Peak Oil and Bakhtiari's 4 Phases of Transition

Note: In this article, our intrepid correspondent Byron King presents some heretofore unpublished comments by one of the world's foremost experts on Peak Oil, Dr. Ali Morteza Samsam Bakhtiari. Dr. Bakhtiari is recently retired as a director of the National Iranian Oil Company (NIOC). This, in and of itself, makes his viewpoint important to the world's energy industry. We at Agora Financial and Whiskey & Gunpowder are pleased and privileged to be able to present this important and newsworthy report. We thank Dr. Bakhtiari for his willingness to share his thoughts with Byron. And if you want to share your thoughts, send an e-mail to your traveling managing editor here: greg@...

Whiskey & Gunpowder August 25, 2006

by Byron W. King Pittsburgh, U.S.A.

Peak Oil and Bakhtiari's 4 Phases of Transition

IN A RECENT ARTICLE entitled "Nothing Like Business as Usual," published Aug. 11, 2006, in Whiskey & Gunpowder, I outlined the views on Peak Oil of a man named Ali Morteza Samsam Bakhtiari. Dr. Bakhtiari is a former senior energy expert who spent his long career, which started in 1971, employed by the National Iranian Oil Co. (NIOC) of Tehran, Iran. During the course of his employment with NIOC, he held many important positions of trust and responsibility. Dr. Bakhtiari is now fully retired from NIOC, in accordance with a mandatory age requirement. He has no current official link with the company. Still, and fortunately for us in the Western world, Dr. Bakhtiari is an independent energy consultant who writes and speaks to a worldwide audience on the subject of oil depletion in general, and Peak Oil in particular. He is among the pioneers of the global "Peak Oil" theory.

What Are the 4 Phases of Transition?

My recent article on Dr. Bakhtiari discussed in general his views and recent comments on Peak Oil and worldwide oil depletion. I noted his predictions of oil costing in the range of $100-150 per barrel in the not-too-distant future. And I referred to what Dr. Bakhtiari characterizes as the "Four Phases of Transition" (which he labels T1, T2, T3, and T4) in a world of declining conventional oil output. I received much e-mail from readers asking me to amplify what Dr. Bakhtiari means by these latter terms. That is, what are the "Four Phases of Transition"?

I asked the good doctor this very question, and his reply was, "As for T1, T2, T3, and T4, they are still very vague concepts, but if you allow me a few days…I shall try to explain to you what I think about these four." And good to his word, within a few days, Dr. Bakhtiari was kind enough to forward some amplifying thoughts on the matter. Here is what he sent to me, to share with the readers of this newsletter.

Dr. Bakhtiari's 4 Phases of Transition

"The four Transition periods (T1, T2, T3, and T4) will roughly span the 2006-2020 era. Each Transition [will] cover, on average, three to four years.

"The major palpable difference between the four Ts is their respective gradient of oil output decline -- very small for T1, perceptible for T2, remarkable in T3, and rather steep for T4. In fact, this gradation in decline is a genuine blessing for those having to cope and adapt. "It should be borne in mind that these four Ts are only an overall theoretical structure for future global oil output. The structure is thus so orderly because [it is] predicted with 'Pre-Peak' methods, 'Pre-Peak' assumptions, and [a] 'Pre-Peak' set of rules.

"The problem is that we now are in 'Post-Peak' mode, and that none of [the] above applies anymore.

"The fact of being in 'Post-Peak' will bring about explosive disruptions we know little about, and which are extremely difficult to foresee. And the shock waves from these explosions rippling throughout the financial and industrial infrastructure could have myriad unintended consequences for which we have no precedent and little experience.

"So the 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).

"But even during that rather benign T1, the unexpected might become the rule and the orderly 'Pre-Peak' rapidly give way to some chaotic 'Post-Peak.'

"In any instance, the overall structure of the 'Four Transitions' is a general guideline for the next 14 years or so -- as far as global oil output is concerned. In practice, reality might prove to be worse than these theoretical Transitions; but certainly not better."

Analogy to Chemical Phase Transitions

Dr. Bakhtiari has a background in chemistry. He holds a B.Sc. and Ph.D. in chemical engineering, granted by the Swiss Federal Institute of Technology in Zurich, Switzerland. He has worked in industry and taught at a university level in the fields of both chemistry and chemical engineering for about four decades.

I asked Dr. Bakhtiari if it would be fair to say that he is using the term "Transitions" in a manner similar to what are known as "phase transitions" in physical chemistry? Of course, the analogy need not be an exact chemical description. But I asked him if that concept from chemistry would be a proper way of helping to explain his thinking process.

By way of definition, in physics and physical chemistry, a "phase transition" (or "phase change") is the transformation of a thermodynamic system from one phase to another. The distinguishing characteristic of a phase transition is an abrupt change in one or more physical properties; in particular, the heat capacity of a unit of matter coupled with a small change in a thermodynamic variable, such as the temperature.

Common examples of phase transitions are the solid-to-liquid transition (melting) and liquid-to-solid transition (freezing). Or consider the liquid-to-gas transition (boiling/evaporation) and gas-to-liquid transition (condensation). Or consider the solid-to-gas transition (sublimation) and gas-to-solid transition (deposition). In each case, a small change in the temperature of the system leads to a major transformation of its phase or state of matter.

The reason I asked the question of Dr. Bakhtiari, and used terms from physical chemistry, was his statement, "The major palpable difference between the four Ts is their respective gradient of oil output decline." My interpretation of that comment is that at each "transition" point where the gradient changes, we might view that as the "phase change" analogous to, say, frozen water melting, or hot water boiling.

