Você está na página 1de 22

1

CRICOS Provider No. 00126G copyright © The University of Western Australia

BL Oil & Gas History, Economics and Geopolitics OENA8433


Topic 1, Lecture 2: The establishment of oil capitalism in the USA

Dr Karin Oerlemans

CRICOS Provider No. 00126G copyright © The University of Western Australia

1
Unit Overview
ƒ Topic 1: Introduction – The Founders
ƒ Lecture 1: Introduction to course: Oil beginnings
ƒ Lecture 2: The establishment of oil capitalism in the USA
ƒ Lecture 3: The irresistible rise of John D Rockefeller
ƒ Lecture 4: The rise of the multinationals
ƒ Topic 2: The Global Struggle
ƒ Topic 3: War and Strategy
ƒ Topic 4: Oil and Gas Economics
ƒ Topic 5: Oil and Gas Technology in context
ƒ Topic 6: The Energy Industry Today

3
CRICOS Provider No. 00126G copyright © The University of Western Australia

Recommended Reading
ƒ Yergin, D. (1991). The prize: The epic quest for oil, money and
power. New York: Free Press.

ƒ Economides, M. & Oligney, R. (2000). The colour of oil. Katy:


Round Oak.

ƒ Other References:
ƒ “Ancient Chinese Drilling” by Oliver Kuhn, from Geo-X Systems,
Calgary, published in the CSEG RECORDER June 2004.

4
CRICOS Provider No. 00126G copyright © The University of Western Australia

2
Lecture Outcomes
ƒ Upon successful completion of this lecture you should be able
to:
ƒ Be able to relate facts concerning the early development of the oil
industry including its key people and dates;
ƒ Understand the drive for the production of oil and its importance in
establishing America as a global economy;
ƒ Gain an understanding of the contexts of the establishment of oil
capitalism in the USA and globally;
ƒ Begin to gain an understanding of the beginnings of oil economics;
and
ƒ Become aware of the impact of oil on the establishment of other
industries.

5
CRICOS Provider No. 00126G copyright © The University of Western Australia

Lecture Overview
ƒ George Bissell
ƒ Benjamin Silliman
ƒ Colonel Drake
ƒ Drilling for Oil
ƒ Tutisville
ƒ Oil!
ƒ Contexts
ƒ Delivering the oil
ƒ Oil Economics
ƒ Oil Regulations
ƒ Introducing Rockefeller

6
CRICOS Provider No. 00126G copyright © The University of Western Australia

3
First Lecture: Oil Beginnings
First records of oil:
ƒ In antiquity:
ƒ Mesopotamia 3000BC
ƒ China 400BC
ƒ Form of oil was ‘semi solid oozy substance’
ƒ Bitumen or asphalt
ƒ It came to the surface through cracks & fissures - seepage
ƒ Traded through Middle East
ƒ Used (in a limited & unsatisfactory way) for lighting
ƒ Warfare

ƒ Similar bitumen or asphalt seepages in Europe:


ƒ Especially Rumania
ƒ Peasants dug shafts by hand to obtain crude oil, from which
kerosene was refined

7
CRICOS Provider No. 00126G copyright © The University of Western Australia

Oil – Early Production

ƒ Total production (1859) – 36,000 barrels in the year

ƒ Contrast this with daily world consumption today

ƒ 83, 719 Thousand barrels daily

ƒ http://www.bp.com/ - BP Statistical Review of World Energy June

2007

8
CRICOS Provider No. 00126G copyright © The University of Western Australia

4
Oil – The Beginnings of Oil in USA

First records
& uses of
oil in USA:
ƒ Oil
seepages
ƒ Oil Creek
in Western
Pennsylva
nia
ƒ Known as
Rock Oil
©The Prize, D. Yergin, 1991

9
CRICOS Provider No. 00126G copyright © The University of Western Australia

Kerosene
ƒ Fledgling kerosene industry
ƒ Dr. Abraham Gesner
ƒ Vienna lamp was being imported
& improved
ƒ Couldn’t get enough kerosene to
satisfy market demand
ƒ Oil was being collected (Primitive
fashion) mopping up, digging,
skimming, at Oil Creek
ƒ What other source satisfied the
demand for kerosene?
ƒ COAL
ƒ Big advance was DRILLING FOR OIL
Source: www.uq.net.au/ hyperlinked/johnorr/Oil.htm

