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Three Fabulous Decades

Aug 24, 2007 | Posted in Essays, Progress

THREE FABULOUS DECADES

Sometimes an industry is born, or remade, in full vigor by a single epochal innovation. Thus, C.H. Hall’s electrolytic process of manufacture gave birth to the aluminum industry, and the steel industry was startlingly remade by the adoption of the Bessemer converter. More frequently, however, the rise of an industry depends on the interaction of a large number of factors.

Historians have distinguished four main stages in the growth of a typical industry. The first is that of experimentation, or as Charles F. Kettering put it, the “shirt-losing” period. The second is that of accelerated development-when improvements multiply, prices are reduced, new markets are tapped, and the industry swiftly expands. The third phase is characterized by continued growth at a slackened pace, and the fourth of stability or decline.

If the petroleum industry is to be fitted into this historical framework, the period from 1900 to 1930-indeed, to the centennial of Drake’s well-assuredly falls into the second phase, that of accelerated expansion.

The record of the petroleum industry presents a paradox which sets it apart from most industries. Its supplies of raw materials are limited by nature, yet its development has witnessed a continuous and sometimes spectacular widening of horizons. In the first three decades of the 20th century, for example, the industry’s development was dramatically influenced by the discovery of immense new pools, from Kansas to the “Golden Lanes” in Mexico and from California to Persia; by the introduction of such new refining techniques as the cracking process; by the emergence of eager new demands, ranging from fuel oil for factories to high-octane gasoline for inter-continental airplanes, and by the impact of the First World War, converting an economy of abundance into one of scarcity, which only frenzied effort could satisfy.

Every few years, in effect, the industry was remade. At the beginning of the century, it was still based primarily on the use of kerosene for illumination and was centered in two countries, the United States and Russia. At the end of three decades, the main basis had shifted to fuel oil and gasoline as indispensable agents in all types of transportation and the industry covered most of the globe. Venezuela had shouldered Russia out of second place. Moreover, oil had become so vitally important in both war and peace that all the Great Powers were competing feverishly for control of reserves, and courted small nations holding rich fields or vital pipelines.

When the century began, the American oil industry was exempt from government regulation and few oil men knew the word conservation, but at the end of this period, regulation, taxation, and conservation were among the chief pre-occupations of the industry. In 1990, the men who controlled exploration, refining, and marketing had made only timid approaches to science, but when this enclosed, science was leading the industry with a firm grip.

In the discovery of some of the vaster oil fields, in the swift spread of pipeline systems over half the world, and in the conversion of factories, powerhouses, and every mode of conveyance to oil, change was as magical as if some enchanter had waved his wand. But the wand was really hard, work, courageous acceptance of great risks, incessant experimentation-often blundering, often greedy, often wasteful, but in the main, fruitful-and ever more careful planning. Sometimes the prime mover of change was a shrewd promoter like Everett DeGolyer, sometimes an adventurous prospector like E.L. Doheny, sometimes a scientist like Dr. W.M. Burton, sometimes an international intriguer on a grand scale like C.S. Gulbenkian, sometimes a financier like Sir Marcus Samuel, sometimes a farsighted statesman like Winston Churchill. But four basic trends governed the course of events in this period.

First, the industry, as it attained a position of a world-wide importance, remained American-led, with the U.S. usually furnishing from 60 to 70 percent, or more, of the world supply. Secondly, in America and abroad, the industry passed increasingly into the hands of companies, strong in capital, enterprise, and scientific brains. Thirdly, oil production all over the globe became more and more clearly affected with a national interest of some type, resulting in stricter government oversight at home, and a larger (if sometimes grudging) government support abroad. Lastly, the reign of amateur and improviser steadily gave way, on every front, to the reign of the scientist, the expert technicians, and the business specialist.

The dramatic event with which the century opened, the discovery of rich Spindletop field in the Gulf strip of Texas, seems in retrospect to typify both the end of an old era and the opening of a new one. That strike resulted from the old unscientific hit-or-miss variety of oil prospecting-the belief that “oil is where you find it.” But it showed that the bounds of petroleum resources were wider than people had supposed and that previous estimates of American reserves might be far too low. Though nobody foresaw the day when the U.S. would have hundreds of pools and 569,000 producing wells, a glimmer of that possibility dawned upon observers.

The rapid conversion of this Texas district, so recently devoted to rice, cattle and lumber alone, into a petroleum Golconda, gave Beaumont a place in history with the Cherry Valley, Virginia City, and Deadwood gold camps. Anthony F. Lucas, who on January 10, 1901, brought in the first Spindletop well, revived the excitement of the original Pennsylvania oil strikes. For here was a well such as the country had never before seen, pouring forth 70,000, 80,000, and even 100,000 barrels of oil a day. Even while sweating gangs risked their lives in ten days of prodigious effort to cap the well, the rush of promoters and speculators filed the countryside. They poured into the Spindeltop area by the thousands daily. As a syndicate headed by ex-Governor James S. Hogg paid $105,000 for a little tract that the owner had bought a year earlier for $450, tales of windfall fortunes multiplied. Drillers frantically boring new wells quickly discovered additional fields at Humble, Jennings, Batson, and other places. In 1902, when the Gulf salt domes yielded one fifth of the nation’s oil, their total output exceeded 18 million barrels; in 1905, it went above 28 million. Pipelines shot to the nearest ports and refineries rose above the flat Texas plains.

