LAB 1.

5 MODELLING OIL PRODUCTION

ABSTRACT

In the experiment, the U.S. and world crude oil production was modelled using a logistic
growth model from year 1920-24 to 2005-08. In the U.S. crude oil production, two models with
carrying capacities 200- and 300-billion barrels were compared to the actual data and
theoretical model resulting the model with 200 carrying capacity to be more accurate. On the
other hand, for the world oil production, two models with carrying capacities, 2.1 and 3 trillion
barrels were also determined along with the time when the rate of production of oil reaches
their maximum, which were both 5 years from 1920-24, 1925-29. It was also concluded that
an increase in price affects these models by the increase in growth rate and decreasing the
carrying capacity.
I. INTRODUCTION

According to Deffeyes (2001), global oil production reached a peak sometime during last
decade. After the peak, the world’s production of crude oil will fall, never to rise again. The
world will not run out of energy, but developing alternative energy sources on a large scale
will take at least 10 years. The slowdown in oil production may already be beginning; the
current price fluctuations for crude oil and natural gas may be the preamble to a major crisis.

There are two things that are clear about crude oil. One is that we use a lot of it. The world
consumption of crude oil is approximately 80 million barrels per day, and world consumption
grew by 3.4% in 2004. The other is that the earth’s oil reserves are finite. The processes that
created the crude oil that we use today are fairly well understood. There may be significant
deposits of crude oil yet to be discovered, but it is a limited resource.

Governments, economists, and scientists argue endlessly about almost every other aspect
of oil production. Exactly how much oil is left in the earth and what fraction of that oil can or
will ever be removed is difficult to estimate and has significant financial ramifications.
Substantial disagreement on oil policy is not surprising.

Predictions of the decline in production are notoriously difficult, and it is easy to find
examples of such predictions that ended up being absurdly wrong. On the other hand,
sometimes predictions of decline in production are accurate. In Hubbert’s Peak, Kenneth
Deffeyes recounts the work of geologist M. King Hubbert. Hubbert fits a logistic model to the
production data for crude oil in the United States. Using production data up to the mid 1950s
along with approximations of the total amount of recoverable crude oil, Hubbert predicted that
production would peak in the U.S. in the 1970s. Research said, he was right. The method he
used will thus be integrated in this experiment (Blanchard, Devaney, & Hall, 2011).

Logically, the decline in supply of crude oil will certainly result in an increase in price of
oil products. This price increase will provide more funds for crude oil production, perhaps
slowing the rate of decline. Hence, this factor is mostly considered in modelling oil
productions. In this lab we will model the U.S. and world crude oil production using a logistic
model, where the carrying capacity represents the total possible recoverable crude oil.
II. OBJECTIVES

The general objective of the study is to model the U.S. and world crude oil production
using a logistic model. Specifically, the study aims to:

A. Model the crude oil production of the U.S. by assuming that the total amount of
recoverable crude oil in the U.S. are 200 and 300 billion barrels;
B. Model the world crude oil production based on estimates of total recoverable crude
oil (past and future) of 2.1 trillion barrels and of 3 trillion barrels;
i. Using the models, predict when do the rate of production of oil reaches its
maximum;
ii. Describe how price increase might affect the predictions of the model for world
oil production; and
iii. Modify the model to reflect these assumptions.

III. METHODOLOGY
The development of the logistic model of U.S. and world crude oil productions will be
based on the following data shown in the table below.

Table 1: Oil production per five year periods in billions of barrels

Year U.S. Oil World Oil Year U.S. Oil World Oil
1920-24 2.9 4.3 1965-69 15.8 65.4
1925-29 4.2 6.2 1970-74 17.0 93.9
1930-34 4.3 7.0 1975-79 15.3 107
1935-39 5.8 9.6 1980-84 15.8 101
1940-44 7.5 11.3 1985-89 15.2 104
1945-49 9.2 15.2 1990-94 12.9 110
1950-54 11.2 22.4 1995-99 11.5 118
1955-59 12.7 31.9 2000-04 10.4 126
1960-64 13.4 44.6 2005-08 7.4 107

