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. Shale oil can refer to two types of oil. It may refer to crude oil that is found within shale formations or to oil that is extracted from oil shale. Oil shale is a type of sedimentary rock that has low permeability and which has bituminous-like solids that can be liquefied during the extraction process.

BREAKING DOWN 'Shale Oil'

Shale oil extraction was made possible with the development of horizontal drilling techniques and hydraulic fracturing (“fracking”) that has allowed oil and natural gas producers to extract resources from shale rock and other low-permeability rock formations. Development of these techniques has grown rapidly since the 1950s, with the discovery and exploitation of shale formations in the United States throughout the 1970s and 1980s. In the United States the largest formations of shale providing shale oil are found in the Permian, Eagle Ford and Bakken Basins. 

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 2013, the U.S. Energy Information Administration (EIA) estimated that 345 billion barrels of shale oil might be technically recoverable, making up approximately 11% of total crude oil resources.

Producing shale oil from shale rock has traditionally been more expensive than conventional crude oil and could have a more destructive impact on the environment. U.S. production of tight oil has increased significantly since 2010, driven by technological improvements that have reduced drilling costs and improved drilling efficiency in major shale plays such as the Bakken, Eagle Ford and the Permian Basin.

Tight Oil Is Industry Norm

The oil and natural gas industry often refers to “tight oil” rather than shale oil when estimating production and resources. This is because shale oil may be extracted from rock formations that include sandstone and carbonates in addition to shale formations. Production from tight oil plays surpassed 50% of total U.S. oil production in 2015 when tight oil production reached 4.9 million barrels per day. The EIA estimates that U.S. tight oil production will increase to more than 6 million barrels per day in the coming decade, making up most of total U.S. oil production. After 2026, tight oil production remains relatively constant through 2040 according to their latest estimates.

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