Daniel Yergin knows energy and he knows oil. Yergin is author of the Pulitzer-winning The Prize: The Epic Quest for Oil, Money, and Power, and is widely regarded as the premier go-to guy on issues of energy supply, energy economics, and energy production statistics.

Peak oil is the idea that oil production will soon hit a peak and fall off precipitously as supplies dwindle. The folks behind peak oil seem like standard nutty alarmists, but some bright people have fallen for the idea, too. A number of environmentalists also buy into it; for them, it's a sort of moral comeuppance for the absolute wrong of carbon-based energy. Some are really just millenarians, basically, and believe that the end of oil will be our end, too.

Fortunately, their faith is misplaced, argues a new report from Yergin's firm, Cambridge Energy Research Associates. "[T]he remaining global oil resource base is actually 3.74 trillion barrels -- three times as large as the 1.2 trillion barrels estimated by the theory’s proponents -- and...the "peak oil" argument is based on faulty analysis which could, if accepted, distort critical policy and investment decisions and cloud the debate over the energy future."

Rather than a peak, expect a plateau:

Global production will eventually follow an “undulating plateau” for one or more decades before declining slowly. The global production profile will not be a simple logistic or bell curve postulated by geologist M. King Hubbert, but it will be asymmetrical – with the slope of decline more gradual and not mirroring the rapid rate of increase -- and strongly skewed past the geometric peak. It will be an undulating plateau that may well last for decades.

Peak oil never made much sense, really. First, oil "reserves" count only oil that is extractable at a certain cost. But as the prices of gas and other petroleum products rise, lots of oil that is now too expensive would be booked as reserves and extracted. This alone should put a damper on any sudden drop-off in energy production or rise in prices.

Second, at higher prices, there's less demand. So if prices rise, we'll just put oil-based products to fewer low-value uses. Walking and biking will become more attractive alternatives. Consumers will demand more fuel efficient cars.

Third, the availability of substitutes caps energy prices. When energy prices rise to a certain level, alternative means of energy production become more attractive. Nuclear, hydrogen, wind, wave, solar, and others fall into this camp. For now, on a dollar basis, these sources are just too expensive for many uses. But their prices are falling.

The key is that we value oil for its uses and not intrinsically--in the end, it's just sticky, mucky black stuff. So far as its uses are concerned, we can substitute other energy sources, and they just might cost a bit more--not great but hardly catastrophic. And if oil production falls off gradually, as CERA's study indicates it will, the likely cost difference will be very small in the end.

Malthus and many since him have prognosticated about the future but undervalued human ingenuity. Their predictions tend towards crisis; but reality keeps coming up with very different outcomes.