The differential equation for logistic growth is

dP  P
 k 1   P
dt  N
where

dP
: the change between U.S. Oil production per five year periods
dt

N : the recoverable crude oil

P : Population
k : growth-rate coefficient for population P

Using separation of variables, it can be shown that the solution of the logistic equation is as
follows:
dP  P
 k 1   P
dt  N
dP N P
 k P 
dt  N 
dP k
 dt
PN  P  N

Integrating left hand side by partial fractions,

1 A B
 
PN  P  P N  P 
1   N  P A  BP
1  AN  AP  BP
At constant P:
0  A  B
A B
At P = 0:
1  AN  A0  B0
1  AN
1
A
N
1
B
N
Thus,
 1 1 1 1 
   
PN  P  N  P N  P 
dP 1  dP dP 
   
PN  P  N  P N  P  
1  dP dP  1
N   P  N  P    N  kdt
 ln P   ln N  P   k t  C 
N P
ln    k t  C
 P 
Transforming to anti-logarithmic form, the equation gives,
NP
 e  kt e C
P
NP
 Ce  kt
P
At t = 0; P = 0;
N  P0
 Ce 0  C
P0

Substituting it to the equation

N P
 Ce  kt
P
N
 1  Ce  kt
P
We obtain

P t  
N
1  Ce  kt
where C is an arbitrary constant that represents the parameter which depends on the initial
condition P0.

Also, using the Logistic Differential Equation,

dP  P
 kP1  
dt  N
We transform it into a linear equation, by dividing P,
1 dP  P
 k 1  
P dt  N
1 dP kP
k
P dt N
Hence,
 1 dP
y
P dt
mslope  
k
N
xP
 y  int ercept  b  k
Using this equation we will be able to get the value of m (slope) and k (y-intercept) by plotting
1 dP
the values of along the y-axis and P along the x-axis.
p dt

Firstly, using the method above, the parameter values for a logistic differential equation
that fit the crude oil production data for the U.S. (see Table 1) are determined. Secondly, the
model of the crude oil production of U.S. assuming that the total amount of recoverable crude
oil in the U.S. is 200 billion barrels is calculated. This assumption includes what has already
been recovered and serves the role of the carrying capacity in the logistic model. This will also
be repeated by replacing 200 billion barrels with 300 billion barrels. Thirdly, the model of the
world crude oil production based on estimates of total recoverable crude oil (past and future)
of 2.1 trillion barrels and of 3 trillion barrels are also made. (Both of these estimates are
commonly used. They are based on differing assumptions concerning what it means for crude
oil to be “recoverable.”). Aside from these, the time when the models’ rate of production of oil
reaches its maximum is also predicted. And lastly, a description of how price increase might
affect the predictions of the model for world oil production are explained.

IV. RESULTS AND DISCUSSIONS

A. U.S. Crude Oil Production Model

The first order of business is finding the parameter values for a logistic differential equation
that fits the crude oil production data for the US. These data come from column two of table 1.
1 dP
Using Excel, is calculated and plotted against P. This was done in order to determine k,
p dt

actual N, and the arbitrary constant C.

 Table 2: U.S. Oil Production Raw Data

Time Population P 1/P dP/dt 1/P*dP/dt

0 2.9 2.9 0.34482759 0.84 0.289655
5 4.2 7.1 0.14084507 0.86 0.121127
10 4.3 11.4 0.0877193 1.16 0.101754
15 5.8 17.2 0.05813953 1.5 0.087209
20 7.5 24.7 0.04048583 1.84 0.074494
25 9.2 33.9 0.02949853 2.24 0.066077
30 11.2 45.1 0.02217295 2.54 0.056319
35 12.7 57.8 0.01730104 2.68 0.046367
40 13.4 71.2 0.01404494 3.16 0.044382
45 15.8 87 0.01149425 3.4 0.03908
50 17 104 0.00961538 3.06 0.029423
55 15.3 119.3 0.00838223 3.16 0.026488
60 15.8 135.1 0.00740192 3.04 0.022502
65 15.2 150.3 0.00665336 2.58 0.017166
70 12.9 163.2 0.00612745 2.3 0.014093
75 11.5 174.7 0.0057241 2.08 0.011906
80 10.4 185.1 0.00540249 1.48 0.007996
85 7.4 192.5 0.00519481 --- ---
Graphing it, we get