10
CRICOS Provider No. 00126G copyright © The University of Western Australia

5
George Bissell
ƒ ENTER GEORGE BISSELL
ƒ An extraordinary man (see p20)
ƒ Self supporting from the age of 12
ƒ Worked his way through Dartmouth
College
ƒ Professor of Latin & Greek
ƒ Fluent in French, Spanish, Portuguese
ƒ Read & write Hebrew, Sanskrit, German
ƒ Principal of a high school
ƒ Admitted to bar in NY 1853

11
CRICOS Provider No. 00126G copyright © The University of Western Australia

Pennsylvania Rock Oil


ƒ 1853 – Passing through western
Pennsylvania back to Dartmouth,
saw the primitive gathering of oil
ƒ In Dartmouth, saw a sample of
Pennsylvania Rock Oil brought to
the College by a country doctor
ƒ 1854 – Bissell and law partner, J
G Eveleth, formed first oil
company - Pennsylvania Rock
Oil, Co. incorporated in NY
ƒ 1854 – paid $5000 for a 99 year
lease of 105 acres of land
(Hibbard Farm) in Venango
County, PA, owned by Brewer,
The Tarr Farm
Watson & Co. to collect surface oil From Pennsylvania Historical & Museum Commission,
Drake Well Museum Collection, Titusville, PA
ƒ 1855 – Commissioned Yale’s Source: www.priweb.org/.../ pennsylvania.html
Professor of Chemistry to
determine whether rock oil could
be used as illuminant

12
CRICOS Provider No. 00126G copyright © The University of Western Australia

6
Benjamin Silliman
ƒ Silliman (1816 – 1885) was a
professor of chemistry at Yale
University
ƒ One of the most prominent
chemists of his time
ƒ 1855 wrote a report for $526.08
on Pennsylvania rock oil and its
usefulness as an illuminant
ƒ Distilled oil into different fractions:
ƒ Reported that an excellent
illuminant could be extracted
ƒ Distilled petroleum burned
brighter
ƒ More efficient
ƒ Beginnings of oil refining

Ben Silliman
Source: www.geology.yale.edu/ journals/Ajs.html
13
CRICOS Provider No. 00126G copyright © The University of Western Australia

Boring for Oil


ƒ Could kerosene from rock oil
compete & capture the market?
Need a better way to source oil
than mopping it up with rags.

ƒ HOW?

ƒ Bissell had the insight to try boring


for oil: adapting techniques
developed by Chinese 1500 years
previously, in salt mining Huge underground cathedral in salt mines
Everything is made of rock salt, even the
chandeliers
© 2002 - 2005 TravelBlog and Authors

14
CRICOS Provider No. 00126G copyright © The University of Western Australia

7
Salt Drilling

ƒ Drilling for salt in China - Chinese Town Drilling rigs and wells
ƒ Salt: relics of ancient seas, lakes
ƒ Xinhai Well, has a bore depth of 1,001.4 meters/4,400 feet
ƒ Sichuan Province
ƒ Percussive drilling method – using iron, bamboo and leather
ƒ “Ancient Chinese Drilling” Oliver Kuhn, Geo-X Systems, Calgary,
CSEG RECORDER June 2004
Photo: © David Bloch, 1996, www.salt.org.il/prod.html 15
CRICOS Provider No. 00126G copyright © The University of Western Australia

‘COLONEL’ EDWIN F DRAKE


ENTER ‘COLONEL’ EDWIN F
DRAKE
ƒ Born 1819

ƒ Jack of all trades

ƒ No particular skills!

ƒ Engaged by syndicate to be
the driller

ƒ Dispatched in Dec 1857 to


Titusville on Oil Creek to
secure the site, and to drill
Source: http://little-mountain.com/oilwell/Media/album/drake_pic.jpg

16
CRICOS Provider No. 00126G copyright © The University of Western Australia

8
Titusville, USA
ƒ ‘Colonel’ Edwin Drake

ƒ Titusville, USA, small lumber


town, population 125.

