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. Shale oil is derived from the similarly-named oil shale, a type of sedimentary rock that traps and retains precursors to oil and gas. 

Key Takeaways

  • Shale oil is a form of unconventional oil that is extracted directly from shale rock formations.
  • 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 refers to hydrocarbons that are trapped in formations of shale rock that can be extracted for refining.

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 its 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.

Conventional oil production generally refers to the pipe and pump production off a vertical well. This means a hole has been drilled straight down into a deposit and a pump jack is put on it to help pull the deposit to the surface where it can be sent on for further refining.

Tight Oil vs. Shale Oil

The oil and natural gas industry often uses the term "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 7.31 million barrels per day and totaled nearly 65% of total U.S. oil production in 2020, up from 6.5 million barrels per day and 60% of 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.

Shale in the U.S.

Shale became a strategically significant resource 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 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.