PETROLEUM, ITS HISTORY AND DISCOVERY, OPEC AND THE OIL CRISIS

PETROLEUM

Petroleum is arguable the most important substance on earth and one of the most cursed. It Oil has lit up homes, generated jobs and given humanity wheels and wings but it has also produced global warming and environmental degradation, made people lazy and fat, and fueled wars and Islamic fundamentalism.

Petroleum is particular well suited for running motor vehicles and is also useful in heating homes, generating electricity and making petrochemicals. Without it modern transportation, heating and industry would not function and society would be forced to return to the 19th century when petroleum had not yet had a significant impact on the world.

Petroleum is a substance made from hydrocarbons---chains of hydrogen and carbon atoms--- that provide energy and can be made into a variety of petrochemicals. Much of the world’s oil began as organic material from ancient seas, wetlands and forests that was buried under sediments faster than it could decay. At depths between 7,650 and 15,000 feet, heat and pressure slowly cooked it into oil. The oil then collected in porous sandstone or limestone with impermeable cap such as shale or salt that kept it from escaping. Oil that does escape is often downgraded into tar by bacteria and groundwater.

Oil is a finite resource. A considerable amount of it has already been used up and no one knows for sure how much is left. The consensus is that there is about 500 billion barrels of difficult to find oil still out there that has yet to be discovered---perhaps half of that is below the oceans. Add this 500 billion barrels to 900 billions barrels of proven reserves of oil we already know about it, and divide this by the current annual rate of world consumption---20 billion barrels---and you come up with 70 years of oil left.

According to the Department of Energy (DOE), fossil fuels (including coal, oil and natural gas) makes up more than 85 percent of the energy consumed in the U.S. as of 2008. Oil supplies 40 percent of U.S. energy needs.

Websites and Resources: American Petroleum Institute api.org ; Investopedia Oil Handbook investopedia.com/features/industryhandbook/oil_services.asp ; Petrostratgies Learning Institute petrostrategies.org/Learning_Center ; U.S. Energy Information Administration eia.doe.gov/petroleum ; New York Times article New York Times ; Wikipedia article Wikipedia ; Oil. com oil.com ; Petroleum Online petroleumonline.com ; Natural Gas.org naturalgas.org

Book: The Prize by Daniel Yergin.

Petroleum in the Ancient World

The first references to oil were made on cuneiform tablets in Babylonia in 2000 B.C. It was referred to as naptu , which means "that which flares up." Naptu was used in construction, road building, waterproofing, skin ointments and cements. One cuneiform tablet from that era read: "If a certain place in the land naptu oozes out, that country will walk in widowhood. If the water of a river bears...oil, want will seize on the peoples." Another states: "May donkey urine be your drink, naptu your ointment."

In the 5th century B.C. Herodotus described a famous spot in Persia where oil oozed from the ground. He wrote that a man with a wineskin "makes a dip with this, draws the liquid up, and then pours it over the receptacle, from there it passes into another, where it turns into three different shapes; the salt and the asphalt solidify while they collect on clay containers."

In ancient times oil came primarily from seepage. No one thought of drilling for in the ground until the 19th century. In the 1st century B.C., the Greek historian Diodorus wrote: "of all the marvels of Babylonia the most amazing is the mass of asphalt produced there...Uncountable numbers of people have drawn from it, as from some vast spring, yet the supply remains intact."

In the 1st century A.D., the Greek geographer Strabo wrote: "if naphtha is brought near a flame, it catches fire, and if you smear some on the body and come near a flame, the body will catch fire. It cannot be quenched with water---it just burns harder---unless a whole lot is used, but it can be smothered and quenched with mud, vinegar, alum or birdlime."

Romans burned petroleum in the their lamps instead of olive oil. The Byzantines used naptha for their Greek Fire weapons.

Greek Fire and Flame Throwers

The Byzantines discovered that by adding sulphur or quicklime and saltpeter to naptha they could create a material capable of spontaneous combustion and produce bombs that could be thrown at enemies that would explode on impact. This napalm-like "Greek fire" was used in A.D. 673 and 678 to fend off attacks on Constantinople by Arabs.

