Petroleum

1. What Is Petroleum and History of Oil

Petroleum is a fossil fuel. It is called a fossil fuel because it was formed from the remains of tiny sea plants and animals that died millions of years ago. When the plants and animals died, they sank to the bottom of the oceans. Here, they were buried by thousands of feet of sand and silt. Over time, this organic mixture was subjected to enormous pressure, and heat as the layers increased. The mixture changed, breaking down into compounds made of hydrogen and carbon atoms--hydrocarbons. Finally, an oil-saturated rock-much like a wet household sponge was formed.

All organic material does not turn into oil. Certain geological conditions must exist within the oil-rich rocks. There must be a trap of non-porous rock that prevents the oil from seeping out, and a seal (such as salt or clay) that keeps the oil from rising to the surface. Under these conditions, only two percent of the organic material is transformed into oil.

A typical petroleum reservoir is mostly sandstone or limestone in which oil is trapped. The oil in it may be as thin as gasoline or as thick as tar.

Petroleum is called a nonrenewable energy source because it takes millions of years to form. We cannot make new petroleum reserves.

History of Oil

People have used petroleum since ancient times. The ancient Chinese and Egyptians burned oil for lighting.

Before the 1850s, Americans often used whale oil to light their homes and shops. When whale oil became scarce, people began looking for other oil sources. In some places, oil seeped naturally to the surface of ponds and streams. People skimmed this oil and made it into kerosene. Kerosene was commonly used to light America's homes before the arrival of the electric light bulb.

As demand for kerosene grew, a group of businessmen hired Edwin Drake to drill for oil in Titusville, Pennsylvania. After much hard work and slow progress, he discovered oil in 1859. Drake's well was 69.5 feet deep, very shallow compared to today's wells.

Drake refined the oil from his well into kerosene for lighting. Gasoline and other products made during refining were simply thrown away because people had no use for them. In 1892, the "horseless carriage" solved this problem since it required gasoline. By 1920 there were nine million motor vehicles in this country and gas stations were opening everywhere.

2. Producing Oil

Although research has improved the odds since Edwin Drake's days, petroleum exploration today is still a gamble. Geologists study underground rock formations to find areas that might yield oil. Still, even with advanced methods, only about 33 in every 100 exploratory wells have oil. The rest come up "dry."

When oil is found, a petroleum company brings in a 50 to 100-foot drilling rig and raises a derrick that houses the tools and pipes that go into the well. Today's oil wells average 5,000 feet deep and may sink below 20,000 feet.

To safeguard the environment, oil drilling and oil production are regulated by state and federal governments. Oil companies must get permission to explore for oil on new lands. Many experts believe that 85 percent of our remaining oil reserves are on land owned by the federal government. Oil companies lease the land from the federal government, which, in return, receives rental payments for the land as well as percentage payments from each barrel of oil.

Top Producers

Texas produces more oil than any other state. The other top producing states are Alaska, California, Louisiana, and Oklahoma--in that order. In all, 31 states produce petroleum.

From Well to Market

We cannot use crude oil in the state it's in when it comes out of the ground. The process is a little more complicated than that. So, how does thick, black crude oil come out of the ground and eventually get into your car as a thin, amber-colored liquid called gasoline? Let's find out.

Oil Refineries

Oil's first stop outside the well is an oil refinery. A refinery is a plant where crude oil is processed. Sometimes refineries are located near oil wells, but usually the crude oil has to be delivered to the refinery by ship, barge, pipeline, or train.

After the crude oil has reached the refinery, huge round tanks store the oil until it is ready to be processed. Tank farms are sites with many storage tanks.

An oil refinery cleans and separates the crude oil into various fuels and byproducts. The most important one is gasoline. Some other petroleum products are diesel fuel, heating oil, and jet fuel.

Refineries use many different methods to make these products. One method is a heating process called distillation. Since oil products have different boiling points, the end products can be distilled or separated. For example, asphalts have a higher boiling point than gasoline's, allowing the two to be separated.

Refineries have another job. They remove contaminants from the oil. A refinery removes sulfur from gasoline, for example, to increase its efficiency and to reduce air pollution.

Shipping Petroleum Products

After processing at the refinery, gasoline and other petroleum products are usually shipped out through pipelines. There are about 230,000 miles of pipeline in the United States. Pipelines are the safest and cheapest way to move large quantities of petroleum across land. Pump stations, which are spaced 20 to 100 miles apart along the underground pipelines, keep the petroleum products moving at around five miles per hour. At this rate, it takes 15 days to move a shipment of gasoline from Houston, Texas to New York City.

Distributing Petroleum Products

Companies called "jobbers" handle the wholesale distribution of oil. There are 15,000 jobbers in the U.S., and they sell just about everything that comes out of a barrel of crude oil. Jobbers fill bulk orders for petroleum products from gasoline stations, industries, utility companies, farmers, and so on.

The final link in the chain is the retailer. A retailer may be a gasoline station or a home heating oil company. The story ends when you pump gasoline into your car's tank, and the engine converts the gasoline's heat energy into mechanical energy to make your car move!

3. Demand for Oil and Imported Oil

Since World War II, petroleum has replaced coal as the United States' leading source of energy. Petroleum supplies more than 39 percent of the energy used in the United States. (Coal supplies 22 percent of our energy needs, and natural gas supplies 23 percent.)

