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Petroleum Industry

THE MODERN PETROLEUM INDUSTRY

THE ERA OF THE SEVEN SISTER COMPANIES, 19111980

NATIONALIZATION, 19702000

CONCENTRATION AND CENTRALIZATION

THE POLITICAL ECONOMY OF THE PETROLEUM INDUSTRY

BIBLIOGRAPHY

The documentary evidence for the human use of petroleum begins with the Old Testament books of Genesis and Exodus and the works of the ancient Greek historian Herodotus (c. 484430/420 BCE). In addition archaeologists found pitch in the tombs of the Egyptian kings Tutankhamen (c. 13701352 BCE) and Seti II (c. 1200 BCE). The Toltecs of Mexico used bitumen to set tiles as early as 1200 CE, and Native Americans dug oil wells in what are now Pennsylvania, Kentucky, and Ohio.

Still, until the 1850s there was no petroleum mining or production. In that decade oil wells were drilled specifically seeking petroleum in Poland, Canada, and the United States. By 1900 petroleum had been discovered in Baku (in present-day Azerbaijan), Poland, France, Scotland, Italy, Romania, Egypt, Canada, the United States, Mexico, Sumatra, Trinidad, and Peru. In the twentieth century discoveries were made on every continent and in most countries.

THE MODERN PETROLEUM INDUSTRY

The first modern use of petroleum was for kerosene, discovered in 1852. A kerosene lamp was invented in 1857, and the first kerosene factory was built near Baku in 1859. Gasoline was a by-product of kerosene production. After 1901 most petroleum was used for fuel oil to heat and light buildings and for gasoline to power automobiles with internal combustion engines.

From a macroeconomic perspective, petroleum is important because the industrial systems of Western nations and Japan all are based upon its use as a major source of cheap energy and of chemicals for other uses. About 30 percent of the top fifty industrial firms in the United States are petroleum or chemical firms. A similar proportion of the top fifty non-American industrial firms also produce petroleum or chemical products. Petroleum has become essential for fueling production facilities in all industries and for powering, heating, cooling, and lighting buildings and illuminating streets. It thereby makes possible the high-density urban agglomerations so characteristic of western Europe and North America. Without it Western societies would have had to develop either a more efficient energy source or an extensive form of land use rather than the intensive form now practiced. Such a use of land for living space, given a growing population, would threaten food production by depleting the acreage of farmable land. Moreover, because petroleum fuels the vast bulk of industry, virtually all employment in the West depends in the final analysis on its use. Petroleum fuel shortages mean unemployment, and large-scale unemployment can have catastrophic political consequences. Paradoxically, another use of petroleum since the mid-twentieth century has been to encourage decentralization of massive urban agglomerations into the suburbs, requiring the use of petroleum to fuel vehicles. A sustained shortage of petroleum thus would halt this trend toward decentralized land use.

From a macroeconomic perspective, petroleum is an intermediate good, consumed only to produce final consumption items. Despite the emphasis in the mass media on gasoline consumption and prices, the most extensive use of petroleum products since 1949 according to the U.S. Energy Information Administration has been for combined heat and power for homes and industry. Petroleum products thus enter the production functions of every home and industry in the economy. The amount value of petroleum products consumed in the United States in 2005 was 1,836,392 thousand barrels per day.

Industry Structure The modern petroleum industry is structured into four types of organizations: (1) state enterprises, (2) multinational corporations, (3) the Organization of Petroleum Exporting Countries (OPEC), and (4) legally organized commodity exchanges. In most petroleum-producing countries in the early twenty-first century, the state owns a petroleum company with a legal monopoly on the production and distribution of crude petroleum. The largest of these after 1918 was the Soviet state petroleum enterprise.

Most crude petroleum is produced by Western companies. In 1870 the Standard Oil Company was created by the Rockefeller brothers and two other partners. In 1893 the Standard Oil Trust was formed in New Jersey to evade an antitrust suit brought by the state of Ohio. Gulf Oil Corporation was formed in 1901 by the Richard K. Mellon family. Texaco was founded as the Texas Company in 1901 by Joseph S. Cullinan, Walter B. Sharp, and Arnols Shaect. The U.S. Supreme Court in 1911 ordered Standard Oil Trust dissolved. The component companies, still with the plurality of shares owned by the former Rockefeller shareholders, continued to operate as ostensibly separate companies. These companies were Standard Oil of Ohio, Standard Oil of Indiana, Standard Oil of New York, Standard Oil of New Jersey, Standard Oil of California, Standard Oil of Kentucky, Atlantic, and the Ohio Oil Company (later Marathon).

The Royal Dutch Company for the Exploration of Petroleum Sources in the Netherlands Indies was established in 1890. It merged in 1907 with Shell Transport and Trading Company, a British company, to form Royal Dutch Shell. The British government formed the Anglo-Iranian Oil Company in 1914. This company ultimately became British Petroleum. In 1924 the Compagnie Française des Pétroles was established by the French government. ELF began before World War II (19391945) with the establishment of three small companies to explore for gas near oil seepages in Aquitaine. Italy in 1926 formed Agencia Generale Italiani Petroli (AGIP). In 1953 ENI was founded as a conglomerate of thirty-six subsidiaries, including AGIP.

These companies all were multinational, multidivisional, and vertically and horizontally integrated firms. Within each company, five major functions were performedexploration, drilling and production, transportation, refining, and distribution to final consumers. Subsidiaries were responsible for each function. Transfers of product among these subsidiaries and other divisions of the companies were accomplished using shadow pricing or some other form of transfer pricing. Actual payments were made only for transactions with outside firms.

OPEC was established in Baghdad in September 1960 as an intergovernmental organization of five original member statesIraq, Iran, Kuwait, Saudi Arabia, and Venezuela. Its charter required that each member acquire an increasing level of control of production. By 1970 each member state was required to own a minimum of 55 percent of foreign petroleum companies operating within its jurisdiction. Iraqi production has not been part of OPEC quota agreements since March 1998 due to U.S. and United Nations controls. Other OPEC members have included Qatar (joined 1961), Indonesia and Libya (1962), Ecuador (19631993), Trucial States of Oman (now United Arab Emirates, 1967), Algeria (1969), Nigeria (1971), Gabon (19751995), and Angola (2007). The OPEC cartel was formed to control the world oil supply so as to increase revenue to member states. It operates by assigning members an annual supply quota for crude oil production and export. In 2005 it controlled about 41.7 percent of world production. OPEC also sets prices.

THE ERA OF THE SEVEN SISTER COMPANIES, 19111980

The name seven sisters was coined in a 1961 Time magazine article to refer to the dominant firms in the world oil industry: Royal Dutch Shell, Anglo Persian Oil (Anglo-Iranian Oil/British Petroleum/BP), Gulf Oil, Texaco, and three of the Standard Oil companies from the 1911 trust dissolutionStandard Oil of New Jersey (Humble Oil [Esso]/Exxon), Standard Oil of New York (Socony/Socony-Vacuum/Socony-Mobil/Mobil), and Standard Oil of California (Socal/Chevron). With the exception of Royal Dutch Shell, which is British and Dutch, these are all U.S. or British companies. Only the U.S. companies had their own significant domestic supply sources in the founding period of the industry from 1850 to 1950. The British and Dutch thus undertook a worldwide search for sources, beginning with their colonies and extending after World War I (19141918) to the League of Nations territories mandated to their administration. The seven sisters and Atlantic Richfield (ARCO), called majors, were vertically integrated, and all had similar structures. They had separate subsidiaries for exploration, production, refining, and distribution and geographic subsidiaries for operations in different areas.

The most important independent or nonintegrated companies, which did not operate in at least one of the areas defining the integrated companies, in this period included Getty, Phillips, Signal, Union, Continental, Sun, Amerada Hess, Cities Service, Marathon, Compagnie Française des Pétroles, Occidental, ENI, Tenneco, and Skelly Oil. In 1983 Occidental acquired Cities Service. Texaco acquired Getty in 1984.

Soviet Petroleum Industry The petroleum industry in Russia prior to the Bolshevik Revolution of 1917 was operated largely by U.S., British, and Swedish companies. During the seven sisters period, the Soviet state owned and operated the industry. The industry returned to private hands after 1991. ConocoPhillips acquired 16.8 percent of Lukoil, the largest Russian oil company. BP-Amoco invested in both Lukoil and Sidanko.

NATIONALIZATION, 19702000

Around 1912 producing countries began nationalizing or expropriating the ownership of foreign companies. The theoretical basis for expropriation was provided by Marxism-Leninism. The acceleration of this policy after 1970 was due more to nationalism, although the regimes that instituted it were almost always leftist. Majority or full expropriation took place in Argentina (1912), the Soviet Union (Baku, 1918), Mexico (1938), Iran (1951), Indonesia (1950s-1960s), Egypt (19611964), Peru (1968), Libya (1971), Nigeria (1971), Iraq (1972), Algeria (1972), and Saudi Arabia (1973).

CONCENTRATION AND CENTRALIZATION

Since the 1980s there has been an acceleration in the rate of concentration and centralization in the world oil industry with the development of what are referred to as supermajors, majors, and independents or jobbers. Supermajors consist of BP-Amoco, Chevron-Texaco, Exxon-Mobil, ConocoPhillips, and Shell. This category of companies is defined as having a capitalization of $100 billion or more. Majors are defined as companies having a capitalization of $30 to $100 billion. Independents and jobbers include those with a capitalization of less than $30 billion. Supermajors have largely abandoned their traditional function of exploration, 80 percent of which now is conducted by independents. They receive most of their profits from the refining and petrochemical industries and also have diversified into alternative sources of energy, including atomic energy.

Simultaneously with this centralization and consolidation, many countries opened up their petroleum industries again to private international companies. Conflicts between source countries and companies extracting crude petroleum have been endemic from the beginning of the modern era, and examples such as the conflict in southeastern Nigeria and the war in Iraq are manifestations of this phenomenon.

Environmental issues in the extraction and transportation phases of the industrys operation are less visible and perhaps less important than in the consumption phase. For this reason this issue has been the most recent to emerge. However, the environmental impact of the international industry is difficult to measure systematically, for no international statistics on this issue are collected. The number and volume of oil spills are available, but these represent only extraordinary occurrences, not the everyday degradation of the environment due to operations.

THE POLITICAL ECONOMY OF THE PETROLEUM INDUSTRY

During World War I and continuing into the early twenty-first century, Western countries transformed their economies and their military forces to use petroleum as the primary fuel source. As they did so diplomatic and military conflicts arose over control of the known sources of petroleum. Because this transformation was not far advanced until after World War I, that war cannot be characterized as a war over oil.

Most of the known sources at the beginning of this period were in the United States. Elsewhere oil production began in Baku in the 1870s, in the Dutch East Indies in 1883, in Iran in 1908, in Egypt in 1910, in Venezuela in 1914, in Kurdistan (now part of Iraq) around 1915, in Iraq in 1927, in Saudi Arabia in 1935, in Libya in 1959, in Egypt in 1966, in Sudan in 1974, and in Kazakhstan in 2000. These sources were discovered by Western oil companies, which have involved their governments in protecting their exploitation of these resources.

Local and Regional Conflicts Many of the conflicts that arose were local or regional, involving antagonistic political and military forces internal to countries with petroleum reserves, or between neighboring countries with at least one having reserves. These conflicts took the form of rebellions, revolutions, coups détat, civil wars, and border wars. For example, in the failed 1905 revolution in Russia, the Baku fields were set afire. The Kurds, representing Turkey, massacred millions of Armenians during World War I. In 1929 and 1989 civil wars occurred in Afghanistan. In 1945 a coup in Venezuela gave control of the oil fields to a different power group in the country. Petroleum has been associated with two civil wars (19551972 and 19832005) and an armed rebellion in Sudan. The Nigeria-Biafra civil war (19671970) involved petroleum fields in the Niger Delta. The Angolan civil war (19762002) involved petroleum reserves in the Cabinda enclave. And a rebellion that began in Darfur in 2003 involved the South Darfur fields. Local and regional conflicts increased significantly after Britain withdrew its naval forces from the Indian Ocean and the Persian Gulf in 1971.

Multinational and Global Conflicts Other conflicts involved the major European political powers of the day the large petroleum-consuming countriesin conflicts that were considered to be major set-piece wars. Britain and Afghanistan fought three wars (18381842, 18781881, and 1919), the British attempting to thwart perceived Russian designs on British India, then including Pakistan. At that time petroleum had not been discovered in or near Afghanistan and so played little role in these wars.

After World War I, Turkey captured a part of the territory of the ethnic Kurds. Another part was given to Britain by the League of Nations as part of the Iraq mandate. A section of this territory was given to the French in the Syrian mandate. The Soviet Union captured the Azerbaijan part in 1920. Kurdistan was made a semiautonomous region of Iraq, the only Kurdish political entity internationally recognized. Turkey and the Soviet Union captured parts of the territory of the ethnic Armenians, other parts of which lie in northern Syria, Iraq, and Iran.

During the 1890s the British attempted to expand the border of their colony British Guiana (now Guyana) westward to include parts of Venezuela, where indications of oil had been discovered. This was probably unnecessary, because Guyana is a geologic sink, a lower-than-sea-level basin into which petroleum flows by gravity from Venezuela on the west and Dutch Guiana (now Surinam) on the east, so wells drilled in Guyana would draw from pools shared with Venezuela and Surinam. Nevertheless, British and German warships blockaded the ports of Venezuela until the United States, citing the Monroe Doctrine, forced them to cease. Oil was discovered in 1914, and by 1928 Venezuela was the worlds largest exporter of oil. Thus one sees the hand of Britain in the Afghanistan, Kurdistan, and Venezuela conflicts between the two world wars.

