[ Dr Bakhtiari has recently retired as a senior advisor for the National Iranian Oil Company in Tehran and has written several books and more than 65 papers on the Iranian and international oil and gas industry. He spoke to the Australian senate inquiry into Australia’s future oil supply and alternative transport fuels on July 11 2006. This happened to be the morning after the excellent 4 Corners’ Peak Oil documentary screened nationally. A very long, very powerful presentation. Below is the introduction and some highlights from the transcript. ]
Dr Samsam Bakhtiari—Thank you, Madam Chair and distinguished senators. I will begin with a short opening statement for you to consider. Crude oil is a commodity unlike any other. It is simultaneously a strategic raw material, a unique industrial feedstock and the most essential of fuels. It is also the most conveniently and widely traded form of energy and therefore the swing element in the world’s energy mix. It is no wonder that the price of crude oil is the most important figure quoted daily worldwide. Its relevance could well rise significantly in the near future as the impact of peak oil or, in other words, the peaking of global crude oil production, becomes evident to all and sundry.
At present, worldwide crude oil output is stagnant at around 81 million barrels a day, give or take one million barrels. OPEC’s 11 member countries are now limited to a maximum of 31 million barrels per day, having produced only 29.35 million barrels in May 2006, and the so- called non-OPEC countries, which represent the rest of the world, are capped at 50 million barrels per day. Thus the world now produces and consumes some 30 billion barrels in each single year.
Most of the world’s major producers are struggling to keep oil production on an even keel, especially both the OPEC and non-OPEC champions—that is, Saudi Arabia and Russia—which are both producing some nine million barrels a day at present while facing almost insurmountable problems to avoid declines in the near future. Moreover, most of the world’s supergiant oilfields are now getting old and some of them have entered terminal decline. Suffice it to mention the three largest ones: Saudi Arabia’s Ghawar, Mexico’s Cantarell and Kuwait’s Greater Burgan oilfields, which are surely but steadily going downhill. The last supergiant to be discovered was the Kashagan oilfield in the north Caspian Sea offshore from Kazakhstan back in 1999, and it is now scheduled to begin initial production in 2008-09.
Not only have discoveries of supergiants dwindled to nil in the 21st century but yearly oil finds have plummeted to between four and six billion barrels a year. There is little hope that this trend will be reversed in the near future because most of the planet’s petroleum provinces have now been explored for petroleum and there is only one last frontier area remaining—that of Antarctica, with its pristine wilderness and its population of some 20 million penguins.
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 transition 1, which has just begun in 2006. Transition 1 has a very benign gradient of decline, and it will take months before one notices it at all. But transition 2 will be far steeper, and each successive transition will show more pronounced declining gradients. My WOCAP model has predicted that over the next 14 years present global production of 81 million barrels per day will decrease by roughly 32 per cent, 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 shockwaves 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. I thank you for your attention during my opening statement, and I am ready now to try, to the best of my abilities, to reply to any questions that you have.
CHAIR—In the first set of questions, can we concentrate on the issue of peak oil itself and defining that, and then we will move on to the other issues.
Senator JOYCE—Thank you very much, Mr Samsam Bakhtiari. I have been a follower of you for a while; I have been one of your quiet fans. With regard to Hubbard’s peak, within the Ghawar oilfields and the Cantarell oilfields, can you explain to us some of the signs that these oilfields are running out of oil? I am talking about gaseous inertia or water inertia. What do you believe are the key indicators that these oilfields are past peak production?
Dr Samsam Bakhtiari—The supergiant oilfields are all very great oilfields. Today you have 40 per cent of world production in these supergiants. Managing a supergiant is a very difficult procedure. The larger the supergiant, the more difficult it is. I will firstly state the case of Ghawar. Why? Because it is the largest oilfield in the world by far.
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[ The full transcript including additional testimony (PDF) from ASPO-Australia’s David John Edmund and Dr Jago Dodson and Dr Neil Gavin is around 50 pages. I’ve copied a few highlights from Bakhtiari’s portion below, with my headings inserted. -AF ]
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On Ghawar
…They tell us that in Ghawar today there are 220, roughly, horizontal wells. The great danger of the horizontal well is that when the water reaches the well it is dead. So one day in the future at Ghawar, the water level will eventually reach the horizontal well…
When it happens on a large scale then Ghawar is going to collapse and you will have a cliff in the production of Ghawar. When you have a cliff there, the whole Saudi production system is going to fall apart. If that happens, we will start hearing bells ringing all over the place, and the price of oil is going to go through the roof…
On polar oil and ASPO
I have studied oil reserves for the past 40 years, from when it was a very new science. In the beginning, there were a few specialists who were not very good, and then came the greatest specialist of oil reserves. He began working for a petrol consultant in the 1990s and, in 1995-96, established what is in my opinion the best set of oil reserves in the world. These are the oil reserves of Dr Colin Campbell. I think these reserves are the best. I have been able to prove not only that these reserves adapted very well to my model but also that they correlate the production of the 11 OPEC countries in a satisfactory way. So I have adopted them.
