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Hubbert peak theory

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The Hubbert peak theory, also known as peak oil, is an influential theory concerning the long-term rate of conventional oil (and other fossil fuel) extraction and depletion. The Hubbert peak theory is named for American geophysicist M. King Hubbert, who created a model of known reserves, and proposed the theory. In 1956, Hubbert presented a paper at a meeting of the American Petroleum Institute in which he predicted that oil production in the continental United States would peak between 1965 and 1970. U.S. oil production did peak in 1971, and has been decreasing since then.

The Hubbert curve, devised by M. King Hubbert, is a mathematical model of future oil availability.

Hubbert proposed that the same calculations would apply to other circumstances, such as the peak in world-wide oil production. Various estimates for the world-wide peak have been made by Hubbert and others, with some of these dates already having past. This has led to criticism of the method and predictions made using the method.

Hubbert's peak theory is subject for continued discussion because of the potential effects of lowered oil production, and because of the ongoing debate over aspects of energy policy. Opinions on the effect of passing Hubbert's peak range from faith that the market economy will produce a solution to predictions of doomsday scenarios of a global economy unable to meet its energy needs. (See Implications section, below)

Hubbert's theory

Hubbert, a geophysicist, created a mathematical model of petroleum extraction which predicted that the total amount of oil extracted over time would follow a logistic curve. This implies that the predicted rate of oil extraction at any given time would be given by the rate of change of the logistic curve, which follows a bell-shaped pattern now known as the Hubbert curve (see figure above).

Given past oil production data and barring extraneous factors such as lack of demand, the model predicts the date of maximum oil production output for an oil field, multiple oil fields, or an entire region. This maximum output point is referred to as the peak. The period after the peak is referred to as depletion. The graph of the rate of oil production for an individual oil field over time follows a bell-shaped curve: first, a slow steady increase of production; then, a sharp increase; then, a plateau (the "peak"); and, finally, a steep decline.

When an oil reserve is discovered, production is initially small, because all the required infrastructure has not been installed. As wells are drilled and more efficient facilities are installed, oil production increases. At some point, a peak output is reached that can not be exceeded, even with improved technology or additional drilling. After the peak, oil production slowly but increasingly tapers off. After the peak, but before an oil field is empty, another significant point is reached when it takes more energy to recover, transport and process a barrel of oil than the amount of energy contained in that barrel. At that point, Hubbert theorized that it is no longer worthwhile to extract oil for energy, and the field might be abandoned.

In 1956, Hubbert predicted that oil production in the continental United States would peak between 1965 and 1970. U.S. oil production peaked in 1971, and has been decreasing since then. According to Hubbert's model, U.S. oil reserves would be exhausted before the end of the 21st century.

Hubbert's theory has been applied by some to other fossil fuels such as natural gas, coal and non-conventional oil.

Peak prediction

File:ASPO 2004.png
The organization ASPO predicts that oil production will peak around 2007.
 
The Energy Information Administration predicts no peak before at least 2025. Source: International Energy Outlook 2004. The International Energy Agency makes a similar projection

Few would deny that fossil fuels are finite and that alternative energy sources must be found in the future. Most critics instead argue that the peak will not occur soon and that the form of the peak may be irregular and extended rather than a sharp logistic curve peak. Like any mathematical model, the accuracy of the prediction is limited by the accuracy of the inputs. If variables such as consumption are estimated incorrectly, then the formula will yield incorrect results.

In 1971, Hubbert used high and low estimates of global oil reserve data to predict that global oil production would peak between 1995 and 2000. This peak did not occur. However, it should be noted that other events that occurred after Hubbert's prediction may have delayed the peak, especially the 1973 energy crisis, in which a decreased supply of oil resulted in a shortage, and ultimately less consumption. The 1979 energy crisis and 1990 spike in the price of oil due to the Gulf War have had similar, albeit less dramatic effects on supply. On the demand side, recessions in the early 1980s and '90s have decreased the demand and consumption of oil. All of these effects would theoretically delay peak oil.

The Association for the Study of Peak Oil and Gas (ASPO) was founded by the geologist Colin Campbell. Based on current information about known oil reserves, estimates of future discovery, growing oil demand, and available technology, the ASPO predicts that world oil production will peak around the year 2007. Natural gas is expected to peak anywhere from 2010 to 2020 (Bentley, 2002).

