So what exactly is "Peak Oil"? Simply put, it is the period of maximum global oil production, after which we go into permanent oil decline. And that's it really. But wait a minute, we depend on oil for just about everything, don't we? Perhaps we had better spend a few more minutes looking at this after all.

Peak Oil is a term that was viewed until recently as essential territory for crackpots and conspiracy theorists, the sort of thing that the National Enquirer would feature alongside ‘Aliens Abducted My Grandmother And Made Her Wear Lederhosen.’ However, Peak Oil is not the work of aliens or German leather-makers – it has arrived on Planet Earth and is coming on now with full force. It is the unmentioned factor behind the rocketing price of oil, and it won’t go away - we simply have to face up to it.

In order to understand Peak Oil we need to think about things slightly differently. Although the idea is simple in some ways, it is also counter-intuitive and has unpleasant implications, all of which tend to make one hope that Peak Oil is not true or is a ridiculous idea invented by the French. Unfortunately it is true and something like it was bound to happen once we started using oil in a big way.

The essential facts about Peak Oil are that petroleum or oil was almost all made millions or hundreds of millions of years ago under really unusual circumstances. It is like a very rare antique. It is quite literally old energy, a kind of liquid sunlight. Is more oil being made today? Yes. How much? Pathetically small amounts. Ironically, the conditions we need for making oil are a good dose of global warming and a lot of algae! We seem to have that pretty well covered. The global warming causes algae to grow in vast quantities creating ‘algal blooms’, just like the ones that are choking the Gulf of Mexico and plenty of other places. To the American car driver tired of $4 gasoline - or Europeans enjoying $10 petrol, this all sounds great – we can make all the oil we want, right? Well, not so fast.

The trouble is that it takes a few million years of global warming to grow enough algae and then a few million more for the whole lot to end up deep in the Earth where the algal mess will be cooked into oil. Which then slowly migrates into other special places where it gets stuck, patiently waiting for us to release it. The key word is slowly. These processes take millions and millions of years, and after all the effort, the oil may all rise to the surface and be lost. This is all very annoying to modern industrial humans, because we know from television cooking shows that just about everything we want can be whipped up in five minutes.

The big difference between TV and oil is that you can just about manage without TV, but we can’t manage for long without oil. Almost everything is either made out of it or moved with it - or both. So much so, that the world is using oil at the rate of roughly 85 million barrels a day – that’s three and a half billion gallons, since for obscure reasons, a barrel is 42 US gallons. And that’s the real problem. Oil is not being restocked and we can’t just grow it, like potatoes. It is like winning the lottery – we suddenly have untold riches in our piggy bank, and we start spending like there’s no tomorrow. But we are not earning any interest at all – piggy banks are not like real banks. In some ways, we have to pay extra for this energy bonanza, because oil has allowed us to make a big mess of the place, and we are starting to have to pay to clean up after ourselves.

Eventually if you keep taking money out of the piggy bank there won’t be any left. Is that where we are now with oil? No. There is an extra spicy touch to oil, which makes it very exciting in the beginning and actually encourages us to spend it even faster. Most oil in the ground is under great pressure – it mostly results from the way that oil is cooked. This is excellent if you want to get oil out fast – at first it can literally shoot out of the ground, like the famous gushers of Texas.

But what that pressure also means is that oil doesn’t come out at an even rate, and that is the beginning of the bad news called Peak Oil. In practice, to drain an oil reservoir, the industry drills many wells, but not all at once. As less and less oil is left, more and more wells have to be drilled to keep production up, then come the pumps and all kinds of clever technology, and even so, one day it becomes uneconomic to keep pumping. The gusher has become a dribble. When we add up the result of all those wells we find a common production pattern that looks a bit like a volcano before it blows its top:

It turns out that an oil reservoir usually reaches its maximum output when it is about half empty – which we call peak production. At that point, the only long-term way to keep production up is to find a new oil reservoir. And this is what the world has been doing since the mid 19th century when oil was first discovered and exploited commercially in Canada, Russia and America. The United States soon became the dominant producer in the world, and remained so for many decades. But in1970 the world’s greatest oil producer reached its peak – and just about no-one noticed. Yet soon after that there were occasional shortages of gasoline in America and President Nixon started getting really worried – this was before he was getting worried about Watergate. Then in 1973 the first Oil Shock happened, and the world suddenly realized that we had become addicted to petroleum.

