Posted in Finance, Accounting and Economics Terms, Total Reads: 205
Definition: Hubbert Peak Theory
Hubbert Peak theory states that the rate of oil production follows a bell shaped curve. It was given M. King Hubbert, a geologist working for the Shell Oil Company. Hubbert came out with a theory that applies to the entire world and as small as individual oil producing region.
2. Production will rise to a peak which signifies the maximum production rate.
3. Once the peak has been surpassed, production declines till the resource declines.
The theory primarily applied to the American context where production peaked in 1970’s. This can be seen in the graph below.
The production of oil peaked in United States in 1970’s and then it declines as per the theory given by M. King Hubbert. The graph follows a bell shape curve.
The above graph is a depiction of the oil production figures (million barrels a day) and as per the Petro consultants of Geneva the midpoint of production will be 2000. Midpoint refers to the situation where half of the world’s resources of oil would be utilized.
By 2000, we used half of the recoverable oil that was there on Planet Earth.
The area under the curve gives the cumulative production of oil resources and the total area under the curve depicts the Ultimate (amount of oil to be ever produced). It is difficult to estimate the Ultimate figure but we can estimate it by taking in four concepts:
a. Cumulative Production (known)
b. Reserves (known)
c. Undiscovered (based on past trends)
Ultimate = Cumulative Production + Reserves + Undiscovered
The estimates of the Ultimate figure have been made by USGC Global Survey, they gave a figure of 2275 Billion Barrels of Global Reserve in 1995. This figure is based on faulty numbers given by many OPEC countries. Over the years these countries have increased their reserves by claiming finding oil reserves matching production each year. They have done that so as to sell more oil, as once a country has more reserves it can sell more oil.