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Modeling peak oil and the geological constraints on oil production

Samuel Okullo (), Frédéric Reynès () and Marjan Hofkes ()

Resource and Energy Economics, 2015, vol. 40, issue C, 36-56

Abstract: We propose a model to reconcile the theory of inter-temporal non-renewable resource depletion with well-known stylized facts concerning the exploitation of exhaustible resources such as oil. Our approach introduces geological constraints into a Hotelling type extraction–exploration model. We show that such constraints, in combination with initially small reserves and strictly convex exploration costs, can coherently explain bell-shaped peaks in natural resource extraction and hence U-shapes in prices. As production increases, marginal profits (marginal revenues less marginal extraction cost) are observed to decline, while as production decreases, marginal profits rise at a positive rate that is not necessarily the rate of discount.

Keywords: Peak oil; Hotelling rule; Exploration; Reserve development; Geological constraints (search for similar items in EconPapers)
JEL-codes: C61 C7 Q30 Q47 (search for similar items in EconPapers)
Date: 2015
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Working Paper: Modeling Peak Oil and the Geological Constraints on Oil Production (2014) Downloads
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DOI: 10.1016/j.reseneeco.2015.01.002

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