The Concept of Peak Oil

I have been using the term 'peak oil' here without defining it, the reason being that this blog is not one dedicated to the discussion of this complex topic with a massive body of literature. For a good introduction to the subject, I would suggest Matt Savinar's great site Life After the Oil Crash. That said, a brief outline may still be useful for our purposes.

According to Wikipedia:

Peak oil is the point in time when the maximum rate of global petroleum extraction is reached, after which the rate of production enters terminal decline. This concept is based on the observed production rates of individual oil wells, and the combined production rate of a field of related oil wells. The aggregate production rate from an oil field over time usually grows exponentially until the rate peaks and then declines—sometimes rapidly—until the field is depleted.

From an economic standpoint, the peaking of oil production is not a problem as long as demand does not exceed supply. Unfortunately, as things now stand, demand in the developing world is steadily increasing and we are quite close to the point where total global demand will exceed total supply. At that point, we are likely to see crazy volatility in the energy markets as demand fluctuates in response to price changes. If we use the OPEC oil embargo in the 1970s as a reference for how economies will react to shortfalls in oil supplies, it can be deduced that we will likely be entering into a period of poor economic performance as we hit peak production.

Since being introduced to the subject in 2005 via the later Matthew Simmons' seminal book Twilight in the Desert, I have been following peak oil almost on a daily basis. Judging from the data that I can see, I personally am convinced of the reality of peak oil. As such, moving forward, I write based on my acceptance of this reality.