# Hubbert's Peak Theory: What It Is and How It Works

## What Is Hubbert's Peak Theory?

Hubbert’s peak theory is the idea that because oil production is a [non-renewable resource](https://www.investopedia.com/terms/n/nonrenewableresource.asp), global crude oil production will eventually peak and then go into terminal decline following a roughly bell-shaped curve. Although this model can be applied to many resources, it was developed specifically for oil production.

### Key Takeaways

*   Hubbert's peak theory predicts the rise, peak, and decline of fossil fuel production. 
*   With revolutions in new technology, it will be longer than originally predicted before oil reserves run out.
*   In the long run, fossil fuel resources are finite, so Hubbert's peak theory applies, but it does not appear to be a threat in the near term.

## Understanding Hubbert's Peak Theory

Hubbert's peak theory is based on the work of Marion King Hubbert, a geologist who worked for Shell in the 1950s. It posits that maximum production from individual or global oil reserves will occur towards the middle of the reserve’s life cycle, according to the [Hubbert curve](https://www.investopedia.com/terms/h/hubbert-curve.asp), which is used by [exploration and production (E&P)](https://www.investopedia.com/terms/e/exploration-production-company.asp) companies to estimate future production rates.

After that, production decline accelerates due to resource depletion and diminishing returns. Accordingly, if new reserves are not brought online faster than extractable reserves are drawn down, the world will eventually reach peak oil—because there is a finite amount of conventional light, sweet crude in the earth’s crust.

## Implications of Peak Oil

An impending peak in fossil fuel production would obviously have serious implications for the world economy. Increased fuel scarcity and rising energy costs would have a negative impact on virtually every industry and directly increase consumers’ cost of living.

Spikes in world oil prices are often accompanied by economic recessions; a permanent, sustained increase in prices due to a [long-term decline in available oil reserves](https://www.investopedia.com/terms/h/hotellings-theory.asp) might lead to corresponding economic malaise. It could even raise the specter of [stagflation](https://www.investopedia.com/terms/s/stagflation.asp) and declining [standards of living](https://www.investopedia.com/terms/s/standard-of-living.asp) worldwide.

## A Technological Revolution in Oil Production

But Hubbert’s predictions that U.S. oil production would peak in the 1970s and that the world would hit peak oil around the year 2000, were proven wrong. In actuality, a technological revolution in the oil business has increased [recoverable reserves](https://www.investopedia.com/terms/r/recoverabel-reserve.asp) and boosted recovery rates from new and old wells.

Thanks to hi-tech digital oil exploration using 3D seismic imaging, which enables scientists to see miles below the seabed floor, [proven reserves](https://www.investopedia.com/terms/p/proven-reserves.asp) around the world are growing all the time, as new oil fields are discovered. Offshore drilling in the 1950s could reach a depth of 5,000 feet. Today, the most advanced offshore oil rigs have the technology to drill up to 50,000 feet.

The state of Texas has led the U.S. in crude oil production every year but one since 1970. In 1972, the state's annual production rose to slightly more than 1.26 billion barrels. Thanks to innovations like [hydraulic fracturing](https://www.investopedia.com/terms/h/hydraulic-fracturing.asp), [enhanced oil recovery (EOR)](https://www.investopedia.com/terms/e/enhanced-oil-recovery.asp), and horizontal drilling, in 2019, annual production increased to more than 1.8 billion barrels. These innovations have added trillions of cubic feet of gas and billions of barrels of oil to America’s recoverable reserves. While the U.S. has become a net exporter of petroleum products (such as distillate fuel, motor gasoline, and jet fuel), it remains a net importer of crude oil.

> **Important**
>
> Hi-tech digital oil exploration using 3D seismic imaging has enabled oil companies to discover new oil fields.

## No More Peak Oil?

The oil industry no longer talks about running out of oil, thanks to companies like [Schlumberger](https://www.investopedia.com/news/3-oil-stocks-ready-rally/). For the foreseeable future, there are abundant quantities of oil. According to the BP Statistical Review of World Energy 2021, the world's total proven oil reserves are estimated to be around 1.73 trillion barrels, as of the end of 2020 (latest information). However, this number is likely to rise because most of the world has yet to be explored using the latest technologies.

Nor are we anywhere close to peak energy. There are more than one trillion tons of proven coal reserves worldwide—enough to last around 150 years at current rates of production. There are 188 trillion cubic meters of proven natural gas reserves—enough to last at least 50 years. And there may be three trillion tons of natural gas hydrates, which is enough natural gas to fuel the world for a thousand years, according to the U.S. Geological Survey.

These known and estimated reserves indicate that the peak in fossil fuel production is apparently a long way off in the future. However, given the current understanding of the origin of fossil fuels, it is virtually inescapable that total reserves are a finite resource.

Peak oil represents a future threat, depending on how long it takes us to reach the peak, how rapidly production will decline post-peak, and whether and how fast fossil fuels can be replaced by other energy sources. For now, though, Hubbert’s peak theory does not appear to present a significant economic challenge in the near term.

## What Did Hubbert Predict Would Happen to the Oil Industry?

Hubbert predicted that crude oil production would peak in the 1970s and decline from that point onwards. At the time of his writing, Hubbert was generally correct, as U.S. oil production did peak at the time; however, Hubbert was not aware of the discovery and production of additional reserves, such as from Alaska, as well as the implementation of new technologies, such as fracking, which has allowed U.S. oil production to increase.

## Who Is the Largest Producer of Oil?

As of 2022, the United States was the largest producer of crude oil, producing 11.89 million barrels per day. Saudi Arabia was the second-largest producer, producing 10.64 million barrels per day.

## Which Country Has the Largest Oil Reserves?

Venezuela has the largest oil reserves of any country; however, much of that oil is difficult to refine.

## The Bottom Line

The depletion of fossil fuel resources would have a devastating impact on civilization; however, current proven reserves show a significant amount of fossil fuels available that can be tapped and used.

The greater concern is the negative impact of fossil fuel use on the climate. Because of this, there have been great strides made to move away from fossil fuels, such as electric vehicles, and the implementation of other renewable energy sources, which, if widely implemented in the future, will remove the concern for the depletion of fossil fuels.

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