PASADENA, Calif. -- In 1949, M. King Hubbert, a geologist working for what was then Shell Development Co., devised a bell-curve model for U.S. oil production. Assuming that oil is a finite source, he controversially predicted that domestic output would hit its peak in 1970, and decrease inevitably thereafter.
As gasoline hit the infamous $3 mark in 2005, the theory of Hubbert's Curve has re-emerged for debate. When will the United States and the world hit its oil-production peak? How quickly will production drop off? Can anything be done to slow the [image-nocss] descent? Opinions vary, but there's no doubt a descent is coming.
The nonprofit Foundation for American Communications held a recent teleconference for representatives of trade, regional and national media to discuss the dynamics of the current oil-price situation and the future of supply. Representatives of academia and the industry presented their findings, with different takes on the urgency of the situation.
Hubbert basically got it right, according to Robert Kaufmann, Ph.D., with the Center for Energy and Environmental Studies at Boston University. Kaufmann said the geologist correctly predicted the peak stage and shape of production afterward, but underestimated production. Assuming that there are 1 to 2 trillion barrels of oil left in the ground, the worldwide peak should actually hit between 2015 and 2027, Kaufmann estimated, noting that the United States, Egypt and Norway have already hit theirs and are on the decline.
Even if demand holds constant, there will be a 10 million barrel per day shortfall worldwide as production declines, Kaufmann said. The world will need a new Saudi Arabia within a decade, he asserted. Part of the problem is that OPEC, which will remain the main source of oil worldwide into the future, hasn't increased its total capacity significantly since 1973meaning even if it wanted to produce more oil in an attempt to lower prices, its infrastructure would limit it greatly, Kaufmann said.
And, the only entities with enough capital to significantly improve this infrastructuremultinational oil companies such as ExxonMobil, BP and Shellcannot do so due to OPEC regulations prohibiting foreign investment in oil capacity, Kaufmann said.
Edward Murphy, Ph.D., group director for industry operations with the American Petroleum Institute, agreed that production is on the decline, but believes advancements in technology make it difficult to predict how hard, swift and costly our landing will be. Murphy noted that in 1990, only 4% of the oil produced in the Gulf Coast was drilled from a deep-water source; 13 years later, that number grew to 60%, thanks to new recovery technologies.
With today's technologies, it will be prohibitively expensive, but in the future, technology will impact that expense, said Murphy. We're investing in that technology now. He also cited the fact that although the number of refineries has declined in the United States, domestic capacity has increased around 3 million barrels per day since 1985.
And as oil companies reap record profitsExxonMobil reported the largest annual reported net income in U.S. history this weekthey will invest more in new recovery technology and infrastructure to increase capacity even more, Murphy said.
But this will only delay the inevitable, Kaufmann told attendees. Even adding a trillion [extra] barrels only postpones the peak by one decade, he said.
And although some would argue that thanks to current investments in new recovery technologies, increased capacity and new sources, the market will be able to adjust to this gradual peak and decline without major impact to world economies, Kaufmann is not one of them.
There may be a decade around the peak when the market does not anticipate our needs and that may be a very disruptive decade, he said. He urged an investment in alternative energy sources, from oil shale to solar, and suggests the U.S. government impose a 5-cent-per-barrel energy tax, which will slowly be ramped up to assure private investors that these sources are economically viable.
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