In a recent year, 25 billion barrels of oil were consumed worldwide, while only eight billion barrels of new oil reserves were discovered. Huge, easily exploitable oil fields are most likely a thing of the past. In March 2005, the International Energy Agency projected annual global demand at 84.3 million barrels per day ([1]), which means over 30 billion barrels annually. This makes consumption equal to production, leaving no surplus capacity. Even if there were temporarily sufficient oil reserves that could be used to meet rising global demand, there is an unknown limit on the increase of oil production capacity, absent additional investment in oil production, transportation and refining facilities. Also in March 2005, the Algerian minister for energy and mines stated that OPEC had reached their oil production limit. [2]

The United States Geological Survey estimates [3] that there are enough petroleum reserves to continue current production rates for 50 to 100 years. A year 2000 USGS study of world-wide oil reserves predicted a possible peak in oil production around the year 2037. That is countered by an important Saudi oil industry insider who says the American government's forecast for future oil supply is a "dangerous over-estimate."[4] Campbell argues that the USGS estimates are methodologically flawed. One problem, for example, is that OPEC countries overestimate their reserves to get higher oil quotas and to avoid internal critique. Population and economic growth may lead to increased energy consumption in the future.

Further, the USGS reserve estimate appears to owe as much to politics as to research. According to the Energy Information Administration of the United States Department of Energy, "estimates are based on non-technical considerations that support domestic supply growth to the levels necessary to meet projected demand levels. [emphasis added]" (Annual Energy Outlook 1998 With Projections to 2020).

There are many other attempts to predict oil production. One example is that the global conventional oil production will peak somewhere between 2020 and 2050, but that the output is likely to increase at a substantially slower rate after 2020. A continued rapid increase in oil production requires an increased exploitation of non-conventional sources (Greene, 2003).

Energy return on investment

When oil production first began in the early twentieth century, the largest oil fields recovered fifty barrels of oil for every barrel used in the extraction, transportation and refining. This ratio is often referred to as the Energy Return on Investment (EROI or EROEI). This ratio becomes increasingly inefficient over time: currently, between one and five barrels of oil are recovered for each barrel used in the recovery process. The reason for this efficiency decrease is that oil becomes harder to extract as an oil field is drained. When this ratio reaches the point where it takes one barrel to recover one barrel, then oil can no longer be used as a prime energy. At that point, the energy used to extract oil would have to come from alternative energy sources.

The phrase "the end of cheap oil", describes the predicted final result. This refers to both financial and energy efficiency aspects (i.e., the price will increase due to scarcity and the increasing inefficiency of oil production). When oil production first began in the early twentieth century, the largest oil fields recovered fifty barrels of oil for every barrel used in the extraction, transportation and refining. This ratio is often referred to as the Energy Return on Investment (EROI or EROEI). This ratio becomes increasingly inefficient over time: currently, between one and five barrels of oil are recovered for each barrel used in the recovery process. The reason for this efficiency decrease is that oil becomes harder to extract as an oil field is drained. When this ratio reaches the point where it takes one barrel to recover one barrel, then oil becomes useless as energy. At that point, all energy used to extract oil would result in a net energy loss; society ewould b more efficient and better off using that remaining energy elsewhere.

Possible exceptions would be processes that convert abundant, but less useful sources, such as coal, into more useful energy sources, such as oil. Alternatively, since energy itself is not a fungible commodity, certain types of energy have a higher value than others. If for example an apple is ten times more valuable than an orange, than it is quite reasonable to pay ten oranges for one apple. Because of the energy density and relative safety of gasoline at room temperature and atmospheric pressure, it is uniquely suitable for transportation. The qualities of oil therefore go beyond the mere measure of its energy content and as a consequence the value of oil is substantially higher than immobile forms of energy. So long as alternative energies are available for less than the cost of extracting oil which could be used to power the drilling, pumping and refining equipment, than indeed market forces rather than energy returned on energy invested (EROI) will dictate the production of non-fungible fuels.

As would be expected by any theory that predicts future fuel shortages, the Hubbert model has significant political, economic and foreign policy ramifications.

Critique

The implications of the model are controversial. Some petroleum economists, such as Michael Lynch, argue [5] that the Hubbert curve with a sharp peak is inapplicable globally due to the differences in oil reserves, political and military leverage, demand, and trade partnerships between countries and regions.