The most important of these major conflicts was World War II, the first war that might be characterized as an oil war, with the petroleum resources of the Caspian Sea, the Persian Gulf, the Gulf of Mexico, the Caribbean Sea, Lake Maracaibo, and the Dutch East Indies being strategic targets of all combatants. As part of its strategy to defend the Caribbean Sea and the Gulf of Mexico from German attack, the United States concluded a deal with Britain in 1940 by which the United States gave Britain used destroyers in exchange for the right to use or build bases in the British Caribbean colonies.

North Africa was the location of battles between Italy and Germany on one side and Britain and the United States on the other to secure Persian Gulf oil, even though no oil had yet been discovered in Libya or the Western Desert of Egypt, where most of the battles were fought. On August 1, 1941, before its entrance into the war, the United States imposed an oil embargo on the Axis powersGermany, Italy, and Japan. The Netherlands and Britain followed suit. The 1941 embargo reduced Germanys supply from Mexico and Venezuela and reduced Japans supply from the Caspian Sea, the Persian Gulf fields, and the Dutch East Indies. The U.S. entrance into the war was largely due to its embargo of petroleum supplies to Japan. After negotiations with the United States, Britain and Holland failed to reverse this decision, and Pearl Harbor was attacked in December 1941 to reduce the U.S. capacity to enforce the embargo. Japan then invaded and occupied the Dutch East Indies (Sumatra, Java, and Borneo) from 1942 to 1946 to secure petroleum to fuel its war effort.

A few months after the war ended in 1945, a military coup took place in Venezuela, with control of revenues from oil production a major motivation for the conflict. The Dutch also fought wars in Indonesia to regain control of its colony but was forced to grant it independence in 1948. The cold war between the United States and the Soviet bloc from 1945 to 1991 involved the same strategic oil issues as World War II but did not rise to the level of open warfare. The Korean War (19501953) and the Vietnam War (19541975) were proxy wars for the United States and the Soviet Union but were less conspicuously concerned with control of petroleum reserves and their transportation to world markets. Importantly, however, with the exception of World War II, all conflicts over oil, both regional and global, took place in the countries in which the reserves lay, and not in the consuming countries. This changed dramatically with the onset of terrorism.

Terrorism The rise of terrorism since the airplane hijackings in 1968including especially the attacks on New York City in 1993 and 2001 and on the Pentagon in 2001, the bombings of U.S. embassies and ships in 1998 and 2001, and the bombings on Spanish and British trains and buses and other facilities in 2004 and 2005 changed the location of conflicts. Terrorism may be considered a form of guerrilla warfare, in contrast to a set-piece war. In response to this shift in theaters and tactics, Western governments alleged that certain Arab Muslim states were sponsors of these acts of terror or gave safe haven to terrorists. Western states directed military and economic sanctions against these states, which included Iran, Libya, Sudan, Somalia, Afghanistan, and Iraq. It is not without significance that all these states either have petroleum reserves or stand athwart transportation routes to world petroleum markets. Somalia, for example, controls the approach to the Red Sea and the Suez Canal.

Since 1980 five major wars have been fought in the region: the Soviet-Afghanistan War (19791989), the Iraq-Iran War (19801988), the Persian Gulf War (19901991), the U.S.-Afghanistan War that began in 2001, and the U.S.-Iraq War that began in 2003. In addition since 1980 U.S. naval ships and aircraft have blockaded and threatened to attack Libya, accusing it of being a state sponsor of terrorism.

In 1991 the former republics of the Soviet Union became independent. Several of them gave concessions to Western companies to explore for petroleum. With these discoveries, proposals were made for pipelines to carry the petroleum to shipping points for export to world markets. Three feasible routes exist for exporting Caspian Sea petroleum to world markets: west through Azerbaijan, Armenia, and Georgia to the Black Sea; south through Iraq and Iran to the Persian Gulf; or southeast through Afghanistan and Pakistan to the Arabian Sea. Overland markets are north into Russia and east into China.

All wars have as an objective the conquest of territory and its resources and assets, a major part since 1900 being petroleum reserves. Thus all wars since 1900 may be considered, to some extent, wars to control oil. This objective has attained the highest priority since World War II, leading to increased military and diplomatic conflict. Petroleum wars may be expected to continue to arise until a different energy source is discovered and widely employed or until an effective international nonviolent conflict resolution method is found and employed.

SEE ALSO Energy Industry; Industry; Iran-Iraq War; Iraq-U.S. War; Nationalization; Organization of Petroleum Exporting Countries (OPEC); Resource Economics; State Enterprise

BIBLIOGRAPHY

Bilkadi, Zayn. 1994. Bulls from the Sea. Saudi Aramco World 45 (4): 2031.

Blair, John M. 1976. The Control of Oil. New York: Pantheon.

Ellison, Julian. 1974. The Petroleum Industry in Africa and America. Occasional Paper no. 19741. New York: Black Economic Research Center.

Engler, Robert. 1961. The Politics of Oil: A Study of Private Power and Democratic Directions. New York: Macmillan.

Library of Congress Business References Service. 20052006. History of the Oil and Gas Industry. Business and Economics Research Advisor (BERA) 5/6. http://www.loc.gov/rr/business/BERA/issue5/history.html.

Mir-Babayev, Mir Yusif. Azerbaijans Oil History: A Chronology Leading Up to the Soviet Era. 2002. Azerbaijan International 10 (2).

Razavi, Hossein, and Fereidun Fesharaki. 1991. Fundamentals of Petroleum Trading. New York: Praeger.

Sampson, Anthony. 1975. The Seven Sisters: The Great Oil Companies and the World They Shaped. New York: Viking.

Snow, Keith Harman. 2007. The New Old Humanitarian Warfare in Africa, Part II. Somali Times, February 7.

U.S. Department of Commerce, Census Bureau. 1975. Historical Statistics of the United States: Colonial Times to 1970. Bicentennial ed., pt. 1. Washington, DC: U.S. Government Printing Office.

Wirth, John D. 1985. Latin American Oil Companies and the Politics of Energy. Lincoln: University of Nebraska Press.

Wirth, John D., ed. 2001. The Oil Business in Latin America: The Early Years. Washington, DC: Beard.

Julian Ellison

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Petroleum


Petroleum is a naturally occurring liquid oil normally found in deposits beneath the surface of the earth. It is a type of oil composed of rock minerals, making it different from other kinds of oils that come from plants and animals (such as vegetable oil, animal fat, or essential oils). The word petroleum comes from the Latin words petra (rock) and oleum (oil), and so literally means rock oil. Despite this, petroleum is an organic compound, formed from the remains of microorganisms living millions of years ago. It is one of the three main fossil fuels, along with coal and natural gas.


Petroleum Economy

Petroleum, like all fossil fuels, primarily consists of a complex mixture of molecules called hydrocarbons (molecules containing both hydrogen and carbon). When it comes out of the ground, it is known as crude oil, and it may have various gases, solids, and trace minerals mixed in with it. Through refinement processes, a variety of consumer products can be made from petroleum. Most of these are fuels: gasoline, jet fuel, diesel fuel, kerosene, and propane are common examples. It is also used to make asphalt and lubricant grease, and it is a raw material for synthetic chemicals. Chemicals and materials derived from petroleum products include plastics, pesticides, fertilizers, paints, solvents, refrigerants, cleaning fluids, detergents, antifreeze, and synthetic fibers.

The modern petroleum industry began in 1859 in Pennsylvania, when a man named Edwin L. Drake constructed the first oil well, a facility for extracting petroleum from natural deposits. Since then, petroleum has become a valuable commodity in industrialized parts of the world, and oil companies actively search for petroleum deposits and build large oilextraction facilities. Several deposits exist in the United States. However, around 1960 oil production in the country began to decline as oil in the deposits was being used up and fewer new deposits were being discovered. Demand for petroleum products continued to increase, and as a result the United States came to rely more and more on oil imported from other countries. In 2001 the amount of petroleum extracted from deposits in the United States was estimated to be only one-third of the amount demanded by U.S. consumers. A similar pattern exists in other industrialized countries, and some, like Japan and Germany, import almost all of the oil they use.

TEN LARGEST OIL SPILLS IN HISTORY (BY VOLUME)
location date amount spilled
source: oil spill intelligence report (1999). international oil spill statistics: 1998. new york: aspen publishers. available from www.aspenpublishers.com/environment.asp
1. sea island installations, persian gulf, kuwait january 26, 1991 240,000,000 gallons (816,327 tons)
2. ixtoc i exploratory well, bahia del campeche, mexico june 3, 1979 140,000,000 gallons (476,190 tons)
3. production well, fergana valley, uzbekistan march 2, 1992 88,000,000 gallons (299,320 tons)
4. nowruz no. 3 well, persian gulf, nowruz field, iran february 4, 1983 80,000,000 gallons (272,109 tons)
5. tanker castillo de bellver, table bay, south africa august 6, 1983 78,500,000 gallons (267,007 tons)
6. tanker amoco cadiz, off portsall, brittany, france march 16, 1978 68,668,000 gallons (233,565 tons)
7. tanker odyssey, north atlantic ocean, off st. john's, newfoundland, canada november 10, 1988 43,100,000 gallons (146,600 tons)
8. tanker atlantic empress, caribbean sea, trinidad and tobago july 19, 1979 42,704,000 gallons (145,252 tons)
9. tanker haven, genoa, italy april 11, 1991 42,000,000 gallons (142,857 tons)
10. production well d-103, 800 km southeast of tripoli, libya august 1, 1980 42,000,000 gallons (142,857 tons)



However, on a per capita basis, the consumption in these countries is nowhere near the consumption in the United States.

The United States and Canada are unique in that, on average, an individual in these countries consumes about twice as much petroleum product as do individuals in most other industrialized nations. People in the United States and Canada rely more on personal vehicles for their transportation and tend to drive greater distances, making petroleum their major source of energy. In the United States, about two-thirds of the petroleum consumed is transportation fuel, and two-thirds of that (45% of the total) is gasoline for cars and trucks. About 40 percent of the energy used in the United States every year comes from petroleum.


Foreign Oil Dependence

Political leaders in the United States have long been gravely concerned about the country's growing dependence on foreign oil, which in many ways puts the country at the mercy of foreign governments, some of them hostile to the United States. The greatest production of crude oil in the world is in the Persian Gulf region of the Middle East, where about 65 percent of the world's known petroleum deposits are located. About half of U.S. imports come from members of the Organization of the Petroleum Exporting Countries (OPEC), a group of countries encompassing the Persian Gulf and certain parts of Africa and South America. Events in these often volatile regions can have a huge impact on oil prices in the United States and worldwide, and because of the crucial role oil plays in U.S. society any change in the price can precipitate uncontrollable shifts in the country's economy (see chart "World Oil Price 1970-2000"). The most famous example of this is the Arab Oil Embargo of 1973 to 1974, when U.S. support for Israel in a conflict in the Middle East led to a decision by OPEC to impose steep price increases on the sale of oil to the United States. One response by the U.S. government has been the establishment of the Strategic Petroleum Reserve, an emergency stockpile designed to sustain the country's oil needs for approximately three months in the event of a complete cutoff of imports. There is little doubt, however, that dependence on foreign oil is both a political liability for the United States as well as a risk to national security.


Environmental Pollution

Petroleum-derived contaminants constitute one of the most prevalent sources of environmental degradation in the industrialized world. In large concentrations, the hydrocarbon molecules that make up crude oil and petroleum products are highly toxic to many organisms, including humans. Petroleum also contains trace amounts of sulfur and nitrogen compounds, which are dangerous by themselves and can react with the environment to produce secondary poisonous chemicals. The dominance of petroleum products in the United States and the world economy creates the conditions for distributing large amounts of these toxins into populated areas and ecosystems around the globe.

Oil Spills

Perhaps the most visible source of petroleum pollution are the catastrophic oil-tanker spillslike the 1989 Exxon Valdez spill in Prince William Sound, Alaskathat make news headlines and provide disheartening pictures of oilcoated shorelines and dead or oiled birds and sea animals. These spills occur during the transportation of crude oil from exporting to importing nations. Crude oil travels for long distances by either ocean tanker or land pipeline, and both methods are prone to accidents. Oil may also spill at the site where it is extracted, as in the case of a blowout like the Ixtoc I exploratory well in 1979 (see table "Ten Largest Oil Spills in History"). A blowout is one of the major risks of drilling for oil. It occurs when gas trapped inside the deposit is at such a high pressure that oil suddenly erupts out of the drill shaft in a geyser.

Accidents with tankers, pipelines, and oil wells release massive quantities of petroleum into land and marine ecosystems in a concentrated form. The ecological impacts of large spills like these have only been studied for a very few cases, and it is not possible to say which have been the most environmentally damaging accidents in history. A large oil spill in the open ocean may do less harm to marine organisms than a small spill near the shore. The Exxon Valdez disaster created a huge ecological disaster not because of the volume of oil spilled (eleven million gallons) but because of the amount of shoreline affected, the sensitivity and abundance of organisms in the area, and the physical characteristics of the Prince William Sound, which helped to amplify the damage. The Exxon Valdez spill sparked the most comprehensive and costly cleanup effort ever attempted, and called more public attention to oil accidents than ever before. Scientific studies of the effects of oil in Prince William Sound are ongoing, and the number of tanker accidents worldwide has decreased significantly since the time of the Valdez spill, due to stricter regulations and such required improvements in vessel design as double-hull construction.


Nonpoint Sources

Spills from tankers, pipelines, and oil wells are examples of point sources of pollution, where the origin of the contaminants is a single identifiable point. They also represent catastrophic releases of a large volume of pollutants in a short period of time. But the majority of pollution from oil is from nonpoint sources, where small amounts coming from many different places over a long period of time add up to large-scale effects. Seventy percent of the oil released by human activity into oceans worldwide is a result of small spills during petroleum consumption. These minor unreported spills can include routine discharges of fuel from commercial vessels or leakage from recreational boats. However, in North America, the majority of the release originates on land. Oil tends to collect in hazardous concentrations in the stream of wastewater coming out of cities and other populated areas. Runoff from asphalt-covered roads and parking lots enters storm drains, streams, and lakes and eventually travels to the ocean, affecting all of the ecosystems through which it passes. As cities grow, more and more people use petroleum productslubricants, solvents, oil-based paint, and, above all, gasolineand these are often improperly disposed of down drains and sewage pipes. Industrial plants also produce small, chronic spills that aren't noticed individually, but add up over time and enter waterways.