In 10th century the Byzantines invented the flame thrower, a powerful secret weapon that changed the nature of warfare. The devise used Greek fire that was preheated under pressure and discharged in liquid form with pump-powered, syringe-like bronze tubes. It was used primarily in sea battles, when it incinerated wooden ships and their crews and even spread fire on the water. Russia's Prince Igo purportedly lost 10,000 vessels to Greek fire in a battle in 941.☼

Fire weapons made Byzantine ships masters of the sea for centuries. Byzantine war ships were outfit with catapults used to fire "Greek fire" grenades and cannons. Greek Fire was also used on land: pressurized siphons were fired at forts, squirt guns and ceramic hand grenades were used at close range in hand-to-hand battles,

The recipe for Greek Fire was a carefully guarded secret. It is believed that early versions were devised by Callinicus, a A.D. seventh-century engineer from Syria, where people had been using flammable petrochemicals for some time. Scholars are still not sure of the ingredients. It was likely a highly combustible mixture of quicklime, sulphur, naptha and saltpeter. It was particularly nasty because it clung to whatever it touched and was not quenched by water. Clothing and ship sails were often ignited and people could not put out the fires by jumping into the sea.

The use of Greek Fire was regarded with horror and moral disgust. There is no mention of it from A.D. 800 and 1000 and some scholars believed it may have been banned because it was "too murderous."

Discovery of Petroleum in the Ground

The petroleum industry did not begin for all intents and purposes until 1859, when a retired conductor known as "Colonel" Edwin L. Drake made the first attempt to tap underground oil, in Titusville, Pennsylvania. Before Drake nobody had ever thought of drilling a hole in the ground to look for oil. Nobody is sure what gave Drake the idea. He had been hired by a Connecticut oil firm to survey an area near Titusville Pennsylvania. He bought an eight horsepower steam engine and commenced driving sections of six-inch cast-iron pipe into the ground. After looking for several weeks he struck oil on August 27, 1859 with a hole 69.5 feet deep.

Canadians claim they discovered oil. In 1858, Miller Williams decided to dig a well for drinking outside the town of Beaver Creek, Ontario and struck oil.

Before drilling began petroleum was known as “rock oil” to differentiate from vegetable oil and animal far. Sources that seep out at the surface were sopped up with rags and wrung out and sold mostly a headache remedy and was also prescribed for deafness.

During the mid 19th century the Industrial Revolution was rapidly gaining momentum and there was a demand for a new sources of oil for lubrication and for lighting, which at time came mainly from whale, vegetable and animal oil. Coal was the main fuel and energy source. Petroleum was a lubricant that sold for the equivalent of US$330 a barrel in today's money.

Drake’s achievement was heralded primarily as the discovery of a cheap lubricant. Derricks began popping up all over Pennsylvania as lamp fuel from whale blubber became scarce and petroleum served as a cheap. But Overproduction drove the price down so far at one point that the wood in a barrel was worth twice as ouch as the oil in it.

Demand for petroleum as a highly-combustible fuel didn't really begin until the increased use of automobiles in the early 1900s---especially after the introduction of the Ford Model T in 1908---and they developed of the commercially successful "cracking" process to obtain high-octane gasoline in 1913.

The first pipelines were built from wood to relieve congestion caused by horse-drawn, fueling-carrying wagons, A network of pipeline was built in the Northeast United States in the 1987s and 1880s, around the same time the first tankers entered the Suez Canal John D, Rockefeller used pipelines help Standard Oil of gain control of 90 percent of the U.S. oil-refining until the company was broken up in 1911. In 1940, the United States produced 63 percent of the world’s oil.

Oil Crisis and Oil Embargo

King Faisal played a major role in the 1973-74 oil embargo in which the Arab nations hope would force the West to take a more ant-Israeli position. He was involved in a similar effort during the Six-Dar War in 1967

The Arab countries announced an oil embargo against the Europe on October 17, 1973, ten days after the beginning of the Yom Kippur War, in order to raise prices and pressure the United States into reevaluating its position on Israel. It ended in March 1974.

Saudi Arabia imposed a total embargo on the United States and Netherlands because they were regarded as the most friendly to Israel.