ƒ Title of ‘Colonel’ invented to


impress the local
backwoodsmen

ƒ Billy Smith, driller

ƒ Built derrick, and steam engine


house

ƒ In top hat, stands in front of the


first oil well near Titusville,
Pennsylvania, in 1861 Peter Wilson (left) Local Druggist, Colonel Edwin L Drake (right) Year 1861
Source: http://www.drilshop.com/hallfame/wellsite.html

17
CRICOS Provider No. 00126G copyright © The University of Western Australia

1859
ƒ By this time investors’ patience & money was running out.
ƒ They decided to quit their losses.
ƒ Sent termination instructions to Drake.
ƒ But before letter arrived, Drake struck OIL.
ƒ Date: August 27th, 1859

Source: http://little-mountain.com/oilwell/Media/album/derricks_in_meadow.jpg
18
CRICOS Provider No. 00126G copyright © The University of Western Australia

9
Oil!
ƒ Drake struck oil
ƒ 69 feet
ƒ 25 barrels of oil
ƒ “I claim that I did invent the driving
Pipe and drive it and without that
they could not bore on bottom
lands when the earth is full of
water. And I claim to have bored
the first well that ever was bored
for Petroleum in America and can
show the well”
ƒ (p. 29)

ƒ New problem: How to store oil?


Gathered up every whiskey barrel they
could find/scrounge

Hauling oil barrels ƒ Soon captured the kerosene lighting


Source: http://little- market – US then Europe!
mountain.com/oilwell/Media/album/hauling_oil_wagons.jpg

ƒ Boom times for Titusville: In 15 months


75 wells were producing

19
CRICOS Provider No. 00126G copyright © The University of Western Australia

Oil!

ƒ APRIL 1861: Drillers struck first


gusher – 3000 bopd

ƒ Flooded the market:


ƒ Jan 1861 – $10 per barrel
ƒ Jun 1861 – 50c per barrel
ƒ Dec 1861 – 10c barrel

ƒ Ruined many, but enabled oil


derived kerosene to totally
capture the market
ƒ Dec 1862 – $4 a barrel Early Transportation of Oil
ƒ Sep 1863 – $7.25 per barrel From Pennsylvania Historical & Museum Commission,
Drake Well Museum Collection, Titusville, PA
ƒ 1865 - $13.75 Source: http://www.priweb.org/ed/pgws/history/pennsylvania/pennsylvania.html

20
CRICOS Provider No. 00126G copyright © The University of Western Australia

10
Oil Fever
ƒ The fever that swept America in
the wake of the first oil boom was
captured in the popular music of
the day
ƒ (©The Prize, D. Yergin, 1991)

ƒ Pithole

21
CRICOS Provider No. 00126G copyright © The University of Western Australia

Pithole City
ƒ Oil’s Vanished Boomtown 1865-1879

ƒ Land speculation
ƒ 1865 July farm sold for $1.3 million
ƒ Sept $2 million Pithole City

ƒ Population of 15,000

www.uq.net.au/ hyperlinked/johnorr/Oil.htm
ƒ First successful oil pipeline ran
between Pithole and Miller Farm

ƒ Then the bust – oil production gave


out

ƒ Town abandoned
Pithole City, winter 1865
http://www.oilheritage.com/photo/photogallery.htm
ƒ Land auctioned for $4.37 in 1878

22
CRICOS Provider No. 00126G copyright © The University of Western Australia

11
Review: Lecture so far
ƒ Oil Creek in Western Pennsylvania
ƒ George Bissell
ƒ Benjamin Silliman
ƒ ‘Colonel’ Edwin L Drake

23
CRICOS Provider No. 00126G copyright © The University of Western Australia

Industrial Revolution
ƒ 19th Century Britain
ƒ Introduction of Machinery – steam power
ƒ 1754 Society for the Encouragement of Arts, Manufactures, and
Commerce – London: to encourage “invention”
ƒ Material wealth would increase through greater productivity – the
utilisation of man and machines to produce more goods

ƒ Karl Marx
ƒ Alienation of the workers
ƒ Invention of the steam engine as the beginning of a ‘new era’

ƒ Climax
ƒ 1851
ƒ Crystal Palace – the “Great Exhibition of All the nations”

24
CRICOS Provider No. 00126G copyright © The University of Western Australia

12
Industrial Revolution
ƒ Inanimate Power ƒ Exploitation of Materials
ƒ Steam first, electricity second ƒ Discovery of new materials
ƒ Fundamental to industrialization ƒ Advances in technology, chemistry
ƒ James Watt & Matthew Boulton ƒ Metals (iron), glass, Coal
ƒ Driving machines, railways & ƒ Chemical products – caustic soda,
shipping chlorine (used for bleaching), soap,
dyestuffs, & paints

ƒ Invention & use of Machines ƒ Industrial Organisation


ƒ Complement to or a substitute for ƒ Management and marketing
human labour ƒ Factories (plant)
ƒ Division of labour ƒ Workers (Labour force)
ƒ 1832 Charles Babbage - Analytical
Engine
ƒ Standardization – mass production

