Petroleum Industry
Petroleum, Latin for "rock oil, " fuels 60 percent of all energy humans use. It also provides the raw material for synthetic cloth, plastics, paint, ink, tires, drugs and medicines, and many other products.
Crude oil can be separated into many different parts called fractions, each of which boils at a different temperature. As crude oil is boiled, the different fractions vaporize and rise to various levels of the distillation tower, also called a still. Thinner oils boil at lower temperatures and consequently reach the top of the tower before they condense. The heavier oils, which boil at higher temperatures, do not reach as high before condensing. The lightest vapors, from the thinnest oils, produce liquefied gases, propane and butane, and petrochemicals. Petrochemicals can be changed into a variety of products: plastics, clothes fabrics, paints, laundry detergent, food additives, lawn chemicals, and more than 6,000 other everyday products. The middle vapors result in gasoline, kerosene, and diesel fuel, as well as jet fuel (a form of kerosene). Next come the fractions that make home heating oil and fuel for ships and factories. The heaviest oil produces lubricating oil and grease, which can also be turned into items such as candle wax. At the very bottom of the distillation tower is the leftover sludge, also called bitumen, which is used in the asphalt that makes roads and roofing.
At the beginning of the twenty-first century, 1.5 million people in the United States were employed in the petroleum industry, which fueled 97 percent of American transportation. Oil provided 38 percent of the country's energy, while natural gas, which is either mixed with the crude oil or lying as a separate layer on top of it, accounted for 24 percent.
Petroleum's Commercial Beginnings
Although people knew of oil prior to 1850 and even had some uses for it, primarily as lamp fuel, it was not a sought-after commodity. Oil bubbled to the surface in "seeps, " and several of these could be found along Oil Creek near Titusville, Pennsylvania. No one was able to collect enough oil to make it an economically sound venture. Titusville resident Joel Angier transacted the first petroleum lease in 1853 when he leased a portion of an Oil Creek seep from a local saw mill. Although Angier's collection, like those before him, was not economically viable, enough of his oil made it to commercial centers to pique interest in its use and begin theories regarding its extraction. Downstream, farmer Hamilton McClintock gathered enough oil from another seep to produce twenty or thirty forty-two-gallon barrels in a season. His was the largest oil operation of its day, and it set the standard for measurement of oil. Although forty-two-gallon barrels are no longer used, this is still the measurement used for oil production. McClintock fielded some interest from an investment group from New York and Connecticut, but his $7,000 asking price was deemed too exorbitant.
Another group, the Pennsylvania Rock Oil Company of New York, later renamed the Seneca Oil Company, purchased Angier's seep for $5,000. Company principals George H. Bissell and Jonathan G. Eveleth hired Benjamin Silliman Jr., a professor of chemistry at Yale, to analyze the crude oil from their seep. Silliman produced an 1855 report that determined crude oil could be separated into fractions, each with a use. His report emphasized that one of the fractions could be useful as a high-quality illuminant. This report enabled Bissell to get additional financing for his oil venture. The Seneca Oil Company hired Edwin Drake to extract the oil. His first attempt produced ten gallons of crude a day, which was not enough to provide a return on the investment. Drake attempted to increase production by opening more springs and trying to mine the oil, but neither met with success. He eventually settled on drilling. He hired salt well driller Billy Smith, who drilled to a depth of 69.5 feet on 27 August 1859. The next day Smith looked into the well and saw crude oil rising up in it. Reports claim this well's productivity ranged anywhere from ten to forty barrels per day, a minimum of a 400-fold increase in production. This discovery of a method for extracting larger quantities of oil generated the first oil boom. People inundated Pennsylvania, leasing the flats around Oil Creek. By 1861, the commonwealth's wells were producing more than 2 million barrels annually, accounting for half the world's oil production.
Birth of the Modern Oil Industry
In 1900, worldwide crude oil production stood at nearly 150 million barrels. Illuminants served as the primary product of the oil industry, but new inventions such as the automobile and the airplane used petroleum as fuel. Gasoline was also used as an industrial solvent. Initially a barrel of oil yielded eleven gallons of gasoline. Refining began in 1850, when James Young of England patented the first oil refining process. Samuel Kier founded the first commercial refining process in the United States in the 1860s. In 1913, refineries achieved their first major technological breakthrough, adding heat to the oil molecules, thereby "cracking" heavier molecules of hydrocarbons into lighter molecules. By the 1960s, a barrel of oil yielded more than 21 gallons of gasoline, nearly double the production of the first two decades of the twentieth century. Catalytic cracking in 1936 produced a higher octane fuel as well as the lighter gases that provided the first step in producing five major products: synthetic rubber, plastics, textiles, detergents, and agricultural chemicals.
