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Modeling Peak Oil

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  • Stephen P. Holland

Abstract

Peak oil refers to the future decline in world production of crude oil and to the accompanying potentially calamitous effects. The majority of the literature on peak oil is non-economic and ignores price effects even when analyzing policies. Unfortunately, most economic models of depletable resources do not generate production peaks. I present four models which generate production peaks in equilibrium. Production increases in the models are driven by: demand increases, cost reductions through advancing technology, cost reductions through reserve additions, and production capacity increases through site development. Production decreases are driven by scarcity. The models do not rely on market failures and indicate that a peak in production may arise from efficient intertemporal optimization. The models show that prices are a better indicator of impending scarcity than peaking is and that peak production can occur when any percentage from 0-100% of the original deposit remains.

Suggested Citation

  • Stephen P. Holland, 2008. "Modeling Peak Oil," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 61-80.
  • Handle: RePEc:aen:journl:2008v29-02-a04
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    Citations

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    Cited by:

    1. Macías, Arturo & Matilla-García, Mariano, 2015. "Net energy analysis in a Ramsey–Hotelling growth model," Energy Policy, Elsevier, vol. 86(C), pages 562-573.
    2. Reynolds, Douglas B. & Baek, Jungho, 2012. "Much ado about Hotelling: Beware the ides of Hubbert," Energy Economics, Elsevier, vol. 34(1), pages 162-170.
    3. Smith, James L., 2012. "On the portents of peak oil (and other indicators of resource scarcity)," Energy Policy, Elsevier, vol. 44(C), pages 68-78.
    4. Brandt, Adam R., 2010. "Review of mathematical models of future oil supply: Historical overview and synthesizing critique," Energy, Elsevier, vol. 35(9), pages 3958-3974.
    5. Ugo Bardi & Alessandro Lavacchi, 2009. "A Simple Interpretation of Hubbert’s Model of Resource Exploitation," Energies, MDPI, Open Access Journal, vol. 2(3), pages 1-16, August.
    6. James L. Smith, 2009. "World Oil: Market or Mayhem?," Journal of Economic Perspectives, American Economic Association, vol. 23(3), pages 145-164, Summer.
    7. Reynolds, Douglas B., 2013. "Uncertainty in exhaustible natural resource economics: The irreversible sunk costs of Hotelling," Resources Policy, Elsevier, vol. 38(4), pages 532-541.
    8. Gronwald, Marc, 2012. "A characterization of oil price behavior — Evidence from jump models," Energy Economics, Elsevier, vol. 34(5), pages 1310-1317.
    9. Jakobsson, Kristofer & Bentley, Roger & Söderbergh, Bengt & Aleklett, Kjell, 2012. "The end of cheap oil: Bottom-up economic and geologic modeling of aggregate oil production curves," Energy Policy, Elsevier, vol. 41(C), pages 860-870.
    10. Presno, María José & Landajo, Manuel & Fernández, Paula, 2014. "Non-renewable resource prices: A robust evaluation from the stationarity perspective," Resource and Energy Economics, Elsevier, vol. 36(2), pages 394-416.
    11. Okullo, Samuel J. & Reynès, Frédéric & Hofkes, Marjan W., 2015. "Modeling peak oil and the geological constraints on oil production," Resource and Energy Economics, Elsevier, vol. 40(C), pages 36-56.
    12. Antonio RIBBA, "undated". "Sources of Unemployment Fluctuations in the USA and in the Euro Area in the Last Decade," EcoMod2010 259600141, EcoMod.
    13. Maggio, G. & Cacciola, G., 2009. "A variant of the Hubbert curve for world oil production forecasts," Energy Policy, Elsevier, vol. 37(11), pages 4761-4770, November.
    14. Waisman, Henri & Rozenberg, Julie & Sassi, Olivier & Hourcade, Jean-Charles, 2012. "Peak Oil profiles through the lens of a general equilibrium assessment," Energy Policy, Elsevier, vol. 48(C), pages 744-753.
    15. Holland, Stephen, 2011. "The Economics of Peak Oil," UNCG Economics Working Papers 11-13, University of North Carolina at Greensboro, Department of Economics.
    16. Pål Boug & Ådne Cappelen & Anders Rygh Swensen, 2016. "Modelling OPEC behaviour. Theory and evidence," Discussion Papers 843, Statistics Norway, Research Department.
    17. John R. Boyce, 2013. "Prediction and Inference in the Hubbert-Deffeyes Peak Oil Model," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    18. Presno, María José & Landajo, Manuel & Fernández, Paula, 2012. "Non-renewable resource prices. A robust evaluation from the stationarity perspective," MPRA Paper 42523, University Library of Munich, Germany.
    19. Marc Gronwald, 2009. "Jumps in Oil Prices- Evidence and Implications," ifo Working Paper Series 75, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.

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    JEL classification:

    • F0 - International Economics - - General

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