Posts Tagged ‘Oil industry’

17 things that come out of a barrel of crude

October 3, 2016

1barrelvisualcapitalist-barryritholtz

Hat tips to Barry Ritholtz, Visual Capitalist and JWN Energy

I think that we the human race have to learn to stop burning oil for fuel because we’re at risk of overheating the planet.  But another reason is that petroleum is such an amazing and versatile substance that it seems a waste to just burn it.

Washington’s revolving doors

June 24, 2015
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Click to enlarge.

The epic history of oil

March 19, 2012

I finished reading Daniel Yergin’s The Prize: the Epic Quest for Oil, Money and Power, tells the story of the world oil industry from its beginning with the drilling of the first oil well in Titusville, Pa., in 1859 to Saddam Hussein’s failed invasion of Kuwait in 1991, with a brief epilogue bringing it up to date.  I’m now reading his current book, The Quest: Energy, Security and the Remaking of the Modern World.

It is a big, detailed book which I would not recommend except to somebody such as myself with a lot of time on their hands.  I read it, even though it was published 20 years ago, because I believe the best way to understand something is to understand its history.

  The main things I took away from the book:
▪    An appreciation that the creation of the modern oil industry really was an epic achievement in terms of engineering, technology, organization and the enormous obstacles, both natural and human-made, to be overcome.
▪    An understanding of the central place of the United States in the history of the world oil industry, and of the oil industry in the development of the United States
▪    An understanding of the key importance of oil in world politics and military power.
▪    A  realization that the history of the world oil industry has always been a cycle of boom and bust, glut and scarcity, which makes the current runup in gasoline prices nothing new.

Nowadays I think of oil in terms of the Middle East, but for a century or more the United States was the main producer and exporter of oil.   In the earliest days most of the world’s oil supply came out of Pennsylvania, and the next big discoveries were around Baku in the Russian Empire and Borneo and Sumatra in the Dutch East Indies.  Texas and Oklahoma did not become important oil regions until late in the 1920s, and Saudi Arabia until after World War Two.

Cheap oil made possible much of what we regard as the American way of life.  The oil industry was created to provide kerosine for illumination, as a substitute for illumination.  But without a pre-existing oil industry, there would have been no auto industry, aviation industry or any other industry based on internal combustion.  Early U.S. preeminence in oil made possible our early preeminence in these other industries.  Our periods of greatest prosperity, especially the period from 1945 to 1973, coincided with low oil prices.

I tend to take fruits of oil-fueled industry for granted, but, as Yergin pointed out, there was a time when none of this existed.  Somebody had to think of drilling for oil instead of digging for oil.  Somebody had to think of setting up gasoline pumps instead of selling it in cans.  Somebody had to figure out how to drill for oil in the jungles of Borneo, the deserts of Persia, the bottom of Lake Maraciabo in Venezuela and the north slope of Alaska.  It really was an epic story.

Crude oil prices adjusted for inflation. Double click to enlarge.

We think of oil in terms of scarcity, but there have been times when an oil glut was considered the more serious problem.  This was the case during the Great Depression, when the Texas oil industry was collapsing under overproduction of oil.  The Texas Railroad Commission (which, despite its name, regulated oil) worked with the Roosevelt administration to set up a system of production allocations regulating what could be taken from each oil field.  The federal government restricted foreign imports to prevent Texas oil from being overwhelmed.

Texas increased and decreased production in order smooth out the cycle of boom and bust, so that oil-using businesses wouldn’t be ruined by sudden increases in oil prices nor oil producers by the sudden collapse.

This helps explain why Texas oilmen for so many years supported the Democratic Party.  When I first learned how this system worked, back in the 1950s, it seemed to me to be an example of government-protected monopoly working against the public interest.  After reading Yergin’s book, I can see the need for some entity to fulfill the function of the Texas Railroad Commission.  Price controls don’t work, as we Americans learned in the 1970s.  But it is a good thing to smooth out swings in prices when they are so wild that they periodically crash an industry.

In later years Saudi Arabia took over the function of swing producer, which partly explains the tight relationship between the U.S. government and the Saudi royal family since President Franklin Roosevelt’s first meeting with King Ibn Saud in 1945.  Saudi Arabia’s function as swing producer has been a great source of tension with Iran.  The Iranian government, which unlike Saudi Arabia rules over a large population who need jobs and income, has always wanted to maximize production and income, while the Saudis have been able to afford to take a longer view.

U.S. gasoline prices adjusted for inflation

There’s a lot more in the book.  I put it down with a greater awareness of how oil is intertwined with everything and what a radical change ending our “addiction” would be.

Click on The Stuff That Makes the World Go Round for Leslie H. Gelb’s review of The Prize in the New York Times.

