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Running Out of Oil

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Shell Execs Briefed on Peak Oil in 1956

May 5th 2008

Unknown - Shell Oil - Hubbert
Shell Geologist M. King Hubbert

When did Shell executives first learn that the world would one day face the moment of peak oil, known to many as Hubbert’s Peak? Answer: as far back as 1956 when M. King Hubbert delivered his seminal speech to Shell employees predicting the day when oil reserves would begin to decline. For more than a half century, Shell has known that the world of the 21st Century would begin running out of oil with disastrous ramifications. Yet little was done to prepare society.

The story begins in 1950s when the United States was the world’s largest producer and exporter of oil, making it mostly self-sufficient. The U.S. also was the largest creditor nation, while its manufacturing output fed the world’s demand for tools and machinery. This new world power from the West emerged relatively unscathed from the second of two world wars, for which its unprecedented access to oil proved the deciding factor. This quite literally was America’s peak in wealth and potential.

Before embarking on an ambitious plan to rebuild the bombed-out cities of Europe, the U.S. built more than 2 million homes on the home front, mostly to meet the unprecedented demand of returning GIs. The resulting paradigm shift, constructed around a flawed assumption of infinite bounty, was the beginning of the suburbanization of America that continues to follow its terminal path. Intensive highway development would continue for decades, further solidifying American’s love affair with the automobile and redefining the American Dream.

1950s America was rapidly automating, highly productive but now using more carbon energy than human muscle. Thousands of laborers, many blue-collar African Americans, would be replaced by fossil-fuel-guzzling machines. Shell geologist M. King Hubbert said in his seminal speech to members of the petroleum industry’s trade association that fuel and not human energy was doing virtually all of the work in the United States, replacing most human and animal labor. Some energy came from hydroelectric and other sources, but most of that was — and still is — fossil fuel.

In this context of American exuberance and seeming mastery of the world, Hubbert took a stand that was antithetical to the accepted view of what was “normal,” forecasting that the ultimate source of American power –– Texas gold — was headed for imminent decline. He took that stand, geographically speaking, in the heart of the U.S. oil patch.

Hubbert was invited to give a broad-brush picture of the overall world energy situation, including the state of U.S. energy resources, at the spring meeting of the Southwest Section of the American Petroleum Institute. Driving from Houston, he and his wife went to the Plaza Hotel in San Antonio to drop off 500 copies of his talk for distribution at the meeting. “To my surprise, I found myself surrounded by the petroleum press, wanting to know, was this paper going to be given? I said, ‘Why, certainly.’

“But it was perfectly obvious, there was something going on that I didn’t know about, and I was furious. The press, all the gas journals, various petroleum journals… the oil reporters… In fact, I was so angry that I refused to go back to my hotel… my wife and I had dinner and went to a motion picture, and we didn’t get back to the hotel room until around midnight. And then the next morning, when the meeting was opening, the program consisted of the Mayor of San Antonio giving an address of welcome. I was the next speaker, when I got a signal calling me off the platform,” Hubbert recalled in a 1989 interview.

While the Mayor was making his address, Hubbert got a telephone call from an executive assistant in New York, expressing “considerable alarm” about his paper. The assistant pleaded with Hubbert to “tone it down,” taking out parts he claimed were “sensational.” To which Hubbert replied: “Nothing sensational about it, just straightforward analysis.” The assistant then asked Hubbert, “That part about reaching the peak of oil production in ten or fifteen years, it’s just utterly ridiculous.”

Hubbert tried to get the admin off his back, since he was supposed to take the podium after the Mayor, who was currently speaking. Hubbert later recalled, “The vice president for so-called public relations, otherwise known as propaganda, had read… a release on it, and had gone through the ceiling.” The release had been written by the PR department in Houston. The New York office didn’t even have a copy of the paper.

“All they had was a synopsis written by the public relations man in Houston. But anyhow, they blew up in smoke, and there wasn’t a responsible official in the New York office. They were all out at a meeting somewhere else… Anyhow, I went ahead, gave my paper, informally of course but with lantern slides and exactly as written. No modification whatever. And later when I got back to Houston, I found that the tension was very high around the office in Houston. Apparently all hell had been going on during my absence,” Hubbert said.

