This is actually the fifth time in modern history that we’ve seen widespread fear that the world was running out of oil. The first was in the 1880s, when production was concentrated in Pennsylvania and it was said that no oil would be found west of the Mississippi. Then oil was found in Texas and Oklahoma. Similar fears emerged after the two world wars. And in the 1970s, it was said that the world was going to fall off the “oil mountain.” But since 1978, world oil output has increased by 30%.
Just in the years 2007 to 2009, for every barrel of oil produced in the world, 1.6 barrels of new reserves were added. And other developments — from more efficient cars and advances in batteries, to shale gas and wind power — have provided reasons for greater confidence in our energy resiliency. Yet the fear of peak oil maintains its powerful grip.
The idea owes its inspiration, and indeed its articulation, to a geologist who, though long since passed from the scene, continues to shape the debate, M. King Hubbert. Indeed, his name is inextricably linked to that perspective — immortalized in “Hubbert’s Peak.”
Marion King Hubbert was one of the most eminent—and controversial — earth scientists of his time. Born on a ranch in San Saba, Texas in 1903, he did his university education, including his Ph.D., at the University of Chicago. One of his fundamental objectives was to move geology from what he called its “natural history phase” into its “physical science phase,” firmly based in physics, chemistry and, in particular, rigorous mathematics.
In the 1930s, while teaching at Columbia University, Hubbert became active in a movement called Technocracy and served as its educational director. Holding politicians and economists responsible for the debacle of the Great Depression, Technocracy promoted the idea that democracy was a sham and that scientists and engineers should take overthe reins of government and impose rationality on the economy. “I had a boxseat at the Depression,” Hubbert later said. “We had manpower and raw materials. Yet we shut the country down.”
Technocracy envisioned a no-growth society and the elimination of the price system, to be replaced by the wise administration of the Technocrats. Hubbert believed that a “pecuniary” system, guided by the “hieroglyphics” of economists, was the road to ruin.
In the late 1940s, Hubbert heard another geologist say that 500 years of oil supply remained in the ground. This couldn’t possibly be true, he thought. He started doing his own analysis. In 1956, he unveiled the theory that would forever be linked to his name. He declared that U.S. oil production would hit its peak somewhere between 1965 and 1970.
His prediction was controversial, but when U.S. oil production hit its high point in 1970 and began to decline, soon followed by the shock of the 1973 embargo, Hubbert appeared more than vindicated. He was a prophet. He became famous — and so did Hubbert’s Peak.
For many decades, the U.S. had been, by far, the world’s largest oil producer. All through the 1960s, domestic production had supplied 90% of demand. No longer. To meet its own growing needs, the U.S. became a major importer, deeply enmeshed in the world oil market and a new set of geopolitical concerns.
Hubbert was very pessimistic about future supply. He warned that the era of oil would be only a brief blip in mankind’s history. In 1978, he predicted that children born in 1965 would see all of the world’s oil used up in their lifetimes. Humanity, he said, was about to embark upon “a period of non-growth.”
Hubbert used a statistical approach to project the kind of decline curve that one might encounter in some — but not all — oil fields, and he assumed that the U.S. was one giant oil field. His followers have adopted the same approach to assess global supplies.
Hubbert’s original projection for U.S. production was bold and, at least superficially, accurate. His modern-day adherents insist that U.S. output has “continued to follow Hubbert’s curve with only minor deviations.”
But it all comes down to how one defines “minor.” Hubbert got the date exactly right, but his projection on supply was far off. He greatly underestimated the amount of oil that would be found — and produced — in the U.S.
By 2010, U.S. oil production was 3½ times higher than Hubbert had estimated: 5.5 million barrels per day versus Hubbert’s 1971 estimate of no more than 1.5 million barrels per day. Hardly a “minor deviation.”
“Hubbert was imaginative and innovative,” recalled Peter Rose, who was Hubbert’s boss at the U.S. Geological Survey. But he had “no concept of technological change, economics or how new resource plays evolve. It was a very static view of the world.” Hubbert also assumed that there could be an accurate estimate of ultimately recoverable resources, when in fact it is a constantly moving target.
Hubbert insisted that price didn’t matter. Economics — the forces of supply and demand — were, he maintained, irrelevant to the finite physical cache of oil in the earth. But why would price — with all the messages that it sends to people about allocating resources and developing new technologies — apply in so many other realms but not in oil and gas production? Activity goes up when prices go up; activity goes down when prices go down. Higher prices stimulate innovation and encourage people to figure out ingenious new ways to increase supply.
The idea of “proved reserves” of oil isn’t just a physical concept, accounting for a fixed amount in the “storehouse.” It’s also an economic concept: how much can be recovered at prevailing prices. And it’s a technological concept, because advances in technology take resources that were not physically accessible and turn them into recoverable reserves.
In the oil and gas industry, technologies are constantly being developed to find new resources and to produce more—and more efficiently — from existing fields. In a typical oil field, only about 35% to 40% of the oil in place is produced using traditional methods.
One example is the “digital oil field,” which uses sensors throughout the field to improve the data and communication between the field and a company’s technology centers. If widely adopted, it could help to recover an enormous amount of additional oil worldwide — by one estimate, an extra 125 billion barrels, almost equivalent to the current estimate reserves of Iraq.
New technologies and approaches continue to unlock new resources. Ghana is on its way to significant oil production, and just a few days ago, a major new discovery was announced off the coast of French Guiana, north of Brazil.
As proof for peak oil, its advocates argue that the discovery rate for new oil fields is declining. But this obscures a crucial point: Most of the world’s supply is the result not of discoveries but of additions and extensions in existing fields.
When a field is first discovered, little is known about it, and initial estimates are conservative. As the field is developed, more wells are drilled, and with better knowledge, proven reserves very often increase substantially. A study by the U.S. Geological Survey found that 86 percent of oil reserves in the U.S. were the result not of what was estimated at the time of discovery but of revisions and additions from further development.
Estimates for the total global stock of oil keep growing. The world has produced about one trillion barrels of oil since the start of the industry in the 19th century. Currently, it is thought that there are at least five trillion barrels of petroleum resources in the ground, of which 1.4 trillion are deemed technically and economically accessible enough to count as reserves (proved and probable).
Based on current and prospective plans, it appears that the world’s production capacity for “oil and related liquids” (in industry jargon) should grow from about 92 million barrels per day in 2010 to over 110 million by 2030. That is an increase of about 20%.
