Petroleum

The commercial era of petroleum

• The crucial development in energy history was the birth of the commercial era of petroleum, or crude oil
• Excavation, distribution, and use generated prosperity and risk
• U.S. economy and society built around petroleum industry
• Global economy dependent on availability and consumption of petroleum is established
• Five overlapping crises, rooted in the consumption of petroleum:
  • economic crisis
  • national security crisis
  • global climate crisis
  • environmental crisis
  • “peak oil” crisis

Innovation

• The birth and boom of the modern petroleum industry was the result of entrepreneurial and scientific innovation:
  first oil well & mass production of automobile
  • First oil well gave birth to the commercial era of petroleum.
    • August 7, 1859, Pennsylvania, Edwin L. Drake, at a depth of twenty-one meters
  • Mass-produced automobile dramatically increased consumer demand for gasoline.
    • Model T, 1908, Henry Ford

Modern Petroleum Industry

• The goal of the modern petroleum industry is to convert unusable petroleum into the various marketable petroleum products.
• The petroleum industry has developed to perform the exploration, extraction, refining, marketing, and distribution of petroleum and the resultant petroleum products

Exploration and extraction

• Petroleum exploration and extraction, initially concentrated in the United States, eventually shifted to other countries and even offshore
• 1901: Exploration in Texas leads to an oil field that produces the first American gusher
• 1933 : Standard Oil begins prospecting for petroleum in Saudi Arabia. Commercial quantities of petroleum are obtained in succeeding years
• 1968: Alaska’s Prudhoe Bay becomes site of discovery of one of the largest petroleum reserves in North America

Refining

• At a refinery different parts of petroleum are separated into the various petroleum product
• Gasoline and diesel fuel revolutionized transportation sector and transformed agriculture.
  • 187,000 gasoline service stations in U.S.
  • 90% of gasoline produced by U.S. is directed towards the transportation sector
  • transition from manual labor to farm machinery powered by diesel fuel

Marketing, distribution and consumption

• Global shift to petroleum between 1950 and 1973.
  • world production climbed from 10 million to 65 million barrels per day
• World Consumption was 82.3 million barrels per day in 2004.
• U.S. consumed 20.7 million barrels per day.
  • two-thirds helps sustain transportation sector
  • consumption of fuels in the U. S. estimated at 22.8 million barrels per day in 2030
• Petroleum has assumed role of primary commodity of international trade
  • global oil economy has been established
  • U. S. is leading country in importation and consumption of oil
  • Middle East leading global producer and exporter of petroleum

Economic crisis

• “Periodic world oil shocks” jeopardize stability of global economy
• 1973 Oil Embargo
  • result of the Yom Kippar War in the Middle East
  • countries targeted by the embargo experienced oil supply shortages
  • oil prices almost quadrupled
  • New York Stock Exchange experienced $97 billion lose in share value
• Iranian social and political unrest in 1979
  • strikes in petroleum industry
  • reduction of oil production
  • increased oil prices in the world market
• Unrest in Niger Delta indicative of a contemporary global trend
  • attacks against oil companies in area
  • single attack, for example, raises the price of one barrel of Nigerian oil by more than $1.50

National Security crisis

• Dependence on imported oil hints at a national security crisis
• more spent on imported oil from undemocratic countries than on the Pentagon, homeland security, and the war on Iraq
• Saudi Arabia leading producer and exporter of oil with 22.1 percent of world’s proven oil reserves
• Three factors help explain relationship between oil exports and authoritarian rule in Middle East.
• “rentier effect:” through oil revenues, Middle Eastern countries demonstrate less accountability
• “repression effect:” oil wealth helps authoritarian governments guard, literally, against aspirations for democracy
• “modernization effect:” development in region that comes from oil revenues does not yield the social and cultural development synonymous with democracy

Climate and Environment Crisis

• Process of finding, producing, moving and using petroleum and petroleum products has introduced a climate and environmental crisis
• Oil spills
• Urban air pollution
• global warming

Solution: Peak Oil?

• Peak oil suggests that the world rate of petroleum production cannot increase and, instead, will decrease with time
• U.S. production peaked in 1970 and has declined since
• In global terms, production peaked as recently as 2005
• Possible consequences: increasing gasoline prices; global economic depression
• Peak oil might just be the solution to global warming: hike in fuel prices makes the emission of carbon more expensive and drives the need to invest more readily on alternative and renewable energy sources
• To the environment’s benefit, “the rules of geology cannot be broken;” humanity will have to, like it has so many times before, rely on its ingenuity and in the process, possibly save the planet