Most organisms use oxygen as part of their energy cycle. One killifish, Austrofundulus limnaeus, can survive without oxygen for up to two months. Some organisms, known as anaerobic, do not use oxygen. Most of these are bacteria that live in harsh environments, i.e. deep ocean ridges, the bottom of gold mines, where most other organisms can not live. They live off sulfur in hydrothermal vents. There are also some simple animals, like the oceanic tube worm, that form symbiotic relationships with these bacteria and don't require oxygen.

Organisms use oxygen as an oxidizer, while fuels (such as sugar and fats) serve as reducers. The oxygen acts in what are called "Oxidation/reduction" reactions (aka Redox--defined by a transfer of electrons) which release an excess of energy. That energy is used to make ATP (adenosine triphosphate), which acts as the energy carrying molecule of choice by the body. The systems used to make ATP are primarily glycolysis and the electron transport chain.

Oxygen (as O2) enters the lungs and diffuses through the thin layer of epithelial cells into the blood stream, where it binds one of four sites on hemoglobin. The hemoglobin carries the oxygen to the heart, where it is then pumped out to the tissues of the body. Tissues uptake oxgen as needed, and give CO2 in return to the blood stream. The CO2 is then carried back to the lungs, where more oxygen is taken up.

The main reason we use oxygen is in the process of cellular respiration. In order for our bodies to change the energy in glucose to the energy of ATP which is ready for our cells to use, we have to pass electrons down an electron transport chain. Oxygen is the final acceptor of those electrons as well as of the H+ (hydrogen ions). Oxygen plus the electrons and hydrogen ions makes water molecules. Without oxygen to accept these electrons, the whole process will stop. It's kind of like what happens to cities when the garbage collectors go on strike.

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A different kind of energy we need is that which allows us to make use of these raw materials.  The body has figured out a way to extract this from oxygen.  When you inhale, the oxygen in the air is absorbed into your bloodstream through tiny sacs in your lungs, called alveoli.

As soon as the oxygen enters your blood, a passing protein molecule called hemoglobin picks it up.  Each molecule of hemoglobin can transport four molecules of oxygen to almost anywhere in the body.

The hemoglobin transport the oxygen to your cells where another protein, called cytochrome C oxidase makes two molecules of water out of every molecules of oxygen delivered to it.

If you think about it, water is plentiful on earth.  This tells us that if you have the individuals ingredients for water around each other, chances are water will be made.  When this happens, there is a little bit of energy released.  This protein cytochrome C oxidase, mixes the ingredients for water and harvests the released energy.  The cells then use the energy to perform the everyday functions that your body needs.

In the cells of our body are lots of organelles (cell organs).  One of

these is called mitochondria.  They are in every cell and are known as the

“powerhouses” of the cell.  Mitochondria take different elements and nutrients from the cell (the cell gets them from your blood and your blood gets them from your food, which is why we eat) and sends them through a mitochondrial factory.  This "assembly line" is called the Krebs cycle.  At the end of this assembly line, you can find the most basic source of (animal) energy.  It's called ATP (this is a short name for Adenosinetriphosphate).  So here we are, with a bunch of ATP.  Now what?  Well, you need to burn it and get all the energy out of it! In order to do that, guess what we need (this is where you scream "OXYGEN!!")

Yep, just like burning a piece of wood, any type of burning takes oxygen.  So

we breathe.  We make a lot of ATP (I don't know exactly how much, but to

give you an idea, it's like millions per second. A lot), so we need to get a lot of oxygen in there to get the energy from our little ATP's.  And there you go. Interestingly enough, I answered a question about how cyanide works a month or two ago.  If you want to see how important oxygen is, look up that question under "how does cyanide work?".  It'll show you just how important oxygen is.