Hubbert's Peak Theory - Explained
What is Hubbert's Peak Theory?
If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.
- Marketing, Advertising, Sales & PR
- Accounting, Taxation, and Reporting
- Professionalism & Career Development
Law, Transactions, & Risk Management
Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
- Business Management & Operations
- Economics, Finance, & Analytics
What is Hubbert's Peak Theory?
Hubbert's peak is defined as the point where the demand for the resources is rising at its highest production rate and then expects a reduction in the correlation with the increased demand. As demand continues to rise but overall production falls, there can be dramatic differences in supply and demand. Hubberts peak theory states that the rate of production of petroleum tends to follow a bell-shaped curve in any geographic area from a specific oil-producing region to the entire planet. The theory was named after M. King Hubbert and is one of the major theories on peak oil. The future oil production based on current output is calculated by oil companies with this theory.
How is Hubbert's Peak Theory Used?
Marion King Hubbert proposed that in 1956, all levels of oil production were accompanied by a bell-shaped curve and gradually would rise and decrease in line with predictable patterns. The theory is applicable to the individual petroleum fields as well as to global oil reserves in general. He postulated that once the highest point of the bell curve is reached, global production would have reached the peak oil point. It means, according to the Hubbert curve, that maximum output from an individual or global oil reserves will occur towards the mid-life cycle of the reserve. Subsequently, due to the depletion of resources and diminishing returns, there is a fall in the production rate. There will eventually be an oil peak if the oil is extracted faster than it is reserved.
A Technological Revolution in Oil Production
Hubbert predicted the peak of U.S. oil production by 1970 and the expectation of global production starts to decline by 2006. All his predictions were proven wrong because the oil industry's technological revolution has increasing recoverable reserves and improved recovery rates from new and old wells. The high-tech digital 3D seismic imaging exploration can be applauded for this great improvement as it has helped scientists to view locations below the seabed floor which were impossible before. A depth of 5000 feet could be reached during offshore drilling in the 1950s, but technology has enabled the drilling to be extended to 25000 feet today. An example is the U.S which exceeded its 1972 peak barrels per day in January 2018 using technological innovations.
No More Peak Oil
Innovative companies like Schlumberger have enabled talks about oil reaching its peak to be a thing of the past in the oil industry. Since the majority of the world has not yet been explored, oil predicted to be recoverable is estimated to be around 2.6 trillion barrels and increasing. Technically speaking, when looking into the future, there is almost an unlimited amount of oil still to be extracted. This implies that we are not yet close to reaching peak energy. It has been proven that coal reserves around the world are estimated to be around 1.1 trillion tonnes, which is continually produced at the current rates, will sufficiently last for around 150 years.
- Total Utility (Economics)
- Efficiency Principle
- Indifference Curve
- Time Preference Theory of Interest
- Diminishing Marginal Utility
- Sunk Costs
- Production Possibilities Frontier
- Law of Diminishing Returns
- Economic Efficiency
- Efficiency Theory
- Productive Efficiency
- Capacity Utilization Rate
- Pareto Efficient
- Comparative Advantage
- Criticisms of the Economic Approach
- Behavioral Economics
- Normative Economics
- Positive Economics
- Invisible Hand
- Sunk cost