and T4. I described these four phases in greater detail in an article entitled "Peak Oil and Bakhtiari's 4 Phases of Transition."
In an e-mail to me that explained and amplified his views, Bakhtiari stated:
"The four transition periods (T1, T2, T3, and T4) will roughly span the 2006-2020 era. Each transition [will] cover, on average, three-four years...[T]he only transition we can see rather clearly (or rather, we hope to be able to comprehend) is T1. It is clear that T1 will witness the tilting of the 'oil demand' and 'oil supply' scales -- with the former dominant at the onset and the latter commanding toward the close (say, by 2009 or 2010)."
That is, Bakhtiari's view of T1 is that worldwide oil supplies will remain almost constant during this initial phase. New discoveries and production that is now coming on line will just about compensate for the production that is lost due to depletion. But T2, T3, and T4 will be, as Bakhtiari puts it, "more turbulent phases."
The Peak Has Been Reached
According to Dr. Bakhtiari, the world has now reached and passed the point of Peak Oil. Bakhtiari has recently published an essay entitled "The Century of Roots." Bakhtiari has reviewed the available evidence on world oil production and believes that world output peaked absolutely in 2006. Here is what he is saying:
"After some 147 years of almost uninterrupted supply growth to a record output of some 81-82 million barrels/day [mb/d] in the summer of 2006, crude oil production has since entered its irreversible decline. This exceptional reversal alters the energy supply equation upon which life on our planet is based. It will come to place pressure upon the use of all other sources of energy -- be it natural gas, coal, nuclear power, and all types of sundry renewables, especially biofuels. It will eventually come to affect everything else under the sun."
"Everything else under the sun"? That sounds like quite a lot, but Dr. Bakhtiari has done his background work, to include reviewing numerous models for oil extraction on a worldwide basis. In a paper delivered to an oil conference in Italy in March 2007, he concluded that in 2006, overall depletion subtracted about 3.5 mb/d of oil extraction from the daily global total of oil output (plus or minus 10%), and that a maximum of 2.5 mb/d of "new" oil production came on line, which includes new and expanded oil fields, as well as new projects in the Canadian tar sands areas. Thus, according to Bakhtiari, in 2006, depletion was greater, by more than 1 mb/d, than new discoveries and reserve growth, including oil produced from unconventional sources such as the tar sands.
Dr. Bakhtiari's conclusion, presented to the Italian conference in March, was that "the peak of global oil production has been reached." Bakhtiari now sees the world entering a phase of irreversible decline in daily oil output, moving down from the current 82mb/d toward daily oil extraction of only 55 mb/d by the year 2020. He discussed this with me in some comments he made last year, as well:
"T1 has a very benign gradient of decline, and it will take months before one notices it at all. But T2 will be far steeper...My World Oil Production Capacity model has predicted that over the next 14 years, present global production of 82 million barrels per day will decrease by roughly 32%, down to around 55 million barrels per day by the year 2020."
Dr. Bakhtiari believes that this state of affairs, the peaking of global oil extraction, is truly the "event of the century," which he explains thus:
"The 21st century is still young, as there are another 93 years to go. So it might sound overambitious to claim that 'The Event of the Century' is already behind us. But I'll gladly take the risk, for I seriously believe that the peaking of the global production of crude oil -- commonly know as 'Peak Oil' -- has occurred in 2006 and will be 'The Event' bound to dominate the history of the 21st century: one of those 'historical inflection points,' which abruptly change fundamentals in the course of world history. I cannot foresee any other event coming to eclipse Peak Oil, not even the world wars which might be unleashed in the Peak's aftermath and further fueled by widespread resource scarcity. Unless, of course, humanity decides upon collective suicide with the massive use of weapons of mass destruction; but such an annihilating event would spell the word 'end' for most, if not all, of mankind."
Dr. Bakhtiari believes that almost all of what are considered to be major current trends of humanity will be altered by Peak Oil. Here is what he says about one key trend, the future of population growth:
"Take, for example, population. In the 'Post Peak' era, population growth will gradually decrease before becoming stagnant (following crude oil) and passing a Peak of its own -- my early projections show a 'population peak' occurring some time around 2025 (a 20-year lag respective to oil) at a global level of around 7.5-8.0 billion people. There is little doubt that crude oil is our world's 'master domino': when it thrives, all other dominoes flourish, and when it tumbles, it does topple all of the others too. Thus, interestingly, 'Peak Oil' will not usher in a revolution, but rather an evolution 'en sense contraire' ('in reverse gear')."
