Tuesday, June 15, 2004

More Hubbert Admirers
Until recently, only geologists and petroleum engineers had heard of the Hubbert Curve. Now, while not exactly a household phrase, it is fast becoming a familiar concept. This article in the Washington Post (free sign-up required) does a good job of explaining it and considering some of its implications, without getting hung up on precise predictions of when it might occur.

A few of the authors' facts are a bit shaky, such as the assertion that no really large oil fields have been found in the last 30 years. At least one was found in that timeframe in the Caspian region. Does finding fewer of these "elephants" than we used to necessarily mean we're running out oil, or were they just the easiest to find, because of their size?

Nevertheless, the article raises the right concerns, with the right degree of urgency. Even if you are skeptical about an imminent Hubbert Peak, as I am, the more important message is that we cannot assume that oil production will continue to grow smoothly or endlessly to meet increasing demand. Geopolitics and oil industry economics can create a similar situation, and seeing that as credible doesn't require an act of faith, because it doesn't hinge on an event that can't be known until we have past it.

So whether you buy the arguments of Hubbert or not, it is still important to consider what might fill the gap if oil production stopped growing, but economies didn't. There are no easy answers, and we can't even rely on the markets to signal when we should begin investing in alternatives. That's why this whole subject falls into the realm of risk management, for both countries and companies. We still have time to do this properly, since it's pretty clear that the current market glitch is NOT a Hubbert-like event, even though it gives us a small taste of what one might be like.

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