1.0 Introduction

Oil plays a significant role in the economic growth of a country. During the lastcentury, oil production was relatively high. This resulted from the fact that there were alarge number of oilfields discovered during this period. However, over the past decade,there has been increased reduction in oil production. This is associated with the low rateof oilfield discovery. In addition, the existing oil fields have undergone significantreduction in their production capacity. The ultimate effect has been a reduction in therate of economic growth in various countries. For example, the current economic crisishas resulted into a global oil shortage. This has culminated into a decline in the rate ofeconomic growth.

A number of theories have been implemented to project oil production. One ofthese theories is the Hubert peak theory. The discussion of this paper entails ananalysis of how Hubbert peak theory is used in projecting oil production. The objectiveis to identify the inefficiencies associated with the theory in projecting future oilproduction. In addition, the paper focuses on how the Union of South American Nations(UNASUR) can cope with the deficiencies of Hubbert peak in making projections of oil

Hubbert Peak 4peak.

The paper is organized into a number of sections. The first part of the paperentails definition of Hubbert peak, Hubbert curve and an explanation of the various oilreserves. The second part gives an illustration of the economic models used inanalyzing oil production are illustrated. These include energy return on energyinvestment and growth based models. The validity and possible solution of Hubberttheory are demonstrated. This is achieved by considering the criticism of the theory andthe future of fossil fuels and alternative energy solutions. The paper focuses on the caseof oil production in US and other countries. The third part of the paper entails anevaluation of UNASUR structure, its goal and current status. Analysis of UNASUR as apossible solution to Hubbert's theory is evaluated. This is achieved by conducting ageographical, political, economic, social and technological analysis

2.0 Hubert theory

2.1Hubert Peak definition

Hubert Peak refers to a concept used to explain the process through theproduction process of a given area reaches its maximum or highest point. Thisphenomenon has been witnessed within the oil production industry in different regionsand oil fields (‘Hubbert Peak theory', n.d, para.1). Hubert Peak concept emerged in1950's in United States to describe the production of oil. M. King Hubert gave aprediction that United States would attain its peak in oil production in early 1970's.According to Hubert, production of oil in United States was expected to increasesteadily during the period ranging from 1965 to 1970. After this period, the country wasto experience a reduction in the volume of oil production. This prediction came intoHubbert Peak 5being during this period. From 1965, US crude oil production increased steadily from7,000 barrels per day to 10,000 barrels per day. From early 1970's, the countryexperienced a reduction in the total daily production until early 2000.

2.2.1 Hubbert Curve

Hubbert proposed that production of fossil fuel in a particular region would followa bell shaped curve. Initially, there was no specific formula used in projecting theproduction of fossil fuel. However, the geologist developed the Hubbert curve which isused in forecasting oil production basing its data on historical data on oil production.The curve gives a theoretical illustration of crude oil production. According to Hubbert,the production of oil is initially high upon the discovery of fossil fuel reserves. Thesereserves relate to natural gas, coal and oil. In the initial phase, the rate of oil productionis almost exponential. This high rate of production results from increased oil extractionand as more effective and efficient technologies are utilized. This rate of production iswitnessed up to a given point when the production reaches it peak. Upon reaching thispoint, the rate of oil production begins to decline until it reaches an exponential decline.This occurs as the oil fields become depleted.Hubert asserts that past production and oil discovery data can form the basis ofapproximating future production. In addition, past data can also be used in estimatingthe exact date when the peak will be attained or the volume of oil to be produced. Inpredicting oil production, Hubert based the prediction on the total resource available.This resulted from realization of the fact that resources are scarce. Therefore anincrement in production would reduce the resources available which would finallybecome depleted (‘Hubbert Peak theory', n.d, para.5).Hubbert Peak 6

