Globe & Mail: Why sky-high oil prices are no blip on the radar (peak oil)

http://www.theglobeandmail.com/servlet/ArticleNews/TPStory/LAC/20040322/RRUBINOIL22/TPBusiness/Columnists

One of my first columns, more than four years ago, was on the Hubbert curve, which is a theory of oil depletion. The column's prediction that oil prices would rise above $40 (U.S.) a barrel over the next four to five years as supply became scarcer drew less than enthusiastic reviews from a highly skeptical oil patch. At the time, the oil and gas index of the Toronto Stock Exchange was 640, and I claimed it would soon nearly double to more than 1,000. Today it is almost 1,600, oil is trading around $38, and the oil and gas industry still thinks energy prices will be heading south.

In a controversial address to the American Petroleum Institute in 1956, the brilliant American geophysicist, M. King Hubbert, accurately predicted that conventional oil production in the lower 48 states would peak in the early 1970s and decline significantly thereafter. Both the oil industry and academic geologists, not to mention economists, ridiculed the projections. Yet in 1972, conventional production in those 48 states did peak, and today it is about 25 per cent less than it was then.

Mr. Hubbert's projections stemmed from his impressive knowledge of reservoir dynamics. When an oil well is first exploited, it gushes out in great force. But as more oil is extracted, pressure in the well drops and the rate of flow declines steadily after hitting a production peak.

What holds true for individual wells also holds true for entire oil fields. And, as discussed last column, most of the world's largest oil fields are already beyond their production peaks. Geologists such as Colin Campbell, whose estimates show a production peak either now or within this decade, have applied Mr. Hubbert's methodology to the global picture.

more...