While Pennsylvania was initially the biggest oil producing state, that didn't stop people from hunting elsewhere. Independent oil prospectors, known as wildcatters, as well as oil companies, discovered oil in Ohio, Indiana, Illinois, Oklahoma, Kansas, California, and Texas. Often oil was discovered by people drilling for water, as happened with the Corsicana field in Texas. Pennsylvania oilman John Galey and his partner, James Guffy, came to Texas at the behest of Anthony Lucas, an engineer and salt miner working for Patillo Higgins, who believed oil could be found under salt domes. In particular, Higgins was eyeing Spindletop, a hill whose elevation had increased over the centuries as the salt continued to rise under the surface. Galey had drilled to 1,020 feet by 10 January 1901. When the drill was pulled out to change equipment, mud began to bubble up the hole, and the drill pipe was shoved out of the hole with tremendous force. Mud followed by natural gas followed by oil shot out of the ground to a height of more than 150 feet, the first "gusher" experienced by the oil industry. The Lucas gusher produced at an initial rate of 100,000 barrels per day, more than all the other producing wells in the United States combined. In a matter of months the population of nearby Beaumont, Texas, swelled five times, to 50,000 residents, and more than 100 different oil companies put wells on Spindletop. The find was instrumental in creating several large oil companies such as Gulf, Amoco, and Humble, which became part of Standard Oil. It also gave rise to a new drilling technique, since drilling through several hundred feet of sand had proved problematical. Driller Curt Hamill pumped mud rather than water down the drill hole to keep the rotary drill bit cool and to flush out the cuttings. The mud stuck to the sides of the hole and prevented the sand from caving. Since then, mud has been used in almost every drill hole around the world.
While companies retrieved $50 million in oil from the salt dome, they had invested $80 million. Consequently, the site was familiarly known as "Swindletop." It served to usher in the modern age of oil, causing the industry to realize that tremendous potential existed for the vast amounts of this natural resource that had barely been tapped. It became the fuel of choice for transportation, everything from ships and trains to cars and planes. Worldwide oil production in 1925 stood at 1 billion barrels and doubled fifteen years later.
Transportation of Oil
Horses served as the primary means of transporting machinery to the oil field, as well as carrying the product to refineries, in the early Pennsylvania oil fields. By 1865 horses had been supplanted by the newly completed rail line, and tank cars, originally two open tubs, were developed for rail transport. The first pipeline was developed in 1863, when Samuel Van Syckle pumped crude through five miles of a two-inch pipe from the Pithole field in western Pennsylvania to a railroad terminal. In the 1870s a six-inch pipeline ran from oil fields to Williamsport, Pennsylvania, 130 miles away. Ten years later pipelines ran from Pennsylvania to Cleveland, Buffalo, and New York City. At the end of the twentieth century, the United States had over 1 million miles of oil pipeline in use. Most pipelines were buried, with the exception to the 800-mile trans-Alaska pipeline, built partially above ground in the 1970s to prevent damaging the fragile permafrost.
The California oil boom in the 1920s gave rise to yet another industry, that of the oil tanker. Removed from the industrial centers in the East, California looked over-seas for its market. The first tanker, the George Loomis, took its maiden voyage in 1896. From that beginning, petroleum and petroleum products now account for nearly half the world's seaborne trade. The materials are hauled on supertankers, the largest ships ever built, a quarter mile long and half a million tons in weight, shipping 1 million barrels of oil.
The Politics of Oil
Attempts to control the oil industry began as early as the 1870s, when the newly-formed Standard Oil Company, established by brothers John D. and William Rockefeller, sought to gain a monopoly in the industry. They made generous profit offers to companies that merged with them and threatened those that didn't. Early success was recognized in the rapid rise of Standard Oil's market share, from 10 percent in 1872 to 95 percent by 1880, but Standard Oil couldn't control the rapid pace of discovery and development of new fields over the next two decades. By the time the U.S. Supreme Court dissolved the Standard Oil Company into 34 separate companies for violating the Sherman Antitrust Act of 1911, Standard's market share had dropped to 65 percent.
