What’s The Difference Between Crude Oil And Shale Oil?

The main difference between crude oil and shale oil is where they sit underground and how they’re reached. Conventional crude oil pools in porous reservoir rock and flows up through a vertical well, while shale oil (or "tight oil") is liquid hydrocarbon trapped inside dense shale rock that has to be unlocked with horizontal drilling and hydraulic fracturing. Both end up as the same kind of liquid crude that gets sent to a refinery; the cost, location, and political economy of getting it out of the ground are what differ.

For the past 150 years, the oil industry has grown from a fledgling source of power to an approximately $1.3 trillion global industry that dominates international news, drives political policy and shapes the very boundaries of nations. There is no doubt that petroleum and oil represent an essential part of the modern world, but it doesn’t all come from the same place.

In fact, the balance of where the oil is sourced, where it is refined, and where it is used has a major impact of geopolitics, so it is important to understand the basic differences. For example, if the United States possesses so much oil in its own country, why is so much attention placed on the oil capacity of the Middle East? More specifically, is there any difference between the oil sourced in the Middle East versus what is available in other parts of the world, like the oil fields of Texas or North Dakota?

Short answer: Most of the oil from the Middle East is crude oil, whereas much of the present oil production in the United States is in the form of shale oil.

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Crude Vs. Shale – A Modern Rivalry

Before we can discern the intricacies of global geopolitics concerning oil, it is important to understand the difference between the two major varieties of this valuable resource.

Crude oil – the traditional “black gold”, in liquid form, that can bubble straight up from the ground – is primarily the type of oil sourced from the Middle East. Crude oil is composed of a mixture of hydrocarbons that formed from the buried remains of ancient marine plankton and algae, cooked under heat and pressure for tens to hundreds of millions of years. This crude oil can be accessed by drilling down into the reservoir rock, where this crude oil is stored, and then “sucked up” through a traditional pipe and pump production method. Once this deposit of crude, unrefined oil is brought up to the surface, it is then sent to a refinery for further processing before it can be used.

From there, crude oil can be refined in a wide variety of ways to produce everything from jet fuel and butane to gasoline, asphalt and ethane. Again, it is important to remember that all oil is made from hydrocarbons; it simply depends on what form they are contained – namely liquid, gas, or trapped in porous rock.

Shale oil – the engine of the modern American energy boom – is light crude oil locked inside the tiny pores and natural fractures of shale rock. (Industry geologists usually call this "tight oil" to distinguish it from the kerogen-rich rock known as oil shale, which is a separate resource that has to be mined and heated to release oil.) Shale oil is chemically very similar to conventional crude — it is already a liquid hydrocarbon — but the rock around it is so impermeable that it won't flow into a normal well. To get it out, operators drill horizontally through the shale layer and then hydraulically fracture the rock to create pathways for the oil to escape.

Extracting shale oil still requires an oil well, the drill stem, casing, and the same kind of crew as a conventional well. The big difference is the geometry: rather than a simple vertical drill, a shale operator drills down to the productive layer and then turns the bit sideways, running horizontally through the deposit for a mile or more. Hydraulic fracturing (“fracking”) then pumps millions of gallons of water, sand proppants and chemical additives down the well at high pressure to crack the rock and let the trapped oil flow back to the surface. One notable benefit of shale extraction is that a single pad of horizontal wells can drain a much larger volume of rock than a vertical crude oil well, so producers get more energy per surface footprint.

In terms of costs, crude oil extraction is much less expensive and more efficient than shale oil extraction. A common way of measuring costs is on a per barrel basis. In some parts of the Middle East, crude oil extraction can cost as little as $10/barrel, although the global average lies somewhere between $30 and $40. This includes the cost of further refining for the crude oil to actually be usable. When it comes to shale oil extraction, however, despite the rapid advances in fracturing technology (led by the United States), the cost per barrel typically starts at $40/barrel. In fact, the price can go up much further from there, sometimes to $90/barrel, depending on the complexity of the extraction in certain areas.

That being said, there are other complicating variables, such as the cost of shipping Middle Eastern oil halfway across the world to the United States, as well as the initial costs of crude oil extraction – namely locating a viable deposit. It is far easier to confidently locate shale oil deposits, and since there are so few untapped crude oil deposits in the continental United States, shale oil production makes sense as a complementary source of fuel (both oil and natural gas).

So…. American Vs. Middle East Oil?

In answer to the initial question of this article, there is a difference between the oil we get from the Middle East versus America, but that wasn’t always the case. Before the crude oil deposits in the continental US were essentially “dried up”, America was also relying almost exclusively on crude oil, albeit not in the same quantities as those available in the Middle East.

Now, after the general move away from traditional fossil fuels and the increasing American desire for energy independence, alternative methods of fuel production have come to the forefront. Offshore drilling and prospective crude oil deposits in other parts of the West still represent massive amounts of energy potential, but at present, the United States is shifting its attention to shale oil and building up its oil reserves, while the Middle East continues to produce crude oil. Per the U.S. Energy Information Administration’s assessment of 41 countries, the United States holds the world’s second-largest technically recoverable shale oil resources (behind Russia) and ranks among the top five for shale gas. Crucially, U.S. operators have built far more shale drilling infrastructure than any other country, which is why America — not the country with the largest reserves — has been the world’s top oil producer since 2018.

In summary, both shale oil and conventional crude end up as the same kind of liquid hydrocarbon and require similar refining; what differs is the geology and the cost of getting them out of the ground. Right now, conventional crude is still cheaper to lift, but as easy crude reservoirs deplete and fracking technology keeps improving, the economics continue to tilt toward shale oil and shale natural gas.

Only time will tell, but hopefully the oil-exporting and oil-consuming nations of the world will realize the dangerous nature of burning these fossil fuels and jointly pursue healthier and more sustainable strategies in the coming century… before it’s too late!