Click on “the world’s most critical nonhuman economic resource” for a review of The Prize in The Freeman: Ideas on Liberty.

Click on Overdue Evaluation for a 2006 review of The Prize by Doug Merrill on the A Fistful of Euros web log.

Oil and world power

March 19, 2012

Oil was the key to world power during the 20th century.  It still is.  Reading Daniel Yergin’s The Prize: the Epic Quest for Oil, Money and Power reminded me of just how much military and political power rest on oil.

The power of the 20th century British Navy rested on oil.  In the years leading up to World War One, the British Navy went from coal to oil because of the German naval buildup.  The British wanted something that would give their navy an edge.  Oil would give British ships greater range and speed than coal-fired ships.  But while the United Kingdom had coal mines within its border, it had no oil.

Britain needed a secure source of oil.  The British government decided for that purpose it needed to control the oil of Persia (now Iran).  This involved stopping the emerging Persian democratic movement, and installing a dictator with the title of Shah, and giving the British government control of the Anglo-Iranian Oil Company (later British Petroleum, then BP), which held the British concession.  This drama was replayed in 1953, when U.S. and British intelligence services helped overthrow another democratic movement and installed the previous Shah’s son, with consequences that were felt in 1979 and to this day.

It was oil supplies from the United States, not Persia, that sustained Britain during the two World Wars, a reason why the “special relationship” was so important to the British government.  Yergin wrote that about 90 percent of Allied oil in the Second World War came from the United States.

The German army was severely handicapped by lack of oil in both world wars.  The main oil-producing European country prior to the discovery of North Sea Oil was Rumania, which was allied to Germany in both World Wars.  But the oil of Rumania was insufficient.  One of Hitler’s motives for attacking Russia in 1941 was to seize the oil of Baku; that is why he ordered his generals to break off the siege of Moscow and move south.  Yergin said the German army might have succeeded in Russia or North Africa if it hadn’t literally run out of gas.

The Japanese attacked Pearl Harbor in 1941 after the United States threatened an oil embargo.  They hoped to cripple the United States naval forces long enough to seize the oil of the Dutch East Indies, and might have succeeded, according to Yergin, if they had launched another wave of attack and destroyed the oil tanks storing the U.S. Navy’s fuel reserves in Hawaii.   Instead the U.S. was able to mount submarine attacks to such a degree that most of the oil never reached Japan.

Russia under the Tsars, the Bolsheviks and their successors was always one of the world’s top oil and gas producers.  Whatever their government’s failures in economic policy, they always had that to fall back on.

Access to oil—specifically, to oil as a source of aviation fuel—is essential to U.S. world power.  Today the power of the United States rests on the U.S. Air Force, as much as British power rested on the Royal Navy.  Supremacy in the air gives U.S. forces the power to invade and occupy small countries almost at will, although not necessarily with success.  The U.S. Navy has nuclear ships, but the U.S. Air Force requires aviation fuel.  Someday there may be an alternative to gasoline for hand-based vehicles, but the Air Force will always need a secure source of oil to avoid being grounded.

When you think about the need for oil and access to oil, many world events are easier to understand.

Why is BP still in charge?

May 26, 2010

The first thing BP did after the oil spill was to have its lawyers fan out along the Gulf Coast and try to get people to accept $5,000 payments for signing away their right to sue for damages. At the same time survivors of the Deepwater Horizon oil rig explosion say they were held incommunicado until they signed away their right to sue for damages.

BP is using toxic industrial chemicals to try to disperse the oil. It refused to comply with an Environmental Protection Agency order to use a less-toxic chemical because it said the alternative wasn’t available.

When BP filed for its permit for the Deepwater Horizon well, it said it could easily handle an oil spill 60 times larger than Deepwater Horizon.  This was a falsehood, just like BP’s initial estimate of the amount of the spill.

BP executives meanwhile are acting like little tin dictators, barring the press from lands it doesn’t actually own.

With all this, why is BP still in charge of the cleanup?  Maybe it is because the Obama administration doesn’t have any better idea of how to deal with the situation than BP officials do.  This may be partly because the responsible government agencies were pretty much ruined under the Bush administration, and there hasn’t been time to rebuild.

Or maybe President Obama is, as usual, giving the benefit of the doubt to people and institutions who don’t deserve it.

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Risks and rewards of offshore oil drilling

May 5, 2010

The risk of offshore oil drilling is environmental catastrophe that jeopardizes the livelihoods and well-being of people who live and work along the coast.

It makes possible the depletion of the U.S. 3 percent share of the world’s known oil reserves, which we might need in the future.

The only reward is more profit to the oil industry.

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