By 1925 the United States was supplying 71 percent of the world's oil. Increased production in Oklahoma and East Texas in the wake of the Great Depression, between 1929 and 1932, caused an oil glut, dropping the price of oil to a low of 10 cents per barrel. This resulted in the Interstate Oil Compact of 1935, followed by the Connally "Hot Oil" Act, which prohibited interstate shipment of oil produced in violation of state conservation laws. The intent was to coordinate the conservation of crude oil production in the United States, and was the first attempt by the federal government to control the supply and demand of the industry. The government stepped in again in 1942, rationing civilian petroleum supplies during World War II. In 1945, the last year of the war, one-third of domestically produced petroleum was going to the war effort.
Continual expansion of offshore drilling gave rise to the 1953 U.S. Submerged Lands Act, which determined that the federal government's ownership of land extends three miles from the coastline. That same year Congress passed the Outer Continental Shelf Lands Act, which provided federal jurisdiction over the shelf and authorized the secretary of the interior to lease those lands for mineral development.
Domestic production of crude oil doubled after the war, but demand tripled. The United States accounted for over half the world's oil production in 1950, but Americans were also using all they produced and more, for the first time becoming a net importer of oil. Thirty years previously the United States had imported only 2 percent of its total petroleum. Now imports accounted for 17 percent of the total. Thirty years after that, in 1980, the United States was importing 45 percent of its petroleum. By 2002 the United States was importing 56 percent of its petroleum, and that figure was projected to grow to 65 percent by the year 2020.
Government regulation of the oil industry reached a pinnacle of invasiveness in the 1970s, as the government sought to reduce import dependency, encourage domestic production, and stabilize prices. These actions were largely a result of an embargo of oil exports by the Persian Gulf nations of the Middle East. Reacting to the United States' support for Israel in the 1973 Arab-Israeli war, the
Organization of Petroleum Exporting Countries (OPEC) nations withheld their oil exports, driving the cost of petroleumfrom$5 per barrel in the late 1960s to $35 per barrel in 1981.
At the same time, domestic oil production declined from 9.6 million barrels a day in 1970 to 8.6 million barrels in 1980. To address the demand and supply issue, President Richard Nixon created what amounted to a paradoxical energy policy: to restrict imports and reduce reliance on foreign oil, while at the same time encouraging imports to protect domestic reserves and encourage lower prices for domestic use. He first imposed price controls on oil in 1971 and then, two years later, abolished the import quotas established twenty years earlier by the Eisenhower administration. Nixon's 1973 "Project Independence" was a plan to make the United States self-sufficient in oil by 1985 by increasing domestic supplies, developing alternative energy sources, and conserving resources. His successor, Gerald Ford, continued a program to reduce reliance on foreign oil through reduction of demand and increased domestic production. Ford focused on transporting oil from Alaska and leasing the outer continental shelf for drilling. He also established the Strategic Petroleum Reserve, a federal storage of oil. By 2002 the reserve stood at 578 million barrels of crude, equal to a fifty-three-day supply of imports. President Jimmy Carter created a National Energy Plan in 1977. He wanted to increase taxes to reduce demand, impose price controls, and shift consumption from imported to domestic sources. He also wanted to direct the nation toward nuclear energy. Despite the attempts of three administrations to reduce national dependence on foreign oil, all of these policies had little impact on oil imports. American imports from OPEC continued to increase throughout the 1970s. By the beginning of the twenty-first century OPEC provided 42 percent of the United States' imported oil and 24 percent of the total oil used in the United States. The 1979 revolution in Iran curtailed U.S. supply from that country and drove prices to unprecedented levels for three years. The Iranian political situation eventually stabilized by 1982, and the oil crisis abated for the first time in over a decade.
The American political policy toward oil under presidents Ronald Reagan and George H. W. Bush adhered to a free-market philosophy. Reagan abandoned conservation and alternative energy initiatives and deregulated oil prices, policies continued by Bush. One result of these policies was an increase in imports from the Middle East, and by 1990 the Persian Gulf states were supplying 600 million of America's 2.2 billion imported barrels annually. President Reagan also signed Proclamation 5030 in 1983, establishing the "U.S. exclusive economic zone, " claiming U.S. rights 200 nautical miles off national coastlines, in an effort to expand the search for oil.