Taken together, land-based river and urban runoff sources constitute over half of the petroleum pollution introduced to North American coastal waters due to human activity, and 20 percent of the petroleum pollution introduced to ocean waters worldwide. When wastewater from these sources enters the marine environment it is usually by means of an estuary, an area where freshwater from land mixes with seawater. Estuaries are especially critical habitats for a variety of plants and animals, and are among the ecosystems most sensitive to pollutants.


Petroleum-Contaminated Soil

Not all oil released from land sources is quickly washed away to sea, however. Pipeline and oil-well accidents, unregulated industrial waste, and leaking underground storage tanks can all permanently contaminate large areas of soil, making them economically useless as well as dangerous to the health of organisms living in and around them. Removing or treating soil contaminated by petroleum is especially urgent because the hydrocarbons can leach into the underlying groundwater and move into human residential areas. The engineering field of bioremediation has emerged in recent decades as a response to this threat. In bioremediation, bacteria that feed on hydrocarbons and transform them into carbon dioxide can be applied to an affected area. Bioremediation has in many cases made cleaning up petroleum-contaminated sites a profitable real-estate investment for land developers.


Air Pollution

The U.S. Environmental Protection Agency (EPA) designates six criteria pollutants for determining air quality. These are: carbon monoxide (CO), nitrogen oxides (NO and/or NO2, usually referred to as NOx), sulfur dioxide (SO2), ground-level ozone (O3), particulate matter (including things like soot, dust, asbestos fibers, pesticides, and metals), and lead (Pb). Petroleum-fueled vehicles, engines, and industrial processes directly produce the vast majority of CO and NOx in the atmosphere. They are also the principal source of gaseous hydrocarbons (also called volatile organic compounds, or VOCs), which combine with NOx in sunlight to create O3. Ozone, while important for blocking ultraviolet rays in the upper atmosphere, is also a key component of urban smog and creates human health problems when present in the lower atmosphere. Sulfur dioxide is a trace component of crude oil, and can cause acid rain when released into the air at oil refineries or petroleum power plants. Particulate matter is directly emitted in vehicle exhaust and can also form from the reaction of exhaust gases with water vapor and sunlight. Finally, leaded gasoline is a huge contributor of lead to the atmosphere, and the use of unleaded gasoline has decreased lead concentrations dramatically. The EPA and the World Bank are working to encourage the phaseout of leaded gasoline worldwide.

Petroleum-fueled transportation and coal-burning power plants are considered the chief causes of global warming. Excess amounts of carbon dioxide, methane, and NOx, among other gases, trap heat in the atmosphere and create the greenhouse effect. Carbon dioxide (CO2) is a main constituent of petroleum fuel exhaust, even though it is not toxic and therefore not classified as a pollutant. About one-third of the CO2 emitted into the atmosphere every year comes from vehicle exhaust. Methane (NH3), although usually associated with natural gas, is also emitted whenever crude oil is extracted, transported, refined, or stored.


The Future of Petroleum

The world's reliance on petroleum is expected to grow, despite widespread environmental, economic, and political consequences. The U.S. oil extraction industry continues to aggressively search for new oil deposits and lobby the federal government to open up restricted areas to drilling. The Arctic National Wildlife Refuge in Alaska has been on the oil industry agenda for several decades, creating a long-standing environmental controversy. Advances in oil well technology have allowed extraction in the deep ocean beyond the continental shelf, but these have not been enough to reverse the trend of declining production in the United States.

There are many compelling reasons to decrease society's dependence on petroleum for energy, and the most obvious place to begin is in the transportation sector. Energy-efficient engines and hybrid gas/electric cars can help to reduce some of the need for oil, providing higher gas mileage and less demand. A variety of alternative fuels have also been developed, such as ethanol, biodiesel (made from vegetable oil), and hydrogen. Each of these would produce little or no exhaust pollutants or greenhouse gases, and each derives from plentiful renewable resources. The United States is now in fact actively researching hydrogen as a viable alternative to gasoline, and the hydrogen fuel cell as a substitute for the internal combustion engine.

Petroleum is a useful chemical substance for many important purposes. But it is also a nonrenewable resource with a highly toxic composition, and it poses significant problems when used in huge volumes throughout the industrialized world.

see also Air Pollution; Arctic National Wildlife Refuge; Coal; Disasters: Oil Spills; Economics; Electric Power; Energy; Fossil Fuels; Global Warming; Ozone; NOx; Renewable Energy; Sulfur Dioxide; Underground Storage Tanks; Vehicular Pollution.

Bibliography

Oil Spill Intelligence Report. (1997). Oil Spills from Vessels (19601995): An International Historical Perspective. New York: Aspen Publishers.


internet resources

Committee on Oil in the Sea, National Research Council. (2003). Oil in the Sea III: Inputs, Fates, and Effects. Washington, D.C.: The National Academies Press. Available from http://www.nap.edu/catalog/10388.html.

Energy Information Administration. "Official Energy Statistics from the U.S. Government." Available from http://www.eia.doe.gov.

Exxon Valdez Oil Spill Trustee Council. "Restoring the Resources Injured by the Exxon Valdez Oil Spill and Understanding Environmental Change in the Northern Gulf of Alaska." Available from http://www.oilspill.state.ak.us.

National Biodiesel Board. "Need a Fill Up?" Available from http://www.biodiesel.org.

National Ethanol Vehicle Coalition. "National Ethanol Vehicle Coalition and E85." Available from http://www.e85fuel.com.

National Oceanic and Atmospheric Administration. "Office of Response and Restoration, National Ocean Service." Available from http://response.restoration.noaa.gov.

Schlumberger Excellence in Educational Development (SEED) Science Center. "Science Lab: Oil Well Blowout Simulator." Available from http://www.slb.com/seed/en/lab/blowout.

Trench, Cheryl J. (2001). "Oil Market Basics." Washington, D.C.: Energy Information Administration. Available from http://www.eia.doe.gov.

U.S. Department of Energy. "Energy Efficiency and Renewable Energy." Available from http://www.eere.energy.gov.

U.S. Department of Energy. "Fossil.energy.gov: A U.S. Department of Energy Web Site." Available from http://www.fossil.energy.gov.

U.S. Department of Energy. "Fossil Fuels: An Energy Education Website." Available from http://www.fossil.energy.gov/education.

U.S. Environmental Protection Agency. (1995). Profile of the Petroleum Refining Industry. Washington, D.C.: U.S. Government Printing Office. Available from http://www.epa.gov.

U.S. Environmental Protection Agency. (1999). Profile of the Oil and Gas Extraction Industry. Washington, D.C.: U.S. Government Printing Office. Available from http://www.epa.gov.

U.S. Environmental Protection Agency. "Air Quality Where You Live." Available from http://www.epa.gov/air/urbanair/index.html.

U.S. Geological Survey. Available from http://www.usgs.gov.

U.S. Geological Survey. (1997). "Bioremediation: Nature's Way to a Cleaner Environment." Available from http://water.usgs.gov/wid/html/bioremed.html.

Adrian MacDonald

OIL SEEPS

Almost half (45%) of the petroleum entering the marine environment is from natural seeps rather than anthropogenic sources. At seeps, oil and gas bubble out of cracks in the seabed creating special environments in which new organisms grow. These organisms survive through chemosynthesis rather than photosynthesis. They live in total darkness, more than four hundred meters below sea level, but survive by feeding directly off the hydrocarbons present in seeps or by eating carbon compounds resulting from chemosynthetic bacterial degradation of seep oil. Since 1984 oceanographers have discovered chemosynthetic communities of clams, mussels, tubeworms, bacterial mats, and other organisms on the seafloor of the Gulf of Mexico. United States Department of the Interior regulations protect these chemosynthetic communities from damage due to oil and gas drilling activities.

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PETROLEUM INDUSTRY

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

Ball, Max W. This Fascinating Oil Business. Indianapolis: Bobbs Merrill, 1965.

Conoway, Charles F. The Petroleum Industry: A Non-Technical Guide. Tulsa, Okla.: PennWell, 1999.

Deffeyes, Kenneth S. Hubbert's Peak: The Impending World Oil Shortage. Princeton: Princeton University Press, 2001.

Doran, Charles F. Myth, Oil, and Politics: Introduction to the Political Economy of Petroleum. New York: Free Press, 1977.

Economides, Michael, and Oligney, Ronald. The Color of Oil: The History, the Money, and the Politics of the World's Biggest Business. Katy, Texas: Round Oak Publishing Company, 2000.

Levy, Walter J. Oil Strategy and Politics, 1941–1981. Boulder, Colorado: Westview Press, 1982.

Yergin, Daniel. The Prize: The Epic Quest for Oil, Money, and Power. New York: Simon and Schuster, 1991.

TerriLivermore

T. L.Livermore

MichaelValdez

See alsoEnergy Industry ; Energy, Renewable ; Kerosine Oil ; Petrochemical Industry ; Petroleum Prospecting and Technology ; Standard Oil Company .

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Petroleum

Types of petroleum

Sources of petroleum

Petroleum exploration and production

Petroleum reserves

Current research

Resources

Petroleum is a term describing a variety of liquid hydrocarbons generally found in sedimentary rocks. Some scientists also include natural gas in their definition of petroleum. The most familiar types of petroleum are tar, oil, and natural gas. Petroleum forms through the accumulation, burial, and transformation of organic material, such as the remains of plants and animals, by chemical reactions over long periods of time. After petroleum has been generated, it migrates upward (by virtue of its buoyancy relative to ground-water) until it is either trapped underground by impermeable rocks or seeps out onto Earths surface. Petroleum accumulates when it migrates into a porous rock called a reservoir that has an impermeable seal or cap rock that prevents the oil from migrating further.

Petroleum reserves have been discovered in many areas. In the United States, the states of Alaska, California, Louisiana, Michigan, Oklahoma, Texas, New Mexico, and Wyoming are among the most important sources of petroleum. Other countries that produce great amounts of petroleum include Saudi Arabia, Iran, Iraq, Kuwait, Algeria, Libya, Nigeria, Indonesia, the former Soviet Union, Mexico, and Venezuela.

Humans might have used torches made from pieces of wood dipped in oil for lighting as early as 20,000 BC. At around 5000 BC, the Chinese apparently found oil when they were digging underground. Widespread use of petroleum probably began in the Middle East by the Mesopotamians, perhaps by 3000 BC, and probably in other areas where oil seeps were visible at the surface of Earth. Exploration for petroleum in the United States began in 1853, when George Bissell (1821-1884), a lawyer, recognized the potential

use of kerosene, which is derived from petroleum, as lamp fuel. Bissell also recognized that boring or drilling into Earth, as was done to recover salt, might provide access to greater supplies of petroleum than surface seeps. In 1857, Bissell hired Edwin Drake (1819-1880), often referred to as Colonel Drake despite having worked as a railroad conductor, to begin drilling the first successful oil well, in Titusville, Pennsylvania. The well was drilled in 1859. Once the usefulness of oil as a fuel was widely recognized, exploration for oil increased. By 1885, oil was discovered in Sumatra, Indonesia. The famous gusher in the Spindletop field in eastern Texas was drilled in 1901. The discoveries of giant oil fields in the Middle East began in 1908 when the company now known as British Petroleum drilled a well in Persia (now Iran). During World Wars I and II, oil became a critical factor in the ability to successfully wage war.

Petroleum is among the most important natural resources. Modern society uses gasoline, jet fuel, and diesel fuel to run cars, trucks, aircraft, ships, and other vehicles. Home heat sources include oil, natural gas, and electricity, which in many areas is generated by burning natural gas. Petroleum and petroleum-based chemicals are important in manufacturing plastic, wax, fertilizers, lubricants, and many other goods. Thus, petroleum is an important part of many human activities.

Types of petroleum

Petroleum, including liquid oil and natural gas, consists hydrocarbons, which comprise hydrogen and carbon, with small amounts of impurities such as nitrogen, oxygen, and sulfur. The molecules of hydrocarbons can be as simple as that of methane, which consists of a carbon atom surrounded by four hydrogen atoms, abbreviated as CH4. More complex hydrocarbons, such as naphthenes, include rings of hydrogen and carbon atoms linked together. Differences in the number of hydrogen and carbon atoms in molecules as well as their molecular structure (carbon atoms arranged in a ring structure, chain, or tetrahedron, for example) produce numerous types of petroleum.

Different types of petroleum can be used in different ways. Jet fuel differs from the gasoline that automobiles consume, for example. Refineries separate different petroleum products by heating petroleum to the point that heavy hydrocarbon molecules separate from lighter hydrocarbons so that each product can be used for a specific purpose. Refining reduces the waste associated with using limited supplies of more expensive petroleum products in cases in which a cheaper, more plentiful type of petroleum would suffice. Thus, tar or asphalt, the dense, nearly solid hydrocarbons, can be used for road surfaces and roofing materials, waxy substances called paraffin can be used to make candles and other products, and less dense, liquid hydrocarbons can be used for engine fuels and lubricating oils.

Sources of petroleum

Petroleum is typically found beneath the surface of Earth in accumulations known as fields. Fields can contain oil, gas, tar, water, and other substances, but oil, gas, and water are the most common. In order for a field to form, there must exist both a reservoir of porous rock (generally sedimentary rock) and a seal consisting of an impervious geologic structure (such as a fault) or impervious strata to trap the petroleum. To find these features together in an area in which petroleum has been generated by chemical reactions affecting organic remains requires many coincidences of timing of natural processes.

