Does the Hubbert Method Provide a Reliable Means of Predicting Future Oil Production?

Why Publish an Article from 2006?

What could we possibly learn from an article on oil supply published almost 20 years ago? Actually, quite a lot. At the time of publication in 2006, the revolution in technology and know-how that led to the rapid run up in oil and gas production from unconventional resources (commonly called the shale revolution) was still a few years away. Conventional wisdom at the time was that the U.S. could not “drill its way out of an energy crisis,” and a well-established model of total resource recovery, the Hubbert Method, documented that we should prepare for and undertake costly initiatives to address a long period of declining oil and gas production.

Few expected the massive increase in U.S. oil and gas production that would emerge by 2010, stabilizing world oil prices and lifting the U.S. to the point where today it is the largest oil and gas producing country in the world. This was not the first-time technological advances had offered a surprise to conventional wisdom. In 1978, Congress passed the Fuel Use Act which prohibited the use of natural gas to generate electricity under assurances the country was running out of natural gas. Years later, the resulting surge in natural gas production from domestic reserves not only provided the world with reliable and growing supply of LNG but also played a major role in driving down U.S. carbon emissions as a substitute for coal combustion in the U.S. electric power system.

Of course, how could we ignore the Synthetic Fuels Corporation (established to build a financial bridge for the development and construction of commercial synthetic fuel manufacturing plants such as coal gasification) that would produce alternatives to imported fossil fuels? Congress authorized funding of $88 billion and a maximum of three hundred full-time professional employees over 12 years. The SFC’s mandated goal was the production of at least 500,000 barrels of crude oil equivalent per day in synthetic fuels from domestic sources by 1987 and at least 2 million barrels per day by 1992. Over its six-year existence, the SFC spent approximately $960 million (barely five percent of its initial 1980 budget) to fund four synthetic fuels projects, none of which survive today. The corporation was abolished in April 1986.

What lessons should policy makers draw from Richard Nehring’s analysis? Government energy policies are now directed at a specific set of technological pathways to reach net zero, i.e., the working assumption is that the future is known and we have a clear understanding of how to get there. Perhaps we would be better off if our policy makers recognize that the future faces a wide range of uncertainties, including the potential for good news.