1 dP
Figure 1: U.S Oil Production versus P
p dt

Given the trendline equation

y  0.0008 x  0.1241

k
m
N
 0.1241
 0.0008 
N
N  155 .125

Getting C,
N  Po
C
Po
155 .125  2.9
C
2 .9
C  52 .49138

The theoretical logistic model then derived from the actual data is

Pt  
N
1  Ce  kt
Pt  
155 .125
1  52.49138 e 0.1241t

Plotting it,
 Figure 2: Graphical representation of the U.S. Oil Production using
the Theoretical Model

Figure 3: Comparison between Actual Data and Theoretical Model

In figure 3, the theoretical model fit with the actual data from time 0 to 17, approximately.
From that point onwards, they started deviating from each other. That being said, it can be
concluded that predicting both the growth rate and the total amount of recoverable crude oil
from the data is difficult. Hence, a given N with values 200 and 300 billion barrels are assumed.
The models derived from these, will then be fitted against the actual production values to
determine which is more accurate.
i. Using 200 billion barrels as the total amount of recoverable crude oil in the U.S.

At year 1920-24, we let P(0) = 2.9 and t = 5 years to calculate C and k which are the parameters
values to get the logistic equation.

For U.S. Oil production, the initial condition is assumed: at year 1920-24, we let P(0) = 2.9 and
t = 5 years. From this data, the value of growth-rate constant, k, and the arbitrary constant, C,
is determined;

1  N  Po

t ln  
k  Po 
1  200  2.9 
k  ln  
5  2.9 
k  0.8438000954
k  0.8438

For C,

N  P0
C
P0
200  2.9
C
2.9
C  67.96551724
C  67.9655

Hence, the model is

200
P
1  67.9655 e 0.8438t

Sketching t versus P, we get

 Figure 4: Graphical representation of the U.S. Oil Production
with N= 200 billion barrels

It was stated by Blanchard et al. (2011) that P(t) increases if 0 < P < N. The same is
observed in the figure above, the curve increased upward given the conditions 0 < P < N from
Table 1. This model approached and leveled off at the carrying capacity N = 200 billion barrels.

ii. Using 300 billion barrels as the total amount of recoverable crude oil in the U.S.

The differential logistic equation with 300 billion barrels carrying capacity is

dP  P 
 k 1  P
dt  300 
Determining the parameter value of k and C given that the total amount of recoverable crude
oil N,

1  N  Po
t ln  
k  Po 
1  300  2.9 
k  ln  
5  2.9 
k  0.9258716091
k  0.9259

Getting C,
 N  P0
C
P0
300  2.9
C
2.9
C  102 .4482759
C  102 .448

The model is then

300
P
1  102 .448e 0.9259t

Graphing it,

Figure 5: Graphical representation of the U.S. Oil Production

with N= 300 billion barrels
iii. Comparison between the Models

Figure 6: U.S. Oil Production Models with different N

In Figure 8, it can be observed that by varying the value of N, the point where the curve
approaches equilibrium also changes. At N = 200, the curve slowly increased until it leveled
off at 200. The same can be said for N = 300. Hence, increasing N also increases the maximum
amount of barrels of crude oil that can be recovered in U.S. However, it was a bit far compared
to the actual and theoretical model. The curves immediately reached N at time 24 years from
year 1920-24. Hence, certain factors may cause them to be inaccurate. That being said, the
model with N = 200 is more accurate since its nearer to the actual data and the theoretical model
derived from it.

