Production and the Hubbert Curve
Oil production seems fairly straightforward: countries pump out the oil
as fast as they can and then it runs out. This is the implication between
the R/P ratios (see Jargon) that
are so beloved of oil companies and imply that oil will last for many
decades to come. The problem with R/P ratios is that oil does not work
Woodpile v Woodland
production can be best understood by comparison with something such as
wood. Imagine an island where there is one carpenter. The
R/P ratio basis of oil usage revolves around the assumption that oil
production works like a woodpile in the carpenter's backyard. Whenever
he needs wood, he walks out to the pile and takes however much he requires.
If things get busy and he needs more wood, he simply takes more wood
from the pile. There is always enough to satisfy his needs until that
fateful day when he removes the last plank and it is then all gone. The
only factor in its price is demand - if fewer people want wooden things,
the carpenter lowers the price to stimulate demand. If he has plenty
of work on, he can increase the price and get the benefit.
Comparing this with oil, if the world has 1,050
Gb of oil remaining and we use 27 Gb a year, then dividing one
the other means that we will be able to use 27 Gb of the woodpile for
another 39 years. Then the yard will suddenly turn out to be empty.
But oil does not sit in one huge hole in the ground, constantly being
pumped out. Rather an oil field is a set of wells of different sizes,
with new wells being set up as old ones dry out. The R/P ratio takes
the view that the oil has already been found and is sitting patiently
in the backyard.
In reality, it is more like woodland than a woodpile.
If we imagine instead that our carpenter had to chop down a tree every
time he needed to make something, the problems become more evident. Trees
vary in their size, proximity and quality. Initially our man would pick
those that were large, good quality and nearby. As this was relatively
easy, his prices could be kept low. But, as time went on, he would have
to cut more trees of smaller sizes, travel further to find them and use
wood of a lower standard. This extra work would take longer and naturally
result in higher prices.
Eventually, unless the trees were managed and replaced, he would find
himself unable to find enough wood to satisfy his customers.
But couldn't he cut the trees quicker to keep production up? He certainly
could employ someone to help him (which would be like drilling more wells)
result in depletion occurring more quickly, and the quicker you cut away
the large and nearby trees, the quicker you have to resort to the small
and distant ones. New technology can only help so much; no matter what
circular saw or four-wheeled vehicle you have, there's always a certain
minimum time needed to cut down and drag a tree to the workshop.
Production still falls, the best you can do is change the angle of the
slope on the chart. Any increase in production means a gentler initial
decline and a steeper subsequent one.
Oil production works in a similar way with the important distinction
that, unlike trees, we cannot replace the oil we use. It is as if every
tree the carpenter cut down was gone forever.
Such is oil production. Chart P1 above shows how the R/P suggests oil
production might occur, as a woodpile view. An individual well might
resemble that but fields are formed of many wells. Chart P2 is a more
'sophisticated' version, the one often assumed by economists that oil
production can simply be increased to keep pace with consumption until
the wells finally and suddenly run dry.
Chart P3 shows how it actually works, as a woodland. (In reality,
because discoveries do not come along at perfectly placed times, and
there are always political and economic effects, the smoothness of the
gets somewhat warped. In particular, the right hand half tends to get
stretched out (see chart P4). But the principle remains.)
The production curve for the US lower-48 (see Chart D2 in Discoveries)
shows this curve in effect. Also, by looking at the production curve for
the whole world (Chart P5), we can see how, up until the mid 1970s, the
curve was a remarkably accurate reproduction of the theoretical curve.
Then political elements interfered to balk the trend (see The 1970s Oil
Shocks in Consumption). The result was
economic recession and a reduction in consumption. Less oil used meant
a reduction in production with the consequent mountain range that
we see in the chart. In some ways though, this reduction was actually
a good thing for, if we had not reduced our production and consumption
in the 1970s and 1980s, we would now be sliding down the decreasing slope
and well on our way to disaster.
The Financial Aspect
Many objectors to peak oil claim that, as oil becomes
more expensive, more reserves will become available because they are
then financially worthwhile. For example, if the price of oil on the
world markets is $100 a barrel and it costs $105 to extract it from
a particular oil field,
be worthwhile and therefore not classed as "recoverable resource" (see
Jargon). If the oil price rises to $110, then
that oil becomes viable. The argument goes that, as oil production falls,
the price rises and more oil becomes available.
This is true to a certain extent (although there will not
be that much extra oil available). What it ignores is the fact
that the new oil will not be cheap oil. The price will remain
high and continue to rise, and everything else will rise in tandem –
electricity, fuel, plastics, food. What follows will be recession, unemployment,
collapse. As is often pointed out (and often ignored) the problem that
faces us is not the end of oil, but the end of cheap oil, and the end
of our cheap energy society.
The Hubbert Curve
It is not pure chance that we found a curve that fitted production. The
work was done by an American geologist, M King Hubbert, who predicted
in 1956 that the US-48 oil production would peak in 1969. He was much
reviled at the time yet he was out by just one year.
The Hubbert Curve (as it is now known), is a statistical figure formed
by combining many independent producing fields into a single trend. But
real oil production does does not always follow the curve. If discovery
is intermittent or if the statistic covers a limited number of fields,
it will look different. Many countries, for instance, display several
peaks because oil has to be found before it can be produced. If the country
has several discovery cycles, the production curve will mirror it.
Because the US-48 production has been uninterrupted, its production curve
closely follows the Hubbert Curve, as we saw in Chart D2. Irans
output, though initially trying to follow the curve, has been disrupted
by revolutions and wars, and so is breaking into two peaks.
(To see how the Curve is actually formed, see the Hubbert
At the beginning of this guide, I mentioned the writer who said that
I remember being told twenty years ago that there was only twenty
years of oil left. This is a common belief among uninformed people.
It is where the title of this site comes from. It is also inaccurate.
There were indeed many claims during the 1970s that oil would run out
by the end of the (20th) century or even before. But there was also a
common prediction that oil production would peak around the end
of the century, not run out, and this was the view taken by almost all
reputable organisations. It now appears this prediction would have been
extremely accurate if it wasnt for the slowdown in production caused
by the 1970s oil shocks. People remember the forecasts but, because they
are unaware of the difference between oil peaking and oil exhaustion,
they assume that all the predictions were that oil would run out by 2000.
One site on oil depletion (http://www.oildepletion.org/roger/index.htm)
gives a fascinating chart of oil predictions from the past thirty years.
Past Oil Predictions
|Date of Forecast
||Forecast Date of Conventional Peak
||Oil to become increasingly scarce from the year 2000
||Report for the UN Conf. on Human Environment
||likely that peak production will have been reached by the
||SPRU, Sussex University
||UK Dept of Energy
||2000 Gb (Nehring)
||Ehrlich et al.
plateau within the next 25 years.
||BP (Oil Crisis
||Peak (non-Communist world): 1985
plateau around the turn of the century
|| 1900 Gb
||~ 2000 Gb
||IEA: WEO 1998
||2300 Gb ref. case
||Peak: ~ 2010
||~ 2000 Gb
||Peak: ~ 2010
||2000 Gb (inc. polar deep)
||Peak: 2004 or 2019
||2000 or 3000 Gb
||IEA: WEO 2000
||Peak: Beyond 2020
||3345 Gb (from USGS)
||2000 US EIA
||3003 Gb (from USGS)
||~ 2000 Gb
||1950-2300 Gb equiv.
So many of the forecasts from the past were accurate and remain so. To
correct my writers quotation:
I remember being told thirty years ago that oil would
peak in thirty years. We are now being told again that oil will peak
in the next ten years. I wonder if they will be saying I told you so in
another thirty years!