2.1.2 Oil reserves

Oil reserves refer to the quantities of petroleum oil which have the capacity ofbeing commercially recoverable through integration of development projects.Alternatively Hirsch (2005, p. 11) defines reserves as the estimated amount of oil with ahigh probability of being extracted at a given cost. For these quantities to be categorizedas reserves, they must have the characteristic of being recoverable and be exploited forcommercial purpose. According to British Petroleum (2009, Para. 5), recovery factors isdefined as the proportion of oil reserves to oil in a field. The recovery factor is subject tochange from time to time based on changes in oil exploration technology, fieldeconomics and the field's operational history. In addition, recovery factor of a particularoil field can be increased through incorporation of additional investment techniques.According to a report by British Petroleum (2009, para.2), oil reserves can becategorized into a number of groups. These include proved, probable, possible reservesand ultimately recoverable resource. Proved reserves

According to British Petroleum (2009,para. 5), proved reserves refers to the totalestimated quantities of crude oil which have a high probability of being recoverable inthe future as illustrated by the available engineering and geological data. Provedreserves are estimated by considering the current economic conditions. Provedreserves can be categorized into two which include Proved Undeveloped (PUD) andProved Developed (PD). Proved developed reserves refer to reserves which can beexploited using the current perforations or with minimal additional investment. On theother hand, additional capital investment such as drilling new wells is required inHubbert Peak 7exploiting the proved undeveloped reserves. In determining whether a particular oilreserve is a proved reserve, a 90% probability cut-off is incorporated. The probabilitycut-off means that there is a 90% chance of the oil being produced from the reserveover the entire life time of the oil field.According to Energy Information Administration (EIA), US experienced a declinein its level of proved oil reserves. Proved oil reserves declined with 1.9 billion barrelswhich represents a 10% decline in the volume of oil production. This was the largestdecline in proved reserves that the country experienced during the last 32 years (EIA,2009, Para. 9). According to BP statistical review for of world energy (2009, p.6), USproved reserves averaged 21.4 billion barrels by the end of 2008. This represents only2.2% of the total world proven reserves. Saudi Arabia has the largest proportion ofproved reserves globally. Other countries with a large proportion of proved reservesinclude Saudi Arabia, Canada, Iraq and Kuwait. According to Global Oil Production andConsumption, Saudi Arabia holds approximately 261, 700,000,000 barrels of oil. Thisrepresents 25% of the global oil reserves. Other countries which have a relatively highoil reserves include Iraq 11.1%, Kuwait 9.5%, Iran 9.2%, United Arabs Emirates 7.8%,Venezuela 6.2% and Russia 5.0%. In relation to proved oil reserves, Saudi Arabia,Canada, Iran, Iraq and Kuwait are amongst the countries which hold the largestproportion (Wieczorek,2005, Para. 2),Countries in the gulf region have undergone rampant growth in their provedreserves. For instance, according to statistics provided in March 2001, the level ofKuwait oil reserves averaged 48 billion barrels. The proportion of these barrels betweenproved and unproved oil reserves was 50-50. In 2004, Kuwait proven reserves wasHubbert Peak 8101.5 billion barrels. Since then, Kuwait proven reserves has been updated from 101.5billon barrels to 104 billion barrels ( Hirsch, 2008, p. 13). During the period rangingfrom 2001-2002, Iran proven reserves were updated to 130 million barrels whichrepresents a 30% increment. The table below gives the current situation of the top 20

countries in relation to their proved reserves.

Rank Country

Proved reserves

(billion barrels)

1. Saudi Arabia 264.3

2. Canada 178.8

3. Iran 132.5

4. Iraq 115.0

5. Kuwait 101.5

6. United Arab Emirates 97.8

7. Venezuela 79.7

8. Russia 60.0

9. Libya 39.1

10. Nigeria 35.9

11. United States 21.4

12. China 18.3

13. Qatar 15.2

14. Mexico 12.9

15. Algeria 11.4

16. Brazil 11.2

Hubbert Peak 9

17. Kazakhstan 9.0

18. Norway 7.7

19. Azerbaijan 7.0

20. India 5.8

Top 20 countries 1224.5 (95%)

Rest of world 68.1 (5%)