The United States was already by 1973 a major oil importer, and so were many other industrialized nations. But aside from a few lone petroleum scientists like M.K. Hubbert, who way back in 1956, accurately predicted the US oil peak of 1970, nobody seemed to think there might be a real problem with the actual supply of oil – the first Oil Shock was a political problem. So was the second oil shock in 1979 when Iran held Americans hostage for many months. Politics can be tricky, but at least in theory, we can solve political problems by discussion, debate and agreeing to get along with one another.

But oil isn't like politics - it is true that it can also be a dirty business, certainly literally whatever your opinion of the oil industry is - oil is about molecules, the amount we extract or produce really depends technology, economics and geology. Politics plays a part, but without demand (economics) we won't go to all the trouble of getting it out; without technology we won't have the tools to get it out; and without the forces of geology it wouldn't be there in the first place.

Therefore when the whole planet reaches its maximum period of oil production, which is usually what is meant by Peak Oil, no amount of debate, argument or other vigorous action will be able to reverse the decline that will inevitably follow, nor are there any other planets that we can import oil from. Furthermore, there is no obvious substitute for oil, and there is absolutely no substitute for energy - without it nothing happens, nothing moves, nothing lives.

Since no government has come out loudly and warned the world about Peak Oil and nor has the United Nations, why should anyone believe this tale of woe? Two national governments have talked about Peak Oil more or less openly - Ireland and Sweden. Not economic titans it is true, but not inconsequential either. There is rising evidence that the International Energy Agency, the energy watchdog for the industrialized world, is carefully preparing its member governments for a shocking report later this year about the poor state of future oil production.

Until recently someone wanting a reality check about the state of oil would have to do a lot of reading and be willing to dismiss repeated optimistic assertions by oil exporting nations and large oil companies and take the word of a bunch of retired petroleum geologists who - for good reasons - were unable to say exactly where their numbers came from.

But the price of oil shooting up to nearly $150 a barrel in mid 2008, more than doubling the price in a year, has suddenly got everybody's attention. Finally questions are being asked about why the oil discovery rate is so low even with such high prices - we find as little as one barrel of oil for every five we use (and we still can't make any new oil - this is just what nature has left us with); why are more than half of all oil producing nations in decline; why has OPEC lost control of the price of oil (in 2000 OPEC wanted the price to stay under $25 - mainly because they don't want to encourage renewable energy); why is it so important that Iraq increases its oil production - can it, by how much in reality, and will it matter; what is the role of Russia in all this - it's often a bigger oil producer than Saudi Arabia and has posted all the big gains in production this decade; why are food prices shooting up and nations starting to hoard rice and other grains; why does it matter whether we produce ethanol from corn or anything else; can it be true that we have reached Peak Oil without any world authorities noticing or telling us?

These are just some of the questions that spring forth when someone grasps that oil really is non-renewable and that if there is about a trillion barrels left, and we know we have used about a trillion barrels, then it is no great feat of mathematics to work out that we are probably at the global half-way mark! Given the history of every other oil province, it should therefore be no surprise that decline will soon be upon us. Graphs may not be everyone's cup of tea, but they do tell the story most quickly and clearly. This chart shows that global oil production has been in a plateau since about 2005.

(This is less than 85 mb/d because that includes every liquid you can burn, including corn ethanol.)

Meanwhile this chart shows prices since 1990.

We can see that prices really began to take off when production went into a plateau. We can't prove that this is Peak Oil - that will take a few years of sustained oil procution decline, but it could be, and we argue that the science is building up that supports an oil decline in the very near future.   

These statistics are telling us loud and clear that something is going wrong, and unfortunately you can't fill your tank with optimism or skepticism.

The rest of this article, which will be posted shortly, will touch on some of the consequences of Peak Oil and offer a few pointers as to what we can do about it.