Chapter energy and technology the enhancement of skin

6.6. Petroleum

The 1850s saw the beginnings of the global petroleum industry. The raw material (‘rock oil’) was known, thanks to seepages in a number of places, and the decline of whaling (due to the scarcity of whales) led to increased interest in alternatives for lighting purposes. These discoveries were prompted by the introduction of distilled coal oil (Young, 1850-51) and kerosene (1853). Interest was further stimulated by Benjamin Silliman’s pioneering work on fractional distillation of petroleum (1855), and the rising price of liquid fuels such as kerosene (due to the scarcity of whale oil) for household illumination. It was Silliman’s report to an investor group, that later became the Pennsylvania Rock Oil Company, that kicked off the search for petroleum in western Pennsylvania.

The year 1857 marked the beginning of commercial petroleum production in Rumania, followed in 1859 by the discovery of oil in Pennsylvania. Petroleum was found by the drillers under “Colonel” Drake and crude refineries were soon built to separate the fractions. The most important fraction was kerosene, known as “illuminating oil”, which rapidly became the dominant global fuel for lamps (replacing whale oil). In the early days refinery output was about 50 percent kerosene, 10 percent gasoline, 10 percent lubricating oil, 10 to 15 percent fuel oil and the rest consisting of losses and miscellaneous by-products like tar.

In fact, an expert commission of geologists had concluded (back in 1871) that the Ottoman territory between the Tigris and Euphrates rivers was likely to be a good source of high quality (easy to refine) petroleum. But after Pennsylvania, the next major source of petroleum discovered was near the town of Baku, in Azerbaijan, where Robert Nobel (older brother of Alfred) started developing an oil industry. That was in 1873. By the end of the century, the Rothschilds had joined the Nobel’s in Azerbaijan, still an Ottoman province. It was then the primary oil producer in the world, albeit landlocked and increasingly dominated by neighboring Czarist Russia.

In 1892 Marcus Samuel, a London merchant, persuaded the Rothschild bank to finance a new venture, to sell “Russian” kerosene in the Far East in competition with Standard Oil of N.J. It is referred to as the “Coup of 1892”, and it created Shell Oil Company. Shell later merged with Royal Dutch to create the basis of the modern behemoth, Royal Dutch Shell.

As I said, the early petroleum refining industry was focused on manufacturing “illuminating oil” (i.e. kerosene). The more volatile hydrocarbon liquids (notably natural gasoline) were only used in those days for dry-cleaning or as a solvent. But natural gasoline was crucial for the adaptation, by Gottlieb Daimler, of Nikolaus Otto's stationary high compression gas-burning internal combustion engine to mobile transport purposes. I discuss that development in the next section.

The growth of the petroleum industry in the United States was extremely rapid. Production in 1860 was about 0.5 million barrels (bbl). Output in the first decade of production multiplied tenfold to 5 million bbl per year. Production nearly doubled again by 1874 and once again (to 20 million bbl) in 1879. Thereafter, output of crude oil reached 24 million bbl in 1884, 35 million bbl in 1889, 49 million bbl in 1894 and 57 million bbl in 1899. And then came the colossal “Spindletop” gusher in January 1901 which created the Gulf Oil Company and put Texas on the oil map.¹¹

From 1857 to 1910 or so the major product of the U.S. petroleum industry was kerosene or "illuminating oil," much of which was exported to Europe. Other products, in order of importance, included "naphtha-benzene-gasoline", fuel oil (in the 1890's), lubricating oils, paraffin wax, and residuum (tar and bitumen). The gross value of refined products was about $43.7 million in 1880, $85 million in 1889, and $124 million in 1899. (Only the steel industry was bigger at that time). Employment in U.S. refinery operations averaged 12,200 workers in 1899. ln 1911 demand for gasoline (for automobiles) overtook demand for kerosene. That event kicked off another technology competition, namely to increase the yield of gasoline by “cracking” heavy petroleum fractions.

