Last week we wrote about Peak Oil propaganda and how predictions of the death of the oil industry were grossly exaggerated. Later that week, BP Plc announced a major, major find in deep waters in the Gulf of Mexico expected to eventually yield 300,000 to 400,000 barrels of oil per day, or about half the capacity from all of Alaska’s North Slope.

Those are heady numbers, even for an industry accustomed to dealing in very large volumes. So here’s another way to wrap your head around the magnitude of BP’s gusher: Early estimates are placing the total reserves at at least four billion barrels of oil and natural gas. Assuming a reasonable 35% recovery rate, this single site  could account for about 5% of BP’s total proven oil reserves worldwide.

The fact that it is coming from a region often considered past its oil-producing prime offers a tantalizing sense for how much oil may still be out there waiting to be found.

BP owes this game-changing discovery to an aggressive commitment to explore for new oil, advanced technology that has in recent years enabled it to dig deeper, and government policies that have helped oil companies bear the cost.

Indeed, the newly-discovered oil is 36,000 feet below the Gulf floor, or as described by the Houston Chronicle, nearly a mile deeper than Mount Everest is high.

Not really a gusher at all, this is oil that will require a lot more work and investment to get anywhere close to the earth’s surface. It will likely not be a producing field for more than a decade. The daunting challenge of reaching oil trapped so far beneath the ground has often led critics to argue that it is just not economically feasible to produce. As BP’s massive discovery shows, even the most expensive projects may be cost effective when the volumes being produced are large enough. No one, after all, is suggesting now that BP should walk away from this find.

In the earliest days of oil, most fields were found just a few hundred feet below ground, so shallow that when oil was struck it literally gushed to the surface like a geyser. 3-D seismic drilling technology led to wells dug at 10,000 feet or more below ground. And in 1995, President Bill Clinton recognized the need for new policies for a rapidly-changing industry. He signed the Deep Water Royalty Relief Act to ease the burden of royalties on oil produced at great depths in order to encourage further exploration and development.

Just as the earliest oil producers could not have conceptualized the technology that would transform their industry, they probably could not have predicted the need for government policies such as royalty relief to spur continued exploration and innovation. Those who go around promoting Peak Oil are often blind to the industry’s real potential. Reaching that potential will require a lot of hard work, friendly policies that evolve with the industry … and the ability to think big. (And deep.)

A federal appeals court has given the go-ahead to ongoing exploration in Alaska’s Beaufort Sea, throwing out a frivolous lawsuit that had threatened to stop the project. The decision is the second this summer to rule in favor of offshore drilling and domestic energy independence, and underscores how efforts to reverse decades-long bans on production in some of the country’s oil-rich areas is certainly not a lost cause.

The latest appeals court ruling would seem to bode well for upcoming rulings over exploration on other parts of the Beaufort Sea and the Bering and Chukchi Seas, all which were approved by the Bush Administration but then stalled by lawsuits. As CEA recently noted, a robust Alaskan oil sector is critical not just to serving the nation’s energy needs but to preserving Alaska’s economy, through additional jobs and throughput on the Trans-Alaska Pipeline System. Back in July, an appeals court ruled that oil and gas drilling in the Gulf of Mexico could go forward as approved by the Bush Administration.

CEA is pleased that these high courts are striking down baseless objections to exploration and production in some of the country’s most promising sites. Although it is impossible to saw which way future rulings will go, there does appear to be a willingness to reconsider some past resistance, and take into account how much domestic oil stands to help the struggling domestic economy. There is a window of opportunity.

As we all await clarification on other the leases in Alaska, we urge everyone to keep the pressure on lawmakers to do the right thing. We refer you once again to the Call to Action on our Web site, which contains important information about the link between domestic energy production and national security and a strong economy.

Anyone who has been filling up at the pump for a while understands that oil prices often appear to defy logic. They may rise during recessions, and then, just when everyone is convinced the world is running out of oil, they fall dramatically – like they did at the end of last summer’s run.

This does not mean that there are no economic explanations behind oil price swings, just that they tend to be a lot more intricate than even many serious economists appreciate.

