What is the Peak Oil Theory?

What is the Peak Oil Theory?

During the 1950′s, and ’1960s, noted geologist M. King Hubbert became world-renowned based on his prediction that the fossil fuel era would end in the relatively near future. He noted that the production of typical oil reservoirs tend to follow a bell-shaped curve, reaching a peak and then declining irreversibly. He predicted in 1956 that U.S. based oil production would peak between 1966 and 1972. Although his predictions were contemporaneously dismissed by many oil companies, economists, and government agencies, the actual U.S. peak did occur in 1970.

Hubbert later estimated that global oil production would peak between 1990 and 2000. Due to inadequate data and minor methodological flaws, this prediction proved to be inaccurate and generally considered too pessimistic. However, researchers have since corrected the data and methods used by Hubert and have arrived at more reliable predictions that vary by approximately a decade from the original analysis.

Continuing Support for Hubbert’s Peak Oil Theory

One of the more renowned supporters of Hubbert’s peak oil theory is Colin Campbell, the co-founder of the Association for the Study of Peak Oil (ASPO). Campbell is a former geologist for Texaco and Amoco; he also served as an executive and consultant for numerous oil companies. In a widely read professional article entitled, “The End of Cheap Oil?” Campbell concluded that, “From an economic perspective, when the world runs completely out of oil is thus not directly relevant: what matters is when production begins to taper off. Beyond that point, prices will rise unless demand declines commensurately… we conclude that the decline will begin before 2010.”

Other widely read and well regarded advocates of Peak Oil include Kenneth S. Deffeyes, Matthew Simmons, and Robert Hirsch:

• A former oil-company geologist turned Professor Emeritus at Princeton University, Kenneth S. Deffeyes is the author of “Beyond Oil: The View from Hubbert’s Peak” and “Hubbert’s Peak: The Impending World Oil Shortage.” Deffeyes has predicted, using Hubbert’s methods, that world oil production peaked at the end of 2005.
• Matthew Simmons is CEO of Simmons and Company International ( an investment-banking firm) and the author of  the widely acclaimed book, “Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy.”  He is a prominent oil-industry insider and a leading expert on peak oil. Through his rigorous analysis of extensive industry data, Simmons is principally concerned with questionable estimates of Middle East oil reserves. He argues that Saudi Arabian production will peak in the near future if it has not done so already. Saudi oil officials claim that the country will be able to meet the increasing demand for oil, but as Simmons notes, this claim is largely unsubstantiated as published Saudi reports have never been verified.
• In early 2005, a study was commissioned by the United States Department of Energy, entitled “Peaking of World Oil Production: Impacts, Mitigation and Risk Management.” Referred to as the Hirsch Report after its primary author, Robert L. Hirsch, the report assesses the results of numerous researchers and encourages governmental action to soften the ramifications of a decline in oil. The report warns that as peaking approaches, “liquid fuel prices and price volatility will increase dramatically, and, without timely mitigation, the economic, social, and political costs will be unprecedented.”

Counter Views to the Peak Oil Theory

Energy Research Associates (CERA), a leading industry consulting firm, espouses a view that Peak Oil supporters “tend to consider only proven remaining reserves of conventional oil.” According to CERA’s analysis of global oil supply, the inventroy is three times as large as the 1.2 trillion barrels estimated by peak oil proponents. According to CERA Chairman Daniel Yergin, peak oil proponents are advocating a failed pattern. He notes, “This is the fifth time that the world is said to be running out of oil. Each time– whether it was the ‘gasoline famine’ at the end of WWI or the ‘permanent shortage’ of the 1970s– technology and the opening of new frontier areas has banished the specter of decline. There’s no reason to think that technology is finished this time.”

The International Energy Agency (IEA), a Paris-based organization founded in 1974 in the wake of the oil crisis, holds similar views. A 2005 IEA Report, entitled “Resource to Reserves: Oil and Gas Technologies for the Energy Markets of the Future”, examines peak oil theory with the expectation that oil demand will grow by more than 50 percent between 2002 and 2030. Recognizing that meeting the demand will “call for major technological progress and investment” the report maintains that “in principle, there is no shortage of hydrocarbons in the ground.” The IEA notes that innovation, not geology, will drive production. For example, a 5 percent increase in worldwide recovery will bring more oil than Saudi Arabia’s reserves. IEA further notes that non-conventional oil deposits are plentiful, they just need to be further developed, particularly the Canadian oils sands which “contain more oil than all the world’s current reserves.”