Petroleum generation occurs over millions of years. In order for petroleum generation to form, organic matter such as dead plants or animals must accumulate in large quantities. The organic matter can be deposited along with sediments and then buried as more sediments accumulate. The organic-rich sediments are compressed to form a source rock via a process known as diagenesis. After burial, chemical activity in the absence of oxygen allows the organic material in the source rock to change into petroleum. A good petroleum source rock is a sedimentary rock such as shale or limestone that contains between 1% and 5% organic carbon. Rich source rocks occur in many environments, including lakes, deep areas of the seas and oceans, and swamps. The source rocks must be buried deep enough below the surface of Earth to heat up the organic material, but not so deep that the rocks metamorphose or that the organic material changes to graphite or materials other than hydro-carbons. Temperatures less than 302°F (150°C) are typical for petroleum generation, and the range of temperatures in which petroleum can be generated is known as the petroleum window.

Once a source rock generates and expels petroleum, the petroleum migrates from to a porous reservoir rock that can store the petroleum. Sandstone, limestone, and highly fractured rocks can all serve as petroleum reservoirs. A good reservoir rock might have pore space that exceeds 30% of the rock volume. Poor quality reservoir rocks have less than 10% void space capable of storing petroleum. Rocks that lack pore space also tend to lack permeability, the property of rock that allows fluid to pass through the pore spaces of the rock. With very few pores, it is not likely that the pores are connected and less likely that fluid will flow through the rock than in a rock with larger or more abundant pore spaces. Highly porous rocks tend to have better permeability because the greater number of pores and larger pore sizes tend to allow fluids to move through the reservoir more easily. The property of permeability is critical to producing petroleum: If fluids can not migrate through a reservoir rock to a petroleum production well, the well will not produce much petroleum and the money spent to drill the well has been wasted. In some cases, fluids are pumped under great pressure into poor quality reservoir rocks in order to fracture the rock and increase permeability. This procedure is known as hydrofracturing.

Petroleum reservoirs are generally sealed by a less porous and permeable rock known as a seal or cap rock, which prevents the petroleum from migrating further. Rocks like shale and salt provide excellent seals for reservoir rocks because they do not allow fluids to pass easily. Seal-forming rocks tend to be made of small particles of sediment that fit closely together so that pore spaces are small and poorly connected. The permeability of a seal must be virtually zero in order to retain petroleum in a reservoir rock for millions to hundreds of millions of years, the time span between formation of petroleum to the discovery and production of many petroleum fields. Likewise, the seal must not be subject to forces within Earth that might cause fractures or other breaks in the seal to form.

Reservoir rocks and seals work together to form a trap for petroleum. Typical traps for petroleum include buried hills shaped like upside-down bowls below the surface of Earth, known as anticlines, or traps formed by faults along which rock has been pulverized to form a seal. Abrupt changes in rock type can form good traps, such as sandstone deposits next to shale deposits, especially if a sand deposit is encased in a rock that is sufficiently rich in organic matter to act as a petroleum source and endowed with the properties of a good seal.

An important aspect of the formation of petroleum accumulations is timing. The reservoir must have been deposited prior to petroleum migrating from the source rock to the reservoir rock. The seal and trap must have been developed prior to petroleum accumulating in the reservoir, or else the petroleum would have migrated farther. The source rock must have been exposed to the appropriate temperature and pressure conditions over long periods of time to change the organic matter to petroleum. The necessary coincidence of several conditions is difficult to achieve in nature.

Petroleum exploration and production

Petroleum exploration and production activities are performed primarily by geologists, geophysicists, and petroleum engineers. Geologists look for areas likely to have the necessary combination of source rocks, reservoir rocks, and geologic history to accumulate large amounts of petroleum. They examine the rocks at the surface of Earth and information from wells drilled in the area. Geologists also examine satellite images of large or remote areas to evaluate the rocks more quickly.

Geophysicists examine seismic data, which are derived from recording waves of energy introduced into the rock layers of Earth through explosions or other means, to determine the shape of the rock layers beneath the surface and whether or not traps such as faults or anticlines exist.

Once the geologist or geophysicist has gathered evidence of potential for a petroleum accumulation, called a prospect, an engineer assists in determining how to drill a well or wells to assess the prospect. Drilling a well to explore for petroleum can cost as little as $100,000 and as much as $30,000,000 or more, depending on how deep the well must be drilled, what types of rocks are present, and how remote the well location is. Thus, the scientists must evaluate how much the well might cost, how big the prospect might be, and how likely the scientific predictions are to be correct. In general, approximately 15% of exploration wells are successful.

Once a successful exploration well has been drilled, the oil or gas, or both, are pumped to the surface through the well. At the surface, the petroleum either moves through a pipeline or is stored in a tank or on a ship until it can be sold.

Petroleum reserves

Estimates of the amount of recoverable oil and natural gas in the United States are 113 billion barrels of oil and 1,074 trillion cubic feet of natural gas. Worldwide estimates of recoverable oil and natural gas are 1 trillion barrels of oil and 5 quadrillion cubic feet of natural gas. These worldwide reserves are expected to supply 45 years of fuel at current production rates with expected increases in demand. However, such estimates do not take into account reserves added through new discoveries or through the development of new technology that would allow more oil and natural gas to be recovered from existing oil and natural gas fields.

Daily consumption of oil in the United States exceeds 17 million barrels of oil per day, of which approximately 7 million barrels are in the form of gasoline for vehicles. Over half the petroleum consumed in the United States is imported from other countries. While the United States has large reserves of petroleum, the undiscovered fields that remain tend to be smaller than the fields currently producing petroleum outside of the United States. Thus, less expensive foreign reserves are imported to the United States. When foreign petroleum increases in price, more exploration occurs in the U.S. as it becomes more profitable to drill wells in order to exploit smaller reservoirs.

Current research

Current research in petroleum includes many different activities. Within companies that explore for and produce petroleum, scientists and engineers try to determine where they should explore for petroleum, how they might recover more petroleum from a given field, and what types of tools can be lowered into wells in order to enhance our understanding of whether or not that individual well might have penetrated an oil or gas field. They also study fundamental processes such as the deposition and diagenesis of sedimentary rocks form, the response of rocks to tectonic stress, and the evolution of life on Earth. The United States Geological Survey (USGS) evaluates petroleum reserves and new technology to produce oil and gas. The federal government operates several facilities called Strategic Petroleum Reserves that store large

KEY TERMS

Barrel A unit of volume typically used for oil. A barrel contains 42 gal (160 L).

Field An accumulation of oil or natural gas (or both) that can be produced, usually for a profit.

Hydrocarbon Compound made from atoms of hydrogen and carbon. Methane (CH4) and propane (C3H8) are simple, gaseous hydrocarbons. Oil can vary from tar to very light liquid hydrocarbon to natural gas.

Natural gas Gaseous hydrocarbon.

Oil Liquid hydrocarbon.

Petroleum Substances made of hydrogen and carbon compounds (hydrocarbons), typically also containing impurities such as nitrogen, sulfur, and oxygen.

Reservoir rock A rock that has sufficient pore space and connection between pores to allow oil or gas to be stored in the rock and to flow out of the rock. Sandstones and limestones can be excellent reservoir rocks.

Seal Rock made of fine particles and having little pore space or connection between pores that prevents fluids from leaking out of a reservoir rock. Shale and salt provide some of the best seals for petroleum reservoirs.

Sedimentary rock Rock formed by deposition, compaction, and cementation of weathered rock or organic material, or by chemical precipitation. Salt and gypsum form from evaporation and precipitation processes.

Source rock Sedimentary rock containing sufficient organic matter (0.5-5% organic carbon from organic matter in a source rock is typical) to generate petroleum.

Trap A structure in which petroleum can accumulate and be stored. Anticlines (dome shaped structures below the surface of Earth) can form good traps. Traps can also form along faults and in areas where rock types change rapidly.

quantities of petroleum for use in times of supply crisis.

Petroleum exploration specialists are using a type of geophysical data known as three-dimensional seismic data to study the structures and rock types below the surface of Earth in order to determine where exploration wells might successfully produce petroleum. Geochemists are assessing the results of studies of the chemistry of the surface of Earth and whether or not these results can improve the predictions of scientists prior to drilling expensive exploratory wells.

Significant recent discoveries of petroleum have been made in many areas of the world: Algeria, Brazil, China, Egypt, Indonesia, the Ivory Coast, Malaysia, Papua New Guinea, Thailand, the United Kingdom, and Vietnam, among others. In the United States, the Gulf of Mexico, Gulf Coast states, California, and Alaska continue to attract the interest of explorationists.

See also Air pollution; Fossil and fossilization; Internal combustion engine; Oil spills; Plastics.

Resources

BOOKS

Blatt, H., R. Tracy, and B. Owens. Petrology: Igneous, Sedimentary, and Metamorphic. New York: Freeman, 2005.

Gow, S. Roughnecks, Rock Bits and Rigs: The Evolution of Oil Well Drilling Technology in Alberta, 1883-1970. Calgary, Alberta: University of Calgary Press, 2006.

Lyons, W.C. and G.J. Plisga. Standard Handbook of Petroleum & Natural Gas Engineering. Woburn, Mass.: Butterworth-Heinemann, 2004.

Tarbuck, E.J., F.K. Lutgens, and D. Tasa. Earth: An Introduction to Physical Geology. Upper Saddle River, New Jersey: Prentice Hall, 2004.

Gretchen M. Gillis

views updated

Petroleum

Petroleum is a term that includes a wide variety of liquid hydrocarbons . Many scientists also include natural gas in their definition of petroleum. The most familiar types of petroleum are tar, oil, and natural gas. Petroleum forms through the accumulation, burial, and transformation of organic materialsuch as the remains of plants and animalsby chemical reactions over long periods of time. After petroleum has been generated, it migrates upward through the earth, seeping out at the surface of the earth if it is not trapped below the surface. Petroleum accumulates when it migrates into a porous rock called a reservoir that has a non-porous seal or cap rock that prevents the oil from migrating farther. To fully understand how petroleum forms and accumulates requires considerable knowledge of geology , including sedimentary rocks , geological structures (faults and domes, for example), and forms of life that have been fossilized or transformed into petroleum throughout the earth's long history.

Tremendous petroleum reserves have been produced from areas all over the world. In the United States, the states of Alaska, California, Louisiana, Michigan, Oklahoma, Texas, and Wyoming are among the most important sources of petroleum. Other countries that produce great amounts of petroleum include Saudi Arabia, Iran, Iraq, Kuwait, Algeria, Libya, Nigeria, Indonesia, the former Soviet Union, Mexico, and Venezuela.

Petroleum products have been in use for many years. Primitive man might have used torches made from pieces of wood dipped in oil for lighting as early as 20,000 b.c. At around 5,000 b.c., the Chinese apparently found oil when they were digging underground. Widespread use of petroleum probably began in the Middle East by the Mesopotamians, perhaps by 3,000 b.c., and probably in other areas where oil seeps were visible at the surface of the earth. Exploration for petroleum in the United States began in 1853, when George Bissell, a lawyer, recognized the potential use of oil as a source of lamp fuel. Bissell also recognized that boring or drilling into the earth, as was done to recover salt, might provide access to greater supplies of petroleum than surface seeps. In 1857, Bissell hired Edwin Drakeoften called "Colonel" Drake despite having worked as a railroad conductorto begin drilling the first successful oil well. The well was drilled in 1859 in Titusville, Pennsylvania. Once the usefulness of oil as a fuel was widely recognized, exploration for oil increased. By 1885, oil was discovered in Sumatra, Indonesia. The famous "gusher" in the Spindletop field in eastern Texas was drilled in 1901. The discoveries of giant oil fields in the Middle East began in 1908 when the company now known as British Petroleum drilled a well in Persia (now Iran). During World Wars I and II, oil became a critical factor in the ability to successfully wage war.

Currently, petroleum is among our most important natural resources. We use gasoline, jet fuel, and diesel fuel to run cars, trucks, aircraft, ships, and other vehicles. Home heat sources include oil, natural gas, and electricity , which in many areas is generated by burning natural gas. Petroleum and petroleum-based chemicals are important in manufacturing plastic, wax, fertilizers, lubricants, and many other goods. Thus, petroleum is an important part of many human activities.

Petroleum, including liquid oil and natural gas, consists of substances known as hydrocarbons. Hydrocarbons, as their name suggests, comprise hydrogen and carbon , with small amounts of impurities such as nitrogen, oxygen , and sulfur. The molecules of hydrocarbons can be as simple as that of methane, which consists of a carbon atom surrounded by four hydrogen atoms, abbreviated as CH4. More complex hydrocarbons, such as naphthenes, include rings of carbon atoms (and attached hydrogen atoms) linked together. Differences in the number of hydrogen and carbon atoms in molecules as well as their molecular structure (carbon atoms arranged in a ring structure, chain, or tetrahedron, for example) produce numerous types of petroleum.

Different types of petroleum can be used in different ways. Jet fuel differs from the gasoline that automobiles consume, for example. Refineries separate different petroleum products by heating petroleum to the point that heavy hydrocarbon molecules separate from lighter hydrocarbons so that each product can be used for a specific purpose. Refining reduces the waste associated with using limited supplies of more expensive petroleum products in cases in which a cheaper, more plentiful type of petroleum would suffice. Thus, tar or asphalt, the dense, nearly solid hydrocarbons, can be used for road surfaces and roofing materials, waxy substances called paraffins can be used to make candles and other products, and less dense, liquid hydrocarbons can be used for engine fuels .

Petroleum is typically found beneath the surface of the earth in accumulations known as fields. Fields can contain oil, gas, tar, water , and other substances, but oil, gas, and water are the most common. In order for a field to form, there must be some sort of structure to trap the petroleum, a seal on the trap that prohibits leakage of the petroleum, and a reservoir rock that has adequate pore space, or void space, to hold the petroleum. To find these features together in an area in which petroleum has been generated by chemical reactions affecting organic remains requires many coincidences of timing of natural processes.