World total 1,292.6 Unproved reserve

Like proved reserves, engineering and geological data is use in determiningunproved reserves. However, these reserves are characterized by lack of technical andcontractual characteristics necessary to make them be classified as proved reserves. Inaddition, unproved reserves are also characterized by a high degree of regulatoryuncertainties. Government agencies and individual companies may use informationrelated to unproved reserves in undertaking their future planning process. According to(Wieczorek, 2005, Para. 2), unproved reserves can be further classified as possible orprobable reserves. Possible reserves (also referred to as P10 or P20) refers toreserves which cannot be currently categorized as probable reserves but have a lessthan 50% probability of being economically and technically producible. P10 depicts a10% certainty of oil in these fields being produced. A significant proportion of possibleoil reserves become proved reserves with time. This arises from a reduction in thedegree of uncertainty of remaining as recoverable reserves due to an increment in theirHubbert Peak 10operating history.

The events of the 1973 oil embargo by the Arab countries increased the concernof US government on enhancing its oil reserves to attain full production. Since then,there has been an increment in oil production in US. According to US petroleumreserves ( 2009, Para. 5), US has managed to attain annual petroleum net salesrevenue of $22 billion (US Department of Energy, 2009, Para. 5).The future of oilreserves in US is bright. According to Petherick (2006, Para. 1), it is estimated that UShas approximately 2 trillion barrels of crude oil which have not been exploited. Theseare distributed in different regions within US. Some of the regions expected to have thelargest proportion of these deposits are Colorado, Wyoming and Utah. These oildeposits have been in existence for centuries. During the 1980's, these oil reserves,were open for development during the 1980's. However, the decline of global oil pricesfrom a point of $40 to $ 15 per barrel during this period resulted into abandonment ofdevelopment of these oil reserves. In addition, the major challenge has been on how toexploit these oil reserves. Petherick (2006, Para. 2) asserts that US has a massivedeposits of shale in Green River of Colorado, Wyoming and Utah. The three regionshave a capacity of producing 1.5 to 1.8 trillion barrels of crude oil. US oil reserves werealso boosted by the recent declaration of Alberta oil sands as proven reserves.Exploiting these reserves has been hindered by high cost involved. The currenttechnology does not have the capacity of exploiting these resources. With increasedinnovation of technology within the oil industry, there are high chances of the US oilreserves being boosted. The US government has renewed its interest on developingthese oil reserves due to the current high oil prices. In addition, more firms are

Hubbert Peak 11increasing their investment on research and development. Some of these firms areconducting onshore and offshore oil exploration in an effort to improve theircompetitiveness. For instance, in 2006, a research conducted on deep water oilexploration off the Gulf of Mexico by Chevron Corporation was successful (Mufson,2006, Para. 1).United States has the highest oil consumption compared to other countries. It isestimated that the country's daily oil consumption averages 19, 650, 000,000 billionbarrels. This represents 25% of the total daily oil consumption globally. However, UShave a relatively low daily oil production which only averages 8,054,000 billion barrels.This means that the country experiences a deficit in its oil consumption. The secondlargest consumer of oil is the European Union with a consumption rate of 19.1%. Thetable below illustrates the rate of oil production and consumption amongst the top 20countries.

Country Production (%) Consumption (%)

United States 10.7 25Saudi Arabia 11.6 1.9

Oman 1.3 0.1

Libya 1.9 0.3

Indonesia 1.9 1.4

Algeria 2.0 0.3

Brazil 2.1 2.9

Iraq 2.9 0.6

Nigeria 3.0 0.4

Kuwait 3.0 0.4

United Kingdom 3.4 2.3

United Arabs Emirates 3.4 0.4

Canada 3.6 2.2

Venezuela 4.1 0.7

European Union 4.3 19.1

China 4.4 6.0

Norway 4.5 0.2

Mexico 4.8 2.0

Iran 5.0 1.9

Hubbert Peak 12

Russia 9.7 3.4

2.2 Economic Models

2.2.1 Energy return on energy investment

According to Cleveland (2008, para.1), energy return on investment (EROI) refers to theproportion of energy supplied by a particular process to the energy utilized both directlyand indirectly to that process. Alternatively, EROI can be defined as the proportion ofusable energy which results from a given energy source and the amount energyrequired to exploit it .EROI is calculated as illustrated below.EROI= Amount of energy suppliedAmount of energy usedA high EROI ration depicts a desirable fuel while a lower one implies a less desirable

