What Is Shale Oil?

Shale oil is a high-quality crude oil that lies between layers of shale rock, impermeable mudstone, or siltstone. Oil companies produce shale oil by fracturing the rock formations that contain the layers of oil in a process known as "fracking."

Learn how shale oil works, its pros and cons, and how it compares to crude oil.

Definition and Example of Shale Oil

Shale oil is the oil found in shale formations, and it comprises almost two-thirds of the onshore production of crude oil in the United States. As a result, the United States became the world's largest crude-oil producer, according to the Energy Information Administration.

One example of shale oil is the oil extracted from the Barnett shale in Texas. There are many other shale formations in the U.S. as well.

• Alternate name: Tight oil
  

How Does Shale Oil Work?

First, oil companies drill vertically into the shale formation. After operators drill the well, they curve it at a 90-degree angle. At this kickoff point, they drill horizontally.

This technique allows them to access 10,000 feet of the reservoir rock. They then pump high-pressure bursts of water, sand, and chemicals to fracture the shale and release the oil. The sand holds the fractures open. That allows the oil to seep into the well.

Companies in Texas used horizontal drilling in the 1990s. It became more affordable when Brigham Oil & Gas successfully split a single horizontal leg. The company fracked each leg independently, providing a higher return on the investment. This technique propelled North Dakota field production from 7 million barrels in January 2010 to 46 million in October 2019.

The Bakken Field in North Dakota and Montana has produced 4 billion barrels of oil and may have another 7 billion barrels left in it. The field has layers of dense, oil-bearing rock about two miles underground. In these fields, drillers use multistage fracking to create longer cracks. They perforate short segments of the production casing. That allows them to concentrate the bursts of water in targeted spots.

Pros and Cons of Shale Oil

Pros Explained

• More flexible: Shale oil extraction methods are more flexible than traditional oil well drilling. The initial drilling only accounts for 40% of the total cost. Extracting the oil costs roughly $1 million for each well. That made shale oil extraction profitable when oil reached $100 a barrel.
• Increased productivity: Shale oil companies have increased productivity since 2014. That's allowed them to stay in business despite lower oil prices and keep drilling. When they stop extracting, they store the oil in the ground. They call these drilled but uncompleted wells (DUCs). They can safely wait until oil prices return to $60 a barrel. At that point, they can start extracting oil from the wells they've already drilled.
• Reduced oil and gas prices: That's important because oil prices are determined by much more than the laws of demand and supply. Investor sentiment has more influence on oil prices. Investors trade oil on global commodities exchanges. Traders can bid the price of oil down or up, depending on their assumptions of factors affecting oil. They created an asset bubble in oil in 2008. They drove the price of West Texas Intermediate up to $145 a barrel. These traders are the main factor that makes oil prices so high.

Cons Explained

• Uses a lot of natural resources: Fracking is controversial because of its consumption of natural resources. A single well can use up to 16 million gallons of water. They also use hundreds of truckloads of other materials. Unless the water is already on-site, it must be trucked in. There it is stored in huge tanks before the fracking can begin. The composition of the fracking fluid is proprietary to each company, so it often is unknown exactly what else is in it.
• Can affect drinking water: Fracking liquids can leak into a community's groundwater either by accident or if they are incorrectly disposed of. If the fields are near groundwater reservoirs, the fracking fluid can be directly injected into drinking water. In areas with low water availability, the drillers are competing with nearby communities for this necessary resource.
• May cause earthquakes: The disposal of wastewater associated with fracking has been shown to induce minor earthquakes. The U.S. Geological Survey reports that Oklahoma had more earthquakes than California between 2014 and 2017. Drillers cause earthquakes by pumping wastewater into special disposal wells. The high-pressure pumping may trigger shifts in the fault lines. As a result, the quakes can occur far from the disposal wells.

Shale Oil vs. Crude Oil

The difference between shale oil and crude oil comes down to how it is extracted. Because shale oil is bound up tightly in impermeable rock, it is considered tight oil and requires hydraulic fracturing to be extracted. Crude oil can be drilled out conventionally.

Because shale oil is much more difficult to remove, it uses more resources, produces more pollution, and is more environmentally harmful than crude oil extraction.

Frequently Asked Questions (FAQs)