Petroleum generation occurs over long periods of timemillions of years. In order for petroleum generation to occur, organic matter such as dead plants or animals must accumulate in large quantities. The organic matter can be deposited along with sediments and later buried as more sediments accumulate on top. The sediments and organic material that accumulate are called source rock. After burial, chemical activity in the absence of oxygen allows the organic material in the source rock to change into petroleum without the organic matter simply rotting. A good petroleum source rock is a sedimentary rock such as shale or limestone that contains between 1% and 5% organic carbon. Rich source rocks occur in many environments, including lakes , deep areas of the seas and oceans , and swamps. The source rocks must be buried deep enough below the surface of the earth to heat up the organic material, but not so deep that the rocks metamorphose or that the organic material changes to graphite or materials other than hydrocarbons. Temperatures less than 302°F (150°C) are typical for petroleum generation.

Once a source rock generates and expels petroleum, the petroleum migrates from the source rock to a rock that can store the petroleum. A rock capable of storing petroleum in its pore spaces, the void spaces between the grains of sediment in a rock, is known as a reservoir rock. Rocks that have sufficient pore space through which petroleum can move include sandstone , limestone, and rocks that have many fractures. A good reservoir rock might have pore space that exceeds 30% of the rock volume. Poor quality reservoir rocks have less than 10% void space capable of storing petroleum. Rocks that lack pore space tend to lack permeability , the property of rock that allows fluid to pass through the pore spaces of the rock. With very few pores, it is not likely that the pores are connected and less likely that fluid will flow through the rock than in a rock with larger or more abundant pore spaces. Highly porous rocks tend to have better permeability because the greater number of pores and larger pore sizes tend to allow fluids to move through the reservoir more easily. The property of permeability is critical to producing petroleum: if fluids can not migrate through a reservoir rock to a petroleum production

well, the well will not produce much petroleum and the money spent to drill the well has been wasted.

In order for a reservoir to contain petroleum, the reservoir must be shaped and sealed like a container. Good petroleum reservoirs are sealed by a less porous and permeable rock known as a seal or cap rock. The seal prevents the petroleum from migrating further. Rocks like shale and salt provide excellent seals for reservoir rocks because they do not allow fluids to pass through them easily. Seal-forming rocks tend to be made of small particles of sediment that fit closely together so that pore spaces are small and poorly connected. The permeability of a seal must be virtually zero in order to retain petroleum in a reservoir rock for millions to hundreds of millions of years, the time span between formation of petroleum to the discovery and production of many petroleum fields. Likewise, the seal must not be subject to forces within the earth that might cause fractures or other breaks in the seal to form.

Reservoir rocks and seals work together to form a trap for petroleum. Typical traps for petroleum include hills shaped similar to upside-down bowls below the surface of the earth, known as anticlines, or traps formed by faults. Abrupt changes in rock type can form good traps, such as sandstone deposits next to shale deposits, especially if a sand deposit is encased in a rock that is sufficiently rich in organic matter to act as a petroleum source and endowed with the properties of a good seal.

An important aspect of the formation of petroleum accumulations is timing. The reservoir must have been deposited prior to petroleum migrating from the source rock to the reservoir rock. The seal and trap must have been developed prior to petroleum accumulating in the reservoir, or else the petroleum would have migrated farther. The source rock must have been exposed to the appropriate temperature and pressure conditions over long periods of time to change the organic matter to petroleum. The necessary coincidence of several conditions is difficult to achieve in nature.

Petroleum exploration and production activities are performed primarily by geologists, geophysicists, and engineers. Geologists look for areas of the earth where sediments accumulate. They then examine the area of interest more closely to determine whether or not source rocks and reservoir rocks exist there. They examine the rocks at the surface of the earth and information from wells drilled in the area. Geologists also examine satellite images of large or remote areas to evaluate the rocks more quickly.

Geophysicists examine seismic data, data derived from recording waves of energy introduced into the rock layers of the earth through dynamite explosions or other means, to determine the shape of the rock layers beneath the surface and whether or not traps such as faults or anticlines exist.

Once the geologist or geophysicist has gathered evidence of potential for a petroleum accumulation, called a prospect, an engineer assists in determining how to drill a well or multiple wells to assess the prospect. Drilling a well to explore for petroleum can cost as little as $100,000 and as much as $30,000,000 or more, depending on how deep the well must be drilled, what types of rocks are present, and how remote the well location is. Thus, the scientists must evaluate how much the well might cost, how big the prospect might be, and how likely the scientific predictions are to be correct. In general, approximately 15% of exploration wells are successful.

Once a successful exploration well has been drilled, the oil and/or gas flow are pumped to the surface of the earth through the well. At the surface, the petroleum either moves through a pipeline or is stored in a tank or on a ship until it can be sold.

Estimates of the amount of recoverable oil and natural gas in the United States are 113 billion barrels of oil and 1,074 trillion cubic feet of natural gas. Worldwide estimates of recoverable oil and natural gas are 1 trillion barrels of oil and 5 quadrillion cubic feet of natural gas. These worldwide reserves are expected to supply 45 years of fuel at current production rates with expected increases in demand. However, such estimates do not take into account reserves added through new discoveries or through the development of new technology that would allow more oil and natural gas to be recovered from existing oil and natural gas fields.

Daily consumption of oil in the United States exceeds 17 million barrels of oil per day, of which approximately 7 million barrels are in the form of gasoline for vehicles. Over half the petroleum consumed in the United States is imported from other countries. (Assuming oil costs $20 per barrel and 8.5 million barrels per day are imported, over one billion dollars per week are spent on oil imports). While the United States has tremendous reserves of petroleum, the undiscovered fields that remain tend to be smaller than the fields currently producing petroleum outside of the United States. Thus, less expensive foreign reserves are imported to the United States. When foreign petroleum increases in price, more exploration occurs in the United States as it becomes more profitable to drill wells in order to exploit smaller reservoirs.

Current research in petroleum includes many different activities. Within companies that explore for and produce petroleum, scientists and engineers try to determine where they should explore for petroleum, how they might recover more petroleum from a given field, and what types of tools can be lowered into wells in order to enhance our understanding of whether or not that individual well might have penetrated an oil or gas field. They also examine fundamental aspects of how the earth behaves, such as how rocks form and what forms of life have existed at various times in the earth's history. The United States Geological Survey continues to evaluate petroleum reserves and new technology to produce oil and gas. The federal government operates several facilities called Strategic Petroleum Reserves that store large quantities of petroleum for use in times of supply crisis.

Petroleum exploration specialists are using a type of geophysical data known as three-dimensional seismic data to study the structures and rock types below the surface of the earth in order to determine where exploration wells might successfully produce petroleum. Geochemists are assessing the results of studies of the chemistry of the surface of the earth and whether or not these results can improve the predictions of scientists prior to drilling expensive exploratory wells.

Significant recent discoveries of petroleum have been made in many areas of the world: Algeria, Brazil, China, Egypt, Indonesia, the Ivory Coast, Malaysia, Papua New Guinea, Thailand, the United Kingdom, and Vietnam, among others. In the United States, the Gulf of Mexico , Gulf Coast states, California, and Alaska continue to attract the interest of explorers.

See also Fossils and fossilization; Fuels and fuel chemistry; Geochemistry; Petroleum detection; Petroleum, economic uses of; Petroleum extraction; Petroleum, history of exploration; Sedimentation; Syncline and anticline

views updated

Petroleum

Petroleum is a term that includes a wide variety of liquid hydrocarbons. Many scientists also include natural gas in their definition of petroleum. The most familiar types of petroleum are tar, oil, and natural gas. Petroleum forms through the accumulation, burial, and transformation of organic material, such as the remains of plants and animals, by chemical reactions over long periods of time. After petroleum has been generated, it migrates upward through the earth , seeping out at the surface of the earth if it is not trapped below the surface. Petroleum accumulates when it migrates into a porous rock called a reservoir that has a non-porous seal or cap rock that prevents the oil from migrating further. To fully understand how petroleum forms and accumulates requires considerable knowledge of geology , including sedimentary rocks , geological structures (faults and domes, for example), and forms of life that have been fossilized or transformed into petroleum throughout the earth's long history.

Tremendous petroleum reserves have been produced from areas all over the world. In the United States, the states of Alaska, California, Louisiana, Michigan, Oklahoma, Texas, and Wyoming are among the most important sources of petroleum. Other countries that produce great amounts of petroleum include Saudi Arabia, Iran, Iraq, Kuwait, Algeria, Libya, Nigeria, Indonesia, the former Soviet Union, Mexico, and Venezuela.

Petroleum products have been in use for many years. Primitive man might have used torches made from pieces of wood dipped in oil for lighting as early as 20,000 b.c. At around 5000 b.c., the Chinese apparently found oil when they were digging underground. Widespread use of petroleum probably began in the Middle East by the Mesopotamians, perhaps by 3000 b.c., and probably in other areas where oil seeps were visible at the surface of the earth. Exploration for petroleum in the United States began in 1853, when George Bissell, a lawyer, recognized the potential use of oil as a source of lamp fuel. Bissell also recognized that boring or drilling into the earth, as was done to recover salt , might provide access to greater supplies of petroleum than surface seeps. In 1857, Bissell hired Edwin Drake, often called "Colonel" Drake despite having worked as a railroad conductor, to begin drilling the first successful oil well, in Titusville, Pennsylvania. The well was drilled in 1859. Once the usefulness of oil as a fuel was widely recognized, exploration for oil increased. By 1885, oil was discovered in Sumatra, Indonesia. The famous "gusher" in the Spindletop field in eastern Texas was drilled in 1901. The discoveries of giant oil fields in the Middle East began in 1908 when the company now known as British Petroleum drilled a well in Persia (now Iran). During World Wars I and II, oil became a critical factor in the ability to successfully wage war.

Currently, petroleum is among our most important natural resources. We use gasoline, jet fuel, and diesel fuel to run cars, trucks, aircraft , ships, and other vehicles. Home heat sources include oil, natural gas, and electricity , which in many areas is generated by burning natural gas. Petroleum and petroleum-based chemicals are important in manufacturing plastic, wax, fertilizers , lubricants, and many other goods. Thus, petroleum is an important part of many human activities.


Types of petroleum

Petroleum, including liquid oil and natural gas, consists of substances known as hydrocarbons. Hydrocarbons, as their name suggests, comprise hydrogen and carbon , with small amounts of impurities such as nitrogen , oxygen , and sulfur . The molecules of hydrocarbons can be as simple as that of methane, which consists of a carbon atom surrounded by 4 hydrogen atoms , abbreviated as CH4. More complex hydrocarbons, such as naphthenes, include rings of hydrogen and carbon atoms linked together. Differences in the number of hydrogen and carbon atoms in molecules as well as their molecular structure (carbon atoms arranged in a ring structure, chain, or tetrahedron , for example) produce numerous types of petroleum.

Different types of petroleum can be used in different ways. Jet fuel differs from the gasoline that automobiles consume, for example. Refineries separate different petroleum products by heating petroleum to the point that heavy hydrocarbon molecules separate from lighter hydrocarbons so that each product can be used for a specific purpose. Refining reduces the waste associated with using limited supplies of more expensive petroleum products in cases in which a cheaper, more plentiful type of petroleum would suffice. Thus, tar or asphalt, the dense, nearly solid hydrocarbons, can be used for road surfaces and roofing materials, waxy substances called paraffins can be used to make candles and other products, and less dense, liquid hydrocarbons can be used for engine fuels.


Sources of petroleum

Petroleum is typically found beneath the surface of the earth in accumulations known as fields. Fields can contain oil, gas, tar, water , and other substances, but oil, gas, and water are the most common. In order for a field to form, there must be some sort of structure to trap the petroleum, a seal on the trap that prohibits leakage of the petroleum, and a reservoir rock that has adequate pore space, or void space, to hold the petroleum. To find these features together in an area in which petroleum has been generated by chemical reactions affecting organic remains requires many coincidences of timing of natural processes.

Petroleum generation occurs over long periods of time—millions of years. In order for petroleum generation to occur, organic matter such as dead plants or animals must accumulate in large quantities. The organic matter can be deposited along with sediments and later buried as more sediments accumulate on top. The sediments and organic material that accumulate are called source rock. After burial, chemical activity in the absence of oxygen allows the organic material in the source rock to change into petroleum without the organic matter simply rotting. A good petroleum source rock is a sedimentary rock such as shale or limestone that contains between 1% and 5% organic carbon. Rich source rocks occur in many environments, including lakes, deep areas of the seas and oceans, and swamps. The source rocks must be buried deep enough below the surface of the earth to heat up the organic material, but not so deep that the rocks metamorphose or that the organic material changes to graphite or materials other than hydrocarbons. Temperatures less than 302°F (150°C) are typical for petroleum generation.

Once a source rock generates and expels petroleum, the petroleum migrates from the source rock to a rock that can store the petroleum. A rock capable of storing petroleum in its pore spaces, the void spaces between the grains of sediment in a rock, is known as a reservoir rock. Rocks that have sufficient pore space through which petroleum can move include sandstone, limestone, and rocks that have many fractures. A good reservoir rock might have pore space that exceeds 30% of the rock volume . Poor quality reservoir rocks have less than 10% void space capable of storing petroleum. Rocks that lack pore space tend to lack permeability, the property of rock that allows fluid to pass through the pore spaces of the rock. With very few pores, it is not likely that the pores are connected and less likely that fluid will flow through the rock than in a rock with larger or more abundant pore spaces. Highly porous rocks tend to have better permeability because the greater number of pores and larger pore sizes tend to allow fluids to move through the reservoir more easily. The property of permeability is critical to producing petroleum: If fluids can not migrate through a reservoir rock to a petroleum production well, the well will not produce much petroleum and the money spent to drill the well has been wasted.