As significant as these discoveries was the opening of new markets. The Southern Pacific Railroad, in the summer of 1901, bought 500 tank cars and built 50 storage tanks as a step toward converting one of its divisions to oil fuel. The following spring, the United Fruit Company sent a ship to sea with oil under its boilers and announced that three others would follow. Admiral Fisher converted the first ships of the British Navy to oil in 1903 and steadily pressed his program. Already the automotive revolution, too, was gaining momentum. In 1903, Henry Ford organized his motor company; two years later R.E. Olds made 6,500 one-cylinder Oldsmobiles, and in another three years, Ford began quantity production of his Model T. By 1911, The U.S. had 640,000 motor vehicles running about its streets and roads frightening horses and accelerating business. Although many kerosine lamps still twinkled in farmhouses and isolated villages and lanterns were still used on railways and in mines, the era of kerosine was giving way to the faster age of fuel oil and gasoline.

The First World War broke upon the oil industry with the force of an explosion-but a regenerating, not a destructive, explosion. The industry was suffering from over-production. As new southwestern sources had furnished increasingly greater quantities, recurrent oversupply had forced the price of crude oil down to unhealthy levels. It sometimes sold for 50 cents a barrel. For, strike had followed strike: in the Cleveland Glenn Pool fields in Oklahoma, at Caddo Lake in Louisiana, in northern and central Texas, and in 1912 in the Cushing field in Oklahoma again. Each find had its memorable story. The Glenn Pool field, for a time, broke all production records, with only Baku in Russia surpassing it, and made Tulsa one of the oil capitals of the globe. One observer said of the Cushing pool that “it carried battle-scarred oil veterans off their feet,” for its daily output in 1914 approached 280,000 barrels. The flow of American crude oil, in fact, quadrupled between 1900 and the beginning of the war, rising from 64 million barrels to more than a quarter of a billion barrels.

Fortunate it was for the Allied cause that such resources of fuel had been found. For, the British Navy steamed to its stations in 1914 with oil-burning engines and Joffre repulsed the Germans on the Marne with the aid of troops which General Galieni hurried from Paris in taxicabs, trucks and private cars. Gasoline enabled airplanes to take to the skies. Tanks soon tore through the German lines with the same fuel. Diesel-powered ships and lorries carried troops and stores. When in April, 1915, the Cushing field reached a maximum production of 300,000 barrels of oil daily-more than a third of the nation’s output-the Allies had reason to rejoice and the Germans to show concern. Germany’s dependence on the Rumanian fields was not even secured by her occupation of the country in 1916 because the Allies were able to destroy most of the pipelines and refineries. Lord Curzon’s oft-quoted remark that the West floated to victory on a wave of oil was no rhetorical phrase but a sober statement of fact.

When peace came, it was clear that the war had lifted the world to a new plateau of oil consumption. The U.S. had a production of two million motor cars in 1920. Various companies had begun manufacturing tractors after 1905 and wartime demands for greater food production and caused governments to encourage their introduction. Buses were replacing trolleys. Inexpensive automobiles were stimulating the growth of suburbs. And oil was beginning to replace coal for heating houses in these suburbs.

Federal highway aid legislation, starting in 1916, gave the country the beginnings of a decent system of automobile roads. The idea of a roadside service station, where motorists might have their tanks conveniently filed, occurred to several oil companies about 1907. After the war, they spread rapidly. In fact, Standard of Indiana, in the first year of peace, announced that it had organized a chain of 1,500 service stations for the driving public, with many more under construction. Free road maps appeared.

By 1925, the country had approximately 20 million motor vehicles and Henry Ford was soon to reach a total sale of more than 15 million for the Model T alone. The increase in demand for oil, however, was always outdistanced by new spurts in production of crude. In 1922-23, California began to rival the mid-continent region in its total yield and, for a time, upset the market. Only three years later, in 1926, operators opened the Seminole pool in Oklahoma, and by July of the following year, output had soared to 514,000 barrels daily. Drilling methods that left millions of barrels of oil unrecovered in the earth awakened even the most conservative to the necessity for some form of conversation. Then in, 1930, on the heels of the stock-market crash, the largest oil field in U.S. history was discovered in east Texas. Crude oil was selling for as little as ten cents a barrel in the summer of 1931 and the industry faced a really drastic crisis.