B. World Crude Oil Production Model

i. Using 2.1 trillion barrels as the total amount of recoverable crude oil in the world
The next stage of the report is to repeat the analysis for the World Oil supply. The
differential model used is the same as the logistic model of U.S. oil, though certain parameters
will be changed. First, k and C will be calculated, then the logistic model equation will be
determined. Aside from that, the time when the rate of production of oil reaches its maximum
are also predicted. This will all start from the differential logistic equation

dP  P 
 k 1  P
dt  2100 
 In this analysis, 2.1 trillion barrels will be used as N. For this production, the initial
conditions are: at year 1920-24, P(0) = 4.3 and t = 5 years, calculating for k

1  N  Po 
t ln  
k  Po 
1  2100  4.3 
t  ln  
5  4.3 
k  1.237805577
k  1.238

Determining C

N  P0
C
P0
2100  4.3
C
4.3
C  487 .372093
C  487.372

Substituting, we get the equation

2100
P
1  487 .372 e 1.238t

Plotting it,

Figure 7: Graphical representation of the World Oil Production

with N = 2.1 trillion barrels
To predict when do the model’s rate of production of oil reaches its maximum, we should first
note that for a logistic function, the maximum dP/dt occurs when P = N/2 and time to reach
maximum rate of change is equal to

1 N  Po
t ln
k Po

Hence, for the world crude oil production, the time to peak oil production is

1  2100  4.3 
t ln  
1.238  4.3 
t  5 years

Overall, the model predicted that 5 years from 1920-24, which was 1925-29, the world crude
oil production will reach its peak. On this year,

N
P
2
2100
P
2
P  1050 billion barrels

Thus, annual production is expected to be 1.05 trillion barrels.

ii. Using 3 trillion barrels as the total amount of recoverable crude oil in the world

Using the total amount of recoverable crude oil N equal to 3 trillion barrels

dP  P 
 k 1  P
dt  3000 

With the same set of initial conditions as that of N = 2.1 trillion barrels, the value of k is
calculated as

1  N  Po 
t ln  
k  Po 
1  3000  4.3 
t  ln  
5  4.3 
k  1.309263637
k  1.309

For C
 N  P0
C
P0
3000  4.3
C
4.3
C  696 .6744186
C  696 .674

The logistic equation generated is then

3000
P
1  696.67e 1.309t

Graphing the model,

Figure 8: Graphical representation of the World Oil Production

with N = 3 trillion barrels

Calculating the time for the models’ rate of production of oil to reach its maximum

1 N  Po
t ln
k Po
1  3000  4.3 
t ln  
1.309  4.3 
t  5 years

The model predicted that 5 years from 1920-24, which was also 1925-29, the world crude oil
production will reach its peak.
 N
P
2
3000
P
2
P  1500 billion barrels

Hence, the annual production is expected to be 1.5 trillion barrels.

iii. Effect of Price Increase

Economically, the decline in production of crude oil will certainly result in an increase in
price of oil products. This price increase will provide more funds for crude oil production,
perhaps slowing the rate of decline. This increase in price affects the model by the increase in
the growth rate and decreasing the limiting value, or the total recoverable crude oil.

V. CONCLUSION

In the experiment, the U.S. and world crude oil production was modelled using a logistic
growth model from year 1920-24 to 2005-08. In the U.S. crude oil production, two carrying
capacities were given, which were 200- and 300-billion barrels. Their growth rates k were
determined to be 0.8438 and 0.9259, respectively. The models were compared to the actual
data and the theoretical model, also a logistic model generated from the actual data having a
carrying capacity of 155.125 billion barrels, to determine their accuracy. Unfortunately, they
were both far from these two curves. That being said, the model with carrying capacity of 200
is more accurate, since it was the nearest of the two.

On the other hand, for the world oil production, two carrying capacities were also given.
These are 2.1 and 3 trillion barrels. The model of these two were determined along with the
time when the rate of production of oil reaches their maximum. These two models predicted
an equal value which was 5 years from 1920-24. 1925-29. And lastly, in determining the effect
of price increase, it was concluded that an increase in price affects the model by the increase
in the growth rate and decreasing the limiting value, or the total recoverable crude oil.
VI. REFERENCES

[1] Blanchard, P., Devaney, R. L., & Hall, G. R. (2011). Differential Equations . Boston:
CENGAGE Learning.

[2] Deffeyes, K. S. (2001). Hubbert’s Peak The Impending World Oil Shortage. New
Jersey: Princeton University Press.