In order for a reservoir to contain petroleum, the reservoir must be shaped and sealed like a container. Good petroleum reservoirs are sealed by a less porous and permeable rock known as a seal or cap rock. The seal prevents the petroleum from migrating further. Rocks like shale and salt provide excellent seals for reservoir rocks because they do not allow fluids to pass through them easily. Seal-forming rocks tend to be made of small particles of sediment that fit closely together so that pore spaces are small and poorly connected. The permeability of a seal must be virtually zero in order to retain petroleum in a reservoir rock for millions to hundreds of millions of years, the time span between formation of petroleum to the discovery and production of many petroleum fields. Likewise, the seal must not be subject to forces within the earth that might cause fractures or other breaks in the seal to form.

Reservoir rocks and seals work together to form a trap for petroleum. Typical traps for petroleum include hills shaped like upside-down bowls below the surface of the earth, known as anticlines, or traps formed by faults. Abrupt changes in rock type can form good traps, such as sandstone deposits next to shale deposits, especially if a sand deposit is encased in a rock that is sufficiently rich in organic matter to act as a petroleum source and endowed with the properties of a good seal.

An important aspect of the formation of petroleum accumulations is timing. The reservoir must have been deposited prior to petroleum migrating from the source rock to the reservoir rock. The seal and trap must have been developed prior to petroleum accumulating in the reservoir, or else the petroleum would have migrated farther. The source rock must have been exposed to the appropriate temperature and pressure conditions over long periods of time to change the organic matter to petroleum. The necessary coincidence of several conditions is difficult to achieve in nature.


Petroleum exploration and production

Petroleum exploration and production activities are performed primarily by geologists, geophysicists, and engineers. Geologists look for areas of the earth where sediments accumulate. They then examine the area of interest more closely to determine whether or not source rocks and reservoir rocks exist there. They examine the rocks at the surface of the earth and information from wells drilled in the area. Geologists also examine satellite images of large or remote areas to evaluate the rocks more quickly.

Geophysicists examine seismic data, data derived from recording waves of energy introduced into the rock layers of the earth through dynamite explosions or other means, to determine the shape of the rock layers beneath the surface and whether or not traps such as faults or anticlines exist.

Once the geologist or geophysicist has gathered evidence of potential for a petroleum accumulation, called a prospect, an engineer assists in determining how to drill a well or multiple wells to assess the prospect. Drilling a well to explore for petroleum can cost as little as $100,000 and as much as $30,000,000 or more, depending on how deep the well must be drilled, what types of rocks are present, and how remote the well location is. Thus, the scientists must evaluate how much the well might cost, how big the prospect might be, and how likely the scientific predictions are to be correct. In general, approximately 15% of exploration wells are successful.

Once a successful exploration well has been drilled, the oil and/or gas flow are pumped to the surface of the earth through the well. At the surface, the petroleum either moves through a pipeline or is stored in a tank or on a ship until it can be sold.


Petroleum reserves

Estimates of the amount of recoverable oil and natural gas in the United States are 113 billion barrels of oil and 1,074 trillion cubic feet of natural gas. Worldwide estimates of recoverable oil and natural gas are 1 trillion barrels of oil and 5 quadrillion cubic feet of natural gas. These worldwide reserves are expected to supply 45 years of fuel at current production rates with expected increases in demand. However, such estimates do not take into account reserves added through new discoveries or through the development of new technology that would allow more oil and natural gas to be recovered from existing oil and natural gas fields.

Daily consumption of oil in the United States exceeds 17 million barrels of oil per day, of which approximately 7 million barrels are in the form of gasoline for vehicles. Over half the petroleum consumed in the United States is imported from other countries. (Assuming oil costs $20 per barrel and we import 8.5 million barrels per day, over one billion dollars per week are spent on oil imports). While the United States has tremendous reserves of petroleum, the undiscovered fields that remain tend to be smaller than the fields currently producing petroleum outside of the United States. Thus, less expensive foreign reserves are imported to the United States. When foreign petroleum increases in price, more exploration occurs in the United States as it becomes more profitable to drill wells in order to exploit smaller reservoirs.


Current research

Current research in petroleum includes many different activities. Within companies that explore for and produce petroleum, scientists and engineers try to determine where they should explore for petroleum, how they might recover more petroleum from a given field, and what types of tools can be lowered into wells in order to enhance our understanding of whether or not that individual well might have penetrated an oil or gas field. They also examine more fundamental aspects of how the earth behaves, such as how rocks form and what forms of life have existed at various times in the earth's history. The United States Geological Survey continues to evaluate petroleum reserves and new technology to produce oil and gas. The federal government operates several facilities called Strategic Petroleum Reserves that store large quantities of petroleum for use in times of supply crisis.

Petroleum exploration specialists are using a type of geophysical data known as three-dimensional seismic data to study the structures and rock types below the surface of the earth in order to determine where exploration wells might successfully produce petroleum. Geochemists are assessing the results of studies of the chemistry of the surface of the earth and whether or not these results can improve the predictions of scientists prior to drilling expensive exploratory wells.

Significant recent discoveries of petroleum have been made in many areas of the world: Algeria, Brazil, China, Egypt, Indonesia, the Ivory Coast, Malaysia, Papua New Guinea, Thailand, the United Kingdom, and Vietnam, among others. In the United States, the Gulf of Mexico, Gulf Coast states, California, and Alaska continue to attract the interest of explorationists.

See also Air pollution; Fossil and fossilization; Internal combustion engine; Oil spills; Plastics.


Resources

books

Jahn, F., M. Cook, and M. Graham. Hydrocarbon Exploration and Production. Developments in Petroleum Science. Vol. 46. The Netherlands: Elsevier Science, 2000.

Yergin, Daniel. The Prize. New York: Simon and Schuster, 1991.


periodicals

Horn, M.K. "Oil and Gas." Geotimes 40, no. 2 (1995).

Oil and Gas Journal. Weekly journal published by PennWell.

Wilhems A., Larter, S.R., Head, I., et al. "Biodegradation of Oil in Uplifted Basins Prevented by Deep-burial Sterilization." Nature 411 (June 2001): 1034-1037.


Gretchen M. Gillis

KEY TERMS


Barrel

—A unit of volume typically used for oil. A barrel contains 42 gal (160 l).

Field

—An accumulation of oil or natural gas (or both) that can be produced, usually for a profit.

Hydrocarbon

—Compound made from atoms of hydrogen and carbon. Methane (CH4) and propane (C3H8) are simple, gaseous hydrocarbons. Oil can vary from tar to very light liquid hydrocarbon to natural gas.

Natural gas

—Gaseous hydrocarbon.

Oil

—Liquid hydrocarbon.

Petroleum

—Substances made of hydrogen and carbon compounds (hydrocarbons), typically also containing impurities such as nitrogen, sulfur, and oxygen.

Reservoir rock

—A rock that has sufficient pore space and connection between pores to allow oil or gas to be stored in the rock and to flow out of the rock. Sandstones and limestones can be excellent reservoir rocks.

Seal

—Rock made of fine particles and having little pore space or connection between pores that prevents fluids from leaking out of a reservoir rock. Shale and salt provide some of the best seals for petroleum reservoirs.

Sedimentary rock

—Rock formed by deposition, compaction, and cementation of weathered rock or organic material, or by chemical precipitation. Salt and gypsum form from evaporation and precipitation processes.

Source rock

—Sedimentary rock containing sufficient organic matter (0.5-5% organic carbon from organic matter in a source rock is typical) to generate petroleum.

Trap

—A structure in which petroleum can accumulate and be stored. Anticlines (dome shaped structures below the surface of Earth) can form good traps. Traps can also form along faults and in areas where rock types change rapidly.

views updated

Petroleum

Abu Dhabi National Oil Company

Amerada Hess Corporation

Amoco Corporation

Ashland Oil, Inc.

Atlantic Richfield Company

British Petroleum Company Plc

Burmah Castrol Plc

Chevron Corporation

Chinese Petroleum Corporation

Citgo Petroleum Corporation

The Coastal Corporation

Compañía Española De Petröleos S.A.

Conoco Inc.

Cosmo Oil Co., Ltd.

Den Norske Stats Oljeselskap As

Diamond Shamrock, Inc.

Egyptian General Petroluem Corporation

Empresa Colombiana De Petröleos

Ente Nazionale Idrocarburi

Entreprise Nationale Sonatrach

Exxon Corporation

General Sekiyu K.K.

Idemitsu Kosan K.K.

Imperial Oil Limited

Indian Oil Corporation Ltd.

Kanematsu Corporation

Kerr-Mcgee Corporation

Koch Industries, Inc.

Kuwait Petroleum Corporation

Libyan National Oil Corporation

Lyondell Petrochemical Company

Mapco Inc.

Mitsubishi Oil Co., Ltd.

Mobil Corporation

National Iranian Oil Company

Neste Oy

Nigerian National Petroleum Corporation

Nippon Mining Co., Ltd.

Nippon Oil Company, Limited

Occidental Petroleum Corporation

Oil And Natural Gas Commission

Ömv Aktiengesellschaft

Pennzoil Company

Pertamina

Petro-Canada Limited

Petrofina

PetróLeo Brasileiro S.A.

PetróLeos De Portugal S.A.

PetróLeos De Venezuela S.A.

PetróLeos Del Ecuador

PetróLeos Mexicanos

Petroleum Development Oman Llc

Petronas

Phillips Petroleum Company

Qatar General Petroleum Corporation

Repsol Sa

Royal Dutch Petroleum Company/The Shell Transport And Trading Company P.L.C.

Sasol Limited

Saudi Arabian Oil Company

Shell Oil Company

Showa Shell Sekiyu K.K.

Société Nationals ELF Aquitaine

Sun Company, Inc.

Texaco Inc.

Tonen Corporation

Total Compagnie Française Des Pétroles S.A.

Türkiye Petrolleri Anonim Ortakligi

Ultramar Plc

Unocal Corporation

Usx Corporation

The Williams Companies, Inc.

YPF Sociedad AnöNima

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Petroleum Industry

The oil industry is perhaps the only one in Latin America where the most capital-, technology-, and management-intensive industry in the world meets the mercantilist and statist philosophies of sixteenth-century Iberia. During the colonial period the colonies provided raw materials to the mother country, and the commercial exploitation of the natural resources of the colonies could be carried out only with a franchise from the crown. Natural resources such as subsoil wealth were defined as the property of the state.

As with many areas of public policy, an understanding of Latin American issues begins with Mexico, where, in the last quarter of the nineteenth century President Porfirio Díaz opened many areas of the economy to foreign investment. One of these was the recently inaugurated petroleum industry (including crude oil, natural gas, and natural gas liquids). Under Díaz the entrepreneur who took the risk to develop oil-producing properties was entitled to merchandise the production according to his own criteria—paying, of course, the appropriate taxes to the government.

In the first two decades of the twentieth century, British, Dutch, and U.S. entrepreneurs had discovered major oil-producing reservoirs, and by 1919—despite the chaos produced by the Mexican Revolution and World War I—Mexico was second only to the United States as the leading oil exporter in the world. What soured Mexico in the eyes of foreign investors was Article 27 in the Revolutionary Constitution of 1917, which not only reimposed the policy of the colonial period in matters affecting subsoil resources but also prohibited the Mexican state from leasing franchises for the commercial exploitation of those resources.

About ten years of open- and closed-door negotiations considered the question of the extent to which, if at all, the new policy would apply retroactively to properties that had been lawfully acquired by oil companies during the period which the Díaz Mining Codes (as they were called) were valid. The oil companies insisted that Article 27 could not abrogate legally acquired rights to the properties (estimated at 90 percent of their total portfolio) that had been acquired for future exploration and development. Mexican negotiators responded that Article 27 would not apply to properties on which some "positive act" of development had taken place prior to February 5, 1917, the date on which the constitution went into effect.

Mexican negotiators finally proposed that all titles to properties be exchanged for fifty-year leases. Despite the fact that a fifty-year lease was, in effect, title to the property (few wells provide commercial production beyond twenty years), the oil companies objected. They did not want the leaders of other countries to follow Mexico's example of what they regarded as unfair and stultifying regulation. With the policy framework surrounding Mexican investments in doubt, oil companies started looking elsewhere for safe investments. Indirectly, Mexico provided the impetus for the development of the oil industries of Venezuela and Saudi Arabia. With investment and oil production falling in Mexico, relations between the oil companies and the government began a process of polarization that, on March 18, 1938, resulted in the total expropriation of foreign oil companies in Mexico.

For the next fifty years, in varying ways and on varying time schedules (Venezuela nationalized its oil industry only in 1976), Latin America followed at least the rough outline of the Mexican model. In setting up its monopoly state oil company, however, Venezuela tried to avoid creating a clone of the Mexican company, Petréleos Mexicanos (Pemex), that would function as a state within a state; for this reason, three operating companies with a quasi-competitive relationship among them were established.

With the rise in the early 1970s of the Organization of the Petroleum Exporting Countries (OPEC—the idea for which had been that of a Venezuelan diplomat, Juan Pablo Pérez Alfonso, and the original membership of which had included Venezuela and Ecuador), relations between the international oil companies and Latin American states became more difficult. By the late 1970s, with the world price of oil exceeding $30 per barrel, oil producers such as Mexico and Venezuela borrowed heavily from eager international lenders who wanted to shore up non-Middle East oil reserves. The high price of oil, in turn, stimulated exploration everywhere, and by 1981, substantial new non-OPEC oil production had been achieved in Mexico's Bay of Campeche, the Alaskan North Slope, and the North Sea.

The late 1970s and early 1980s were also years in which increasingly intense efforts were being taken in the First World as well as in the Third World to reduce dependence on imported oil supplies. In Western Europe, Japan, the United States, and Canada, economic growth was registered without a simultaneous increase in hydrocarbon consumption—a relationship that economists previously had thought highly improbable. In Brazil, the state created a new industry dedicated to the production of "gasahol"—an industrial and transportation fuel based on sugar cane alcohol. Meanwhile, oil-producing countries such as Mexico and Venezuela continued, at great cost to the environment, to subsidize motor fuels, believing that economic growth could be induced by offering the public cheap—and low-quality—gasoline and diesel fuel.

