Part 3: Peak Oil

M. King Hubbert (1903 - 1989) was a geoscientist who worked for Shell Oil in the Houston research lab - as well as the United States Geological Survey, Stanford University and UC Berkeley. During his career Hubbert made many notable contributions to the fields of petroleum geology, geophysics and engineering. Notwithstanding these accomplishments, King Hubbert is most widely known for his 1956 paper entitled “Nuclear Energy and Fossil Fuels”. In this ground-breaking paper, Hubbert predicted that oil production in the continental United States would peak (achieve a maximum rate) between the late 1960s and early 1970s. After peak production was achieved, daily production rates would slowly decline roughly following a bell-shaped curve. His prediction was widely criticized - until the domestic US production peaked in 1971 at a rate of 10.2 million barrels per day. Domestic US production rates have been in gradual decline ever since. In 1974, Hubbert predicted that world-wide production rates would peak somewhere around 1995.

Hubbert based his predictions on the observation that the amount of oil in any geographic region - ranging from a single field to the entire planet - is finite. He further reasoned that the rate of field discovery would initially increase quickly and then decline as all the possible accumulations were found. Oil extraction would logically follow the same trend as the discoveries, with a time lag. In the domestic US this lag was about 35 yrs. Once production starts in a region the production rate increases exponentially, as more efficient facilities are installed, until the peak production rate is achieved and then the production rate begins to decline.

Hubbert’s predictions are clearly confirmed when we examine historic production rates on a world-wide basis. From 1900 to 1960 we can see the exponential growth of US oil production that fueled America’s industrialization. As US production rates began to peak, other basins were discovered and brought onto production. One by one, each of these basins have seen the pattern of exponential production increase, peaking and decline. Production peaks have now occurred in the US (1971), Canada (74), Malaysia (97), Ecuador (99), UK (99), Australia (2000) and Norway (01). As we can see the exponential growth in production rates for all of these countries combined (and more), ended somewhere around 1995. Peak production rate appears to be somewhere in the region of 36 million of barrels/day.

It is important to note that these production figures exclude OPEC and the Former Soviet Union. OPEC - especially Saudi Arabia - controls most of the world’s oil anyway. Therefore, it would be negligent not to mention that OPEC production rates hit a maximum of about 35 million barrels/day in 2005 - and in spite of record prices - began a slow decline through 06 and 07. Current projections for OPEC from 2008 to 2010 are 35.75, 35.04 and 36.61 Mbbls/day. FSU projections for the same period are 12.53, 12.57 and 12.78 Mbbls/day. This gives world-wide projections for the coming years of 85.46 (2008), 84.93 (2009) and 86.59 (2010).

Please note: These estimates were made before the announcement of several project cancellations due to the recent crash in oil prices.