"Every Nook and Cranny"
Dr. Bakhtiari has this to say about both the future, as well as the nature of mankind:
"Peak Oil', however, is now in the past, and we are presently left facing the 'Post Peak' era. There is little doubt that in this brand-new period, massive changes are bound to occur. The usage of relatively cheap crude oil has invaded every nook and cranny of our modern world economy -- sometimes without the wasteful invasion being fully realized. Moreover, the ubiquitous oil products have created addictions (especially in the transport sector) which will be extremely difficult to uproot. And not only is the addiction to motorcars common throughout the developed world, it has also begun making deep inroads in China, Russia, and even India: a very dangerous development, indeed, because as American physician and poet Oliver Wendell Holmes [1809-1894] judiciously remarked:
'Man's mind, once stretched by a new idea, never regains its original dimensions'"
Mortal Danger
Dr. Bakhtiari continues on a profound pathway, and I will simply quote him at length:
"In 'Post Peak,' all of our systems of habits are in mortal danger. Due to the relative cheapness of crude oil (in relation to other, more expensive daily needs), people don't exactly realize the pivotal role played by its products in their daily routines -- as these products have invaded every nook and cranny of our modern life. It is only when the brakes will be pulled (as they inevitably will have to be) that the general public will come to gradually realize the critical importance of 'black gold' -- which currently provides no less than two-fifths of world energy -- and of 'energy' in general in their living habits.
"Thus, at present, the global masses seem totally unprepared for the two shocks which will inevitably occur in 'Post Peak.' On the one hand, no major institution or medium is willing to inform them seriously on the not-so-palatable consequences of 'Post Peak'; and, on other hand, specialized institutions (such as the International Energy Agency [IEA], the Energy Information Administration [EIA] and OPEC) as well as some major energy consultancies (e.g., the Cambridge Energy Research Associates and the Edinburgh-based Wood Mackenzie research outfit) will go on denying 'Peak Oil' by issuing rosy future oil output predictions.
"So that the twin shocks are now inevitable on a global scale, as there is no time left to prepare public opinion for 'Post Peak' sequels. The shocks will first surprise, then jilt, and finally entangle swaths of people worldwide. Those better prepared will be less inclined to react in a disorderly way and panic when the shocking truth will be unveiled."
Two Main Types of Shock
Dr. Bakhtiari delves into the state of preparation of major nations and populations for what is about to ensue and concludes as follows:
"In the large majority of countries, no one has prepared (or wanted to prepare) the general public to the historical 'Peak Oil' event and to its momentous consequence in their daily lives. Thus, most probably, the popular masses will be directly exposed to two main types of shock:
A material shock;
A psychological shock.
"Due to the benign decline gradient in crude oil production during the early 'Post Peak' period -- only 3 mb/d over the first transition period spanning 2007-2010 -- the material shock will not pose insoluble problems and accommodation will prove possible with minimal gradual pain. Moreover, sizeable amounts of wastage in most developed societies will provide a welcome cushion for the initial cuts to be made.
"Not so for the psychological shock. This shock, in stark contrast, will be electric and abrupt. Stress, fear, depression, despairs, and nightmares will be the order of the day -- as people come to face the not-so-palatable facets of 'Post Peak.' When confronted with this series of unknowns, with the trauma of change, people will try to protect themselves by automatically reverting to their past, to the known, to what they believe to be "real and true" -- in a word, to their reassuring 'roots'"
The Need to Cope and Adapt
Dr. Bakhtiari has more to say on Peak Oil and the future of mankind, and we will discuss his views in future articles in Whiskey & Gunpowder. But this recent perspective that we are past Peak Oil, based on Dr. Bakhtiari's analysis of oil data from 2006, is entirely consistent with what he told me last year. In previous correspondence, Dr. Bakhtiari stated to me that the "gradation in decline (between T1, T2, T3, and T4) is a genuine blessing for those having to cope and adapt."
I noted in my articles last year that, indeed, any gradation that becomes evident, and which leads to an understanding of the dire implications of Peak Oil, is a blessing. But this is so only if informed people and the industrial and political policymakers of the world actually take Peak Oil as a serious matter and set policy accordingly. Will this happen? Is Peak Oil yet a topic of discussion among the high and mighty, as well as a matter of individual and local concern? Hardly, although I believe that Peak Oil is certainly a completely valid investment paradigm. Aside from merely making money, however, there is much more to accomplish, and the time is growing short.
When it comes to his effort to explain Peak Oil to a worldwide audience, Dr. Bakhtiari is a prophet. (A humble prophet, I should add. He is embarrassed when I say such things about him.) But Bakhtiari has both predicted something, and given a 14-year time frame for its occurrence. On this score, he is envisioning the future.
Dr. Bakhtiari's efforts, his writings, and his work embody the old saying that "Time takes no holiday." Once again, as with my previous articles, allow me to end by expressing my deepest thanks to Dr. Bakhtiari for sharing his thoughts with me and trusting that I will present them to our readership at Whiskey & Gunpowder, and wherever they go from there. Also, once again, I offer the words of the great Dante Alighieri, who wrote in Purgatorio, Canto III, "It is the wisest who grieve most at the loss of time."
Until we meet again...
Byron W. King
for The
Daily Reckoning
