The late M. King Hubbert was a visionary in the world of oil and, accordingly, he was either revered or reviled. Then he was forgotten. Now, in a time of oil shortage, some economists are taking a furtive look as his work.
A geophysicist at Shell Oil and later at the U.S. Geological Survey, Hubbert had the temerity back in 1956 to suggest that the days of plentiful oil were numbered. He more or less accurately predicted when production in the contiguous 48 states would begin to decline, and he was skeptical that the world could go on consuming oil indefinitely.
Hubbert was discounted by some in oil who believed that the industry, unfettered by government restraint, could produce domestically and internationally an almost infinite supply of oil.
Conservative economists of the supply-side school had no time at all for Hubbert. They believed that oil supply was a function of price and government restriction and that if the price was right and governments were held at bay, oil would gush.
Throughout the 1980s and 1990s, it appeared that they were right, as new fields came on line and improved technology increased the extraction rate. The Southern Hemisphere began to yield some oil, while the North Slope of Alaska and the North Sea were small but rich bonanzas. Hubbert seemed to have gotten it wrong.
But the same new technologies that have produced two decades of plenty may, in fact, be pushing us to the peak of Hubbert’s pimple. Three principal technologies have changed the oil world: They are 3-D seismic, which makes the location of oil reserves more certain, deep drilling and horizontal drilling.
Until recently, a single shaft was sunk into the ground and the oil was pumped out. New technologies enabled horizontal penetration at the bottom of the shaft, making extraction more complete and more efficient.
Then there is the so-called bottle-washer: a device that spreads out tentacles at the end of a horizontal pipe to suck up even more oil. The trouble with these technologies is that they deplete the oil reserve even faster than was contemplated 25 years ago.
After geology, there is geography. Most of the world’s proven oil reserves lie under politically unstable regions: the Middle East, Russia, the Caspian Sea region and parts of Africa. Sixty-five percent of this oil is in the Middle East.
M. King Hubbert told me often in the 1970s that his analyses, done without regard to domestic or world politics, would not do anything to prevent the resource base from disappearing. Had he lived to see the new technologies, he would have predicted that we would just start down the slope of his pimple faster.
At the time of the 1973-74 oil crisis, the possibility of China becoming a major oil consumer was in the realm of future shock. Now it is at hand.
Supporting Hubbert’s gloom is a minority view in the oil industry that production from the world’s two largest oil fields, both in Saudi Arabia, may be close to peaking or have already peaked.
Oil is a commodity and its price fluctuates with demand. But it is unlikely that prices will again fall back into the trough where they languished for two decades.
In the long run, the world needs to get off its dependence on oil for transportation. And in the short run, we can expect high prices to be the norm.
Note to Federal Reserve Board Chairman Alan Greenspan: The price of oil pushes up the price of everything that moves by aircraft, train, truck or ship, which is everything.
King is chairman and chief executive officer of the King Publishing Co. (www.kingpublishing.com), publisher of White House Weekly and Energy Daily.