After World War I, the availability of oil became increasingly important to countries throughout the world. In the rivalry of the Great Powers for concessions, it was impossible for the U.S. to remain inert. For a time, the British, with no home oil resources, diminishing coal reserves, and imperative naval and industrial needs, displayed the most energy in the search for oil. When the “Golden Lane”, of Mexico was opened in 1910, Sir Weetman Pearson (later Lord Cowdray), obtained valuable concessions. William D’Arcy was the pioneer searcher for oil in Persia and his discoveries led to the rise of the Anglo-Persian Company, in which the British Government, prodded by Winston Churchill and others, took a share. The Royal Dutch-Shell companies, in which Sir Marcus Samuel and Sir Henri Deterding were prominent figures, mobilized British and Dutch capital to gain important exploration and drilling rights in various parts of the world.

Many other men played a role. The fabulous Gulbenkian of the Turkish Petroleum Company figured in the development of Middle Eastern resources. Meanwhile, Germany lost her pre-war holdings, while the Nobel and Rothschild interests in the Baku district saw the Soviet authorities nationalize the field. Nationalization, in fact, became a world-wide movement, giving American and British interests endless trouble in Mexico.

Much of the detail of this international rivalry is tortuous and tiresome; much of it is still unknown. But two great facts emerge from the briefest survey. The first is that although the U.S. started late-for it was occupied with development of its own resources-it finally forged to the front. A group headed by E.L. Doheny played a large part in Mexico, as did a successor group under Robert L. Stewart, in both Mexico and Venezuela; Walter Teagle, T.A. O’Donnell, and A.C. Bedford were pioneers in the Middle East. But the other fact to be remembered is the relatively small size, up to 1930, of the yield in nations outside the U.S. In that year, America produced 63.3 per cent of all the world’s petroleum. Venezuela in second place, and Russia in third, straggled behind with about one-tenth of world output each, while Persia had never reached as much as 3.5 per cent of the total. As yet, American leadership could not be challenged.

In these three crowded decades, all phases of the industry made steady advances technologically. The first step in improved exploration was simply a better use of surface geology. Instead of judging by oil seepages, divining rods, or hunches, prospectors searched for a surface dome or anticline which suggested oil beds below. By World War I, they were using plane tables. After the war, they turned to sub-surface geology, drilling special test wells of narrow bore and studying the cores of rock thus obtained. The use of the seismograph, the electric log for ascertaining the permeability of underground layers, and the aerial camera, still lay ahead, but it was already clear that far more oil pools would be found by using science than by guessing.

New developments in refining were even more spectacular. By early methods, petroleum yielded only one-seventh or one-eighth its bulk in gasoline. Among the able technologists and chemists who tackled the problem of making more gasoline available for the automobile was Dr. W.M. Burton. In 1913, his method of thermal cracking of oil was applied by Indiana Standard. Within a few years, other research workers perfected a continuous thermal cracking treatment in place of Burton’s treatment by batches. In the long run, cracking meant a saving of literally billions of barrels of gasoline.

Fuels, however, had to be constantly improved. One big step in this direction was the discovery that additions of tetraethyl lead to gasoline would reduce “knock.” Later in the 1920’s, high-octane fuel first became available for use in military aircraft.

It was in this period that the relations between the oil industry and the government took a distinctly better turn. At the beginning of the century, the nation’s pipelines already constituted a far-spreading network of about 18,000 miles. The Hepburn Act of 1906 brought them under Federal regulation as common carriers. Five years later, as the culmination of a prolonged Federal suit, Standard of New Jersey was compelled to divest itself of 33 subsidiary companies, and the powerful combination built by John D. Rockefeller and his associates came to an end.

During these three decades, the interest of most oil men in conservation was slight and spasmodic. The alternations of feast and famine, of crude oil oversupply and shortages, were painful, but most producers believed them inherent in the nature of the industry. But the unprecedented oil discoveries in east Texas in 1930, combined with the deflationary consequences of the 1929 stock market crash, found a choice between conservation and control, or eventual ruin.

The more responsible attitude evinced by many Oklahoma and Texas oil men at this juncture, the earnestness of their efforts at voluntary regulation, and the readiness with which they turned to state officials and legislators for help, heartened many observers. The next decade was to see the industry cooperating effectively with the state and Federal governments in protecting and irreplaceable natural resource, and in other ways demonstrating that it was growing to maturity.

In less than a generation, the petroleum interests had written a many-sided record of enterprise, improvement, and service. Chaotic as the history had often been, it was on the whole an impressive exhibition of American energy and resourcefulness, and it was marked by increasing foresight, plan, and reliance upon science.

Reprinted with permission from…

Allan Nevins, 1959, “Three Fabulous Decades", American Petroleum Institute Quarterly – Centennial Issue, pages 21-25. American Petroleum Institute.

Courtesy of the American Petroleum Institute.