A rift in OPEC in the mid-1980s over market share helped cause a collapse of oil prices. Prices plummeted to as low as $10 per barrel, down from a high of $31. While a boon for consumers, this caused a severe recession in regions of the United States where much of the industry revolved around petroleum. In 1983 Texas, Alaska, Louisiana, and California accounted for three quarters of domestic oil production. Along with Oklahoma, these states are still the top oil producers in the nation.
The George H. W. Bush administration developed a comprehensive national energy policy when the Gulf War of 1991 caused concern over the security of the long-term oil supply. However, the legislation passed by Congress in 1992 did not really address oil and gas, focusing instead on electric utility reform, nuclear power, and increased funding for research and development of alternative fuels. During the 1990s the Clinton administration generally adopted a "status quo" approach to energy, with some exceptions. Clinton suggested the use of tax incentives to spur conservation and alternative fuels, while also encouraging modest tax breaks to increase domestic production. Clinton tightened pollution-reducing regulations on the petroleum industry. Additionally, he closed off several areas of the United States to oil production, supported the ban on drilling in the Arctic National Wildlife Refuge (ANWR), and signed the Kyoto Protocol, a worldwide attempt to limit the production of greenhouse gases. In contrast to the Clinton administration, Congress sought to end restrictions on Alaska North Slope exports and the lift the ban on drilling in the ANWR. Toward the same end, Congress also implemented royalty relief for projects in the Gulf of Mexico. Royalty relief was intended to provide incentives for development, production increases, and the encouragement of marginal production. Deep-water Gulf drilling leases more than tripled between 1995 and 1997.
In 2000 the George W. Bush administration indicated a shift in U.S. energy policy. Like those before him, Bush intended to increase domestic production and decrease consumption. His conservation program proposed to study options for greater fuel efficiency from automobiles and create tax incentives for purchasing hybrid cars that run on gas and electricity. More significantly, to increase production, Bush wanted to review, with the objective of easing, pollution control regulations that may adversely impact the distribution of gasoline. He was seeking to open the ANWR to drilling, despite the Senate's rejection of such drilling in April 2002. Incidents such as the 1989 spill by the Exxon Valdez, which ran aground on Bligh Reef off the Alaskan shore, and the intent to drill in the ANWR brought opposition to the continued search for oil. The Exxon Valdez spilled 10.8 million gallons of oil into Prince William Sound in Alaska, contaminating 1,500 miles of coastline—the largest oil spill in North America.
Demand and Supply
Despite the conservation efforts of repeated administrations, national demand for petroleum products continued to increase. As the twenty-first century began, the United
States was using 19.5 million barrels of petroleum per day—an average of three gallons per person. This usage rate meant America's entire production of oil comprised only half its total consumption. The other 50 percent came from all over the globe, half of it from other nations in the Western hemisphere, 21 percent of it from the Middle East, 18 percent from Africa, and the rest from elsewhere. Canada is the United States' largest supplier, followed in order by Saudi Arabia, Venezuela, and Mexico. The United States uses more than one-quarter of the world's oil production each year. Initially, when oil was extracted and refined for widespread commercial use in the United States in the 1860s, national oil reserves increased as new fields were discovered and better techniques for extracting and refining the oil were implemented. However, the amount of available reserves plateaued in the 1960s and a decline began in 1968. The discoveries in Alaska temporarily alleviated the decline, but the daily output continued to drop from 9.6 million barrels daily in 1970 to nearly 6 million barrels per day in 2002.
The hunt for oil continues. While Drake's original well came in at 69.5 feet, current U.S. holes are on average one mile deep, and at least one is seven miles in depth. Once natural pressure quits forcing the flow of oil up the well, an assembly of pipes and valves called a Christmas tree is used to pump additional oil out. Carbon dioxide and other gases, water or chemicals are injected into the well to maintain pressure and increase production. U.S. fields are among the world's oldest continually producing fields. By 2002, the Earth had yielded 160 billion barrels of oil, with an estimated 330 billion barrels left in the ground. Some estimates suggest that at current production rates the world's proven oil reserves will last until 2050.
Bibliography
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