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Gale Encyclopedia of US History:

Petroleum Industry

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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 tempera
ture. 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 rea
ch 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 Ang
ier 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 t
wenty 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
Jonath
an 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. Repor
ts 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 Pennsylva
nia, 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 a
t 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 produci
ng 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 dr
illing 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 worki
ng 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 State
s 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 a
s 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 t
he 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 o
f 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
transportat
ion, 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 m
eans 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
develop
ed 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 ter
minal. 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, wi
th 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 anot
her 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 lon
g 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 Rockefelle
r, 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 Eas
t 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, follow
ed 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 t
he 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, o
ne
-
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
th
e 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) nat
ions 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 addres
s 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 im
ports 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 resourc
es. 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 situa
tion 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 t
o 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. Al
ong 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. How
ever, 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 administr
ation 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 t
ax 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 Wi
ldlife 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 restrictio
ns 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 autom
obiles 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 distri
bution 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 pet
roleum
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 St
ates 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
d
iscoveries 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 Fasci
nating 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 Bigg
est 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.