Peak Oil Primer

Source and story in full: http://www.lifeaftertheoilcrash.net/

Civilization as we know it is coming to an end soon. This is not the wacky proclamation of a doomsday cult, apocalypse bible prophecy sect, or conspiracy theory society. Rather, it is the scientific conclusion of the best paid, most widely-respected geologists, physicists, bankers, and investors in the world. These are rational, professional, conservative individuals who are absolutely terrified by a phenomenon known as global "Peak Oil."
Peak Oil is also called "Hubbert's Peak," named for the Shell geologist Dr. Marion King Hubbert. In 1956, Hubbert accurately predicted that US domestic oil production would peak in 1970. Source#1 Source #2 He also predicted global production would peak around the year 2000, which it would have had the politically created oil shocks of the 1970s not delayed it for about 5-10 years.

For more information:

A mere 15% shortfall in oil production will spike oil prices by 550%

Robert Hirsch on CNBC: Gasoline will soon be $12-to-$15 per gallon

"Big deal. If gas prices get high, I’ll just drive less. Why should I give a damn?"

Because petrochemicals are key components to much more than just the gas in your car. As of the year 2002, approximately 10 calories of fossil fuels are required to produce every 1 calorie of food eaten in the US. Source The size of this ratio stems from the fact that every step of modern food production is fossil fuel and petrochemical powered:

Pesticides and agro-chemicals are made from oil;

Commercial fertilizers are made from ammonia, which is made from natural gas, which is also peaking in the near future. Source

Most farming implements such as tractors and trailers are constructed and powered using oil-derived fuels.

Food storage systems such as refrigerators are manufactured in oil-powered plants, distributed using oil-powered transportation networks and usually run on electricity, which most often comes from natural gas or coal. Like oil and natural gas, coal too is peaking in the near future. Source

In the US, the average piece of food is transported almost 1,500 miles before it gets to your plate. Source In Canada, the average piece of food is transported 5,000 miles from where it is produced to where it is consumed. Source

A recent article published by CNN documented just how much fossil fuel energy is used to produce our food. Emphasis added:
The issue is not one of "running out" so much as it is not having enough to keep our economy running. In this regard, the ramifications of Peak Oil for our civilization are similar to the ramifications of dehydration for the human body. The human body is 70 percent water. The body of a 200 pound man thus holds 140 pounds of water. Because water is so crucial to everything the human body does, the man doesn't need to lose all 140 pounds of water weight before collapsing due to dehydration. A loss of as little as 10-15 pounds of water may be enough to kill him.

In a similar sense, an oil based economy such as ours doesn't need to deplete its entire reserve of oil before it begins to collapse. A shortfall between demand and supply as little as 10 to 15 percent is enough to wholly shatter an oil-dependent economy and reduce its citizenry to poverty.

The effects of even a small drop in production can be devastating. Source For instance, during the 1970s oil shocks, shortfalls in production as small as 5% caused the price of oil to nearly quadruple. Source The same thing happened in California a few years ago with natural gas: a production drop of less than 5% caused prices to skyrocket by 400%.

Fortunately, those price shocks were only temporary.

The coming oil shocks won't be so short lived. They represent the onset of "a new, permanent condition". Source Once the decline gets under way, production will drop (conservatively) by 3% per year, every year. War, terrorism, extreme weather and other "above ground" geopolitical factors will likely push the effective decline rate past 10% per year, thus cutting the total supply by 50% in 7 years. Source

These estimate comes from numerous sources, not the least of which is Former Vice President Dick Cheney himself. In a 1999 speech he gave while still CEO of Halliburton, Cheney stated:

By some estimates, there will be an average of two-percent annual growth

in global oil demand over the years ahead, along with, conservatively, a

three-percent natural decline in production from existing reserves. That

means by 2010 we'll need an additional 50 million barrels per day. Source

Cheney's assesement is supported by the estimates of numerous non-political, retired, and now disinterested scientists, many of whom believe global oil production will peak and go into terminal decline within the next five years, if it hasn't already. Source

Many industry insiders think the decline rate will far higher than Cheney anticipated in 1999. Andrew Gould, CEO of the giant oil services firm Schlumberger, for instance, recently stated that "An accurate average decline rate of 8% is not an unreasonable assumption." Source Some industry analysts are anticipating decline rates as high as 13% per year. Source A 13% yearly decline rate would cause gobal production to drop by 75% in less than 11 years.

If a 5% drop in production caused prices to triple in the 1970s, what do you think a 50% or 75% drop is going to do?

Estimates coming out of the oil industry indicate that this drop in production has already begun. Source The consequences of this are almost unimaginable. As we slide down the downslope slope of the global oil production curve, we may find ourselves slipping into something best described as a "post industrial stone age."