What is Hubbert's Peak Theory?
Hubbert’s peak theory is the idea that, because oil production is a non-renewable resource, global crude oil production will eventually peak and then go into terminal decline following a roughly bell-shaped curve. Although this model can be applied to many resources, it was developed specifically as a model for oil production.
- Hubbert's Peak Theory predicts the rise, peak, and decline of fossil fuel production.
- With revolutions in new technology, it will be longer than originally predicted before the reserves run out.
- In the long run, fossil fuel resources are finite, so Hubbert's Peak Theory applies, but it does not appear to be a threat in the near term.
Understanding Hubbert's Peak Theory
Hubbert's peak theory is based on the work of Marion King Hubbert, a geologist working for Shell in the 1950s. It implies that maximum production from individual or global oil reserves will occur towards the middle of the reserve’s life cycle according to the Hubbert curve, which is used by exploration and production companies to estimate future production rates. After that, production decline accelerates due to resource depletion and diminishing returns. Accordingly, if new reserves are not brought online faster than extractable reserves are drawn down, the world will eventually reach peak oil—because there is a finite amount of conventional light, sweet crude in the earth’s crust.
Implications of Peak Oil
An impending peak in fossil fuel production would obviously have serious implications for the economy. Increased fuel scarcity and rising energy costs would have a negative impact on virtually every industry and directly increase consumers’ cost of living. Spikes in world oil prices are often accompanied by economic recessions; a permanent, sustained increase in prices due to long-term decline in available oil reserves might lead to corresponding economic malaise. It could even raise the specter of stagflation and declining standards of living worldwide.
A Technological Revolution in Oil Production
But Hubbert’s predictions that U.S. oil production would peak in the 1970s, and that the world would hit peak oil around the year 2000, were proven wrong. In actuality, a technological revolution in the oil business has increased recoverable reserves, as well as boosting recovery rates from new and old wells.
Thanks to hi-tech digital oil exploration using 3D seismic imaging, which enables scientists to see miles below the seabed floor, proven reserves around the world are growing all the time, as new oil fields are discovered. Offshore drilling in the 1950s could reach a depth of 5,000 feet. Today, the most advanced offshore oil rigs have the technology to drill up to 50,000 feet.
The state of Texas has led the U.S. in crude oil production every year but one since 1970. In 1972, the state's annual production rose to slightly more than 1.26 billion barrels. Thanks to innovations like hydraulic fracturing, enhanced oil recovery, and horizontal drilling, in 2019, annual production increased to more than 1.8 billion barrels. These innovations have added trillions of cubic feet of gas and billions of barrels of oil to America’s recoverable reserves. While the U.S. has become a net exporter of petroleum products (such as distillate fuel, motor gasoline, and jet fuel), it remains a net importer of crude oil.
No More Peak Oil?
The oil industry no longer talks about running out of oil, thanks to companies like Schlumberger. For the foreseeable future, there are practically unlimited quantities of oil. According to the BP Statistical Review of World Energy 2020, the world's total proven oil reserves are estimated to be around 1.73 trillion barrels, as of the end of 2019. However, this number is likely to rise because most of the world has yet to be explored using the latest technologies.
Nor are we anywhere close to peak energy. There is more than 1 trillion tonnes of proven coal reserves worldwide—enough to last around 150 years at current rates of production. There are 201.34 trillion cubic meters of proven natural gas reserves—enough to last at least 50 years. And there may be 3.0 trillion tons of methane hydrates, which is enough natural gas to fuel the world for a thousand years, according to the U.S. Geological and Geophysical Service.
These known and estimated reserves indicate that the peak in fossil fuel production is apparently a long way off in the future. However, given the current understanding of the origin of fossil fuels, it is virtually inescapable that total reserves are a finite resource. Peak oil represents a future threat depending on how long it takes us to reach the peak, how rapidly production will decline post-peak, and whether and how fast fossil fuels can be replaced by other energy sources. For now, though, Hubbert’s Peak Theory does not appear to present a significant economic challenge in the near term.