The processing required for shale oil as well as tar sands makes them different from the good old days where the Saudis could just turn a valve and increase the flow rate (which they still can do on some fields, but this is just on a small marginal proportion of total supply). They also have much greater environmental impact, to the extent that ramping them up too much would cause other problems.
So shale/tar sands may represent a vast reserve of oil in the ground, but it’s questionable as to whether they can replace the flow lost from declining conventional oil sources.
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My understanding – and I ain’t no expert either – is that shale oil extraction is capable of replacing the flow lost from conventional oil sources, but… it’s just much more expensive and, as you note, causes more environmental damage. My buddy in Shreveport – who’s kind of an armchair expert (I think that’s an oxymoron) on this – says that if oil prices stayed above $125/barrel for several years, shale oil extraction would be economical and would ramp up over a period of years to replace a lot of the traditional flow. But, again, that’s just one man talking.
[My understanding is that break-even economics for oil in the Middle East are at about $20/barrel, at about $35/barrel in Louisiana and Texas, and $80-$95/barrel for shale. Just for perspective.]
What’s kind of interesting is that in my reading I saw that the largest deposits of shale oil in the world are in Colorado – like half of the known global deposits, or something like that. It would be interesting if in 20 years or so, assuming oil prices are much higher than they are now on a real basis (a good bet, I’d say), Colorado became a major player in the oil industry and supplied a large portion of domestically-consumed oil.