Critics such as Leonardo Maugeri point out that Hubbert peak supporters such as Campbell previously predicted a peak in global oil production in both 1989 and 1995, based on oil production data available at that time. Maugeri claims that nearly all of the estimates do not take into account non-conventional oil even though the availability of these resources is huge and the costs of extraction, while still very high, are falling due to improved technology. (A drawback to this position is that heavy oil sources will never be as profitable as current light oil sources, both in production rates and energy gain.) Furthermore, he notes that the recovery rate from existing world oil fields has increased from about 22% in 1980 to 35% today due to new technology and predicts this trend will continue. According to Maugeri, the ratio between proven oil reserves and current production has constantly improved, passing from 20 years in 1948 to 35 years in 1972 and reaching about 40 years in 2003. Also according to Maugeri, these improvements occurred even with low investment in new exploration and upgrading technology due to the low oil prices during the last 20 years. The current higher oil prices may well cause increased investment (Maugeri, 2004).

According to professor James H. L. Lawler, a modular plant, integrating several well proven technologies into a new system, could recover almost all the oil left from primary and secondary recovery, while at present economic recovery, only half of the oil or less is being recovered from a reservoir. [6] Thus, the world's reserves of oil could virtually double in a stroke. His process promises a recovery rate in excess of 95%, though consuming about 3% of total initial reserves for operating energy requirements. Therefore, massive additional amounts of oil could come from already known sites.

Implications of a world peak

File:Iraq-oil-power.jpg
An oil power plant in Iraq.

A peak in oil production could result in a worldwide oil shortage. This shortage would differ from shortages of the past becaus the fundamental cause would be different. While past shortages stemmed from a temporary insufficiency of supply, crossing Hubbert's Peak would mean that the production of oil continues to decline, and that demand must be reduced to meet supply. The effects of such a shortage would depend on the rate of decline and the development and adoption of alternatives. If alternatives were not forthcoming, then the numerous products produced with oil would become scarcer, leading to lower living standards in developed and developing countries alike. Various scenarios have been predicted, ranging from doomsday scenarios to faith in the market economy and new technologies to solve the problem.

Catastrophe

Economic growth and prosperity since the industrial revolution have, in large part, been due to the use of oil and other fossil fuels. The use of fossil fuels allows humans to participate in takedown, which is the consumption of energy at a greater rate than it is being replaced. Some believe that the decreasing oil production portends a drastic impact on human culture and modern technological society, which is currently heavily dependent on oil as a fuel, chemical feedstock and fertilizer. In transportation, for example, over 90% of transportation in the United States relies on oil.

Some envisage a Malthusian catastrophe occurring as oil becomes increasingly inefficient to produce. Since the 1940s, agriculture has dramatically increased its productivity, due largely to the use of chemical pesticides, fertilizers, and increased mechanisation. This process has been called the Green Revolution. The increase in food production has allowed world population to grow dramatically over the last 50 years. Pesticides rely upon oil as a critical ingredient, and fertilizers require both oil and natural gas. Farm machinery also requires oil. Arguing that in today's world every joule one eats requires 5-15 joules to produce and deliver, some have speculated that a decreasing supply of oil will cause modern industrial agriculture to collapse, leading to a drastic decline in food production, food shortages and possibly even mass starvation.

Oil shortages may force a move to lower input "organic agriculture" methods, which would probably be more labor-intensive and require a population shift from urban to rural areas, reversing the trend towards urbanisation which has predominated in industrial societies. Another possible effect would derive from America's transportation and housing infrastructure. A majority of Americans live in suburbs, a type of low-density settlement designed with the automobile in mind. Some commentators such as James Howard Kunstler argue that because of its reliance on the automobile, the suburb is an unsustainable living arrangment; the implications of peak oil would leave many Americans unable to afford fuel for their cars, and force them to move to higher density, more walkable areas. In effect, surburbia would comprise the "slums of the future." A movement to deal with this problem early, called "New Urbanism," seeks to develop the suburbs into higher density neighborhoods and use high density, mixed-use forms for new building projects.

The environment could also be affected. When oil production begins to decline, humanity may increasingly turn to less environmentally friendly energy sources such as coal, of which there are still significant reserves remaining on Earth. This may exacerbate global warming, and health and developmental problems such as cancer and autism [7].