The oil embargo caused an Energy Crisis. The price of oil soared; there were shortages and gas lines throughout the world. Efforts to conserve energy, search for alternative energies and get gas guzzlers off the road dates back to this period.

The oil embargo made Saudi Arabia into a major Middle Eastern power and a country that the world was forced up to and recognize.

The price of oil quadrupled. Money went to the oil-producing states who made heaps as they increased production. Saudi Arabia did particularly well because it controlled 30 percent of OPEC’s total production. Between 1973 and 1980, Saudi Arabia’s oil revenues soared for $4.3 billion to $90 billion. The growth rate averaged more than 10 percent a year. GDP per capita peaked at $28,600 in 1980 (it the now a forth of that).

A second oil shock occurred after the 1978 and 1979 revolution in Iran when that country cut off its oil exports and consumers and companies went on a spree of panic buying. Crude oil prices topped $80 barrels in today’s dollars. The high oil prices spurred development of new oil fields. There was so much development in fact that supply increased through the 1980s that there were oil surpluses and the price of oil fell. See Oil Prices Below.

OPEC

The Organization of Petroleum Exporting Countries (OPEC) is an intergovernmental organization dedicated to the stability and prosperity of the petroleum market. OPEC membership is open to any country that is a substantial exporter of oil and that shares the ideals of the organization. Output quotas placed by OPEC can send huge shocks throughout the energy markets.

OPEC was founded in Baghdad in 1973 and is headquartered in Vienna , Austria. The 13 members of OPEC---1) Saudi Arabia, 2) Iran, 3) Algeria, 4) Iraq, 5) Kuwait, 6) United Arab Emirates, 7) Qatar, 8) Libya, 9) Gabon, 10) Indonesia, 11)Venezuela, 12) Nigeria, 13 Ecuador---produce 60 percent of the world’s exported oil. Major Non-OPEC members include Russia, China, Kazakhstan, Canada, Angola, Azerbaijan, Norway, Mexico and Oman.

Saudi Arabia is widely regarded as most powerful member. the It's production in 2001 was 7,865,000 barrels per day, compared to 3,552,000 barrels per day for Iran, the second largest OPEC producer and 773,000 barrels per day for Algeria.

OPEC sets is production quotas in accordance with prices to main prices and nudges them upwards or downwards and make sure there is enough of supply to keep customers happy and the economy humming along.

Saudi Arabia has traditionally OPEC. It is regarded as OPEC’s “swing producer” adjusting it production levels in response to fluctuations in the world market. It absorbs reductions and boosts production in accordance with supply and demand.

OPEC members are known more for squabbling among themselves and looking out for their individual interest than doing what a cartel is supposed to do: look out for the collective interests of its members. Their main points of contention are production levels. According to the laws of supply and demand, the lower the levels the higher the prices the go but more an individual country process the more money it makes

Website: www.opec.org

History of OPEC

The original OPEC members were Saudi Arabia, Kuwait, Iraq, Iran and Venezuela. Later they were joined by Qatar, Indonesia, Libya, the United Arab Emirates, Algeria, Nigeria, Ecuador and Gabon.

In October 1973, OPEC decreed that members would set their own price. Crude oil prices skyrocketed from around $3 a barrel to $11.65 within three months.

Former Venezuelan oil minister Juan Pablo Perez Alfonzo is considered by many to be the father of OPEC. Commenting on its effect on the modern world he once called oil “the devil’s excrement.”

OPEC’s power diminished as its control on the oil market shrunk from 55 percent to 25 percent at the same time consumption rose. In the United States, consumption rose 25 percent between the mid 1980s and the early 2000s.

Image Sources:

Text Sources: World Almanac, United States Geological Survey (USGS) Minerals Resources Program, Investopedia Industry Handbooks, U.S. Energy Information Administration, Department of Energy and National Geographic articles. Also the New York Times, Washington Post, Los Angeles Times, Smithsonian magazine, Natural History magazine, Discover magazine, Times of London, The New Yorker, Time, Newsweek, Reuters, AP, AFP, Lonely Planet Guides, Compton’s Encyclopedia and various books and other publications.

Last updated March 2011


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