What is the Hubbert curve?
The Hubbert curve is a method of predicting the likely rate of production of any finite resource over time. When plotted on a graph, the result looks like a symmetrical bell-shaped curve.
The theory was developed in the 1950s to describe the production cycle of fossil fuels. However, it is now considered to be an accurate model for the production cycle of any finite resource.
Key points to remember
- The Hubbert curve is a method for predicting the rate of production of any finite resource.
- It was first developed in 1956 to explain the production rates of fossil fuels.
- Today, the Hubbert curve is used in various resource sectors and has fueled the debate on the rate of change in global oil production rates.
How the Hubbert curve works
The Hubbert curve was proposed by Marion King Hubbert in 1956 in a presentation to the American Petroleum Institute entitled “Nuclear energy and fossil fuels”. As the name suggests, Hubbert’s presentation was initially focused on the production of fossil fuels. However, the Hubbert curve has since become a popular and widely accepted method for projecting production rates of natural resources more generally.
The prediction of the Hubbert curve of when the peak in resource production is likely to occur is particularly important for investors. When investing in a new project, such as an oil well, significant upfront costs must be invested before the project begins to generate a salable product. In the case of oil wells, this includes drilling the well, putting in key equipment and covering personnel costs before the oil starts to flow. Once the key infrastructure is in place, production volumes will gradually build up before starting to decline once the oil in the well is largely depleted.
By combining factors such as the natural reserves of the well, the probability of discovering oil in a given region and the speed at which oil can be extracted from the ground, the Hubbert model was able to predict when a well would reach its production level. maximum. In visual terms, this happens in the middle of the curve, just before the depletion of the well lowers production rates.
Real example of the Hubbert curve
The Hubbert model works remarkably well both for individual projects and for entire regions. For example, the Hubbert curve can be used to describe all of the world’s oil production as well as regional production from regions like Saudi Arabia or Texas. The general appearance and the predictions of the model are surprisingly similar and precise in both cases.
Of course, in the real world, production rates will not appear as a perfectly symmetrical curve. However, the Hubbert curve is widely used as a close approximation of real production rates. One such notable application is the so-called Hubbert Peak theory, which has been used to predict the peak of oil production in the world.
Some industry analysts say Hubbert’s peak oil production in the United States was reached in the 1970s, although there is little consensus on when the world’s peak oil production will be reached . One of the reasons for this disagreement is that new oil extraction technologies may have pushed back the date of any forced production cuts in the future.