What is the most rational view of Peak Oil and its near term consequences?

You do a fairly good job of presenting a rational argument here, but you do have some arguments that seem firmly rooted in your emotional response, rather than an attempt to explore the facts.

Your especially rational points are 1-4. This is irrespective of whether they are right or wrong--we have some ability to factually verify or disprove these points. In order to explore your biases, you might want to start by linking to some articles supporting your statements and some refuting them and then discussing why you believe one over the other. Choose articles that avoid excessive strident language(when possible) and make numerous factual statements that can be independently verified. Then it might be easier for you and others to determine what parts of your beliefs are strongly biased.

For example(emphasis mine):

1. Politicians are powerless, so promise general feel-good nonsense like "energy independence".Nobody even tries to tackle the problem.

This statement seems to be more about how you feel about the problem than a statement that can be independently verified. How easy is it to get people to agree what feel-good nonsense even is? Does it predominantly come from those personable people you disagree with? The connotation of this word is going to overshadow any denotation. And how would you evaluate if someone tried to tackle a problem, regardless of whether they succeeded? It's hard enough to get people to agree on facts--it's even harder to get them to agree on emotion-laden statements that are difficult or impossible to verify.

Oil is harder and harder to find every year (we already took the easy stuff, nobody finds super-giant fields anymore)

The stuff that was "the easy stuff" forty years ago and the stuff that is "the easy stuff" today are very different things. It is normal that, upon decrease in supply, research is invested into increasing the economically-effective supply. That's how we got steam-injection and CO2-injection into oil-wells, which is why the US still supplies 2/3rds of its own oil resources (as of 2007, at least), despite Hubbards Peak pegging our peak production in the early 1970's.

All the alternatives that were supposed to fill the gap are failing to deliver

Of course they are. Because they were all pipe-dreams. In the meantime we've had a viable 'alternative' -- such that at least one industrialized nation (South Africa) has been relying upon it for years: the Fischer-Tropsch process. It generates liquid hydrocarbons from coal at a rate which is economically feasible with sustained non-futures prices of oil at over ~$80/barrel, with coal at ~$20/ton. (Please note: this simply has not happened yet.)

Even oil that's harder to get (e.g. in deep water) doesn't help much as it is generally produced at a slow rate

Projection fallacy. As I mentioned above; the "harder to get" only stays "harder to get" until it becomes "easier to get". The fallacy here is in thinking that this is a fixed term rather than malleable based on technical prowess. I again mention steam-injection and the fact that it revitalized the Californian oil industry from essentially total death to viability.

The average person is mystified as the price of everything seems to rise at once

This is a "and then magic happens" statement. Please don't take past fears regarding food availability as viable indicators of the future. We already grow far more than enough food to feed the entire world... and there are plenty of techniques available to increase agricultural output that we just haven't implemented very much yet. Everything from genetically-engineered nitrogen-fixing plants/bacteria to terra preta.

Business and whole national economies are squeezed by rising prices

Increased prices result in increased ingenuity for discovering alternative means to the same ends. Fundamentally the 'function' of technology can be said to be the increase in the fungibility of a given resource. Back in the day we used whale blubber for a broad array of things. When the whales started getting scarce, we switched to coal and coal-gas. Then we switched to oil because it was a better hydrocarbon and we could get at it cheaply. (Though really, we still use coal for MOST of our energy needs. And the stuff we use oil for we could substitute coal for. Or even charred woody-plants 'torrefied lignocellulosic stocks' grown in agriculture.)

One thing I've noticed a lot is reports about "Oil Sands", "Oil Shale", "Vast new possibilities of X barrels from biodiesel/microbes/algae/thermal depolymerization" etc. and none of these reports ever mention the rate of production that is expected (and years later they seem to have delivered nothing).

"seem" is the key term here. North Dakota is enjoying an oil-boom due to active extraction of shale-oil. Biodiesel in its various forms is not a viable hydrocarbon resource today, although there is at least one commercial plant selling to the US Military (at absurd costs.)

