What Is Hubbert's Peak Theory?

What Is Hubbert's Peak Theory?

Let me explain Hubbert's Peak Theory to you directly: it's the concept that since oil is a non-renewable resource, global crude oil production will hit a peak and then enter a permanent decline, shaping up like a bell curve. I developed this model mainly for oil, but you can apply it to other resources too.

Key Takeaways

You should know that Hubbert's Peak Theory forecasts the rise, peak, and fall of fossil fuel production. Thanks to new tech breakthroughs, it's going to take longer than first thought before we run out of oil reserves. In the end, fossil fuels are limited, so the theory holds, but it's not an immediate danger.

Understanding Hubbert's Peak Theory

This theory comes from Marion King Hubbert, a geologist at Shell back in the 1950s. It states that the highest production from oil reserves, whether individual or global, happens around the midpoint of the reserve's life, based on the Hubbert curve that E&P companies use to predict future output.

After that point, production drops off faster because of depletion and lower returns. So, if we don't find new reserves quicker than we use up the current ones, we'll hit peak oil globally—there's only so much conventional light, sweet crude in the Earth's crust.

Implications of Peak Oil

If fossil fuel production peaks soon, it would hit the world economy hard. You'd see more fuel shortages, higher energy prices affecting every sector, and a direct rise in your living costs.

Oil price spikes often trigger recessions; a lasting price hike from declining reserves could cause ongoing economic slowdown, maybe even stagflation and dropping living standards everywhere.

A Technological Revolution in Oil Production

Hubbert thought U.S. oil would peak in the 1970s and the world around 2000, but that didn't happen. Instead, tech changes in the industry have grown recoverable reserves and improved extraction from both new and existing wells.

With advanced digital exploration like 3D seismic imaging, which lets us see deep under the ocean floor, proven reserves keep increasing as we find new fields. Back in the 1950s, offshore drilling went to 5,000 feet; now, rigs can hit 50,000 feet.

Take Texas: it's been the top U.S. crude producer almost every year since 1970. Production was over 1.26 billion barrels in 1972, but by 2019, thanks to fracking, EOR, and horizontal drilling, it jumped to more than 1.8 billion. These methods have added huge amounts of gas and oil to U.S. reserves. We're now a net exporter of petroleum products like distillate fuel, gasoline, and jet fuel, though we still import crude.

Important

Here's a key point: hi-tech digital oil exploration with 3D seismic imaging has let companies discover new oil fields all over.

No More Peak Oil?

The oil industry isn't worried about running out anymore, thanks to players like Schlumberger. For the near future, oil is plentiful. The BP Statistical Review of World Energy 2021 puts global proven reserves at about 1.73 trillion barrels as of end-2020, and that's likely to grow since much of the world hasn't been explored with modern tech.

We're not near peak energy either. There's over a trillion tons of proven coal reserves—good for 150 years at current use. Natural gas proven reserves are 188 trillion cubic meters, lasting at least 50 years. And USGS estimates three trillion tons of natural gas hydrates, enough for a thousand years.

These figures show that peak fossil fuel production is far off. But since fossil fuels come from finite sources, total reserves are limited. Peak oil is a future issue, depending on when we peak, how fast decline happens, and how quickly we switch to other energies. Right now, Hubbert's theory isn't a big economic worry.

What Did Hubbert Predict Would Happen to the Oil Industry?

Hubbert said crude production would peak in the 1970s and keep dropping. He was right about the U.S. peak at the time, but he didn't account for new finds like in Alaska or tech like fracking, which have boosted U.S. production since.

Who Is the Largest Producer of Oil?

As of 2022, the U.S. leads in crude oil production at 11.89 million barrels per day, with Saudi Arabia second at 10.64 million.

Which Country Has the Largest Oil Reserves?

Venezuela has the biggest oil reserves, but a lot of it is hard to refine.

The Bottom Line

Running out of fossil fuels would devastate society, but current proven reserves mean there's plenty to extract. The real issue is how fossil fuels harm the climate, so we're pushing hard on things like electric vehicles and renewables. If these take off widely, we won't worry about depleting fossil fuels anymore.