By Ross DePaola

Every oil well goes through a birth-to-death cycle. From “birth,” the amount of oil extracted from a well increases until about “middle age,” when we’ve extracted about half the oil. From then on, production lessens and the oil becomes ever harder to extract, beginning to “terminally decline.” Looking at the aggregate age, resource estimates, and production levels of the world’s oil wells, global oil production is believed to have reached “middle age” or peak capacity. This means we’ll never extract much more oil than we’re extracting now. While we haven’t run out of oil, we are running out of cheap oil. This, in a nutshell, is peak oil.

How do we know we’re at peak oil? According to the Association for the Study of Peak Oil & Gas (ASPO), of the “65 largest oil producing countries in the world, 54 have passed their peak of production” and are terminally declining – the U.S. in 1970-1971, Indonesia in 1997, Australia in 2000, the North Sea in 2001, and Mexico in 2004. In past years, the world’s largest producer, Saudi Arabia, used spare oil production capacity as a spigot to regulate supplies and prices. This past year, however, the spigot was wide open and the world demanded every drop of that oil. Prices rapidly increased, but have come down as the world economy slowed and oil reserves stockpiled. But when the economy improves and we again approach global oil production limits, fuel prices are likely to spike again.

Looking back at the huge price spike, what have we learned? The price of oil affects not just the price we pay at the pump; it ripples through our entire economy. As fuel prices rise, so do those for goods and services. There’s much competition for the limited amount of money in our wallets. When too much money is taken from one area, another has to give. Although it’s rarely linked, the mortgage crisis was preceded by the gas crisis and I wonder if this may have been the financial breaking point for many homeowners.

We’ve also learned that when gas prices are high, the value of gas-guzzling vehicles plummets, leaving us unable to sell a gas-guzzler and buy a new car without a significant loss. A fuel-efficient vehicle can be an “insurance policy” against future price spikes.

There are approximately 350 million gas and diesel vehicles in the United States. To switch a significant portion of these vehicles to other fuels such as alcohol, synthetic fuel, or natural gas would be costly and subject to the limitations of the new fuel. While you may have heard that we have plenty of oil resources like oil shale, any new domestic oil resources are very costly to extract, have very long lead times, and won’t flow in quantities to satisfy our current appetite. Additionally, any new resource we find will, at best, do nothing more than offset the decline of existing fields.

Although higher efficiency standards for vehicles will help, enacting those standards and completing an entire fleet turnover will take nearly twenty years. By that time, many believe we’ll be way beyond peak production.

What does the future hold for us? There are no easy answers, as our economy is based on cheap oil. There are those who believe resource wars, profiteering, and economic collapse are in store should society not make dramatic changes. But addressing the problem by returning to a more community-oriented society is also a possibility.

Our best outcomes can be had by moving away from an oil-centered transportation system, while conserving the dwindling oil resources we currently have. We can begin to wean ourselves off oil by planning effective mass-transit systems that meet most of our needs and by using vehicles powered by electricity (preferably renewable electricity) for short trips or city commuting. Cyber commuting, bicycling, walking, ride-sharing, and community vehicles are all options we have now. Also, the systems and resources that facilitate buying locally and growing locally should be supported and expanded.

Although there are no easy alternatives to the oil-centered transportation system we have, we can learn about and come up with ways to create communities that use less fuel. We can make plans for tomorrow’s resource market. With clear, open minds we can plan for and not fear the changes that are coming.