Remember the term “peak oil”? Whatever happened to it?

The notion that world oil production had reached its summit and would soon begin a decline—bringing with it shortages, economic collapse, resource wars, and general ruination—was in great vogue not so long ago.

"Is global oil production reaching a peak?” asked the BBC in 2005. “We are approaching peak oil sooner than many people would have guessed,” said The Houston Chronicle three years later. Two years after that, The New York Times reported on a group of environmentalists who “argue that oil supplies peaked as early as 2008 and will decline rapidly, taking the economy with them.”

Government agencies also bought into the idea. In 2010, the U.S. Joint Forces Command warned that “by 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 million barrels per day." Just this spring, seemingly every other report warned that $5-a-gallon gasoline—or worse—was just around the corner, and certainly would arrive by summer.

Well, here we are at summer, 2012. The Chicago Tribune reports that the nationwide price for a gallon of regular “has fallen well below $4 a gallon.” The term “peak oil” seems to have been completely forgotten. Not only that—it is beginning to look as though the U.S. could largely cease to depend on the Middle East as its principal supplier.

The Washington Post reports that U.S. imports from OPEC countries have declined by 1.8 million barrels a day. Last year the top American source of crude oil by far was Canada, which supplies 29 percent of U.S. imports. By contrast, the No. 2 supplier, Saudi Arabia, supplies only 14 percent. “Production has risen strikingly fast in places such as the tar sands of Alberta, Canada,” The Post says, “and [in] the ‘tight’ rock formations of North Dakota and Texas – basins with resources so hard to refine or reach that they were not considered economically viable until recently. Oil is gushing in once-dangerous regions of Columbia and … Brazil.”

But that’s not all: “A host of new discoveries or rosy prospects for large deposits also has energy companies drilling in the Chukchi Sea inside the Arctic Circle, deep in the Amazon, along a potentially huge field off South America’s northeast shoulder, and in the roiling waters around the Falkland Islands.”

So what the heck happened? It’s no great mystery. As supplies tightened and prices rose, producers were motivated to find new sources and develop new technologies. When you hear that only X trillion barrels of “recoverable reserves” of oil exist, remember: The term does not refer to all the oil that there is. It refers to those reserves that are neither too costly to tap at present, nor off-limits because of government policy. Both of those factors can change.

And how. In just the past six years, North Dakota has shot to the No. 2 domestic source of oil, thanks to improved horizontal drilling techniques that have tapped the Bakken and Three Forks fields. Thanks to the oil rush the population of Williston, N.D., has roughly doubled. Unemployment is 1 percent—with 3,000 jobs are still open—and average pay has shot up from $32,000 to $80,000. North Dakota’s oil boom also has been made possible by a new technology, fracking (short for hydraulic fracturing). Fracking has drawn criticism from environmentalists, but it works.

This shows why it is a mistake to judge oil reserves by guessing how much is in the ground. First, that omits the most important factor: human ingenuity. While resources are limited, ingenuity is not. So when, in 1989, Colin Campbell—the founder of the Association for the Study of Peak Oil – claimed that the peak already had been reached, he might have been correct given the technology of the time. But then, more than a century before Campbell, Henry Wrigley—head of the Pennsylvania Geological Survey – also warned that oil production had reached its peak, too. People have been warning that we’re about to run out of oil not just for the past few years, but for the past few decades.

Yet as Donald Boudreaux, an economics professor at George Mason University, explained a couple of years ago, running out of oil “is not as much a question of physics as it is one of economics. And economics assures us that we will never run out of oil.”

Never?

Yes, never: “My colleague Russ Roberts explains why in his book The Invisible Heart. Imagine, Russ says, a room full of pistachio nuts. You love pistachios and can eat all that you wish as long as you throw each empty shell back into the room whenever you eat a nut. You might suppose that you’ll eventually devour all of the nuts in the room. Their number, after all, is finite. But...the more you eat...the more difficult it becomes to find uneaten nuts among the increasing number of empty shells. Eventually, it will not be worth the time and effort required to search amidst the empty shells for the relatively few remaining nuts. You’ll voluntarily leave uneaten pistachios in the room.”

What will you do then? Go find another source of energy, of course. Just as we will with oil.