PEAK OIL: DISTILLING TRUTH FROM TALE

Make no mistake, peak oil is a reality.

Oil prices hover around $100 a barrel, European truckers strike over

escalating diesel costs, while the IEA warns of a pending supply crunch. Energy reserves are running short.

Or are they? To listen to some experts -- and there are so many -- all the hoopla surrounding the recent surge in oil prices is simply a bump in the road, a road worry-free for your SUV in coming decades.

Vikram Mehta, Chairman of the Shell Group of Companies in India claims it's just the natural economic cycle of oil. Demand, he says, will slow in response to high prices, much as the spring will follow a hard winter.

Others go further. John Cassidy, writing for Conde Nast, believes oil prices could easily fall to $30 a barrel. A return to $1.50 a gallon at the pump might not be out of the picture.

A majority of industry insiders are quick to dispel any talk of limited reserves and rising prices.

But why, then, is the National Petroleum Council warning of no quick fixes? Experts ought to agree, but on this subject they never do. In the same Conde Nast article, Faith Birol, chief economist for Paris-based IEA, preaches that the wheels may fall off the global economy. Meanwhile, the Hirsch Report, published by the DoE in 2005, admits peak oil will happen, and that it's arrival may be unheralded.

Sifting for clues to our energy future can be as hazardous as extracting hydrocarbons through 20,000 feet of rock beneath the seabed. And the returns may be just as fruitless. Is it even possible to distill truth from tale anymore?

It is if you follow basic logic. For instance, logic dictates that oil if finite. (There's a fringe belief in something called abiotic oil, but it lacks scientific validation.) With a finite oil supply, you utilize large, accessible, reserves first. Over time these reserves dwindle. You need to discover new ones. At first easy, this process becomes harder. New sites become difficult to develop, due to their location in extreme topography. Returns -- energy extracted minus energy utilized in retrieval-- decrease. New technology is needed to reach extreme reserves. This requires still more time, money, and energy. All of this further reduces profits. Eventually it makes little economic sense to continue working a source.

In abundant times, there is oil for everybody. While supply and demand is affected by politics, war, and Wall Street speculation, the flow remains moderately steady and prices predictable. Thanks to a reliable supply, economies thrive and industry expands (along with population), resulting in a demand for more oil. A demand for more oil is met by the production of more oil. No problem.

Until the demand for oil grows past our ability to supply it. This is the nightmare scenario that is peak oil. Unless new oil discoveries continue at or above the pace of oil production, reserves will decrease and eventually disappear. Unfortunately for those still promoting a positive future, this nightmare has already begun: in 1980 production first surpassed new discoveries, and we've been motoring toward global depletion ever since.

Unless we cap oil production and start investing in alternative energy sources, the world's future remains bleak. How soon countries such as ours begin feeling the pinch beyond the pump depends on several factors, not least of which is the rate of industrial growth in China and India. In China, that growth has resulted in a near-doubling of oil production in the first six years of this century.

It's just the start. The IEA expects a 50% rise in global oil demand by 2030, a demand that will rise faster than our ability to supply it.

In response, Saudi Arabia has imposed a limit on capacity expansion, while non-OPEC nations are beginning to limit access to their valuable supplies.

The oil industry, in collusion with government, has long sought to keep a lid on this issue. Knowing how much oil remains untapped is a function of guesswork and fuzzy math, which allows the industry to lie about reserve levels. In a recent scandal, Shell admitted inflating its reserves by 20%. However, even the best kept secrets cannot survive global economic recession. 2008 promises to visit a recession on the United States. It's a backlash that will be felt across the planet.

Since the Hirsch Report estimates any transition away from fossil fuels requires 20 years to implement, it may already be too late to avoid disaster. This has led some to speculate that our best defense against the coming crisis is some form of radical population control.

Perhaps another way to avoid such Draconian measures may exist in the skies above us, rather than the ground below. The Sun, after all, is our one inexhaustible power supply. Peak oil is real, but before we bury our drill heads in depleted Middle Eastern sands, we might first want to raise our eyes heavenward, in hopes of cosmic redemption.