fuel.In this context, energy refers to the physical capacity to work as depicted by fuelenthalpy. Heat units such as Btus and Joules are used in measuring the amount ofenergy supplied. Cleveland (2008, para. 5) defines EROI as a physical determinant ofscarcity since it utilizes physical units (Btus). However, this measure is not pure since itis not independent of external factors such as political, economical and institutionalinfluences. Cleveland (2008, para.5) asserts that it is possible to measure the minimumtheoretical cost to be incurred exploiting a barrel of oil given the distance of the barrel ofoil and the earth surface. However, this cost is not the actual due to existence of anumber of factors relating to physical and non-physical components. Physical factorsHubbert Peak 13

are key components in the process of determining the actual amount of energy requiredto remove a unit barrel from its depth. Some of the key physical factors affecting thecost of lifting an oil barrel include permeability, porosity, and type of formation and theratio of water to oil. On the other hand, one of the major non-physical factors whichaffect energy cost is oil price. Oil price affects the extent of effort applied in oildevelopment production. As a result, oil price influences the quantity of energy requiredto undertake such tasks. Environmental regulations imposed by the government alsohave an effect on energy cost. An example of these regulations relate to therequirement to effectively dispose harmful substances which are utilized in the oilexploration process. In addition, political decisions such as those related to oilexploration in the Arctic National Range affect energy cost. The Arctic National WildlifeRange was instituted in an effort to preserve exceptional wildlife. Cleveland (2008, Para.4) asserts that this illustrates the fact that energy costs involved in production ofpetroleum are influenced by economic, institutional and political factors. This limitsEROI from being a pure measure. Firms involved in oil exploration and drilling are faced

with a challenge in differentiating the physical factors from non-physical factors. Anillustration of such a case is evident within the Arctic National Wildlife Range. At someinstances, restrictions related to oil drilling in Arctic National Wildlife Range arerelinquished through political actions. For instance, as a result of reduction in the qualityoil produced in its oil reserves, the US government undertook a decision to explore oil inareas designated as Wildlife Range (Cleveland, 2008, Para. 8). Stern (2009, p.2)defines quality as the economic usefulness of a given source of energy. The quality of agiven source of energy is directly related to their resultant marginal product. As a result,Hubbert Peak 14these have an influence on the price in a competitive market.

Calculation of EROI is aimed at reaching at single determinant of a system'sefficiency of performance. However, it is paramount for the analyst to consider otherforms of energy utilized. For instance, in the process of extracting crude oil, other formsof energy such as natural gas and natural gas liquids are produced. In addition, variousforms of energy are used in the extraction process. Different sources of energy requiredifferent quantities of energy for their extraction. For example, oil products require only15% of the total energy utilized in extraction while that of crude oil is 38% (Cleveland,2008, para. 8).

2.2.2 Net energy gain

Net energy gain is a model that is used to explain the discrepancy that existsbetween the energy used in the process of harvesting a given energy source and theamount of energy obtained from the source. According to Cleveland (2008, p.4), netenergy is attained by ensuring that a minimal amount of energy is utilized in the processof acquiring a given energy source compared to the energy contained in the acquiredenergy source. The equation below gives an illustration of how Net Energy Gain (NEG)is determined.NEG= Energy consumable - Energy Expended.Net energy and EROI are related in that they are used to measure the quality of a givenenergy source but in different ways. The economic model below illustrates therelationship that exists between the two measures.Hubbert Peak 15EROI= (Energy Expended + Net Energy)/ Energy expendedAlternatively EROI can be determined using the formula {(Net Energy/Energyexpended) +1}. For example, consider an energy process with an energy return oninvestment of 5 and an energy expending of 1 unit, the resultant net gain will be 4 units.That is, 5= (Net energy+1)/1=4.The breakeven point occurs when EROI is equal to 1 or when the net gain is 0.According to Cleveland (2008. p.6), when net energy gain of a given energy source isequal to zero, that form of energy is no longer considered as net energy source.Cleveland asserts that this happens long before the energy resource is completelydepleted.According to Cleveland et al (2000, p.896), different sources of energy have gotdifferent EROI rates. The table below gives an illustration of EROI rates of differentforms of non-renewable energy.

