You will find hundreds of articles written about Peak Oil but to the casual reader this term probably has little meaning. Most people take oil for granted with little more than a thought that it exists. We are told from birth that oil came from decaying plants and dinosaurs from millions of years ago. That is actually partially right. Petroleum products come from organic material that was trapped under the right conditions long ago. Those conditions were geological accidents that only occurred in very rare circumstances, which existed in less than 1% of the earth's geography. Most land is barren of petroleum deposits because the conditions necessary to produce them failed to occur in that area.

In areas where petroleum deposits were created those deposits were formed under pressure and once formed they tend to migrate through fractures in the rock until a porous area is found that acts like a sponge to soak up the oil and trap it in place. Much of the oil underground is far too thin and too scattered to be recovered. In fact only about 1% of the world's oil is commercially recoverable. Most people visualize vast seas of oil underground that only need to be found and then piped to allow the oil to be pumped out. This is far from the truth.

Because oil exists only in certain types of geologic formations it was a simple matter to map those formations on a global basis and then explore them one by one to see if oil existed. The world has been scoured so thoroughly over the last 100 years there are no prime locations remaining that have not been explored other than areas deep offshore.

All the really big oil fields were the first to have been found once mankind knew what to look for and where to look. Similarly those big fields have already been pumped dry in many cases because they were the easiest to recover and provided the fastest return on investment for the explorers.

In Texas there are places where thousands of acres of oil wells sit silent and rusting because their time has passed. Millions upon millions of barrels of oil were pumped, distributed and consumed leaving nothing but dry holes and rusting iron. This same process is now occurring on the rest of the planet. The major oil companies no longer drill wildcat wells in the U.S. because any remaining oil finds are rare and in such small quantities as to not make it worth their effort. Newly dry holes around the world are being abandoned on a daily basis.

All of this background is needed to understand the concept of Peak Oil. Put in very broad terms Peak Oil means a peak in global oil production and the beginning of a permanent oil decline.

Fact 1: When the first well was punched into the Pennsylvania dirt all the oil in the world already existed. No additional oil will ever be created.

Fact 2: For the last 100 years mankind has been in a race to find and produce as much oil as possible.

Fact 3: Millions of wells have been drilled with the current rate more than 50,000 wells drilled per year.

Fact 4: Despite this frantic drilling there have not been any major discoveries onshore since 1970.

Fact 5: 75% of all known oil exists in only 400 giant fields.

Fact 6: Current global demand/production exceeds 3.2 billion barrels per year.

Fact 7: World demand prior to the recession was increasing by a minimum of +1.5 million barrels (1.5%) per year thinks to increased demand by India and China.

Fact 8: Existing global production is decreasing by -4.5% per year.

Fact 9: New wells are frantically being drilled to compensate for that 6% gap but we are close to losing the race.

Fact 10: One day soon global production will begin to decline faster than new wells can replace those wells going dry. There is NOTHING we can do about it. This is referred to as PEAK OIL. It is currently projected for early 2012. It will be the beginning of the end of civilization, as we know it. Oil supplies will begin a permanent decline forcing ever higher prices and restrictions on how oil is used in the future.

What You Can Do

Peak Oil will mark the beginning of the end of the era of cheap oil and all the things it provides. This is not the end of oil only the end of cheap oil. Oil will exist in ever dwindling amounts for hundreds of years but it will not be cheap.

Once the nations of the world are forced to bid for each tanker of the remaining oil the prices will rocket to levels previously unheard of. $100 dollar oil will only be the beginning. Eventually $200, $250 or even more will become commonplace. While $145 dollar oil is already behind us the ramp over $150 to $250 could take 2-3 years but once past the production peak the move higher will be very fast. By 2020 we could be accustomed to $500 oil. 

Demand will drop as prices rise past the pain threshold for consumers. When gas costs $5 or more a gallon in the U.S. (it is already over $8 in much of the world) the U.S. love affair with big cars will come to a screeching halt. Commuting will take on a new meaning when a tank of gas costs $100 or more. We already saw how much $4 gasoline curtailed driving and crimped consumers budgets and that is just the start.

This may be shocking to everyone reading this but it will happen. Actually the potential scenarios are much worse than just $5 gas. The prices of everything you buy will move sharply higher. Your food, clothes, appliances, houses, etc. Everything is either produced using oil, shipped from around the world on vehicles powered by oil and if it is electrical powered by oil/gas in some form. $200 oil will touch everything you buy/use/do in your life. Over $200 that price pain will be even more severe.