What Is the Hubbert Curve?
Let me explain the Hubbert Curve directly to you: it's a method I use to predict the likely production rate of any finite resource over time. When you plot it on a chart, you'll see it forms a symmetrical bell-shaped curve.
This theory came about in the 1950s specifically for describing the production cycle of fossil fuels. But now, I consider it an accurate model for the production cycle of any finite resource you can think of.
Key Takeaways
- The Hubbert Curve is a method for predicting the production rate of any finite resource.
- It was first developed in 1956 to explain production rates of fossil fuels.
- Today, the Hubbert Curve is used across various resource sectors and has informed debate around the rate of change in global oil production rates.
How the Hubbert Curve Works
The Hubbert Curve was proposed by Marion King Hubbert in 1956 during a presentation to the American Petroleum Institute called 'Nuclear Energy and the Fossil Fuels.' As the name indicates, his focus was initially on fossil fuels production. However, I've seen the Hubbert Curve become a popular and widely accepted method for projecting production rates of natural resources in general.
For investors like you, the key part is the curve's prediction of when peak resource production will occur. When you're investing in a new project, such as an oil well, you face substantial upfront costs before any product is saleable. For oil wells, this means drilling, installing equipment, and covering personnel before oil starts flowing. Once infrastructure is set, production builds up gradually and then declines as the resource depletes.
By factoring in elements like natural reserves, the probability of discovery in a region, and extraction speed, Hubbert's model predicts when a well hits maximum production. Visually, this is at the curve's middle, right before depletion causes rates to drop.
Real World Example of the Hubbert Curve
Hubbert's model performs remarkably well for individual projects and entire regions. For example, you can apply the Hubbert Curve to global oil output or regional production in places like Saudi Arabia or Texas. The model's appearance and predictions hold up similarly and accurately in both scenarios.
In reality, production rates won't form a perfectly symmetrical curve. Still, I use the Hubbert Curve as a close approximation of actual rates. One prominent application is Hubbert Peak Theory, which predicts peak oil production worldwide.
Some analysts say the U.S. Hubbert peak for oil occurred in the 1970s, but there's no consensus on the global peak. Disagreements arise because new extraction technologies might delay any forced production decline.
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