(John Kemp is a Reuters market analyst. The views expressed are
By John Kemp
LONDON, April 17 Combined production of crude
oil, gas and condensates in the United States is on course to a
hit a record this year, passing the previous peak set in 1972.
The rise in output has confounded the famous forecast made
by Shell geologist M King Hubbert who predicted that U.S. oil
and gas production would peak in the 1970s and then decline.
Hubbert's prediction was contained in a paper entitled
"Nuclear Energy and the Fossil Fuels," published in 1956, in
which he argued the coming decline of oil and gas output would
make the development of nuclear energy essential.
Hubbert's prediction of peaking oil and gas production came
to be known as "Hubbert's peak" and spawned the popular and
influential theory known as "peak oil".
The forecast was illustrated with a series of graphs, two of
which are reproduced here (Charts 1 and 2).
For almost four decades between the 1970s and 2000s,
Hubbert's prediction appeared to be frighteningly accurate.
Chart 1: Hubbert's oil peak
Chart 2: Hubbert's gas peak
Chart 3: Actual U.S. output
Chart 4: Real oil prices
U.S. oil production peaked at 3.5 billion barrels in 1970
and then declined steadily to just 1.8 billion barrels in 2008.
Gas production peaked shortly afterwards. Output levelled
off rather than falling but remained below its 1973 peak for
almost 40 years.
But since 2005, Hubbert's predictions have been
Total petroleum output (which includes oil, gas and
condensates) has surged from a low of just 5.15 billion barrels
in 2005 to 7.13 billion barrels in 2013.
Output is at the highest level since 1973 (7.26 billion
barrels) and is on course to beat the 1972 record (7.34 billion
barrels) in 2014 (Chart 3).
The combination of horizontal drilling and hydraulic
fracturing, which have enabled oil and gas extraction from
previously impermeable rock formations, is responsible for
disproving Hubbert's thesis.
But it is worth asking why Hubbert's theory proved to be
wrong because it sheds light on why oil and gas supplies will
never run out in any meaningful sense.
Crude oil, natural gas and coal are all formed from the
fossilised remains of plants, algae and plankton that lived
millions of years ago and were buried underground or on the
bottom of ancient lakes and oceans before they could decompose
A small fraction of the organic remains was converted to
kerogen by the action of anaerobic bacteria. As sedimentation
continued, some of the kerogen was buried more deeply. With
greater depth came higher temperatures, converting some of the
kerogen into oil, gas and coal in a process that is similar to
the cracking and coking employed in modern oil refineries.
New accumulations of fossil fuels are being laid down all
the time, especially in organic rich depositional environments
like the Mississippi and Niger deltas.
But the current massive fossil fuel reserves were laid down
over 500 million years and the current rate of exploitation
probably exceeds the rate at which new oil, gas and coal are
Hubbert therefore concluded fossil fuels are a finite
resource. "We can assume with complete assurance that the
industrial exploitation of the fossil fuels will consist in the
progressive exhaustion of an initially fixed supply to which
there will be no significant additions during the period of our
interest," he insisted.
Based on the historical experience of coal, oil and gas
production in the United States, Hubbert noted that when a new
energy source is first exploited, production tends to rise
exponentially, but the doubling of output cannot continue
indefinitely, and eventually production growth slows and then
starts to decline.
Production would first rise exponentially, level off, then
decline exponentially. Output could be described by a curve.
Hubbert drew an analogy between the production and eventual
exhaustion of an individual oil field and the production and
exhaustion of oil, gas and coal reserves at a state, national or
world level. They would all follow the same pattern of expansion
and then decline, shown as a classic production curve.
"These curves embody just about all that is essential in our
knowledge of the production of energy from fossil fuels on the
world, a national and a state scale," Hubbert concluded.
"No finite resource for longer than a brief period such a
growth rate of production; therefore although production rates
tend initially to increase exponentially, physical limits
prevent their continuing to do so."
Hubbert assumed the ultimately recoverable oil reserves of
the United States were around 150 billion barrels, of which 50
billion had already been produced by the mid-1950s.
Production was still increasing at that point, so peak
output was still some way in the future, but given the finite
nature of the resource the peak would have to occur around 1965
or 1970 before output began its inevitable decline, he argued.
Hubbert was well aware that the recoverable resources of oil
and gas were dwarfed by much larger accumulations of other
fossil fuels like coal, tar sands and kerogen, all of which
could be converted into more usable liquid fuels if necessary.
Global oil and gas output would peak before the end of the
20th century, according to Hubbert. But "this does not
necessarily imply that the United States or other parts of the
industrial world will soon become destitute of liquid and
gaseous fuels, because these can be produced from other fossil
fuels which occur in much greater abundance."
Coal, kerogen and even biomass can be converted into oil and
gas using the well-established Fischer-Tropsch process.
Moreover, Hubbert understood that improvements in technology
would allow more oil and gas to be extracted in future and could
boost ultimately recoverable reserves.
"By means of present production techniques, only about a
third of the oil underground is being recovered," he wrote.
"However, secondary recovery techniques are gradually being
improved so that ultimately a somewhat larger but still unknown
fraction of the oil underground be extracted than is now the
But Hubbert doubted improvements in technology and recovery
rates would occur fast enough to have "any significant effect"
on the date of production peaking.
And that points to the flaw in Hubbert's theory. He
understood output rates and ultimate production were influenced
by both the size of the initial resource base and technology.
But Hubbert failed to appreciate just how much technology could
change and how quickly.
Hubbert's defenders point out that his predictions were made
with reference to the then known reserves of conventional oil
Production rates have been sustained and are now rising
again, but only by exploiting new resources such as offshore
deepwater fields and shales, most of which are much more
difficult and expensive to produce than the conventional fields
Hubbert was analysing. Output has been sustained, but only at an
increasing cost and price.
British economist William Jevons made similar predictions in
the 19th century about the rising cost of coal production from
Britain's coal fields as seams near the surface were gradually
exhausted and miners were forced to delve deeper.
In this form, the theory is true, but not meaningful.
Proponents talk about the progressive exhaustion of
"conventional" resources and the need to replace them with more
expensive and difficult "unconventional" resources.
But improvements in technology shift the boundary between
conventional and unconventional all the time. What was once
conventional or even unimaginable becomes mainstream and
commonplace. Even shallow offshore oil fields, once seen as very
unconventional, are now considered conventional by most
observers. Shale oil and gas production is well on the way to
Contrary to Jevons, Hubbert and the main proponents of peak
oil theory, costs and prices do not always rise. In fact, the
real inflation-adjusted price of oil, has been quite variable
over the last 150 years, as shown by the price history contained
in the annual BP Statistical Review of World Energy (Chart 4).
Costs and prices are as much a function of technology as
output. It is simply not true to say prices (in real terms) must
rise in the long term as easy resources are exhausted because
that too depends on changes in technology.
"No mineral, including oil, will ever be exhausted. If and
when the cost of finding and extraction goes above the price
consumers are willing to pay, the industry will begin to
disappear," according to MIT professor Morris Adelman.
If oil becomes too expensive it will be replaced by other
forms of energy, just as coal replaced wood in the 19th century,
and oil replaced coal in the middle of the 20th century.
In that sense, Hubbert's theory is technically correct but
practically meaningless because it rests on an essentially
static view of technology.
It is what Nobel physicist Max Planck termed a phantom
problem: "soberly looked at, it is void of meaning - a phantom
problem on which our labours and thoughts were wasted."
(Editing by William Hardy)