It is important to bear in mind that this was already a very large industry, based largely on human demand for illumination, long before demand for motor gasoline became significant in the years after 1905. It was, of course, the existence of a petroleum industry that made the automobile and the automobile industry (not to mention aircraft) possible, and revolutionized transportation. For about fifty years it was the most important manufactured export to Europe and the basis of John D. Rockefeller’s Standard Oil Company of New Jersey. Rockefeller was originally financed by the National City Bank of Cleveland, a Rothschild bank. The Rothschilds were major backers of the global oil industry.

A 1901 German report said that Mesopotamia sat upon a “veritable lake of petroleum” constituting an inexhaustible supply. However, transportation was poor, and this fact was one of the incentives for Germany to move into the region. German railway engineers were hired to build railways in Turkey. The Anatolian Railway Company was formed by Deutsche Bank and Wűrttembergische Vereinsbank in 1888. The rail line from Istanbul to Konya was complete by 1896. In 1898 the Ottoman government awarded a contract to complete the line from Konya to Baghdad. The winner was Deutsche Bank, with French financing, and in 1903 the Ottoman government gave permission for construction of the last sections of the Berlin-to-Baghdad railway to proceed. (It was still incomplete by 1914, and was finished finally by the Iraqi government in 1940) [ibid].

After 1903 the British government took notice of the Berlin-to-Baghdad railroad project. On completion it would have given Germany rail access – by-passing the Suez Canal – to the Persian Gulf and the Indian Ocean, and its colonies in East Africa (present day Ruanda, Burundi and Tanzania), as well as German Southwest Africa (Namibia). Quite apart from this, it would have given Germany access to oil that had recently been discovered in Persia, where more discoveries followed rapidly.

Meanwhile, in 1901, after a long search, oil was found in Persia (Iran) by British geologists, and the Anglo-Iranian Oil Company –with an exploration license – controlled it. That company later became British Petroleum. The Iranian resource assumed greater importance when the British Navy, urged by First Sea Lord Winston Churchill, switched from coal to oil as fuel for its ships after 1911. The advantages were that oil-burning ships had longer range, and needed to carry fewer men (no stokers). Also, there was no source of coal to be found in the Middle East, whereas there was plenty of oil (from Persia) at the time. The possibility of a German port on the Persian Gulf, and possibly German warships in the neighborhood, was also seen by some in London as a potential threat to British interests in India. The British played hardball. One consequence was the 1914 semi-nationalization of Anglo-Iranian Oil and the forced marriage of Shell with Royal Dutch, in both cases due to British admiralty concerns about assuring fuel oil supplies for the navy and merchant marine.

The Rothschilds and Nobels were driven out of Russia during the 1905 anti-Czarist revolution. (Azerbaijan was briefly independent after 1918 but it became part of the USSR in 1920.) The next great oil discovery (1910) was in Mexico, which soon became the world’s second largest producer by 1921 {Yergin, 1991 #5685}. And in 1930 leadership was back to Texas again when “Dad” Joiner and “Doc” Lloyd hit another huge gusher.

There was a revolutionary invention in 1909 that greatly increased the depth of wells that could be drilled. The original drilling technology, adapted from water well drilling, was to drop a heavy “bit” onto the rock. The rock would shatter and be periodically removed by a scoop. This method is slow, inefficient and not feasible below a thousand meters or so. The far more efficient continuous hydraulic rotary drilling system used today was invented by Hughes Tool Co. c. 1900. It consisted of a rotary cutting tool¹² at the bottom end of a pipe, which was rotated as a whole by an engine at the top. A lubricant was pumped down from above, both to cool the drill and to carry the cuttings back to the surface outside the pipe. This enabled the drill to operate continuously, except for pauses to add new sections of pipe at the top. Depth was virtually unlimited.

