By: Thomas Holst, M.B.A.
The term “peak oil” is part of geologist M. King Hubbert’s theory developed in 1956 describing the point in time when the maximum rate of global crude oil production is reached, after which crude oil production would enter into terminal decline.
Hubbert’s peak oil theory gained traction when he correctly predicted that U.S. crude oil production would peak in 1970 and then enter into decline.
However, recent developments have highlighted flaws in Hubbert’s peak oil theory.
The United States Energy Information Administration (USEIA) recently projected the U.S. will surpass the Saudis and Russians in crude oil production in 2018 and again become the world’s leading crude oil producer. This event seems highly improbable for the generation of Americans growing up in the 1970’s who remember the 1973 oil embargo leading to a four-fold increase in motor gasoline prices, pushing the U.S. economy into a recession.
What were the flaws in Hubbert’s peak oil theory?
Hubbert’s theory was based on then-known crude oil producing reservoirs. He assumed that all crude oil reservoirs capable of being produced were known in the 1960’s. As a result, Hubbert incorrectly assumed the volume of recoverable crude oil would be finite and, at a future point in time, world crude oil supplies would fully deplete.
Peak oil’s flaw was failing to account for new technologies that would allow crude oil to be produced from rock strata previously deemed to hold no recoverable crude oil reserves.
Two examples illustrate this point. First, advancements in offshore drilling technology, dynamic positioning equipment, and floating production and drilling units have made offshore crude oil reserves viable that were previously unreachable. Globally, offshore crude oil production accounted for about 30 percent of total cr