What Is Shale Oil?

Shale oil is a type of unconventional oil found in shale formations that must be hydraulically fractured to extract the oil. Primary uses include heating oil, marine fuel, and the production of various chemicals. Shale oil can, in fact, refer to two types of oil: crude oil that is found within shale formations or oil that is extracted from oil shale.

Shale oil and shale gas formations can be found around the world. Countries with the largest amount of technically recoverable shale oil resources include Russia, the United States, China, Argentina, and Libya. In the United States, the largest formations providing shale oil are found in the Permian, Eagle Ford, and Bakken Basins.

Key Takeaways

  • Shale oil is an unconventional oil that is extracted from shale rock.
  • It is used in heating oil, marine fuels, and the production of various chemicals.
  • Shale oil is made possible thanks to advances in horizontal drilling and fracking.
  • Tight oil differs from shale oil because tight oil can be extracted from not just shale formations but also sandstone and carbonates.
  • Tight oil has become the largest source of domestic oil in the United States.

Understanding Shale Oil

Shale oil extraction has been made viable thanks to the development of horizontal drilling techniques and hydraulic fracturing (fracking), which allows oil and natural gas producers to efficiently extract resources from shale rock and other low-permeability rock formations. Permeability refers to the ability of fluids and gases to pass through the rock. Meanwhile, the development of fracking techniques has grown rapidly since the 1950s, with the discovery and exploitation of shale formations in the United States throughout the 1970s and 1980s.

Producing shale oil from shale rock has been traditionally more expensive than conventional crude oil. In addition, the process is sometimes criticized for the destructive impact on the environment. Nevertheless, U.S. production of shale oil has increased significantly since 2010, driven by technological improvements that have reduced drilling costs and improved drilling efficiency in major shale producing areas, such as the Bakken, Eagle Ford, and the Permian Basin. The U.S. Energy Information Administration (EIA) estimates that more than 300 billion barrels of shale oil might be technically recoverable, making up approximately 10% of total crude oil resources.

Tight Oil vs. Shale Oil

The oil and natural gas industry often refers to tight oil rather than shale oil when estimating production and resources. This is because tight oil may be extracted from rock formations that, in addition to shale formations, include sandstone and carbonates. Production from tight oil plays reached 6.5 million barrels per day and totaled nearly 60% of total U.S. oil production in 2018.

Shale oil is also different than oil shale, which is a type of sedimentary rock that has low permeability and bituminous-like (consisting mainly of hydrocarbons) solids that can be liquefied during the extraction process. That is, oil shale is the sedimentary rock formation containing a type of organic matter called kerogen that yields oil and gas.