In his talk, Hubbert explained the growth of fossil fuel extraction along a bell curve and how the downward slope from concave to convex can be used to predict when the rate of growth would stop at a peak before declining. Knowing that the production both started and ended at zero simplified the mathematics such that Hubbert could forecast the peaking of the lower 48 states using an estimate of total recoverable reserves. Rather than conjure up his own numbers, Hubbert used the range of the estimates for the most highly regarded geologists of the time – 150 to 200 million barrels. Simply graphing the curves and counting squares, he showed that the lower 48 states would peak between 1965 and 1971.

On that smaller scale, at least, his theory was proven.

Hubbert also plotted oil on a scale of 10,000 years - 5,000 years ago to 5,000 years in the future – showing how mankind’s use of petroleum is “a unique event in human history, a unique event in biological history. It is non-repetitive, a blip in the span of time.” He then posited nuclear power as a possible substitute.

Hubbert’s forecast caused shock, consternation and denial in various parts of the petroleum industry. He would later say, “That caused a jolt… The first reaction was honest incredulity. Then the industry split. One side refused to accept the situation and started changing the figures. The other side, people like Shell, found they could not change the figures.

“Well, after about a week, when the responsible people did begin to come back, I think there were some pretty red faces in the New York office and maybe even in Houston. For one thing, they had a chance to look at their data and they found they couldn’t disprove anything I’d said. So the whole thing had been a tempest in a teapot by people who didn’t know what the hell they were talking about.”

The 1956 volume of Production Practice, the journal of record for the American Petroleum Institute, didn’t come out until early 1957. Hubbert’s paper was the lead story. In the speech, Hubbert had said “the discovery, exploitation and exhaustion of the fossil fuels will be seen to but an ephemeral event in the span of recorded history.”

Shell deleted the following comments from the published paper that contained Hubbert’s estimates: “Assuming that this prognosis is not seriously in error, it raises grave policy questions with regard to the future of the petroleum industry. It need not be emphasized that there is a vast difference between the running of an industry whose annual production can be depended upon to increase on the average 5 to 10 percent per year and one whose output can be depended upon to decline at that rate. Yet in terms of the production of natural gas and crude oil, this appears to be what the petroleum industry is now facing.”

Shell replaced that prediction with the following statement: “The culmination for petroleum and natural gas in both the United States and the State of Texas should concur within the next few decades.”

Shell was just starting a new program of their highest level executive training, in-house training of hand-picked people who were obviously going up the executive ladder, and the first meeting was in July, 1956. Hubbert was one of the lecturers in that course. “They had 50 people holed up for a solid month, and most of the speakers were company officials, presidents, vice presidents, production exploration managers and so on. And a few outsiders brought in by Columbia Business School and so on as consultants from the outside. How to justify my being there? I wasn’t a president or a vice president, or high company official. So I was said to be there in the category of an outside consultant.”

The lecture was successful to this group; Shell had about two or three such meetings per year. Hubbert said he talked about the same topics he covered at that API meeting in San Antonio, complete with lantern slides. “And so I was, you might say, an outside member of that group… So I talked to most of the potential officialdom of Shell Oil Company in the ascendancy.”

They responded with “a certain amount of uneasiness,” he recalled. “I have a letter that I received… five or six years ago, from a president… of Shell Chemical Company who said he’d been in one of those sessions where I’d talked. He thought I was the most pessimistic geologist he’d ever heard. And that I’d hit the nail right on the head."

David Room and Steve Tanner write on energy issues including Hubbert’s Peak. This article is drawn from an oral history interview with Marion King Hubbert by Ronald E. Doel, January 4 to 6 February 1989, located at the Niels Bohr Library of the American Institute of Physics, College Park, MD. More information can be found at Hubbert Tribute: http://www.mkinghubbert.com/. Photo courtesy of the Hubbert Tribute.


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