Certainly, if the world were about to run out of oil, we’d all be paying a lot more at the pump: oil prices would not just be volatile, they’d be moving higher and higher. You can only skirt the laws of supply and demand for so long.

Still, the theory of Peak Oil persists. For practical purposes, this is not just the argument that oil is finite in supply and will at some point run out; it’s the theory that that time is either upon us, or has already passed, and that the world is already well on its way to a point where there will be No. More. Oil.

Let’s suppose you know nothing about would oil supply and all the new and improved methods for extracting oil that have led to production in many places that were once not considered feasible. You’d probably still find it curious that inflation-adjusted oil prices today are lower than they were 30 years ago, if indeed the world had already passed its peak supply. The world, in other words, is not anywhere close to peak oil.

There’s recently been some badly-needed discussion dousing water on the notion of peak oil. This New York Times op-ed says that those who promote the idea of peak oil base their conclusions on “anecdotal information, vague references and ignorance of how the oil industry goes about finding fields and extracting petroleum.”

New, more sophisticated extraction methods do not just improve production volumes on the margin. A consensus of geologists now place the world’s reserves of recoverable oil at ten trillion barrels, some eight trillion more than what the peak oil folks say. The fact that scientists with a deep understanding of how oil gets out of the ground believe there is that much oil yet to be produced, points the flimsy science on which so much peak oil fear mongering has been based.

But just assume, for a moment, that all the most optimistic estimates of reserves are the correct ones and that the world has so much oil that conservation is not necessary, even as rapid development in India and China leads to explosive growth in demand. Just because we don’t need to conserve doesn’t mean we shouldn’t. Just because we may not, from a supply perspective, need to invest in alternative sources of energy, doesn’t mean those investments are for naught.

Debunking the notion of peak oil is important for all sorts of reasons, and should help pave the way for a more honest discussion of energy policy. But this “discovery” of new oil should not be taken as a reason to consume with abandon.

For one thing, there’s still that pesky matter of where the oil comes from, and the problems of being dependent on overseas sources.

Reaching agreement on world reserves should also be seen as a means to work toward more price stability. Understanding that sudden price spikes are not the result of a worldwide shortage, should help policy makers better address the real causes of this volatility.

Traditional power meets alternative energy and Big Oil meets Silicon Valley in Chevron Corp.’s new project to use solar power to produce oil at a field in California.

Using solar energy to produce oil might sound odd, but it makes a lot of sense in places like California, where much of the oil is especially viscous in quality and flows better when warm. The common practice is to use natural gas – often straight from the producing field – to heat the oil wells, but producers often regret having to consume so much fuel in the production process. When fuel prices are high, it can seem especially wasteful. Sunny California is the ideal setting for a solar solution.

Chevron’s solar-powered oil field in Coalinga, Calif. comes through a partnership with Brightsource Energy, an Oakland, Calif. company that develops solar power plants and has raised substantial funding as many investors moved their money out of high-tech and into alternative energy.

Clearly, a lot of investors these days are interested in alternative energy; a persistent challenge, however, has been demonstrating that these power sources can execute on a large scale and can be applied to all sorts of traditional industries that run on traditional fuel.

Think oil production is traditional enough? As news reports of the story suggest, the Chevron deal offers BrightSource an opportunity to deploy its technology on a grand scale.

Other solar companies have also awakened to the potential of operating on oil fields. Ausra, a Mountain View, Calif. maker of solar energy systems, recently broke ground on a plant near oil-rich Bakersfield, Calif. The project has been described as the company’s own proof of concept that solar power has widespread industrial applications.

Since it does on occasion rain in California, Chevron says it doesn’t expect the solar project to eliminate its need for natural gas to heat its oil wells. But adding solar to the mix could significantly improve its efficiency. Like the ageing oil fields of California, where extracting oil can be like scraping peanut butter off the bottom of a jar, many other fields around the world use steam to optimize production. Producing that steam at a lower cost could even make production in particularly expensive fields more economically feasible.

If the Chevron/BrightSource deal is a case of old meeting new, and the dreamers meeting the skeptics, they seem to be coming together on some very practical territory right in the middle.