How will you live in a world without cheap oil?

The first commercial oil well changed the world. Now oil is vital to the global economy. Our transport, our clothes, even our food chain is utterly dependent on a steady flow of cheap oil. But now that flow is about to dry up, says Byron W King in The Daily Reckoning - and that's why you need to start preparing for Peak Oil right now.

Almost 20,000 years ago, a Stone Age tribe made camp under a sandstone overhang in a place south of Pittsburgh now called Meadowcroft Rock Shelter, in Washington County. Theirs was a world still in glacial throes, with the edge of a mile-thick sheet of ice not far to the north. On the edge of a frozen ice desert that covered half the continent, these ancients sought protection from the bitter elements. Today, visitors to Meadowcroft can enter an open excavation and view evidence of tools and campfires made by these wandering souls so long ago.

Not quite a century and a half ago, in 1859, a man of the Iron Age named Edwin Drake made his own mark upon human history by driving down one of the world's first commercial oil wells on the banks of Oil Creek, in Venango County south of Titusville. Although the Drake Oil Well produced only 25 barrels of 'rock oil' on its first day of production, and that from the grand depth of 69 feet, it ushered in the Age of Petroleum. Out of Drake's well arose most of what makes up our life as we know it now.

Of course, without oil in this world something else would be here in its place. Ours might not resemble the Pleistocene existence of Meadowcroft, but neither would it be anything remotely like what we know today. Absent abundant quantities of oil cycling through the arteries of world commerce, our motorized, mechanized, industrialized world would not be here, and neither would we, I venture to guess.

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Peak Oil: why you need to know about it

The oil wells of the world produce something over 84 million barrels of petroleum every day, or about 1,000 barrels per second, and every drop is consumed in an energy-hungry world. People move about using oil, by means of train, plane, or automobile. People wear oil, in the form of synthetic fibres. People eat oil, in the form of tractor fuel, fertilizer, transport, processing, refrigeration or preservation, and cooking.

Modern medicine is premised on the use of large amounts of petroleum-based feedstock, and other forms of disposable plastic. Much, if not most, of modern commerce is based on the extensive use of oil-based plastic and chemicals, and oil-fuelled transport of goods over vast distances. And since the time of Edwin Drake, oil has been relatively cheap, which is pretty much why things evolved as they did.

This is also why it is crucial that you understand the concept of 'Peak Oil,' which is a shorthand way of expressing the geological concept that mankind has reached a 'peak' in its ability to produce this depleting resource from the crust of the Earth. The world's total level of production of about 84 million barrels of conventional oil per day will not last much longer. It is on the cusp of decline.

Oil production has peaked in almost every major oil- producing nation or region on the planet, starting with the United States in 1970. US oil production peaked in that year along the lines predicted in 1949 by a brilliant and eccentric geologist named M. King Hubbert.

Hubbert noted the rather obvious point that you cannot produce what you have not discovered. So Hubbert graphed US oil discoveries from the 1860s onward and predicted a peak for US production in 1970, a peak that occurred on schedule, although it was only apparent in hindsight.

Even the massive oil discovery at Prudhoe Bay, Alaska, in 1968 barely changed the shape of the decline in the production curve that Hubbert's theory set forth. Since 1970, US oil imports have done nothing but increase, year over year, from places with surplus oil production. This is all about to change.

Peak Oil: oil production is peaking around the world

Ominously, during the past four decades, oil discoveries worldwide have slowed to a snail's pace while demand for and production from earlier discoveries have soared.

Similar to what occurred in America in 1970, oil production in other regions of the world has also encountered peaks.

Oil production in places as diverse as Indonesia and Mexico, Iran and the North Sea has topped out, rolled over, and is now in a state of irreversible decline.

That is, oil producers in these regions have begun to encounter dramatic decreases in the volumes of oil they can find and lift from the ground, let alone sell into the world's markets.

The list of nations in the Peak Oil Club might surprise you. Kuwait announced a peak in daily oil production in November 2005. There are good estimates that Russian oil production is peaking and will commence a decline, if not a collapse, within 3-5 years. Even Saudi Arabia is struggling to maintain its current rates of oil production.

Add to the geological nature of the decline in oil production the fact that there is a worldwide shortage of onshore and offshore drilling rigs and necessary production equipment such as tubular goods, drill bits, pumps, and valves.

And there is a severe shortage of skilled manpower in the petroleum industry, the result of the worldwide contraction of the production industry during the 'cheap oil' days of the 1980s and 1990s. The bottom line is that world oil production is maxed out and will commence an irreversible long-term decline over the next few years.

With major regions of the oil-producing world entering or already in a state of irreversible decline, there is no 'swing' capacity to accommodate increased oil demand.

But demand for crude oil and refined product still follows its historic and increasing trend lines, particularly with the rapid economic growth in Asia in China and India. Thus, it is left to a rising price to, as the saying goes, 'clear the market' for oil.

As motorists confront the long-term reality of paying more and more for a gallon of gasoline (and I believe that it will be much more, barring some worldwide economic collapse), they are directly experiencing an unpleasant economic and energy future in the form of Peak Oil. Hubbert predicted it many years ago, and that future is now.

Peak Oil: how will we live in a world without cheap oil?

The world will produce less and less conventional oil over time, and the nicest way to put it is that people will have to figure out some other way to do things besides burning oil the old-fashioned way.

Peak Oil will force people to view the world differently, to a degree almost unimaginable to those who scarcely understand the concept just now.

Mankind will reduce oil consumption because the oil will simply not be there. Being 'green' and 'environmentally friendly' will have next to nothing to do with it. Being 'rich' might not help much either, although it probably will not hurt.

We live with the ghost of Edwin Drake, who died in 1880.

Drake's remains are interred in Titusville beneath an imposing granite memorial, and under the shadow of a handsome bronze sculpture of a muscular man pounding and dressing a drill bit with a massive hammer. It is all very neoclassical, noble, and impressive. Drake's monument reads in part:

'Col. Edwin L. Drake...Founder of the Petroleum Industry, the Friend of Man.

'Called by Circumstances to the Solution of a Great Mining Problem...He laid the Foundations of an Industry that has Enriched the State, Benefited Mankind, Stimulated the Mechanical Arts...and has Attained Worldwide Proportions.

'His highest Ambition was the Successful Accomplishment of his Task. His Noble Victory the Conquest of the Rock, Bequeathing to Posterity the Fruits of his Labour and of his Industry.'

'The Conquest of the Rock,' it claims on the tomb, with hubris similar to that of fabled Ozymandias. How fitting that Drake's grave at Titusville is not far from the Stone Age ruins of Meadowcroft, only about 125 miles or so as the crow flies across southwest Pennsylvania.

In one ancient hollow, beneath a ledge of sandstone, people eked out their existence, burnt their charcoal, and lived whatever life they could make for themselves in the shadow of an ice sheet. In another, more modern locale, Drake conquered the rock - for a while, perhaps - and brought unimaginable change to the trajectory of mankind's existence.

But in both places, Meadowcroft and Titusville, the lesson appears to be that mankind never truly conquers the rock.

Peak Oil is nature's way of rebalancing the equation. And Peak Oil is today as much a challenge to the modern world as the Pleistocene ice sheets were to the people of Meadowcroft. Peak Oil will control your destiny. You should start learning about it, thinking about it, and planning for it.

By Byron W. King for The Daily Reckoning.

Byron King currently serves as an attorney in Pittsburgh, Pennsylvania. He received his Juris Doctor from the University of Pittsburgh School of Law in 1981 and is a cum laude graduate of Harvard University. You can read more from Byron and many others at