Civilization runs on the constant supply of power. If that power declines 5% every year we are back to the middle ages before very long, and it's hard to develop a Friendly AI on an abacus.

If, sure. But it's just not going to happen.

This post does not even mention efficient markets. You cannot discuss oil markets or oil supply without discussing financial market economics.

Also, a couple of your 'points' seem dubious (11,12, 14, 15). They also seem like they are part of a timeline which is confusing. Also specific scenarios are not conducive to accurate forecasting.

I won't speculate about cognitive biases, but you have some things wrong here. You mention that food will become more expensive as fuel prices and fertilizer prices rise. But the commodity price of food (i.e. wheat or pigs or whatever) is a very small percentage of the retail price of the food we buy in stores (even more so for restaurant meals). Commodity price increases of orders of magnitude become increases of degrees at retail price levels.

As for the idea of lights going out due to energy shortages, only a very small fraction of our electricity is generated by oil. In United States, the overwhelming majority of our electricity is produced by coal, nukes, nat. gas, hydro, etc.

Synthetic fertilizer and other chemicals can be produced using other kerogen rich feedstocks. Transportation is the industry which faces the biggest shock, but I think there is good reason to believe people are flexible enough to prevent transportation problems from ending civilization and returning us to the stone age. For example, in Japan in WW2, there was virtually no available oil in the last months. All available fuel was being saved for the military. Yet people found still found creative ways to get around: on motorcycles powered by turpentine.

ETA: Are you investing heavily in oil futures, or stocking up on canned goods and ammunition? If not, why not?

2. The peak production year was 2005 with 73.7 million barrels produced

This is a little out of date. I have an old data file that supports your 73.7 megabarrel/day estimate for 2005, and that is the highest annual crude oil production recorded in the file — but my file only runs to 2009. When I check newer EIA data (scroll to the bottom of this table) that run through 2010, it turns out that 2010 (74.06 megabarrel/day) beats 2005 (73.80 megabarrel/day).

A similar pattern holds for the total oil supply (as opposed to crude oil supply) too: a bumpy plateau from 2005 (which had 84.60 megabarrel/day) to 2009, then a slight jump in 2010 (86.84 megabarrel/day).

3. The amount of oil produced each year is declining

I would've disagreed with this even before I surprised myself with the 2010 data! I would've said that production generally increased from the mid-1980s until it hit a plateau in 2005 and remained about constant since. I would've expected 2010's production to be much the same, but it actually seems quite a bit higher when I include all sources of oil production.

4. The price of oil (and therefore energy) rises

Supply no doubt influences price but it can't be this simple. As far as I know, oil production was pretty well constant from 2005 through 2009 but during that time oil's price rose massively, then crashed, then began rapidly rising again.

If you felt these three points "seem[ed] hard to argue against" I'd guess you're overconfident on the rest of your points too.

(Disclaimer: I didn't read the Wikipedia article like you asked; it seemed unnecessary for checking a few numbers.)

Your projection of the future as written involves fifteen conjunctions. Well, actually, the first few points look more like verifiable empirical facts about the present day world, so those might be okay, but beyond that what you have is a long winded extrapolation leading to catastrophe. And unless each of those steps is nailed down by overwhelming evidence, chances are that the specific scenario you are worried about is a lot less likely than you think.

Most of your points seem approximately accurate. Some of them are more questionable. 14 is an excellent example. As of right now, adjusting for inflation gasoline prices are not that high compared to historic levels.

Also some technologies are definitely improving. Solar power is becoming much more functional, efficient and reliable. I don't think that things are heading in that bad a direction, quite the opposite.

nuclear fusion/thorium/cold fusion/zero point energy

Two of these are not like the others. The first two are plausible and have had a lot of research. For the first two we know that the physics works, the issues remaining are essentially engineering. The last two are very different in that regard.

Even uranium prices are rising as demand outstrips supply for just the current set of reactors.