As production from non-OPEC sources rose, there was an increasing competition between oil exporters for market share. In 1980 Mexico announced a new energy plan that called for 1.5 million barrels per day (b/d) of crude oil exports, a target that was not price- or profit-sensitive. Within OPEC there was so much cheating by member countries on their oil-export quotas that Saudi Arabia finally decided to punish the others by increasing its oil production, to nearly 10 million b/d, up from a previous level of about 7 million.

By mid-1981 the trend lines of new Saudi and non-OPEC oil production and energy savings symbolically crossed. The result was that for the first time in nearly a decade, the world trading price of crude oil dropped. In many of the producing countries, notably Mexico, news of the price drop was received skeptically—"just a market fluctuation." Perhaps no one could have foreseen that cargoes of Mexican heavy oil that sold for $32/b in early 1980 would sell for $5/b in mid-1986. Although spokesmen for oil-producing countries such as Mexico and Venezuela denied that their general economic development programs were keyed to oil, the ensuing ten years of economic decline and stagnation—from which, by 1992, Latin America had far from recovered—showed the extent to which leaders of the 1970s had gambled on a single commodity as an economic panacea to underinvestment and widespread rural and urban poverty.

In 1990, the sacrosanct status of the state-as-oil-monopolist began to fade in many parts of Latin America. Privatization as a policy concept was incorporated in government programs in Argentina, Brazil, Peru, Ecuador, and other countries. By late 1992 such countries were reviewing new offers from private industry to participate as direct investors in their oil industry in both upstream and downstream activities. Driving this policy was the realization that property rights by themselves did not translate into efficient oil production, much less into reliable streams of foreign currency from export sales. A second realization was that real fiscal efficiency from the state's point of view lay in its power to tax oil companies' profits from their operations. Contracts were negotiated in which the oil itself remained the property of the host state; the oil company was paid a percentage (typically 20-30 percent) of the market value of total production. Finally, the leaders of some Latin countries realized that a hidden problem with the state-as-oil-producer model was the inherent managerial and technological isolation that it fostered. In some countries the international oil companies were seen in a new light: as a source not so much of risk capital as of managerial and technological expertise that could be bought for an affordable price.

By 1992 Mexico remained the exception to privatization in the industry. Although since 1989 privatization as a policy theme had been touted in Mexico City as much as in other Latin American capitals, the state oil sector was not included in the government's agenda. Despite intense pressure from U.S. and Canadian negotiators in the summer of 1992 during negotiations for the North American Free Trade Agreement (NAFTA), Mexico refused to change any of the basic planks of its nationalistic and monopolistic policies that dated from the 1930s, 1940s, and 1950s. Mexico's view was that Pemex was self-sufficient in technological and managerial skills, and that where it might be deficient, such skills could be acquired through contracts with oilfield services companies. Representatives from integrated oil companies remained skeptical of such a course, and voiced concerns about the future of Mexico's oil production capability. They recalled that in November 1989, Pemex had alerted the administration of President Carlos Salinas de Gortari that unless domestic oil production increased and domestic demand for refined products decreased, Mexico easily could become a net oil importer.

In some countries—again Mexico and Venezuela are good examples—the hidden cost of several decades of subsidized, low-quality motor fuel could be seen by 1992 in the alarming deterioration of air quality in major metropolitan areas. Several policy remedies were being taken in the region: one is the tardy conversion to unleaded gasoline; a second is the reduction of the sulfur content of diesel and residual fuel (in Mexico in the range of 3-4 percent) to acceptable levels (under 0.5 percent); a third is the increased use of natural gas, which has much lower emissions levels than other industrial or transportation fuels. Within Latin America, Mexico, Venezuela, Bolivia, and Argentina have major reserves of natural gas.

The early twenty-first century has been a heyday for much of the petroleum industry in Latin America. The torrid pace of economic growth in emerging markets, especially China and India, has ensured a boom in petroleum exports from the region. Furthermore, as noted by President George W. Bush in his 2006 State of the Union address, the United States remains "addicted to oil." From 2000 to 2006, the price of light crude more than tripled, producing a windfall for many of Latin America's exporters, especially Venezuela. In 2007, Brazil's state-owned oil company, Petrobrás, announced the discovery of enormous oil reserves in the ultra-deep Tupi field. The finding could net as much as 8 billion barrels of light crude, increasing Brazil's oil reserves by 40 percent, and making the nation one of the largest oil exporters in the world. However, these developments are not unqualified successes for many Latin American economies. Many nations remain hamstrung by their insufficient refining capacity. For example, even Mexico, with its vast reserves of oil, is not necessarily benefiting from soaring oil prices. Recent IMF studies point toward an inverse correlation of oil prices and Mexican economic growth when the price per barrel exceeds a range of $80-$90, a feature attributable to Mexico's reliance on imported refined petroleum products.

Beyond infrastructure shortcomings, Latin American governments have increasingly sought to diversify the nature of their energy exports away from petroleum. Brazil's ethanol industry is generally seen as the most dynamic in the world. This has yet to make a substantial impact on international markets, primarily because the U.S., which would seem to be the ideal importer of Brazil's ethanol, has imposed a more than 40-cent per gallon tariff on it in order to prop up its own corn producers.

The oil industry in Latin America faces a mixed horizon in the twenty-first century. Real technological advances in crucial areas such as deep-water drilling have been made by Brazil; in Argentina, natural gas pipelines and metropolitan distribution systems have been partially privatized. Development of oil and gas production in Peru and Colombia, on the other hand, has been constrained by political unrest, drug-related violence, and the absence of sufficiently attractive regulatory and fiscal frameworks. For most countries, most notably Mexico and Cuba, a sharp limitation under present regulatory frameworks is financing. With the elimination of Soviet oil supplies in 1991, Cuba's energy supplies and hard-currency reserves were severely curtailed. As for Mexico, in 1992 Pemex claimed that it needed funding support for capital investments for the period 1992–1997 of some $22 billion. Pemex's plight has been underscored by the fact that crude production reached it peak in 2004. Most analysts now believe that regardless of technological advancements, Mexico's oil production is undergoing a one-way slide. Furthermore, greater external investment to the oil industry in Latin America is problematic given political instabilities. High-profile nationalization drives undertaken in Ecuador and Venezuela have sent cautionary messages to Western investors. This has been coupled with antagonistic rhetoric from many leaders, chiefly Venezuela president Hugo Chávez, but also Bolivian president Evo Morales and Ecuadoran president Rafael Correa. Chávez has repeatedly sought to tie Venezuela's oil exports to political relations, threatening on several occasions to divert his country's exports to the U.S. to other parts of the world. The combination of infrastructure and financing woes portend continued uncertainty for the oil industry in Latin America as a whole, even before calculations are made considering energy diversification away from petroleum.

See alsoArgentina, Organizations: Yacimientos Petrolíferos Fiscales (YPF); Bolivia, Organizations: Bolivian State Petroleum Corporation (YPFB); Economic Development; Ecopetrol; International Petroleum Company (IPC); Petrobrás; Petroleos del Peru (Petroperu); Petróleos Mexicanos (Pemex); Petroleum Expropriation of 1938 (Mexico); State Corporations.

BIBLIOGRAPHY

Brown, Jonathan C. Oil and Revolution in Mexico. Berkeley: University of California Press, 1992.

Koppes, Clayton R. "The Good Neighbor Policy and the Nationalization of Mexican Oil: A Reinterpretation." Journal of American History 69:1 (June 1982), 62-81.

Meyer, Lorenzo. Mexico and the United States in the Oil Controversy, 1917–1942. Translated by Muriel Vasconcellos. Austin: University of Texas Press, 1977.

Philip, George D. E. Oil and Politics in Latin America: Nationalist Movements and State Companies. Cambridge, U.K. and New York: Cambridge University Press, 1982.

Smith, Peter Seaborn. Oil and Politics in Modern Brazil. Toronto: Macmillan of Canada, 1976.

Williams, Bob. "Latin American Petroleum Sector at Crossroads." Oil & Gas Journal 90:27 (July 6, 1992).

                                      George Baker

                                  Sean H. Goforth

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Petroleum


Petroleum is a naturally occurring complex mixture made up predominantly of carbon and hydrogen compounds, but also frequently containing significant amounts of nitrogen, sulfur, and oxygen together with smaller amounts of nickel, vanadium, and other elements. Solid petroleum is called asphalt; liquid, crude oil; and gas, natural gas. Its source is biological. Organic matter buried in an oxygen-deficient environment and subject to elevated temperature and pressure for millions of years generates petroleum as an intermediate in the transformation that ultimately leads to methane and graphite. The first successful drilled oil well came in 1859 in Pennsylvania. This is considered to be the beginning of the modern oil industry. Continuous distillation of crude oil began in Russia in 1875.

Occurrence

Oil is the largest segment of our energy raw materials use, being 40 percent, while coal use accounts for 27 percent, gas 21 percent, and hydroelectric/nuclear 12 percent. Although there are 20,000 petroleum fields known worldwide, more than half of the known reserves are contained in the 51 largest fields. The Middle East has 66 percent of the known world reserves. The United States has only 2 percent of the known world reserves. Hence the need for imports. The Organization of Petroleum Exporting Countries (OPEC) is important to the international trade and distribution of this crude oil. There is a growing dependence of the United States on imports. Although U.S. domestic production has not grown since the 1950s, imports have grown dramatically, from 0.3 billion barrels of oil in 1955 to 3.0 billion barrels in 1997. The United States has increased its percentage of imports, from approximately 13 percent in 1970 to 55 percent in 2000. It uses approximately 18 million barrels of oil per day. Worldwide production is about 56 million barrels per day. With known reserves, this level of worldwide production could remain constant for only 43 years. But there are large volumes of unconventional petroleum reserves, such as heavy oil, tar sands, and oil shale. These are located in the Western Hemisphere. Improvements in recovery methods must be made, and the cost of production must decrease, for these sources to become more important providers of energy.

Composition

Crude oils vary dramatically in color, odor, and flow properties. There are light and heavy crude oils; they are sweet or sour (i.e., have high or low sulfur content, with an average of 0.65%). Several thousand compounds are present in petroleum. The number of carbon atoms in these compounds can vary from one to over a hundred. Few are separated as pure substances. Many of the demands for petroleum can be served by certain fractions obtained from the distillation of crude oil. Typical distillation fractions and their uses are given in Table 1. The complexity of the molecules, their molecular weights, and their carbon numbers increase with the boiling point. The higher-boiling fractions are usually distilled in vacuo at temperatures lower than their atmospheric boiling points to avoid excessive decomposition to tars.

Each fraction of distilled petroleum is a complex mixture of chemicals, but these mixtures can be somewhat categorized. A certain sample of straight-run gasoline (light naphtha) might contain nearly 30 aliphatic (containing no benzene ring), noncyclic hydrocarbons; nearly 20 cycloaliphatic hydrocarbons (mainly cyclopentanes and cyclohexanes), sometimes called

FRACTIONS OF PETROLEUM
Approximate bp (°C) Name Uses
source: Wittcoff, Harold A., and Reuben, Bryan G. (1996). Industrial Organic Chemicals. New York: John Wiley.
<20°C Gases Similar to natural gas and useful for fuel and chemicals.
20150°C Light naphtha (C5C6) Fuel and chemicals, especially gasoline.
150200°C Heavy naphtha (C7C9) Fuel and chemicals.
175275°C Kerosene (C9C16) Jet, tractor, and heating fuel.
200400°C Gas oil (C15C25) Diesel and heating fuel. Catalytically cracked to naphtha and steam-cracked to alkenes.
>350°C Lubricating oil Lubrication. May be catalytically cracked to lighter fractions.
>350°C Heavy fuel oil Boiler fuel. May be catalytically cracked to lighter fractions.
Asphalt Paving, coating, and structural uses.

naphthenes; and 20 aromatic compounds (such as benzene, toluene, and xylene). Examples of compounds found or used in petroleum and mentioned in this article are given in Figure 1.

When any fraction of petroleum is used as a source of energy and burned to CO2 and H2O, the sulfur is converted into SO2 in the air. The SO2 is a major air contaminant, especially in larger cities. With air moisture it can form H2SO4 and H2SO3. Much of the sulfur-containing material must be taken out of petroleum before it can be used as fuel. The current maximum percentage allowable in gasoline is 0.10 percent S.

Octane Number

One cannot talk about the chemistry of gasoline without understanding octane numbers. When gasoline is burned in an internal combustion engine to CO2 and H2O, there is a tendency for many gasoline mixtures to burn unevenly. Such nonconstant and unsmooth combustion creates a "knocking" noise in the engine. Knocking signifies that the engine is not running as efficiently as it could. It has been found that certain hydrocarbons burn more smoothly than others in a gasoline mixture. In 1927 a scale that attempted to define the "antiknock" properties of gasolines was created. At that time, 2,2,4-trimethylpentane (commonly called "isooctane") was the hydrocarbon that, when burned pure in an engine, gave the best antiknock properties (caused the least knocking). This compound was assigned the number 100, meaning it was the best hydrocarbon to use. The worst hydrocarbon researchers could find in gasoline (which when burned pure gave the most knocking) was n -heptane, assigned the number 0. When isooctane and heptane were mixed, they gave different amounts of knocking depending on their ratio: The higher the percentage of isooctane in the mixture, the lower was the amount of knocking. Gasoline mixtures obtained from petroleum were burned for comparison. If a certain gasoline has the same amount of knocking as a 90 percent isooctane, 10 percent heptane (by volume) mixture, we now say that its "octane number" is 90. Hence, the octane number of a gasoline is the percent isooctane in an isooctane-heptane

mixture that gives the same amount of knocking as the gasoline being measured. Thus, a high octane number means a low amount of knocking.

