Sunday, November 22, 2009

Oil: the Hubbert peak

Revised 11/29/10

Today: the Hubbert Peak

1. Who was Hubbert?


. . . Marion King Hubbert
(Oct. 5, 1903 – Oct. 11, 1989)


. . . Was a geologist at Shell


. . . Devised a way to predict
oil production for a given oil field


. . .and by extension for a given country






2.  ...and what was his peak?


Oil field production rises,
then hits a limit,
then falls


Duh!


But why does it rise? Level off? Fall?


The qualitative observation is obvious


Quantifying it (to allow predictions) is trickier




3. Hubbert's prediction about the US
. . . in 1956 he predicted:
US oil production would peak in 1965-1970


. . . he was widely disbelieved


. . . but US production did peak in 1970

. . . sure we still pump the stuff
but less, year by year




4. Other countries and their Hubbert Peaks


. . . Each country has its own peak


. . . Most countries have peaked already!


. . . Some major oil-producting countries have not


. . . Iraq, Iran are among them






5. If fields and countries peak,
why not the whole world too?


Suppose one country's production is increasing . . .
can world production be decreasing?

. . . How is the world different
from any one country or oil field?










6. Why the world is a bit different


. . . price elasticity of oil:

Δ demand/Δ price

What is "Δ"?

Suppose demand goes up 20%,
but price barely budges

Is the price very elastic
or not very elastic?

Suppose demand goes up 10%,
but price jumps to $4/gallon?

Is the price very elastic
or not very elastic?

So are oil prices elastic or not?




7. How sensitive are oil prices
to changes in production?


. . . for a field?


. . . for a country?


. . . for the world?


8. Ok, so...
How sensitive is production
to changes in price?


. . . how might
the world peak of production
differ from
a countries peak of production?




9. Example: pre-recession gas prices


When will the peak be?
. . . http://www.hubbertpeak.com/images/peakoilproduction2008.png
or, better, just
http://www.hubbertpeak.com/


. . . Inference:
as recession eases,
gas prices will skyrocket
... again


. . .Inference #2:
getting new wheels soon?
Avoid a gas guzzler...


. . . When will be a better time than now
to go for a power & performance oriented car?




Btw: Hubbert-style peaks apply to other resources
. . . renewable, non-renewable, or both?