Oil Shale

What Is Oil Shale?

Oil shale is a type of sedimentary rock formation that can be used to produce oil and gas. Oil shale can produce oil and gas because of the presence of kerogen, a type of organic matter that burns when exposed to flame. Although oil shale can be used as a source of petroleum, the difficulty of extracting it has historically made it an unconventional play in the oil and gas industry.

Despite the similarities in name, oil shale is different from “shale oil”. The latter refers to the unconventional oil found in oil shale formations that must be hydraulically fractured to be extracted.

Key Takeaways

  • Oil shale refers to rock formations that contain hydrocarbon deposits that can be extracted for use.
  • The production process for oil shale is usually more expensive and capital-intensive than conventional crude oil.
  • Historically, the production of oil shale has been inversely related to the market price of conventional crude oil.

Understanding Oil Shale

In order to recover and process oil shale, it is necessary to first extract the sedimentary rock materials using surface or subsurface mining. These raw materials must then be sent to various processing facilities in order to extract the kerogen contents. During the extraction process, some of these raw materials may prove to have low levels of kerogen deposits.

Some processing methods, known as “ex-situ processing”, involve mining the kerogen deposit and then transporting it to a separate facility for processing. Other methods, such as “in situ processing”, involve extracting kerogen from within the mine itself.

The U.S. is home to the largest deposits of oil shale in the world, most of which can be found between Colorado, Utah, and Wyoming in what is known as the Green River Formation. Other active producers of oil shale include the United States, Russia, Germany, and China. Historically, Estonia has also been a major oil shale producer, owing to large deposits in that country.

Special Considerations

Despite the abundance of oil shale in the U.S., the costs involved in extracting kerogen from rock formations make the overall process uneconomical compared with the extraction processes for conventional crude oil. In addition, when there is a mining process involved with extracting oil shale, there are additional environmental concerns. 

Oil shale is commonly used in situations when the price of conventional crude oil becomes prohibitive—often as a result of temporary supply disruptions or geopolitical concerns.

History of Oil Shale

Oil shale became a strategically significant commodity during World War II when the United States searched for a reliable source of energy that could withstand the pressures facing overseas supply chains

In response to this need, the U.S began a program of commercial exploitation of its oil shale reserves during the 1960s. However, the added cost and complexity of extracting oil shale made it less effective as an alternative to conventional oil wells. The oil shale industry experienced a period of resurgence during the 1970s when the so-called oil crisis briefly made oil shale economically competitive.

However, this trend was reversed during the 1980s as oil prices declined. In more recent years, interest in unconventional oil plays–such as oil shale and shale oil–have continued to ebb and flow depending on the price of crude oil.

Take the Next Step to Invest
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.