With gas prices rising daily, Americans are focusing on energy issues of late, and Peak Oil is beginning to enter the common lexicon. Peak oil represents the moment of peak oil production on Earth, after which oil production will plateau and eventually decline. This does not mean that poof – one day the oil is all gone! Rather, it means that oil production growth will slow, and eventually become negative, causing ever higher oil prices until or unless demand also declines.

Many prognosticators now believe that an oil production peak is imminent or has already occurred. While optimists predict production growth for decades to come, and pessimists believe that oil production will soon crash, many forecasts suggest that oil production will soon plateau for a period before beginning to decline. This will indeed be the case if new oil exploration projects just manage to replace declining production in aging fields.

Can the world economy continue to grow if constrained by oil production of 85M barrels per day? The EIA (Energy Information Administration) has estimated that oil demand will grow to 120M barrels per day by 2025, with two-thirds of this total expected to be used for motor transport. These estimates are created using estimates of growth in total vehicle ownership and usage. But what about fuel efficiency? Worldwide vehicle fuel efficiency averages around 20 mpg today; what if this number could be doubled by 2030 using the latest technologies? Doubling worldwide fuel efficiency would reduce demand in 2030 from 120M barrels/day to 80M barrels/day, enabling significant growth in worldwide vehicle usage while keeping oil demand below current consumption! This assumes no fuel efficiency gains in industrial and other oil uses.

Hybrid cars on the market today get in excess of 40 mpg, and new innovations like the Toyota Prius plugin modification (100+ mpg) and the coming VW Golf diesel hybrid (70mpg) push the boundaries much further. Buses, trucks, and other large vehicles are also joining the party, with major shippers like Fedex and UPS acquiring efficient vehicles for their fleets. The lifespan of the average vehicle is 16 years in the US today, so it will take time for high oil prices to cause a worldwide fleet turnover. But the the market signal of high oil prices is unmistakable, with manufacturers like Ford announcing cutbacks in SUV production and a focus on smaller vehicles. And if fuel efficiency can get us from today to 2030, that buys a lot of time for an economic transition to more long-term energy sources.