Dr. Bakhtiari: Replies 7, 8, 9 & 10

EnviroEngr

OilsNotWell:

I am fascinated by Dr. Bahktiari's depletion model (WOCAP), as it reflects a real-world approach to the effect of politics, conflict, and price on supply depletion. Although some of us wish to dismiss economics (and economists in particular!) completely, it does have a pronounced effect on shape of the production curve (although the area under the curve remains the same), thus shifting peak back and forth a few years.

That is the one flaw in most of the other models that I have seen, particularly ASPO's. In addition, these non price-sensitive models have at least two fundamental underlying assumption that can be proved false:

1) Maximal production is assumed whenever possible
2) Alternative sources and transitional fuel transfer that occur as prices rise is not reflected.

These two assumptions can easily shown to be false by examining 1) Saudi Arabia's role in the last 30 years and for 2) The drastic decline in production following 1979 price shocks. While 1) will not hold true forever, and in fact, I think it's pretty much been acknowledged that NOW everybody is producing flat out. [Because of the special status of SA, and the large disagreement in even the true amounts of past production, let alone current production, I wouldn't give a whole lot of credence to the fact that they may have extra capacity. There is lot to protect in those production capacity numbers. I wouldn't even be surprised if SA declared a surplus, then cut production a bit. In fact, they've already done the first part. They have to give a reason for cutting back production, because otherwise they'd have to admit that 9.5 or 9.3 or exactly whatever it is mb/d is surge capacity, not sustained capacity. A look at their production pattern from 2003 suggested this to me...]. But I could be wrong on this point, and in fact, hope that I am.

&

On a side note, Dr. Bakhtiari seems to be an amazing man - humanist, philosopher, scientist, well-read and spoken, and pragmatic - almost mystical. I'm thinking of subscribing to his "Letter from Tehran." I worry about his country in light of what may seem to him as the looming militaristic U.S. policy and the decades-long interference there.

Dr. Bakhtiari:

Thank you for your kind comments on the WOCAP model. Really appreciated, as comments look rather pertinent! I also am in full agreement with your analysis of present global production ("everyone all out") and the Saudi question: you are not wrong at all! In my opinion, most of these production statistics are fixed --- not only for SA and other OPEC, but even as far as Russia.

And thank you for your remarkable 'side note' ... very well summarized (let me add: very mystical); and also for worrying about Iran and Iranians, and thinking of subscribing to "Letter" (good idea).

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Soft_Landing:

Ok people. This is a bit crazy, but I'd like to hear what you all think.

As most everyone is aware, the US, and more recently, the UN, have been threatening Iran with respect to Uranium enrichment. Weapons of mass destruction. Indeed.

Specifically, the US has sanctions against Iran already, but is talking about the possibility of broader UN based sanctions.

If these were successfully imposed what would happen?

I think it's safe to assume retaliatory action of some sort. Wouldn't it be safe to assume that Iran would use it's swing producer capacity to hurt the world? 4 million b/d is a potent weapon. Take it off the market and the effects would be instant. The Iranian government/populace would suffer financially, but presumably, could rally around leadership whilst western interests faltered. It wouldn't take long before the UN would have to either back down, or go in... both very bad options. In the meantime, oil price would probably spike up around $100/b.

So the US wouldn't really consider this, right?

After all, no one wants oil price to spike up around $100/b, right?

Well, unless you want to destroy demand around the world, 1979-83 style, thereby obscuring peak.

Could this dangerous Iranian roulette be a rational attempt to disguise, soften, and otherwise navigate past peak? Maybe the US thinks that they can supplement oil from the SPR and can outlast any oil removal by Iran... After all, Bush has been awfully keen to fill that SPR, despite these high oil prices. Having an SPR is a liability unless it gets used...

Thoughts?

Dr. Bakhtiari:

I don't feel comfortable discussing openly Iran's geopolitical predicament (please do excuse me, but I am sure you understand).

However, general analysis outlined seems to be on right tracks.

Just a few points:

(1) I don't think oil can be used as a weapon anymore --- liable to backfire and hurt producer(s) more than consumers. Many things have changed since 1973/74.

(2) No one wants oil to spike around $100, but it will eventually. This is inevitable. One day people might think $100 was not all that bad. Mr. Matthews Simmons has predicted up to $182 ...