Non renewable energy

Oil and Gas1940s1970sDiscoveries >100Production 23.0, discoveries 8.0Coal liquefaction 0.5 to 8.2Oil shale 0.7 to 13.3Geopressuered gas 1.0 or 5.0From the table above, EROI rates that are more than 1 which illustrates a net energygain. On the other hand, if the EROI of a given energy source is less than 1, this depictsHubbert Peak 16a net loss. For example an EROI of 0.8 depicts a net loss of 20 per cent. During 1970'sEROI rates were more than 100 for new discoveries. This means that the resultantenergy was higher than 100 times the amount o energy required to extract it.According to Cleveland et al (2000, p.303), price is a key determinant of thevalue of a given heat equivalent. As a result, producers and consumers utilize marketprice in setting the marginal product and marginal utility of their different energy vectors.The respective value of marginal utility and product and price are set simultaneously byutilizing the concept of general equilibrium. Cleveland et al (2000,p.303 ) asserts thatthe value of marginal product in relation to a particular type of fuel is determined by theincrease in the amount of products or services developed as a result of a unit increasein heat. The value attained is multiplied with the market price of the product. In addition,marginal product of a given source of energy is determined by a set of complex factorswhich are unique to the fuel. Some of the attributes considered include physicalscarcity, energy density, safety, flexibility of use, capacity to execute useful work,amenability to storage and cost of conversion. The table below gives an illustration ofmarket price per unit heat equivalent in relation to different fuels.

Type of energy Market price in $ per 106 Btu.


Bituminous-Mine-mouth-Consumer cost1.131.36

Hubbert Peak 17


-Mine mouth 1.94


WellheadJet fuelLiquefied petroleum gas (LPG)Distillate oilMotor gasolineResidual fuel oil2.974.537.427.709.732.83


Consumer cost 20.08

Natural gas

WellheadConsumer cost2.106.74From the table, it is evident that oil fuel has a relatively high market price per unit heatequivalent compared to other fuels. Electricity has the highest rate.

2.2.3 Oil price

According to Darby (1982, p.738), there is a direct relationship which existsHubbert Peak 18between oil price and the rate of inflation. For example, if the rate of inflation increases,oil price also moves in the same direction. This arises from the fact that oil is a key inputan economy. High oil prices culminate into an increment in the production cost forvarious goods and services. According to Hirsch (2008, p.28), this relationship has beenin evident over the past years. For example, prior to occurrence of oil crisis in 1973 thenominal price of oil rose from $3 to $40 in 1979 when the next oil crisis occurred. As aresult of increase in oil price, Consumer Price Index (CPI) which is used to measureinflation increased from 41.20 in 1972 to 86.30 by 1980. This represents a significantshift within period of 8 years. Prior to this increment, it had taken 24 years for the indexto double. This trend was carried-over during the 1980's and 1990's. For instance,during the Gulf War, crude oil price doubled within a period of 6 months from $20 to$40. However, the CPI increased with a relatively small margin from 134.6 to 137.9 in1991 (January - December).During the period ranging from 1999-2005 the upward trend was more evidentwith the nominal oil price increasing from $ 16.65 to $50.04. In addition, the CPI alsoincreased from 164.30 to 196.80 during the same period. Over the past few years, priceof crude oil has undergone a significant increment. For example, the price oil increasedfrom its August 2003 point of $25 per barrel to more than $135 per barrel by May 2008.This illustrates that the strong correlation which existed during 1970's between inflationand oil price has been eroded over the years (Krichene, 2008, p.19).Krichene (2008, p.19) asserts that there are a number of factors which havecontributed towards the increment in oil price over the past few years. Some of themajor factors which have been cited relate to demand and supply. According to a reportHubbert Peak 19by United State Energy Information Administration (EIA), demand for oil has increasedwith an annual margin of 1.76% for the period ranging from 1994 to 2006. The highestrate of increment in demand occurred during 2003 to 2004. During this period, demandfor oil increased with a margin of 3.4%. According to projections made by EIA in 2006,oil demand will increase with 37% by 2030(Hirsch, 2008, p.28).According to Fulton (2004, p.1), growth in transport sector has played a significant rolein increasing demand for oil. This results from the fact that the transport sector mainlydepends on oil. In 2006 the sector accounted for 68.9% of the total energyconsumption. On a global scale, the transport sector accounted for 55% of the total oilconsumption.