Recession

A more modest scenario, assuming a slower rate of depletion and a smooth transition to alternative energy sources could cause great economic hardship such as a recession or depression due to higher energy prices. Historically, there is a close correlation in the timing of oil price spikes and economic downturns. Inflation has also been linked to oil price spikes. However, economists disagree on the strength and causes of this association. The world economy may be less dependent on oil than during earlier oil crises. Conversely, the recessions of the early 1970s and early 1980s were associated with a relatively brief period of somewhat dwindling energy availability; the possible future increase in oil prices might be much higher and last longer. See Energy crisis.

New technology

New technology may allow new energy sources to be used and may allow more energy to be extracted from old ones. Most of the potential energy in energy sources is not converted to a useful form. For example, only 10-20% of the sunlight is converted to electricity in solar cells and only 35% of the oil in a typical field is recovered. New technology may increase these numbers. Many of the non-conventional oils today require more energy to extract than can be gained from the oil itself. This may also change with new technology. Opposed to this is the problem that the remaining fossil fuel reserves usually are increasingly difficult to extract. They may be in increasingly remote areas, such as far below the surface of the ocean or in the Arctic. They may also be of increasingly lower quality, and thus more difficult to refine. Both of these factors may affect oil price in the future, making it difficult to predict. In the end, new technology cannot prevent oil production from declining since the amount of oil is finite. But new technology may push the peak farther into the future than what is predicted today.

Market solution

A market solution is the belief that the rise of oil prices due to scarcity would stimulate investment in oil replacement technologies and/or more efficient oil extraction technologies and/or an increase in productivity and/or an decrease in consumption.

Presumably, as rising energy costs exceed the labor costs of construction, and as long-term interest rates drop to match the falling productivity of an energy-starved economy, other sources of energy would become increasingly more attractive. However, critics argue that market solution proponents mistakingly phrase everything in terms of money, i.e., they only consider the price of oil, when in reality the important metric is energy efficiency (the ratio of extracted energy over energy used by the extraction and refining processes). An analogy in simpler terms would be:

Imagine you are driving a car and you have only 1 gallon of gasoline left. In order to reach the nearest gas station, however, you need about 2 gallons of gasoline. In this context, the price of gas is irrelevant: it doesn't matter if you are willing to pay two, three, ten or one hundred dollars per gallon, because the car will never reach the gas station.
Or, as Franco Battaglia put it: "You can buy an apple for one euro. If you really want an apple, you might pay five euros. You could even pay a thousand euros, but you would never pay two apples."

The market solution's counterargument is that with more money, you can pay someone to go to the gas station to bring the gas to you, or push your car to the gas station, or convert your car to run something other than gas.

Increased fuel efficiency

By the theory of supply and demmand, increases in fuel prices would be expected to stimulate an increase in transportation fuel efficiency. This could postpone and lessen the impact of severe oil shortages, making the decline side of Hubbert's pek less severe. It may also cause a shift to forms of transport which are not so dependent upon oil. Electricity, in particular, can be generated from a number of different sources. This may lead to increased use of transport such as trains, trams/streetcars, trolleybuses and hybrid vehicles instead of oil burning trucks, cars and aircraft.

However, others will note that an increase in fuel efficiency may in fact compound the problem. This phenomenon is referred to as the Jevons paradox, which states that as technological improvements increase the efficiency with which a resource is used, total consumption of that resource may increase, rather than decrease. Additionally if people manage to do more work with less fuel, their relative ratio of income to oil price goes down, giving them the ability to support a higher price for oil than before. This makes it even more worthwhile to extract hard to reach oil, and faster. On the other hand, if the price of oil increases at the same rate as the increase in efficiency, there is no extra buying power generated and balance with demand is maintained. Finally, if the price of oil increases faster than efficiency, buying power goes down, and inflation begins while the demand for oil goes down.

Once the rate of oil extraction can no longer increase with demand, in other words the oil peak has been reached, Jevons paradox instantly ceases to apply. The price of oil may still continue to increase, but the amount of oil available to the economy remains the same or even goes downwards. This means that anyone wishing to maintain the same standards of living must increase efficiency from that moment on, as it will not be economical to be less efficient with oil. In conclusion very high oil prices will force efficiency universally, but also means the more efficient use of oil can only keep oil at a high price or slow its rate of gaining even higher prices, once oil returns to a lower price the incentive for efficiency is equally reduced and efficiency will drop, and thus the Jevons paradox will likely take effect.

Political implications

 
Imported crude oil as a percent of US consumption.

