WK10: Part 3: Petroleum: Modern history of oil on a Map

Petroleum: A Comprehensive Overview

Introduction to Petroleum (Crude Oil)

• Petroleum, or crude oil, is a fossil fuel formed from organic matter over millions of years, transforming into hydrocarbons.
• Crude oil deposits are generally buried but can sometimes appear on the Earth's surface.
• Historically, oil was used as a sealing material in construction and for medical purposes since ancient times.
• The large-scale consumption of oil began in the mid-19th century.

Early Consumption and the Industrial Revolution

• Europe and North America experienced rapidly increasing energy demands during the Industrial Revolution, primarily met by coal.
• Interest in oil intensified globally, leading to the emergence of the first modern drilling locations from the Russian Empire to Europe and North America.
• The United States experienced a "black gold" rush, becoming the largest oil producer.
• Initially, distilled oil replaced whale oil in lamps due to its better calorific value and ease of transport compared to coal and gas.

Rise in Oil Consumption

• Oil consumption increased in the early 20th century, especially in transport, with the development of the automobile, ship engine reconversion, and aviation boom during World War I.
• Crude oil is distilled in a refinery to separate hydrocarbons.

Distillation Process

• Liquefied Petroleum Gases (LPG):
  • Evaporate at around $20$ degrees Celsius.
  • Used in lighters and kitchens.
• Gasoline:
  • Produced between $30$ and $105$ degrees Celsius.
  • Used for cars.
• Naphtha:
  • Created between $105$ and $160$ degrees Celsius.
  • Used in petrochemicals to create plastics, synthetic textiles, drugs, and cosmetics.
• Kerosene:
  • Obtained between $160$ and $230$ degrees Celsius.
  • Used for aviation.
• Diesel:
  • Created between $230$ and $425$ degrees Celsius.
  • Used for cars and domestic heating.
• Heavy Fuel Oil & Bitumen:
  • Thick, high-sulfur residue heated above $450$ degrees Celsius.
  • Heavy fuel oil is used by ships.
  • Bitumen is used for road construction and roofing.

Oil Trade and Global Expansion

• Crude oil was transported in barrels with a capacity of $42$ US gallons (approximately $159$ liters).
• The barrel became the standard unit for setting oil prices.
• New oil deposit discoveries were made worldwide, including in Venezuela, which became the second-largest global producer.
• Western companies seized new markets in the Middle East, sharing profits with local countries through royalties.
• During World War II, demand for oil skyrocketed, making it a major international issue.
• The United States signed an alliance with Saudi Arabia, guaranteeing security in exchange for privileged access to its oil.

Nationalist Movements and Control of Oil

• Western companies' dominance contributed to nationalist movements in producer countries.
• Saudi Arabia secured an agreement for $50\%$ of oil profits.
• In Iran, failed negotiations with the Anglo-Persian Oil Company led to nationalization, followed by a US and UK-organized coup to overthrow the prime minister.
• The Shah of Iran allowed oil exploitation by a consortium of Western companies.
• The USSR invested in exploiting oil fields in Western Siberia.
• Cheap oil overtook coal as the primary energy source, with prices remaining below $3$ dollars a barrel.

Formation of OPEC

• Five major oil-producing countries united to form OPEC (Organization of Petroleum Exporting Countries) to counter Western companies' dominance, increase oil prices, and establish a common policy.
• New nations gradually joined OPEC.
• In 1972, the United States reached peak production and began importing oil.
• As the United Kingdom withdrew from the Middle East, security was provided by Iran and Saudi Arabia, armed by the West.

Oil Crises and Alternative Investments

• During the Yom Kippur War, OPEC used oil as a political weapon, imposing an embargo on Israel's allies and slowing production to inflate prices, causing the first oil crisis.
• Countries reduced oil consumption and invested in alternatives, such as nuclear, hydro power, and coal.
• Oil companies explored for new deposits, discovering offshore sites, particularly in the North Sea.
• The Soviet Union became the largest oil producer, while the United States increased production with Alaskan oil.
• The Iranian Revolution in 1979, which overthrew the Shah and established an anti-Western Islamic republic, led to the second oil crisis due to decreased oil production.

Geopolitical Tensions and Market Shifts

• Tensions between Iran and Iraq led to an eight-year war.
• Non-OPEC oil production rose, exceeding OPEC countries, leading to supply and demand determining barrel prices.
• Stability in the Middle East remained a priority for industrialized countries.
• Western military vessels intervened to ensure oil supply when Iran and Iraq targeted oil facilities in the Persian Gulf.
• Iraq invaded Kuwait following a border dispute, leading to an international coalition led by the United States intervening to neutralize the Iraqi army.

US Influence and Market Consolidation

• The United States established a permanent presence in the Middle East, installing military bases and signing defense agreements with Gulf monarchies.
• Embargoes were imposed against Iran and Iraq.
• Saudi Arabia flooded the market to become the largest crude producer.
• New investment revived the oil industry in Russia.
• Low oil prices and unprofitable offshore operations led to mergers, creating six giant oil companies.

Post 9/11 Era

• The US sought new sources to reduce oil dependency on Saudi Arabia after the September 11, 2001 attacks.
• Production accelerated in Africa after the discovery of large offshore fields off the Gulf of Guinea.
• The United States invaded Iraq under the pretext of its war against weapons of mass destruction, bringing Iraqi oil back to the international market.
• Iran opened its market to rising Asian powers like China and India.
• Abundant oil stimulated economic growth, mainly in emerging countries, and Wall Street traders speculating on black gold pushed prices upward.
• The 2008 financial crisis caused a sharp drop in prices.

Unconventional Oil and Environmental Concerns

• Venezuela discovered it held the largest known oil reserves, surpassing Saudi Arabia.
• Increased global demand led to rising oil prices, making unconventional exploitation profitable.
• Oil companies exploited oil sand deposits in Canada and Venezuela, razing forests and using expensive, polluting techniques to transform thick bitumen.
• Offshore drilling provided $30\%$ of global production, with companies exploiting deeper deposits.
• The deepest borehole attempt in the Gulf of Mexico failed, causing a significant oil spill.
• Improved technologies like fracking made it possible to pump shale oil in the United States, leading to a production boom.

Market Strategies and Environmental Impact

• Saudi Arabia aimed to make unconventional oil production unprofitable by dropping prices, persuading OPEC to flood the market.
• The US oil industry resisted and continued to increase production.
• World consumption approached $100$ million barrels per day, with the transportation industry being the main emitter of $CO_2$.
• Heavy fuel oil used by ships emitted $3,500$ times more sulfur than diesel fuel, causing severe air pollution, leading to the creation of prohibited zones in the United States and Europe.
• Numerous oil spills caused major environmental damage, with the Niger Delta being the most affected region with largely ignored spills over $60$ years.

Recent Trends and Future Prospects

• Saudi Arabia is diversifying investments to prepare for the post-oil era.
• Iran faces sanctions imposed by the United States aimed at limiting its oil sales.
• Venezuela suffers from low oil prices and political instability, impacting exports.
• Oil companies remain among the most powerful entities, with five of them in the top $10$ global companies with the highest turnover in 2017.
• The International Maritime Organization set goals to reduce sulfur emissions for vessels by 2020, potentially increasing demand and prices for other hydrocarbons.
• Higher barrel prices could restart unconventional oil exploitation, including in the Arctic, with melting polar ice caps opening new areas for exploration.
• IPCC experts are calling for drastically reduced $CO_2$ emissions to limit global warming, yet enough oil has been found to continue for at least another 50 years at current rates.