As mentioned, gasoline overtook kerosene as the primary product of the industry in 1911. About that time the need for lighter fractions of the petroleum had outrun the output of “natural” gasoline. The technology for thermal “cracking” of heavy fractions was originally invented and patented by Vladimir Shukhov in Russia (Baku) in 1891, but the process was not needed at the time. William Burton of Standard Oil of Indiana¹³ invented an effective batch process that became functional in 1913. The Burton process doubled the yield of natural gasoline (to 25 percent). License fees generated enormous profits for Standard Oil of Indiana, perhaps half of the total profits of the company during the rest of that decade {Enos, 1962 #1698}. A number of continuous processes were patented, starting in 1920, too many to list. Two are worth mentioning: the Dubbs process by Universal Oil Products Co. (UOP) and the “tube and tank process” (Enos, ibid). The details don’t matter here; these processes were designed by chemical engineers, rather than by chemists like Burton.

The next major step was catalytic cracking. Eugene Houdry was the prime mover. By trial and error (like Edison) he finally discovered (1927) an effective cracking catalyst consisting of oxides of a luminum and silicon {Enos, 1962 #1698} p.136. With support from Vacuum Oil Co. (later Socony-Vacuum and finally Sun Oil Co). Houdry got the first catalytic cracking process operational in 1937. It processed 12,000 bbl/day and doubled again the yield of gasoline by the Burton process to 50 percent. By 1940 there were 14 Houdry fixed-bed catalytic plants in operation, processing 140,000 bbl/day. Shortly after that a moving bed “Thermofor catalytic cracking” process (or TCC) was put into operation in 1943 and by 1945 it was processing 300,000 bbl/day into high octane gasoline for the war effort.

The so-called fluid catalytic cracking process (FCC) in use today was developed by a consortium of companies led by Exxon, primarily to by-pass the Houdry patents. Success was achieved quite rapidly, thanks to a suggestion by two MIT professors, Warren K. Lewis and Edwin Gilliland, for fluidizing the catalyst itself. This turned out to be successful and now all refineries use some version of the FCC idea.

On October 3, 1930 wildcatter “Dad” Joiner and self-educated geologist “Doc” Lloyd (with financial help from H.L. Hunt) discovered the huge East Texas field. This discovery was disastrously ill-timed. During 1931 an average of 8 wells per day were being drilled in East Texas, resulting in a huge glut. It was exacerbated by declining demand due to the depression. The price dropped to an all-time low of 10 cents per barrel, far below cost. During that year the Texas Railroad Commission tried to limit output to 160,000 bbl/day, but actual output at the time was 500,000 bbl/day. This restriction was toothless and was ignored. However the governor of neighboring Oklahoma, William Murray – who had the same problem – put all the wells in the state under martial law, from August 11 1931 until April 1933.

Thereafter the Texas Railroad Commission (TRC) took over the task of regulating output, to 225 bbl/day per well. The price gradually recovered as the economy recovered, but the TRC set world prices until OPEC took over in 1972. It is worthy of note that the energy content of the oil produced, in those distant days, was well over 100 times the energy required to drill the wells and transport the oil. Today the return on energy invested in oil drilling is around one fifth of that, taking a world-wide average, and the energy return on some of the newer “alternatives” (such as ethanol from corn) is around one twentieth, or less, of what it was in 1930.

The year 1933 was also when Socal (now Chevron) got the first license to explore for oil in Saudi Arabia. California-Arabia Standard Oil Co (Casoc) was created, Texaco joined Casec in 1936. The first strike was at Dharan in 1938. The Ras Tanura refinery (world’s largest) started operations in 1945. In 1948 Esso and Mobil bought into Casoc and the name was changed to Arabian-American Oil Company (Aramco). That was when the world’s largest oil field, Ghawar (still not exhausted) was discovered. It was the peak year for discovery. In 1950 King Abdul Aziz threatened nationalization, and agreed to a 50-50 split of the profits. The US government gave the oil companies a tax break called the “Golden Gimmick” equal to the amount they had to give Saudi Arabia”. The Trans-Arabian pipeline (to Lebanon) began operations. Aramco confirmed the size of Ghawar and Safaniya (biggest offshore field) in 1957. The whole story of the search for “black gold” is told very well in “The Prize” {Yergin, 1991 #5685}.