When discussing why supply curves have an upward slope, I talk about the low-hanging fruit principle. Assuming all apples on a tree are of equal quality, when someone picks an apple, she picks an apple that requires the least amount of effort (has the lowest cost). Subsequent apples "cost" more to acquire. To give firms and incentive to produce more, they must receive additional compensation.
Unlike the smooth crude oil that spurts from wells in Kuwait and Texas, oil sands are essentially black mud. "It's like you took a bucket of sand and dumped your old motor oil in it," says Peter Duggan, a manager at the Aurora mine, which is operated by Syncrude, a partnership of Exxon, ConocoPhillips, and several other companies. Through a complicated series of steps (see following diagram) the mud is transformed into gas you can put in your car.
Canadian companies have been mining Alberta's oil sands for nearly 40 years, but since production costs run seven times higher than for the cheapest conventional crude, the frenzy didn't really get going until oil prices spiked. "The oil-sands potential is huge," says Frederick Lawrence, a vice president of the Independent Petroleum Association of America. Oil & Gas Journal estimates that Alberta has 174.5 billion barrels of recoverable reserves in its oil sands, enough to meet Canada's needs for 250 years. That figure is second only to Saudi Arabia's estimated reserves of 264 billion barrels. All told, including deposits beyond the reach of today's technology, there could be 1.6 trillion barrels of oil embedded in Alberta.
Are we experiencing the end of oil? Hardly. Are we experiencing the end of cheap oil? Maybe. Are we heading towards the end of society? No. Why? People adjust.
Update: King at SCSU Scholars has more thoughts here.