Dr Campbell is of the opinion that the total endowment for conventional oil of the planet is around 1,900 billion barrels. I think this is the best number that we have at present. I have been working with that number for the past seven or eight years. Out of that number of 1,900 billion barrels, Dr Campbell is of the opinion that for the two polar sectors, the Arctic and Antarctica, you should have roughly 52 billion barrels…
On future prices
…oil will start to fall off to around 55 million barrels a day … in 2020.
It is extremely difficult to forecast precisely the price of oil in the future. I can see a range of $100 to $150 not very far into the future. I can see a range of $100 to $150 [per barrel] not very far into the future…
There must be some outer limit, and I am beginning to think that maybe the outer limit could be $300 per barrel… I am not so sure yet, because we are entering a brand new era in human history, an era we have not been prepared for at all. For the past six generations, we have been used to having cheap oil always available whenever we wanted it, more or less. Today, in 2006, all of this is beginning to change. We are entering an era in which we know nothing much, where we have a brand new set of rules. I am trying to find out what these new rules are. I have already reached two or three new rules. One of the 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…
On oil company profits
I do not think it is in the interests of the oil companies for the price to go very high. I think they are very well satisfied with the present price, but I think it will not be in their hands. It will not be in the hands of the companies, it will not be in the hands of the oil producers. I can see Saudi Arabia and others being very worried by prices that are too high, but I do not think any one of these players can do anything about it…
On inflated Middle East reserve figures
Most reviews of the reserves of the major Middle Eastern countries today, especially the BP Statistical Review of World Energy, mention reserves amounting to between 600 billion to 700 billion barrels. These are official reserve figures—in other words, the countries involved say that they have so much oil reserves available. The Oil and Gas Journal and BP take these reserves at face value. As you mentioned, in the 1980s these reserves were revised upwards. For example, in 1988 Saudi Arabia, which had reserves of 160 billion barrels, suddenly took these up to 260 billion barrels. Since 1989, it has kept this number of 260 billion barrels; there has been no change to it up to this day. So, for 17 years, it as if they have not produced anything. In Dr Campbell’s opinion—and it is also my personal opinion—the reserves of the Middle East are roughly one half of what is officially said and presented. In other words, there should only be between 300 billion and 350 billion barrels of oil. This is the best figure I have come up with…
On International Energy Agency optimism
Maybe one explanation could be that they are interested parties and we are disinterested parties.
Naturally, a politician will never say that there is such a thing as peak oil. It is suicide to give bad news so a politician will never do that. He will always say, ‘The IEA says that we will be having 118 million barrels in 2030 so why worry?’
Secondly, you have the media. The media does not like peak oil. Why? There is no sponsorship for peak oil. The oil companies do not like peak oil because you should not say that your soup is cold; you should always say that it is very hot and very tasty, yes? So nobody wants to hear of this phenomenon of peak oil. I believe that some of the institutions—I will not name them; they are here and maybe you can guess which ones they are—are saying these things to act as a protection for some politicians who can say: ‘Because these institutions are saying these things, then we follow them. We do not follow Campbell and others…
On biofuels
You mentioned ethanol, biodiesel and all that. This is not the future. This is not sustainable because in the future, if our predictions are correct, the No. 1 priority will not be transport and all that. The No. 1 priority is going to be food. And for food you will have to have top priority for fertiliser and insecticides and whatever you need to produce food only. So ethanol is a very, very wasteful system. And again, however much you want to make some ethanol, it will still be a drop of water in the ocean. Just let me tell you that for every litre of ethanol you will need between three and four litres of water to produce it. The best way to go for these types of fuel, and certainly the most efficient way, is sugarcane. That is what the Brazilians are doing today.
With sugarcane you need one square kilometre of sugarcane to produce 3,800 barrels of ethanol per year. It is not very easy and it is very inefficient…
On grassroots solutions
There are many other things that you can do. Plan; get new ideas from the grassroots. That is what Perth has been trying to do, to congregate 1,200 people from different walks of life in teams of eight, give them each a computer and have all of these ideas go back to the top for the selection of the ones they think are viable and useful. Have teams of elders.
… Already at $1.40, some people are beginning to think about it, so when it becomes higher they have to change their minds, their way of thinking and their way of planning.
Senator JOYCE—But changing the way people think is a very hard task. That is not really a solution; it is nirvana. I want to go back to shale oil. [Aaah – AF] …
On government responses
I would have one major recommendation – to create some kind of national steering committee of experts in the field, dependent upon this committee maybe, to study as fast as possible all these questions, then under the aegis of this steering committee maybe create a very small executive committee to study all that and the priorities so that you have something that is working. That is the only thing that I could recommend now—to study.
