Oil Shale vs. Shale Oil: An Overview

Hydraulic fracturing (also called fracking) technology has enabled oil and gas producers to tap reserves in shale formations across North America. The oil coming out of these shale formations is referred to as shale oil.

However, shale oil should not be confused with oil shale, which is a rock that contains a compound called kerogen and is used to make oil. In this article, we’ll look at the difference between these similar-sounding energy terms.

Liquid oil—called crude oil—is made up of plant and animal remains that have been subject to pressure and heat for millions of years. Over time, this organic matter breaks down into hydrocarbons. There are stages in the transformation process over the years from organic material to crude oil. Kerogen is one of those stages.

Key Takeaways

  • Oil shale is different than shale oil in that oil shale is essentially rock that contains a compound called kerogen, which is used to make oil.
  • Shale oil refers to hydrocarbons that are trapped in formations of shale rock.
  • Fracking is a process that oil companies use to drill down into the layers of shale and open up the rock formations so that oil can be extracted.
  • Fracking is done by several companies, including Halliburton Company (HAL), Chevron Corp. (CVX), and ExxonMobil Corp. (XOM).

Oil Shale

Oil shale is essentially a type of rock that contains solid bits of kerogen. Kerogen is a petroleum product (essentially, a precursor to oil). In order for the kerogen in oil shale to be converted into something useful, one of two methods must be used.

One method is to mine the oil shale and then heat it later in a low-oxygen environment. This process converts the kerogen—the petroleum product in the oil shale—into a useful product.

The other method is to heat the oil on-site by applying heat to the shale formation. After this process is completed, the resulting liquid is pumped out of the reserves. The major difference between these methods is that the first method—the mining method—requires more heat than the second method—the on-site method, where heat is injected on-site.

There are also other additional benefits to the on-site method because the gas produced from this process—a byproduct of the process—can be recycled to produce more heat. In addition, the end product is of higher quality. That said, both methods result in a product that costs more per barrel to extract than conventional oil products.

Shale Oil

Shale oil refers to hydrocarbons that are contained in formations of shale rock. Shale oil is closer to a finished product than oil shale, but the extraction process still involves drilling and fracking.

Fracking refers to an extraction process whereby oil companies drill down horizontally into layers of shale in order to open up the shale rock formations so that oil can be extracted. Shale rock is not very porous. As a result, the hydrocarbons contained in the rock cannot easily flow out into a pipe.

Instead, the oil is accessed by drilling horizontally across the deposit and then opening up the rock and allowing the oil to flow. Fracking injects water under high pressure into the layers of shale to release the oil. Fracking is done by several companies, including Halliburton Company (HAL) and Marathon Oil Corp. (MRO). Some of the more familiar names in the oil industry—such as Chevron Corp. (CVX), ExxonMobil Corp. (XOM), and ConocoPhillips Co. (COP)—are also engaged in fracking activities.

Fracking is just one unconventional method used to extract oil. Developing oil sands and directional drilling are two other methods.

The Bottom Line

Whether we are talking shale oil or oil shale, there is a common denominator: both cost more per barrel for extraction than more conventional oil deposits. This means that both are especially vulnerable to market forces. While oil shale could potentially be an enormous source of oil, it is still a work in progress as far as bringing the production costs down enough to compete.

Shale oil, on the other hand, has shown more resilience in such a price environment. According to the U.S. Energy Information Administration (EIA), the degree to which the shale oil industry responds to oil prices can impact the future price of oil.

For example, in June 2021, oil prices surged in response to growing demand as global economic activity and travel increased following the easing of travel restrictions. Should the shale oil industry increase production in response to the relative strength of oil prices, the impact would be felt in oil prices in upcoming quarters.