Presently there are two octane scales, a research octane number (RON) and a motor octane number (MON). RON values reflect performance at 600 rpm, 148.8°C (125°F), and low speed. MON is a performance index of driving with 900 rpm, 51°C (300°F), and high speed. The station pumps now give the (R + M)/2 value. Regular is usually 87 to 89 and premium about 92 on this scale.

Certain rules have been developed for predicting the octane number of different types of gasoline, depending on the ratio of different types of hydrocarbons in the mixtures:

  1. The octane number increases as the amount of branching or the number of rings increases.
  2. The octane number increases as the number of double and triple bonds increases.

Additives

In 1922 two chemists working at General Motors, Midgley and Boyd, were looking at different substances that would aid the combustion of gasoline and help the knocking problems of engines. In other words, they were seeking methods of increasing the octane rating of gasoline without altering the

hydrocarbon makeup. They were also interested in cleaning up the exhaust of automobiles by eliminating pollutants such as unburned hydrocarbons and carbon monoxide through more complete combustion. By far the best substance that they found was tetraethyllead. Lead in this form aids in breaking carbon-carbon and carbon-hydrogen bonds . But the lead oxide formed in the combustion is not volatile and would accumulate in the engine if dibromoethane and dichloroethane were not added. In the environment the lead dihalide formed undergoes reaction by sunlight to elemental lead and halogen , both of which are serious pollutants.

For the past several years other additives have been tried. Ethyl alcohol has become popular. When 10 percent ethyl alcohol is mixed with gasoline it is called gasohol and it is popular in states with good corn crops, as the alcohol can be made from corn fermentation. An attractive alternative to tetraethyllead is now methyl t -butyl ether (MTBE). MTBE has been approved at the 7 percent level since 1979. From 1984 to 1995 its production grew by 25 percent per year, the largest increase of any of the top chemicals. The Clean Air Act of 1991 specifies that the gasoline must be at the 2.0 percent oxygen level. Thus, MTBE, ethyl t -butyl ether (ETBE), ethanol, methanol, and other ethers and alcohols had to be added to gasoline at higher levels. The product is called reformulated gasoline (RFG), and it may cut carbon monoxide levels and may help to alleviate ozone depletion. But improved

emission control systems may make this high-level input unnecessary. Currently MTBE accounts for 85 percent of the additive market, with 7 percent being ethanol and the remaining 8 percent split by other chemicals. In 1999 California took steps toward banning MTBE. In 2000 some factions called for a U.S. ban on MTBE and for increased use of ethanol to meet the oxygenate requirement. MTBE has been found in drinking water. But ethanol cannot be blended into gasoline at the refinery because it is hygroscopic and picks up traces of water in pipelines and storage tanks. Also, ethanol shipped away from the Midwest, where it is made by corn fermentation, would add to the cost of gasoline. Gasohol may increase air pollution because gasoline containing ethanol evaporates more quickly. Studies and debate continue.

Refinery Processes

There are processes that are used to refine petroleum into useful products. These are important processes for the gasoline fraction because they increase the octane rating. Some of these processes are used to increase the percentage of crude oil that can be used for gasoline. They were developed in the 1930s when the need for gasoline became great with the growing automobile industry. These processes are also keys in the production of organic chemicals. An example of each of these processes is given in Figure 2. One process is cracking. In catalytic cracking, as the name implies, petroleum fractions of higher molecular weight than gasoline can be heated with a catalyst and cracked into smaller molecules. This material can then be blended into the refinery gasoline feed.

Catalytic reforming leaves the number of carbon atoms in the feedstock molecules usually unchanged, but the resultant mixture contains a higher number of double bonds and aromatic rings. Reforming has become the principal process for upgrading gasoline. High temperatures with typical catalysts of platinum and/or rhenium on alumina and short contact times are used. A typical example is the reforming of dimethylcyclopentane to toluene. Straight-run gasoline can be reformed to as high as 40 to 50 percent aromatic hydrocarbons, of which 15 to 20 percent is toluene.

Although cracking and reforming are by far the most important refinery processes, especially for the production of petrochemicals, two other processes deserve mention. In alkylation, alkanes (hydrocarbons with no double or triple bonds) react with alkenes (hydrocarbons with double bonds) in the presence of an acid catalyst to give highly branched alkanes. In polymerization an alkene can react with another alkene to generate dimers, trimers, and tetramers of the alkene. As an example, isobutylene (C4) reacts to give a highly branched C8 alkene dimer.

Natural Gas

Natural gas can be as high as 97 percent methane, the remainder being hydrogen, ethane, propane, butane, nitrogen, hydrogen sulfide, and heavier hydrocarbons. A typical mixture contains 85 percent methane, 9 percent ethane, 3 percent propane, 1 percent butanes, and 1 percent nitrogen. Uses of natural gas by all industry include fuel (72%) and the manufacture of: inorganic chemicals including ammonia (15%), organic chemicals (12%), and carbon black (1%). The ethane and propane are converted to ethylene and propylene. The methane is purified and used to make a number of other chemicals.

see also Energy Sources and Production; Fire, Fuels, Power Plants; Fossil Fuels; Gasoline; Industrial Chemistry, Organic.

Philip J. Chenier

Bibliography

Chenier, Philip J. (2002). Survey of Industrial Chemistry, 3rd edition. New York: Kluwer Academic/Plenum Publishers.

Wittcoff, Harold A., and Reuben, Bryan G. (1996). Industrial Organic Chemicals. New York: Wiley.

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Petroleum

As early as 4000 bce, petroleum recovered from oil seeps was traded in the Middle East. The Babylonians collected bitumen (asphalt), and, according to Greek observers, used it for caulking, mortar, torches, and medicine. Oil seeps in the Jordan Valley yielded bitumen traded as far away as Egypt. Romans and medieval Europeans used petroleum medicinally. By the eighteenth century, in some parts of Eastern Europe oil was obtained by mining it from shallow shafts; in the 1850s this limited production allowed small-scale kerosene refining in Galicia.

Successful drilling of the first well at Titusville, Pennsylvania, in 1859 revolutionized petroleum recovery and launched the U.S. petroleum industry. Most Pennsylvania production was refined into kerosene. In 1861 the first cargo of barreled kerosene was shipped from Philadelphia to London, beginning the transatlantic oil trade. Kerosene was the largest manufactured export of the United States into the 1880s, with John D. Rockefeller's (1839–1937) Standard Oil dominating manufacture and export. Standard's main market was Europe, but its kerosene also went to Canada, Mexico, India, and the Levant. Usually kerosene was shipped in barrels, but that shipped to the tropics was often canned, since consumers recycled cans as containers and roofing material.

In the 1880s overseas competitors challenged Standard Oil's dominance of world oil trade. Oil-well drilling technology allowed Russian producers to develop fields at Baku and brought Robert (1829–1896) and Ludwig Nobel (1831–1888) to refine kerosene there in the 1870s. Wishing to market their kerosene beyond Russia led them to build the first oil tankers. Railroad and pipeline construction linking Baku to the Black Sea port of Batum in the 1880s made Batum a major oil port. In 1888 both the Nobels and the Rothschilds, who had invested in Russian oil, set up kerosene importing and distributing organizations in the United Kingdom. Standard responded by creating European affiliates and building its own tanker fleet; tankers meant far cheaper, more efficient marine transport of petroleum. Fierce price competition for European markets followed.

To expand beyond Europe, the Rothschilds turned to the Samuel brothers, London merchants who did business throughout the Far East. Marcus Samuel (1853–1927) began sending tankers of Rothschilds's kerosene through the Suez Canal to Asian distributors. Aiming for access to Dutch East Indies oil and broader Asian markets, Samuel joined forces with the Royal Dutch Company in 1901, founding Shell Transport Royal Dutch Company, later Royal Dutch/Shell. A large volume of Asian oil reached world markets and gave Standard aggressive Asian competition. When the Spindletop gusher of 1901 opened huge Texas Gulf Coast production, Samuel was one of the European purchasers launching a lively oil export trade from that region.

After 1900 crude oil and gasoline outstripped kerosene in importance in world markets. Oil for naval use assumed importance in military strategy and added impetus to the search for new reserves. Major arenas opened up in Latin America and the Middle East. In Mexico, President Porfirio Díaz (1830–1915) gave Sir Weetman Pearson (1856–1927) a concession which led to the fabulous Golden Lane discoveries near Tampico in 1910, making Mexico a major producing nation and encouraging exploration in Venezuela. In Iran/Persia, William Knox D'Arcy (1849–1917) received a concession from the shah leading to oil discovery in 1908 and subsequent investment by the British government in the Anglo-Persian Oil Company, the forerunner of British Petroleum. In 1912 Calouste Gulbenkian (1869–1955) organized a group of investors including Royal Dutch/Shell into the Turkish Petroleum Company, which obtained a concession to look for petroleum in what is now Iraq; for his work, Gulbenkian would receive 5 percent of profits. Upon the discovery of oil near Kirkuk in 1927, Gulbenkian became fabulously wealthy.

World War I demonstrated the strategic importance of oil, with U.S. oil a critical element in Allied victory. Postwar fear that U.S. oil was running out encouraged major U.S. companies to move into exploration overseas. Political tension in Mexico discouraged foreign investment there, and in 1938 Mexico nationalized their oil, creating Petroleos Mexicanos (PEMEX). However, during the 1920s Standard Oil of New Jersey and Standard Oil of Indiana joined Royal Dutch/Shell in developing Venezuelan production, and the United States imported an increasing amount of Venezuelan oil. In the Middle East, a consortium of U.S. majors joined Gulbenkian's group to work jointly in the former Ottoman Empire, in an area designated by Gulbenkian drawing a red line on a map—the Red Line Agreement of 1928. During the 1930s Standard Oil of California joined with the Texas Company (Texaco) to start work on an oil concession in Arabia from King Ibn SaEud (1880–1953), a venture which evolved into the Arab-American Oil Company (ARAMCO).

Advances in geology, the application of geophysics to prospecting, and the development of well-logging technology like that introduced by Conrad Schlumberger (1878–1936) helped prospectors bring in tremendous additions to reserves both in the United States and overseas during the 1920s and 1930s, giving multinational oil companies the problem of how to market a flood of oil without cutthroat price wars. A group of major companies attempted to divide up world markets, limit production, and agree on a uniform pricing formula at Achna-carry in Scotland in 1928. Companies agreed to stay with market shares based on 1928 sales and on crude oil prices defined by the U.S. Gulf Coast price plus the prevailing freight rate from the Gulf to specific market destinations. However, because both U.S. and U.S.S.R. production and markets were outside the agreement, Achnacarry did not do what major companies had hoped it would—stabilize market conditions. During the later 1930s, many countries imposed barriers to trade in the form of import quotas, price controls, new product regulations, and higher taxes.

Oil was vital in military strategy in World War II. Acquiring Dutch East Indies production was a major objective of the Japanese Empire; the vulnerability of its tankers to U.S. attack starved Japan of oil and was a major element in its defeat. Similarly, the German campaign in North Africa broke down for want of gasoline. Intense demand for petroleum created by the war continued in postwar years, spurred by tremendous growth in petrochemicals and refining, as well as skyrocketing use of fuel oil, gasoline, and natural gas. To meet soaring demand, oil companies began to draw heavily on the enormous reserves of the Persian Gulf. Independents such as J. Paul Getty (1892–1976) and Armand Hammer (1898–1990) obtained concessions in the Saudi Arabian Neutral Zone and Libya respectively, bringing in giant production. Exploration in sub-Saharan Africa made Nigeria and Angola producer nations. As a result, throughout the 1950s and 1960s cheap oil poured into world markets, fueling economic growth in many countries. However, low oil prices combined with growing nationalism to foster discontent in producer countries over concessions and low oil revenues. Their desire for a common front against oil companies led to the founding of the Organization of Petroleum Exporting Countries (OPEC) in 1960, whose objectives included control of world oil prices and levels of production.

After 1950 Arab-Israeli enmity complicated world oil trade. Closure of the Suez Canal in the crisis of 1956 prompted oil companies to use supertankers to ship Persian Gulf crude to Atlantic destinations. An Arab oil embargo in 1967 was largely unsuccessful, but the Arab embargo of 1973 directed against the United States and several other nations was combined with production cutbacks, resulting in a quadrupling of crude oil prices in six months. Even after the embargo ended, opinion shapers forecast prolonged energy crisis, which encouraged panic buying of oil for storage, in turn further tightening supply and driving prices higher. Not content with higher oil prices swelling revenues, many producer nations moved to nationalize their oil, leaving foreign companies to operate as contractors. With national vendors ready to sell oil to the highest bidder, increasing volumes of oil were traded on the spot market (the market for oil ready for immediate delivery) in oil ports such as Rotterdam, rather than through long-term contracts. In 1983 crude oil futures began trading on the New York Mercantile Exchange (NYMEX), by which time over half world trade in oil was on the spot market. Gone were the days when most world crude stayed within the integrated systems of multinational oil companies and long-term contracts stabilized prices.

Ironically, a decade of high oil prices worked to undermine OPEC and the control of producer nations over world oil. Higher oil prices led to economic recession in the United States and many other countries, decreasing demand. Higher prices also encouraged both conservation and successful exploration and development in high-cost areas such as the North Sea, the U.S. Gulf of Mexico, and the Alaskan Slope. Non-OPEC producers such as Norway, the United Kingdom, and Mexico stepped up their production, undercutting OPEC power over supply. When OPEC tried to prop up prices through production quotas, members often cheated. Oil prices slid downward in 1982 and crashed in 1986, falling from over $30 a barrel to $10 or less, a disaster for both oil companies and producer nations. Since then military action in the Middle East has produced price spikes on the world oil market, but OPEC has not been able to exert much control over prices or production. Nor have conservation efforts made much headway; world demand continues high, and world petroleum prices continue to be volatile.

BIBLIOGRAPHY

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Diana Davids Hinton