Uranium is really common. U-235, the specific isotope of uranium used in reactors is less common. However, the general market seems to be just for unenriched uranium oxide. Looking at those prices there's been a spike a few years ago and the price has then been steadily declining since then but still not down to the pre-spike levels. I don't know what caused that increase. Can someone who knows more about the uranium economics comment?

One other issue related to peak oil that is also worth discussing due to Nick Bostrom which was discussed on another thread today is that the more fossil fuels we consume the more difficult it will be if a largescale catastrophe occurs. To get to our current tech level we consumed a large amount of fossil fuels. It isn't obvious that one can get to this tech level without such access. So if we consume a lot of fossil fuels it may be that we won't be able to recover from a societal collapse.

The other good news is that a lot of smart people are thinking very hard about energy issues. I'm not therefore sure that we are likely to do much that is helpful from thinking about them. The diminishing marginal returns may be small.

Now, I'm going to discuss cognitive biases but with a warning that in this particular context it is difficult to do so without touching upon mind-killing issues. In the current situation the existence and severity of peak oil have become wrapped up in a variety of places especially in the United States with certain political groups. In particular, some "conservatives" believe that peak oil either has not happened or is not an issue. In contrast "liberals" or "progressives" are much more likely to believe that peak oil has occurred or is a near event and are more likely to believe that this is a really bad thing. Therefore, if your general politics are progressive, I would be worried if I were in your position that your conclusions about peak oil are due in part to tribal allegiance. I don't know what to do about that.

Edit: You are from New Zealand yes? I don't know much about the history of New Zealand politics but my impression is that this is less of a tribal issue there. In that context the obvious cognitive bias should be less of an issue.

The main thing you're arguably missing is the response of a global market economy to the increase in price of one of its commodities. There are three significant responses. The first is simple economisation in the use of the resource - but this tends to drive down output. The second response is that of increased investment in extraction of the commodity in short supply - the higher price makes more money available as profits for existing providers, and acts as a strong draw to investors of capital who wish to increase the supply. The third reaction is substitution - replacing the commodity in short supply with a new supply of something else.

All of these operate over both the short and long term. Let's look at strategy 1 - economisation. In the short run, you can simply drive less. You can turn down the thermostat on your central heating. You can skip the expensive foreign holiday on the gas-guzzling airliner.

In the long run you can go further - much further - with the first strategy. You can build houses and businesses that don't need to be heated. You can make cars with far better gas mileage. You can make compact cities that don't need cars.

But we still have two strategies to go. We can increase our investment in finding more oil. Resources that used to be uneconomic become viable with higher prices, so we can dig up Canada's oil sands. You can use the new shale gas that's coming on stream, and convert that into oil. You can even convert coal into oil using well-known chemical processes. We can use new recovery technologies on existing fields. All of this increases the supply of oil - probably to the point where the main reason we can't burn it is the CO2 rather than the lack of supply.

All of this depends on the price. Higher prices allow more complex and expensive recovery processes. This is why your list of technologies that never developed exists - they were never profitable at the present price. The price of oil isn't high enough to make those activities worthwhile - at least at our current level of expertise.

And finally you have substitution - and this is far and away the most powerful strategy. We can of course substitute telecommunications for travel already. But there are other reactions. Maybe battery vehicles, or less exotically, electrified highways. High speed trains instead of airplanes. Uranium nuclear. Fast breeder nuclear. Thorium nuclear. Solar thermal. Solar photovoltaic. Long distance DC electrical transmission. All backed up with the general theme of manufacturing these days - everything gets cheaper every year. The approach of the singularity is not merely seen in microchips - it's also seen in the steady, remorseless decrease in the cost of anything manufactured.

These are just the accomodations we can make with the technology we already know about. Who knows what else we might come up with on top of this?

My own expectation is that in 40 years time, energy will be cleaner, much more abundant, much cheaper, and much more efficiently used than today. Just like the last 40 years, only more so.

Additional details weigh down hypotheses. The more steps your argument requires, the less probable it's correct. None of your 15 things seem obviously objectionable to me, but any argument that requires 15 steps to be correct is unlikely.