25
CRICOS Provider No. 00126G copyright © The University of Western Australia

Immigration
ƒ 1845 – 1855 Potato famine in
Ireland – 1 million people

ƒ 1848 – uprisings – German


Lutherans

ƒ 1860s – Italian, Austrian,


Hungarians and Russians

ƒ 1921 Congress introduction


new bill limiting European
immigration Moveen
This illustration from a report in the Illustrated London News shows the
village of Moveen, near Kilrush in south-west Ireland, in 1849. Many villages
were left deserted as a result of the Irish Famine in the 1840s as families
unable to pay their rent were evicted.

Corbis
Microsoft ® Encarta ® 2006. © 1993-2005 Microsoft
Corporation. All rights reserved.

26
CRICOS Provider No. 00126G copyright © The University of Western Australia

13
Civil War 1861-1865

ƒ Union (North) ƒ Confederacy (South)


ƒ Industrialised – manufactured ƒ Agricultural – sugar, cotton,
goods tobacco
ƒ Banking ƒ Slavery
ƒ Protective tariff, subsidies

Oil company envelopes, 1867 and 1877


Source: http://www.nutmegstamp.com/Baby%2033/B33_03.html

27
CRICOS Provider No. 00126G copyright © The University of Western Australia

Civil War
ƒ Stimulus to industry

ƒ Mechanization of production & accumulation of capital

ƒ Oil business growth

ƒ Turpentine (used for lighting) shipments from South cut off

ƒ Kerosene filled gap

ƒ Oil exports to Europe new source of income

ƒ Many veterans went into oil

ƒ Rose to $13.75 a barrel

ƒ Hundreds of new oil companies

28
CRICOS Provider No. 00126G copyright © The University of Western Australia

14
Delivering Oil Products

29
CRICOS Provider No. 00126G copyright © The University of Western Australia

How to get oil to markets?


ƒ Teamsters with barrels
ƒ Dirt roads, barrels, horse drawn drays
ƒ By road to rail
ƒ Charged exorbitant rates
ƒ Rail to New York

ƒ Introduction of wooden pipelines 1863-65


ƒ Connected to rail
ƒ Rail, canal, primitive pipelines to railheads

ƒ Van Syckle oil pipeline connected Miller Farm on the Oil Creek
Railroad to the U. S. Well, a distance of approximately 6 miles

ƒ 1879 - Thomas Alva Edison invented incandescent lamp


Tidewater Pipeline completed from Bradford to Williamsport - 100
miles

30
CRICOS Provider No. 00126G copyright © The University of Western Australia

15
Railroad
ƒ 1801 Richard Trevithick
ƒ 1825 George and Robert
Stephenson – Blucher,
Locomotion, Rocket
ƒ 1850s 14,500 km in the USA
ƒ 1852 Railroad to the state line
opened in the Oil Regions
ƒ 1869 Lake Shore and Michigan
Southern – formed by merging
the Michigan-Southern and
Northern Indiana Railroad
(Detroit to Chicago), with the
Cleveland and Toledo and the
Buffalo and Erie Railroads into
a system extending from
Buffalo to Chicago
ƒ 1869 US Transcontinental Line
completed at Utah
THE BETTMANN ARCHIVE
Microsoft ® Encarta ® 2006. © 1993-2005 Microsoft Corporation. All rights reserved.

31
CRICOS Provider No. 00126G copyright © The University of Western Australia

Trade with Europe


ƒ Adam Smith (1776), Wealth of Nations
ƒ International trading based on the export and import of cheaply
produced goods
ƒ Increased potential number of markets

ƒ Free trade – interchange of commodities without tariffs, quotas


or exchange controls

ƒ Protection – fostering of domestic industrial or agricultural


production by means of import tariffs or other legal obstacles

ƒ Kerosene – primary trade export commodity

32
CRICOS Provider No. 00126G copyright © The University of Western Australia

16
Early Economics – Boom and Bust
ƒ Sparked an enormous boom

ƒ Gave rise to excessive production, which damaged the reservoir

ƒ Speculators

ƒ 1866-67 depression – Oil @ $2.40/barrel

ƒ 1870s – Stock exchanges developed:


ƒ Spot sales
ƒ Regular sales
ƒ Futures sales

33
CRICOS Provider No. 00126G copyright © The University of Western Australia

Economic Booms
ƒ Boom times for Titusville
ƒ In 15 months 75 wells were
producing
ƒ Refineries established