The developing economies such as China and India are amongst the countriesexperiencing an increment in demand for oil. For example, during the period rangingfrom 1995-2005, daily oil consumption in US increased from 17.7 million barrels to 20.7million barrels. In comparison, China's daily oil consumption increased from 3.4 millionbarrels to 7 million barrels. When countries experience a high rate of developmentthrough industrialization and urbanization, the demand for energy is increased. This hasmade economies such as China and India to become large consumers of oil.Oil price is also influenced by its supply. Fulton (2004, p.4) asserts that the global rateof oilfield discovery has been reducing over the years. This has culminated into adecline in oil supply. The peak of oil discovery was reached in 1965 where annual oilproduction averaged 55 billion barrels. During the period ranging, from 2002 to 2007,annual oil discovered was less than 10 billion barrels. This indicates a significantHubbert Peak 20reduction in the supply of oil.Movement in oil price is also affected by other factors such as security. Some ofthe security factors which affect oil price include missile launches and war. For example,occurrence of war such as war on terror has often contributed to increase in oil prices.Oil price is also influenced by the cost involved in its extraction. Over the past decades,the cost of crude oil extraction has been on an upward trend (Hirsch, 2008, p. 13). As aresult, the historical EROI ratio has undergone significant reduction.

2.2.4 Growth based economic models

A number of models have been used in discussing oil production. One of thesemodels is the logistic growth model. The model is sigmoid shaped and is used toexplain growth. Upon discovery of oilfields, growth in oil production occurs at a gradualrate. As more investment in oil production is incorporated such as development intechnology, oil production increases at a high rate. This usually occurs for a givenduration. During this period, the rate of growth in oil production is exponential. Theexponential growth in oil production results from an increase in demand for oilcompared to supply. This occurred during the period ranging from 1950 to 1984 withincrease in demand for energy in the agricultural sector. The high rate of growth usuallylevels off upon reaching the peak.As an economic growth model, Hubbert asserts that insofar is determined by the rate ofgrowth in oil consumption and post peak societies.

2.3 Validity and possible solutions

Hubbert Peak 21

2.3.1 Reliability

Prediction of a particular production peak relies on historical information. Thiswas evident during the projection of US oil production. For example, the 1970projections mainly relied on past engineering and ecological data. In his projection ofUS oil production in 1956, Hubbert utilized the logistic curve. This made it possible forboth low and high estimate to be determined. For example, the low and high reliabilityrates were set at 6% using the logistic growth curve. However, a difference wasincorporated in terms of the ultimate resource. The low logistic growth rate wascharacterized by an ultimate resource of 150 Giga barrels with its peak estimated tooccur in 1965. On the other hand, the high logistic growth rate was set at 200 Gigabarrel with its peak projected to occur in 1970.Reliability of these predictions has been proved with a high degree of accuracy.For instance, results of the high estimate have been asserted by considering theproduction level. In 2005, US oil production was 1.55 Giga barrels while its actualcumulative production was 176.4 Giga barrels. The predictions of the lower and upperbound estimates which were made using Hubbert model were 1.17 Giga barrels and178.2 Giga barrels. The actual outcome was within the projected range whichrepresents a high degree of reliability. Due to high reliability of the Hubbert theory, alarge number of economies have utilized the model in projecting oil production. Inaddition, post-hoc analysis conducted on peaked oilfields, wells, nations and regionsshow that Hubbert model is of great importance in making projections on oil production.This arises from the fact that the model provides best fit in the data required to make theprojections (‘Hubbert Peak theory', n.d, para.5).Hubbert Peak 22