As of 2005, the United States economy is the world's largest user of oil, with a historical reliance on what have been, and still are, some of the world's lowest oil prices. Its position as the global hyperpower rests on its economic supremacy, which in turn depends heavily on oil being sold to it at a price that does not create a United States trade deficit that forces down the value of the US dollar against foreign currencies. At the same time, the world's largest oil reserves are held by Saudi Arabia, followed by those of Iraq, the United Arab Emirates, Iran and Russia. When Hubbert Peak occurs and oil becomes a progressively more scarce commodity, it is reasonable to expect the possibility of political and economic tension between its principal producers and consumers.

Some observers see the actions of the U.S. government in the middle east, including the 2003 U.S. invasion of Iraq, as the continuation of a long-term geopolitical struggle driven by the need of a nation built upon now nearly-depleted domestic oil resources to secure replacement oil supplies from overseas at an acceptable price.

Author Richard Heinberg has proposed an Oil Depletion Protocol as a way to mitigate the risk from a peak in the world's production of oil. Adoption of the Protocol means that "oil importing nations would agree to reduce their imports by an agreed-upon yearly percentage (the World Oil Depletion Rate), while exporting countries would agree to reduce their rate of exports by their national Depletion Rate."

Demmand reduction through lifestyle choices

A significant percentage of today's resource use is based upon lifestyle choice rather than unalterable human needs. The United States has 5% of world's population but accounts for 24.8% of global oil consumption by using 20.52 million barrels of oil per day according to the U.S. Department of Energy. Europe, not including Russia, accounts for an additional 19.9% of the world's oil consumption by using 16.45 million barrels of oil daily. Some critics of consumerism argue that modern society has addictive elements, exacerbated by advertising and overuse of credit; this addiction has been dubbed affluenza. The voluntary simplicity movement advocates a shift from consumerism to a reduced use of natural resources and energy.

Even those who choose to stay at home and telecommute have a significant global impact. Telecommuting requires a vast computer infrastructure to be effective. Worldwide, this infrastructure consumes enormous energy resources. Also, computers are a major source of some of the worst types of pollution, including heavy metals.

Others are pessimistic about the likelihood of society being able to make the magnitude of lifestyle changes needed to significantly reduce energy demand. Many of these lifestyle changes are seen as unpleasant. People may be forced to work more to replace the work previously done by machines. Airplanes and cars may be replaced by railroads, ships and mass transport. People may travel much less, for example staying at home during holidays. Foods like meat, chocolate, coffee, tea, fish, and milk may be replaced by locally produced cereals and vegetables. People may move to smaller houses that cost less to build and heat. In general, there will be less consumption because higher power cost affects all stages of production and transportation. In extreme cases there may be rationing of electricity, transportation fuel and heating.

It could also be that reductions in demmand would be counterbalances by other increases in demamnd. The Jevons paradox implies that as individuals become increasingly efficient, the overall economy will compensate by supporting additional individuals and increasing overall consumption. When a small percentage of the population chooses to drive fuel efficient automobiles, and a large percentage drives inefficient vehicles, the net effect of the conservation is to to lower the price pressure on the inefficient consumption, and thus make such consumption more desirable in economic terms. This is a form of the tragedy of the commons.

Alternatives to conventional oil

Main article: Alternatives to oil

Alternatives to oil are energy sources other than oil which can be used instead of oil and natural gas in one or more applications, including; as a prime energy source, as a transportation fuel and as an ingredient in plastics and pesticides. When conventional oil enters depletion these alternative energy options may be increasingly relied upon to meet the world's energy needs.

Current Events

In August 2005 as oil prices rise, greater attention is focused on Hubbert's theory and its potential implications. However, oil and gas prices are notoriously volatile and price increases could also be caused by numerous other fators.

As of June 2005, OPEC has admitted that they will 'struggle' to pump enough oil to meet pricing pressures for the fourth quarter of the year. It is expected that the summer and winter of 2005 will bring oil prices to a new high; some would say this is a prime example of demand starting to outstrip supply. Others could blame it on various geopolitical forces in the regions where oil is produced. One other explanation for the rising oil prices is that it is a sign of too much paper money and not too little oil. In this view, dramatically higher prices of all commodities and U.S. real estate indicates rising inflation.

See also

Organizations

Further reading

ACT Peak Oil Discussion Group http://www.act-peakoil.org/


Hubbert theory advocacy and research

Reports/essays/lectures

Articles

Forums/Blogs

Hubbert theory criticisms

References

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