Peak oil is when worldwide annual production of oil reaches its historical high and then declines. It means that we'll go from producing 80 billion barrels in 2009 to 79.8 billion barrels in 2010 (hypothetically), and then a little less each year thereafter.
The reason peaking production is just as problematic as if we were running out of oil is that world demand continues to grow steadily each year, and when supplies start declining the price will increase rapidly. Think of it like you would Dave Matthews Band. Before they were popular (low demand), there would have been no problem getting concert tickets (high supply). However, as their popularity grew, demand for tickets quickly outstripped even the largest concert venues (demand caught up to supply). Now imagine what would happen to the price of DMB tickets if they had to perform in a smaller venue each time they had a concert.
So that's Peak Oil. Here's what it isn't:
Peak oil is NOT "no oil." We'll continue to produce lots of oil, just a little less each year than before.
Peak oil is NOT "no new oil fields." We'll continue to discover new oilfields as technology advances, but just never enough to replace all that we're pumping out.
Peak oil is NOT "no new technology." We'll continue to find ways to extract more oil from existing fields and oil from shale, tar sands, and other weird places. But even as these become more feasible, they will still not be enough to replace existing oil production.
This chart gives a sense of why we're hitting peak oil. Note that the "peak" is actually the sum of many peaks. U.S. oil production peaked in the 1970s, Russia did around 1991, and Europe did in 2000. The worldwide peak will happen when the countries increasing production - like OPEC - can't make up for the declining supply from the rest of us, as well as increasing demand.
Image courtesy of Romaenergia, mirrored locally.
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