As for whether it's rational to be concerned... peak oil has been discussed pretty thoroughly. I doubt the marginal utility of you specifically worrying about it is greater than the marginal utility of worrying about FAI, or any other neglected existential risk.

Step 13 to step 14 is a non sequitur. It does not follow from forever increasing prices or unemployment that everything will fall apart. For example, they could be forever increasing but the infinite series converge on a well-defined limit of 8% unemployment.

To show that unemployment or whatever will increase to an arbitrary level, or even a particular level, you need to do a lot more heavy analysis. And I say heavy, because there are a ton of feedback loops at every step in your argument, none of which may change the sign of the results, but which strongly affect the magnitude, which is what is now the question.

(Or to put it another way, you may have shown there is a problem - that the sign is negative - but you have yet to show that it is not a small problem which may essentially solve itself or be acceptable collateral damage while we work on more important things - that the magnitude is greater than a certain point we care about.)

The issue of energy return on energy investment (EROEI) requires careful handling.

First one thinks that difficult resources, such as tar sands, greatly increase the amount of oil available. One realises that they need a lot of energy to extract the oil. Knowing the history of the industrial revolution, one recalls that the early steam engines, that were used for pumping water out of coal mines, were terribly inefficient, but that didn't matter very much because they were located at the pit head and had cheap access to the coal that they were helping to mine. So one brushes off concerns about needing to use a lot of oil to extract oil from tar sands.

On second thoughts one sees a potential problem. Where do you get the oil that you use to help you get more oil? If the EROEI is reasonably high this is a minor adjustment. If it takes 1 barrel to extract 10 barrels, you don't get to ship 10 barrels out of the oil field. You have to replace the barrel you used. You ship 9 barrels for every 10 extracted, a minor correction. Once the EROEI falls to 1.1 your oil industry is in deep trouble. It is taking you 10 barrels to extract 11. What you extract barely covers what you burned to extract it. You only ship 11-10=1 barrel. Extracting 11 barrels to get one is going to push the price up eleven fold and deplete the resource eleven times as fast as you were expecting.

On first thoughts any EROEI above zero is useful. On second thoughts the lower limit is at an EROEI of 1 and actually one needs to be well above that.

On third thoughts one notices that there are other sources of energy than oil. While oil is cheap, it gets used as a general purpose source of energy, but it is only really essential as a transport fuel. France gets 80% of its electricity from nuclear power. I suspect that they are cooking the books and subsidizing nuclear electricity. But notice that countries can only give big, misleading subsidies to minority components of their industrial base. They still have to have viable industries from which wealth can be transferred. If the French government were giving a big subsidy to nuclear power, such that it is misleading about the financial viability of nuclear power, the country would be noticeably impoverished by the economic distortion. It isn't.

So, on third thoughts, as oil prices rise one moves to getting the energy for extracting oil from other sources. An EROEI of 0.5 implies using 2 Joules of electricity from nuclear fission to get 1 Joule's worth of oil for transport fuel. On that basis people will continue to drive cars and fly in airplanes, although it gets a lot dearer. Maybe people actually switch to batteries for wheeled transport and save flying for special occasions. The point is that EROEI = 1 doesn't mark the end of civilisation. It marks the point at which oil stops being a source of energy and becomes an energy storage medium, in direct competition with batteries. It is still available for transport applications which need very high density energy storage for, for example, transatlantic flights.

Jon Claerbout (Stanford U.) has a review of Matthew Simmons' book on the production peak in the Saudi Arabia oil fields on his web page. To me it embodies one of the most rational views toward the issue of "Peak Oil" and the consequences for our foreseeable future:

The decline of Saudi Arabian Oil Fields.

Food for example becomes more expensive as fertilizer prices rise

I would think food prices more dependent on meat consumption.

Everything continues to get worse, and at an increasing rate

Come on, you can do better than that.

To me the following points seem hard to argue against:

1...

...

15...

15 steps? A scenario requiring so many questionable steps is not likely.

An excellent abstraction of the use of natural resources here.