DEFINITION of 'Unconventional Oil'

A type of petroleum that is produced or obtained through techniques other than traditional oil well extraction. Unconventional oil production is commonly seen as more costly than conventional oil production, less efficient, and is likely to cause more environmental damage. This is because unconventional oil is considered “heavier” and requires more complex procedures to process. However, the ever-increasing global demand for petroleum, combined with its shrinking supply, has more firms turning to unconventional oil. Sources of unconventional oil include synthetic oil, oil sands, and shale formations.

BREAKING DOWN 'Unconventional Oil'

Historically, the exploration and production of oil and natural gas focused on the sources that were easiest to access: pools of oil and gas that could be drilled into and pumped to the surface. This type of production is considered “conventional”. Unconventional sources of oil do not flow near the surface and require different methods of extraction. Shale oil, for example, is produced by using steam or acids to draw oil out of low permeability rocks.

Unconventional oil sources remain relatively untapped compared to conventional sources due to the technical requirements and costs associated with production. Advances in methodologies have made unconventional oil sources more accessible, and have reduced the cost of extraction. As conventional sources of oil are exhausted or become too expensive to use, unconventional sources are expected to make up a larger share of fossil fuel production.

The primary sources of unconventional oils are heavy oils, oil sands, oil shale and tight sands. Oil from these sources may require additional refinement because it is not considered as homogenous as conventional oil, which can make unconventional oil more expensive. However, as conventional sources dry up there is an increasing likelihood that oil will become more expensive in general, thus changing the economics associated with production.

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