I think that an analysis that only looks at the impact of a small decline in oil misses some of the major effects. I see two major compounding issues - financial impacts, and impacts relating to the knowledge that world oil supply is likely to decline in the future.

1. I have said before that I think the immediate impact of a downturn in oil supply is likely to be financial. For example, see my series on the Economic Impact of Peak oil (Part 1, Part 2, and Part 3).

What happens is that the price of petroleum products increases, so the price of food and other products using petroleum increase as well. Soon competing energy products start increasing as well. People have less money available for non-essentials, so they cut back, resulting in a recession. More people default on their mortgages.

With our huge balance of payments problems, there is a significant chance that there will be pressure to get this back in line, probably through declining value of the dollar and fewer imports of all kinds. The whole situation may evolve into hyperinflation or massive deflation.

2. The knowledge of peak oil, and its likely long-term impact, is in some ways as important as peak oil itself. Once people understand peak oil, they can be expected to act differently.

For example, oil exporting countries start to understand that they have more power than they did previously. They are likely to exert more and more of their power - raising required royalties, getting rid of oil partners they no longer want, and even holding back production.

Oil importing nations are likely to act differently, as well - trying to secure supplies in any way they can.

There can be financial impacts as well from the knowledge of peak oil. The value of stocks and bonds is likely to be lower, once people realize that the future is likely to be less rosy than the past. The whole long-term growth paradigm will at some point have to go away. This feeds back into the other financial impacts noted above.

I'm a member of a small non-profit organisation here in Sweden that modifies ordinary cars to run on ethanol. Usually the owners modifies their own cars, the org serves as a knowledgebase. We call ourselves etanol.nu (etanol is swedish for ethanol) and have a small homepage at that adress. Swedish ofcourse, but there is an international section in our forum: http://etanol.nu/forumrecover/viewforum.php?f=42

Now to my point after my shamless plug ;)

We have found that an ordinary gasoline powered car can pretty easily be converted to E85. It is possible to do it at home with inexpensive tools and inexpensive parts. With more home experimenting we have found that a properly modified car does not consume much more E85 than it dit gasoline prior to the modification. Increasing the compression ratio of the engine seems to be the key here. Admittedly, not so easy to do at home, but not that expensive at an engine shop either. A properly modifed mid sized car have a consumption well below a litre per ten kilometers, or about 33 mpg. Not too bad on a fuel that has less energy per unit. The key seems to be the higher octane number and the cooling effect. Gear heads that want performance and power have successfully used E85 as fuel to improve their engines well beyond what was possible with gasoline.

I would say that it is very much possible for ethanol to replace gasoline on an almost one to one ratio. Despite the lower energy content due to other adwantages.

I do agree that conservation is important, but I do think that we miss a large part oif the picture if we dissmiss ethanol on the lower energy content alone. There is distict adwantages that can be used for much higer efficiency.

Here in Sweden it is easy to find E85 filling station, over a thosand in the country now. Cheaper than ordinary gasoline too. In the city next to mine there is a wheat based ethanol plant. No goverment subsidies, it makes money on its own. In tandem is a biogas plant built, it runs on the waste from the ethanol plant. They get high efficiency that way. Most ethanol that is sold here is imported form Brazil, though. Many hopes on cellulosic ethanol and biodiesel.