(3) Very wise, President Bush! Filling the SPR is the best possible policy today! 700 bnb is fine, but more would be better! Of course, he can rely on advisors like Mr. Simmons ...

{In a judgment call, I included this discussion based on the merits of its potential future value -- a la, for posterity. As the map of the world gets rearranged in the next 5 years, such illuminance will be of great worth, if even as only a dim memory. EE}

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Guest reply to Soft_Landing:

The US (and Israel) is desperate for a pre-text for bomb and attack Iran. They are forcing Iran's hand and know it.

All of their supposed "proof" of weapons activity at specific sites has been debunked at the UN, and Iran has allowed over 800 IAEA inspections this year. The US has been desperate to force Western allies to install an artificial deadline and start "the clock is ticking" mentality. (see recent news reports). The US started moving advanced tactical strike fighters to Israel to provoke a reaction. They will pressure every country they can to isolate Iran. Also note that India is just wrapping up production/re-development/expansion deals with Iran. The plan for Iran is and will be the same as was for Iraq. Stir up the hysteria, force the UN into a resolution, and attack. The big if's in this equation are Russia and China.

What will they do? Stand by like Iraq?

The madmen in charge (the neocons) hope that Iran will try to use the oil weapon, as it will really galvanize world support for invasion and occupation.

OPEC won't dare to use the oil weapon again. They know if they do, watch the US topple Venezuela, Saudi, and Iran and others in short order...

Think this is out of the question? Wait and see.

Dr. Bakhtiari:

Again same caveat as for previous question. Nothing these days is "out of question", especially in Middle East. There are still many steps to be taken out here. Expect the unexpected...

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The_Virginian:

USA and Iran/Persia & War

Salem Dr. S.A. Bakhtiari,

Could you clarify the geology of the 1999 find in Iran - specifically in terms of your assessments for only 100,000 bpd. Has the outfit from Japan advised it's shareholders of any downgradings in reserve estimates?

Secondly Iraq 's reserves seem promising, but are reportedly abused by saltwater injection instead of repair and maintenance.

About a year ago, I read a report that some wells in Iraq were only recovering 9% of the total well reserves due to poor management, and the notion that it is more important to keep the oil flowing to the USA than it is to keep the wells in good repair.

Will permanent damage be done to these wells?

You give a slightly earlier date for Peak Oil than Campbell & Aleklett. How much of this in your estimation is due to guesses of "future finds" (offshore/polar etc.) ?

It seriously appears that the USA and Iran/Persia are headed for an era of clashes, even possibly war. Do you believe the US leadership has been duped into believing the Iranian reserves are worth plundering?

Would Iran be advised to show the true nature of these reserves to divert such an attempt? Or will the "Hawks" in the Iranian government continue to use proxy forces (Iraqi Shia) to harass the USA in an attempt to achieve the same goal?

Thank you for your graciousness in answering any or all of the questions you can given your time constraints.

Dr. Bakhtiari:

Salaam.

As you correctly mention, 1999 for discovery of Azadegan oil field, now after five years: ouput nil. Only a Japanese shell company (INPEX) with a $ 2bn buy-back contract to develop, but it has no experience, no know-how, no technology, no ... I seriously doubt it could yield much more than 100,000 b/d (esp. if developed by INPEX), that could take at least another three years (if everything goes well). Why did SHELL and TOTAL decline a free farm-in in Azadegan ??

Iraq still faces enormous problems. It was possible that at times there has been some short-termism in production. The two supergiants (very old) fields of Kirkuk and Rumaila are certainly not in very good shape (things go back to Saddam's short-termism). Nine percent recovery seems far too low to me (under any set of conditions).

If insecurity in Iraq (viz. your last 2 questions) can be overcome (let us all hope so), there are eleven grassroots fields waiting to be brought on stream for an output of at least 2.5 mb/d: a real "licence to print money" at 48 $/b oil. And still there remains the almost unexplored Western Desert ...

I don't hold much hope for non-conventional oil (ao, polar oil). The difference between my WOCAP (2006-7) and the ASPO predictions (2008) is negligible: at that level a few years is not at all significant. As for your last two questions, I unfortunately cannot expand, only tell you that I simply cannot envision any type of diplomatic-political settlement of the deep-seated differences ....