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 the fossil fuels as its name suggests hubbert s presentation was initially focused on the production of fossil fuels 1 however the hubbert curve has since become a popular and widely accepted method for projecting the production rates of natural resources more generally of special importance to investors is the hubbert curve s prediction about when the peak of resource production is likely to occur when investing in a new project such as an oil well substantial upfront costs must be invested before the project begins generating a saleable product in the case of oil wells this includes drilling the well putting in place key equipment and covering personnel costs before the oil begins to flow once the key infrastructure is in place production volumes will gradually accumulate before eventually beginning to decline once the oil in the well has been largely exhausted 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 hubbert s model was able to predict when a well would reach its level of maximum production in visual terms this occurs in the middle of the curve just before the depletion of the well causes production rates to decline real world example of the hubbert curvehubbert s model works remarkably well both for individual projects and for entire regions for instance the hubbert curve can be used to describe the entirety of global oil output as well as the regional production of areas such as saudi arabia or texas the general appearance and predictions of the model are strikingly similar and accurate in both cases of course in the real world production rates will not appear as a perfectly symmetrical curve nevertheless the hubbert curve is widely used as a close approximation of actual production rates once such notable application is the so called hubbert peak theory which has been used to predict peak oil production around the world according to some industry analysts the hubbert peak for oil production in the united states was reached in the 1970s although there is little consensus on when the peak for global oil production will be reached one reason for this disagreement is that new technologies for extracting oil may have pushed the date for any forced decline in production further into the future 