Oil is a finite resource. Eventually it will run out. For the last century, oil production (meaning extraction and refining) has kept increasing, keeping up with demand for the most part. But that won't last forever, and at some point production levels will begin to decline. That point—known as "peak oil"—isn't the end of oil, but it is the end of cheap, abundant oil. And as oil gets ever more scarce, it will get even more expensive and hard to obtain.
Geologist M. King Hubbert developed the concept of peak oil back in the 1950s, and he later predicted that it would occur around 1995 to 2000 (he wasn't expecting the energy crisis in the 1970s, when production dipped). Peak oil forecasts have varied wildly, with some experts arguing that it won't be a problem anytime soon and others predicting the peak within a decade. This is the trouble with predicting the future. You won't see peak oil until it has passed.
Well, last week, the International Energy Agency, which only two years ago was predicting a slow and steady increase in oil production, said that the peak has passed, and that oil production topped out in 2006 (Hubbert got it pretty close, apparently). The decline will be gradual, at least, they say, with production plateauing for a decade or two, but there are complicating factors, like increased demand from China.
We've already extracted the easy-to-reach, high-quality stuff already and are moving on to smaller fields, to lower-quality oil, to riskier off-shore locations (like Deepwater Horizon). And while natural gas might be able to replace oil in some applications, it can't be easily shipped, and we've already peaked on that fossil fuel here in the United States.
To make matters even worse, a new study in Environmental Science & Technology estimates that we'll run out of oil 90 years before replacement energy technologies are abundant enough to replace the oil.
So where does that leave us? The days of dollar-a-gallon gasoline and high demand for energy-guzzling SUVs are but a distant memory. But it's far worse than that. Oil is used in the production of pharmaceuticals, plastics and electronics. Growing and transporting food takes an incredible amount of energy from oil. Smaller supplies of more expensive oil will affect us in myriad ways. If we're lucky, the decline in oil production will be slow enough that we can adapt. If not, all bets are off.