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

However, 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. In this article, we’ll look at the difference between these similar-sounding energy sources.

Key Takeaways

  • 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.
  • 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.

Understanding How Shale Oil and Oil Shale Differ

Liquid oil–called crude oil–consists of plant and animal remains, which have been subject to pressure and heat for millions of years. There are stages in the transformation process over the years from organic material to crude oil. Kerogen is one of those stages.

Oil Shale

Oil shale is essentially rock that contains solid bits of kerogen, a precursor to oil. All oil is from organic matter that is subjected to intense heat and pressure until it breaks down into hydrocarbons. With the kerogen in oil shale, there wasn’t quite enough heat to finish the job—but that, of course, can be fixed.

Two methods have been developed to extract petroleum products from oil shale. One is to mine it like the rock it is and then heat it in the low-oxygen environment needed to turn the kerogen into oil and gas. The other method is to heat the oil in situ, which is a Latin phrase meaning "on site," applying heat to the formation, and then pumping out the resulting oil. The major difference between these methods is that the first one requires more heat than the second.

There are also other additional benefits to the in-situ method, as the gas produced can be recycled back in to produce more heat, and the end product is of higher quality, and much less mining and crushing are needed. That said, both methods result in a product that costs more per barrel than do conventional oil products.

Shale Oil

In contrast to oil shale, shale oil refers to hydrocarbons that are trapped in formations of shale rock. Shale oil is closer to a finished product than oil shale, but it's still an involved process that involves drilling and fracking.

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. The rock is not very porous, meaning that the oil and gas cannot flow out into the pipe as easily as with traditional wells.

Instead, the oil is accessed by drilling horizontally across the deposit and then fracking to open up the rock and allow the oil to flow. Fracking uses a high pressured water mixture that's injected into the layers of shale to release the oil. Fracking is done by several companies, including Halliburton Company (HAL) and Marathon Oil Corp. (MRO).

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 prey to market forces. Oil shale in particular, while potentially an enormous source of oil, 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 some resilience in such a price environment, as some deposits are still being extracted with the expectation of making a profit at current market prices.