And as for how much we do not know in a post-Peak Oil world, as Dr. Bakhtiari noted, that could be analogous to the phenomenon known as "flash evaporation." That is, if you raise the temperature of water to something well below its standard boiling point, but then rapidly change some other condition, such as lowering the atmospheric pressure above the water, the water "boils" at a lower temperature and lower pressure regime. This might be considered similar to some abrupt, unanticipated event reducing the supply of oil; for example, warfare, natural disaster, or unexpectedly rapid depletion and decline in a major oil-producing region of the world.

Dr. Bakhtiari replied as follows:

"I certainly like your idea of 'phase transition,'…especially the analogy from ice to water, which occurs gradually. Start with ice and end with water, while to the very last second there is some ice present.

"I also agree that at the junction of two Ts, there should be some kind of a milestone. For example, at the close of T1, Supply should totally dominate Demand…I am toying with [the] idea, very preliminary, that close of T2 could be OPEC [oil production] surpassing non-OPEC [oil production], although OPEC died in 2004."

Other Thoughts on World Oil Production

Dr. Bakhtiari's statement that "OPEC died in 2004" is an interesting viewpoint, in light of his idea about the nature of T2, when OPEC production will surpass non-OPEC production. To explain this further, let me refer back to February 2006, in the ASPO-USA newsletter, in which Dr. Bakhtiari wrote:

"It goes without saying that when assaying Middle Eastern oil reserves, one should tread carefully. Because, on the one hand, oil reserves' estimation is both a science and an art; and on the other hand, seen from the point of view of most Middle Eastern countries, oil reserves are more political than geological. Thus, nonscientific views come to prime over science and further enhance the various types of shades that have led to an overall opaque situation in the Middle East."

Dr. Bakhtiari wrote this in the context of a discussion in which he estimated total oil reserves in the Middle Eastern group of major oil-producing nations (Iran, Iraq, Kuwait, Saudi Arabia, and the United Arab Emirates) as about half, or even less, than what the respective national governments claim. Here is a table, prepared by Dr. Bakhtiari, from that article:

Remaining proved oil reserves [in billions of barrels] for "Middle Eastern Five," according to the major assessors Country Oil & Gas Journal (1) BP Statistical Review (2) Colin Campbell (3) Bakhtiari's Estimate (4)

Iran 132.5 132.5 69.0 35-45 Iraq 115.0 115.0 61.0 80-100 Kuwait 101.5 99.0 54.0 45-55 S. Arabia 264.3 262.7 159.0 120-140 UAE 97.7 97.8 44.0 40-50 TOTAL 711.0 707.0 387.0 320-390

Sources: [1] O&GJ, Dec. 19, 2005 (for Jan. 1, 2006). [2] BP, June 2005 (through end of 2004). [3] ASPO Newsletter #62, February 2006. [4] February 2006.

In a remarkable comment following this table of information, Dr. Bakhtiari noted in the article that:

"As for Iran, the usually accepted official 132 billion barrels is almost 100 billion barrels over any realistic assay. If the higher figure was for real, its oil industry would not be struggling day in and day out to keep output at between 3.0-3.5 million barrels per day
(inclusive of Persian Gulf offshore)."

Coming from a former senior official of NIOC, this is an utterly astonishing comment with immense implications. It may explain much about the current Iranian government's view of its options for setting future industrial, economic, political, and military policy, although Dr. Bakhtiari certainly did not say this, and I do not want to put words in his mouth.

In February 2006, Dr. Bakhtiari further summarized his thinking on the subject of oil reserve estimates as follows:

"Notwithstanding the importance of conventional oil reserves, their days might now be numbered (both in the Middle East and elsewhere). "Oil reserve estimates were useful in the era before 'Peak Oil.' But in the aftermath of the mighty Peak (as, for example, in the present 'T1' period), they tend to become stale and rather useless, as field-by-field analysis and prediction takes over (e.g., Ghawar, Cantarell).

"So it will not be long now before we will have to say goodbye to all these mesmerizing oil reserve figures and dump the whole reserves file into the all-encompassing 'dustbin of history.'" Irreversible Decline and the Need for Immediate Preparation In another recent statement, Dr. Bakhtiari has said this:

"The decline of global oil production seems now irreversible. It is bound to occur over a number of transitions, the first of which I have called T1, which has just begun in 2006. 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 81 million barrels per day will decrease by roughly 32%, down to around
55 million barrels per day by the year 2020.

"Thus, in the face of Peak Oil and its multiple consequences, which are bound to impact upon almost all aspects of our human standards of life, it seems imperative to get prepared to face all the inevitable shock waves resulting from that. Preparation should be carried out on individual, familial, societal, and national levels as soon as possible. Every preparative step taken today will prove far cheaper than any step taken tomorrow."

The Need to Cope and Adapt

In his message to me, Dr. Bakhtiari stated that the "gradation in decline (between T1, T2, T3, and T4) is a genuine blessing for those having to cope and adapt." Indeed, it is a blessing, but only if informed people and the industrial and political policymakers of the world will actually take Peak Oil as a serious matter and set policy accordingly.

In this regard, when it comes to his efforts in explaining Peak Oil to a worldwide audience, Dr. Bakhtiari is a prophet. His efforts, his writings, and his work embody the old saying that "Time takes no holiday." Simply allow me to end by expressing my deepest thanks to Dr. Bakhtiari for sharing his thoughts with me, and recalling the words of 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