Americans use almost 17 million barrels of oil (more than 700 million gallons) every day of the year. And experts say we will be using more and more oil, especially for transportation, in the coming years. Even now, we use almost 13 percent more oil for transportation than we did in 1973 when the first oil crisis hit the United States. This is true even though today's automobiles get more than 1.5 times as many miles to the gallon as their 1970s counterparts. There are 50 percent more vehicles on the road today than in the 1970s. Today we use about two out of every three barrels of oil to keep us on the move.

Imported Oil

To satisfy our appetite for petroleum, the United States has become increasingly dependent upon other countries for petroleum. In 1994 we purchased 45 percent of our petroleum from other countries.

Americans know this dependence can be dangerous. We were first alerted to the danger in 1973 when some Arab countries stopped shipping oil (called an embargo) to the United States. These countries belonged to an international trade group called the Organization of Petroleum Exporting Countries or OPEC for short.

OPEC members try to set production levels for petroleum. As a rule, the less oil they produce, the higher the price of oil on the world market. The more oil they produce, the lower the price. The OPEC countries don't always agree with each other. Some OPEC countries want to produce less oil to raise prices. Other OPEC countries want to flood the market with petroleum to reap immediate returns.

Americans learned some lessons from the 1973 oil shock. Gas-guzzling cars became about as wanted as last week's leftovers, and the nation raced to find ways to conserve energy. But more oil shocks followed.

The next shock came in 1978-79 when the Iranian Revolution cut off oil production. Again, world oil prices raced up. Our most recent crisis was the Persian Gulf War. Iraq invaded Kuwait, and again, Americans worried about oil shortages and skyrocketing oil prices.

The U.S. has taken some steps to prevent another big oil crisis. For one thing, the U.S. has almost a three-month supply of oil tucked away in the Strategic Petroleum Reserve (SPR). Established in 1975, the SPR is only to be tapped during an energy emergency. The SPR was first used in January 1991, during the Persian Gulf Crisis.

The United States has also turned to non-Arab and non-OPEC countries for oil imports. Today, we import much of our oil from Canada and Mexico. This is good for us because we have friendly relations with our neighbors, and because the oil doesn't have to be shipped so far. Still, the amount of oil that we can import from Canada and Mexico is limited. By law, Mexico can only export half the oil it produces to the United States.

Even with the SPR and friends in the right places, the United States is not out of the woods. We still buy more than half our imported oil from OPEC countries, 11 percent of which comes from volatile Arab OPEC countries.

Some economists believe the United States is setting itself up for another oil crisis. Other analysts say a true oil shock--like those of the 1970s--is unlikely because the producing nations don't want to drive their customers away or encourage a shift to other forms Of energy.

Still, there are more steps we can take to help ensure our energy security. Depending on whom you talk to--whether an oil company representative or an environmentalist--opinions vary on the one or more steps we should take. Some experts believe we should decrease our demand for oil through increased conservation. Others say we should increase oil production and exploration in the United States, particularly in the Arctic National Wildlife Refuge (ANWR) in northern Alaska. Still others say we should use alternative fuels, especially for transportation. Some experts believe will need to do all three to dodge another big oil crisis.

4. Oil Prices and the Environment

Most of the world moves on petroleum--gasoline for cars; jet fuel for planes; diesel fuel for trucks. Then there is petroleum for running factories or manufacturing goods. That's why the price of oil is so important. Oil prices have declined for the fourth straight year in a row. (In 1994, the price of a barrel of oil was $15.50.)

Low oil prices are good for the consumer and the world economy. Low oil prices act as a check on inflation.

But there is another side--the U.S. oil industry does not prosper during periods of low oil prices. Oil industry workers lose their jobs, many small wells are permanently sealed, and the exploration for new oil sources drops off.

Low oil prices have another side effect. People use more oil when oil products are cheap. This can create a Catch-22 situation because we may depend more and more on foreign oil to keep up with demand.

Oil and the Environment

Petroleum products--gasoline for cars, fertilizers, etc.--have brought untold benefits to Americans and the rest of the world's people. We depend on these products, and, as consumers, we demand them.

But there is a flipside--pollution.

Petroleum production and petroleum products can contribute to air and water pollution. Drilling for oil may disturb fragile ecosystems whether on land or sea. Transporting oil may endanger wildlife and the environment if it's spilled on rivers or oceans. Leaking underground storage tanks may pollute groundwater and create noxious fumes. Processing oil at the refinery may contribute to air and water pollution. Burning gasoline to fuel our cars contributes to air pollution. Even the careless disposal of waste oil drained from the family car can pollute streams, rivers, and lakes.

The situation is far from hopeless though, and many improvements have been made since the passage of the Clean Air Act in 1970. Oil companies have cleaned up their refineries by reducing air and water emissions. Gasolines have been reformulated to bum cleaner, dramatically cutting the levels of lead, nitrogen oxide, carbon monoxide, and hydrocarbons released into the air. And, in response to the oil tanker spill in Prince William Sound, Alaska, in 1989, oil companies formed the Marine Spill Response Corporation to ensure fast and effective clean-up of oil spills.

The situation presents a challenge. The future must balance the growing demand for petroleum products with protection of the global environment.