ƒ April 1861:
ƒ Drillers struck first gusher
ƒ 3000 bopd

ƒ Oil City established


Source: http://little-mountain.com/oilwell/Media/album/oil_city_view.JPG

ƒ 1860
ƒ 15 Refineries in oil regions
ƒ 5 in Pittsburgh

34
CRICOS Provider No. 00126G copyright © The University of Western Australia

17
Oil Busts and Booms
ƒ Oil production abruptly gave out in Titusville – bust

ƒ Booms broke out elsewhere


ƒ Oil production rose to 3.6 million barrels in 1866

ƒ Gave rise to excessive production


ƒ Damaged the reservoirs
ƒ Premature exhaustion of gas pressure
ƒ Less recovery of oil
ƒ Lack of geological knowledge

ƒ Price dropped $2.40 a barrel

ƒ 1860 – 450,000 barrels


ƒ 1862 – 3 million barrels

ƒ Sparked an enormous boom and wealth


ƒ One well produced $15,000 profit for every dollar invested

35
CRICOS Provider No. 00126G copyright © The University of Western Australia

Enormous booms, shattering busts


ƒ What is behind this cycle?
ƒ Avarice, speculation (Gamble!!!)
ƒ Economides and Oligney (p. 43)

ƒ Rule of Capture (Yergin, p. 32)

ƒ Urgent Questions:
ƒ How to ensure price stability?
ƒ What are the mechanisms to ensure order in the industry?
ƒ Who controls the industry?
ƒ Who wins, who loses?

36
CRICOS Provider No. 00126G copyright © The University of Western Australia

18
Stock Exchange
ƒ Needed price stability

ƒ 1870s formal oil stock exchanges in Oil City and Titusville

ƒ Orderly system of trading:


ƒ Spot sales
ƒ Instant transfer of product and $
ƒ Regular sales
ƒ Contracts with agreed price & delivery
ƒ Futures sales
ƒ A certain quantity would be sold/bought at a certain price within a
specified time in the future. Buyer was bound either to take the oil at
the contracted price, or not take the oil & receive the difference
between the contracted price and the market price at settlement.
ƒ Gamble!!

37
CRICOS Provider No. 00126G copyright © The University of Western Australia

Oil – And the Environment

©The Prize, D. Yergin,


381991
CRICOS Provider No. 00126G copyright © The University of Western Australia

19
First Regulations
ƒ 1862 – Pennsylvania Legislature incorporated the Oil Creek
Transportation Company, winning the right to lay pipe along Oil
Creek and to "any point on the Philadelphia & Erie Railroad”

ƒ 1863 - Pennsylvania legislature passed first anti-pollution bill


preventing running of tar and distillery refuse into certain
creeks

ƒ Pennsylvania was responsible for 1/2 of the WORLD'S


production of oil until the East Texas oil boom of 1901

39
CRICOS Provider No. 00126G copyright © The University of Western Australia

Technological Standards
ƒ The "Pennsylvania" standard
rig was the first industry
standard.
ƒ Originally built of wood with a
65-foot to 85-foot tall derrick,
they were well designed to drill
to 2000 feet

ƒ Standard Barrel – 42 gallons

The "Pennsylvania" Standard Drill Rig


http://www.drilshop.com/hallfame/steelrig.html

40
CRICOS Provider No. 00126G copyright © The University of Western Australia

20
Enter John D Rockefeller
ƒ Chapter 2, Yergin

ƒ The single most important


figure
ƒ In shaping the oil industry
ƒ In the history of America’s
industry development
ƒ In the rise of the modern
corporation
ƒ Major impact on American
corporate laws

John D. Rockefeller (1839-1937), industrialist and philanthropist


Copyright 1997 State Historical Society of Wisconsin
Source: http://us.history.wisc.edu/hist102/lectures/lecture05.html

41
CRICOS Provider No. 00126G copyright © The University of Western Australia

In Summary
ƒ Beginnings of the USA oil industry

ƒ Key people, places and events

ƒ Broader issues
ƒ Economic impact
ƒ Health and safety
ƒ Environmental impact

42
CRICOS Provider No. 00126G copyright © The University of Western Australia

21
Lecture Conclusion
ƒ This is the end of Topic 1, Lecture 2
ƒ You may now progress to Topic 1, Lecture 3

43
CRICOS Provider No. 00126G copyright © The University of Western Australia

22