2.3.2 Criticism of Hubbert Peak theory

Hubbert peak theory has been greatly criticized by a number of economists. Forinstance, in his criticism, Michael Lynch argued that Hubbert curve is simplistic. Thisarises from the fact that there are contradiction that exists between the availableevidence and the specific predictions provided by the theory (Laharrere, 2000, p.1). Inaddition, the theory is highly biased by considering underestimates. Michael Lynchcites the fact that the theory does not provide an accurate prediction of the actual peakdate. In predicting the peak date using the theory, Collin Campbell constantly shifted theprojected peak date. For example, his prediction of the 2004 peak was pushed to 2010.In his later prediction using the same theory, the peak date was adjusted to 2006.However, in 2005, the peak was pushed to 2010.In addition, the theory is also criticized for utilizing historical data withoutconsidering non-conventional oil. Despite the fact that cost of oil extraction is high,improvement in technology is increasing the probability of utilizing non-conventional oil.Technological innovation has resulted into an improvement in the oil recovery rate froma low of 22% in 1980 to its current level of 35%. This trend is projected to continueconsidering the high rate of technological innovation.In addition, projection of oil reserves have been underestimated due to high rateof political unrests in varies countries such as Russia, Iraq and Iran. The theory is alsocriticized since it does not take into account the probability of resource growth,commercial factors and effect of new technology on oil production. This reduces theHubbert Peak 23reliability of the model in predicting global oil production (Laherrere, 2000, p.3).

2.3.3 Future of fossil fuels and alternative energy solutions

According to Trengrove (2003, p.1), approximately 90% of daily energyconsumption is fossil based. There are 3 types of fossil fuels which include natural gas,oil and coal. Coal forms the largest proportion of reserves compared to other forms ofenergy. This makes the future of utilizing fossil fuel to be bright. However, there is ahigh probability of gas and oil being depleted in the future. This poses a threat to therate of economic growth globally. This arises from the fact that most of the economiesutilize oil and gas fuel as their major source of energy. Trengrove (2003, p.1), assertsthat improvement in technology will also result into increased utilization of coal. Thisarises from the fact that it will be possible to transport coal using pipeline by mixing itwith special chemicals and water. However, for consumption of coal to be increased,more effective methods of utilization have to be devised. This is due to the fact that thefuel is a major source of environmental pollution. To secure the future of fossil fuels(Trengrove, 2003, p.1) asserts that it paramount for alternative sources of energy to beconsidered in some of the major oil consuming sectors such as transportation.As an alternative energy source, hydrogen consumption is likely increase in the futuredue to its cleanliness.Due to increased oil shortage, more emphasis is being paid on how to improveenergy sources by considering other sources of energy. Some of the alternative sourcesbeing considered include solar, wind, hydro-electric and ethanol. Solar and wide energyare readily available. Wind energy is harnessed by use of turbines thus converting itHubbert Peak 24into electrical power. In addition, wind power is advantageous since it does notcontribute towards environmental pollution. On the other hand, solar energy isharnessed through use of solar thermal panels. Both solar and wind energy are lessexpensive compared to fossil fuels. In addition, solar and energy sources are availablein large amounts compared to other sources such as ethanol. However, these sourceshave not been fully tapped due to lack of necessary technology. Considering the highrate of technological innovation, the probability of growth in the rate of utilization ofalternative energy is relatively high.On the other hand, there has been increased utilization of hydroelectric energy.For example, during the period ranging from 1995-2005, development of hydroelectricpower plants increased with approximately18%. This represents a significant growthconsidering the fact that overall energy production increased with 37% during the sameperiod (Khemani, 2008, Para. 4). Utilization of hydroelectric power is limited by the highcost involved in construction of hydro-electric power plants. In addition, otherhindrances to construction of these plants relate to poor addressing of the associatedsocial issues such as resettlement of the displaced individuals in the process ofimplementing the project.Different sources of energy were predicted to have different peaks by utilizing theHubbert peak theory. The table below gives an illustration of the Hubbert peak forvarious alternative sources of energy.Source of energy Estimated peak.Natural gas 2010 to 2020Coal 2022Hubbert Peak 25Peak uranium 2030Phosphorus Within the next 60 to 130 years.Hubbert Peak 26

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