Oil and Gas Handbook

1 Introduction

Oil has been used for lighting purposes for many thousands of years. In areas where oil is found in shallow reservoirs, seeps of crude oil or gas may naturally develop, and some oil could simply be collected from seepage or tar ponds.

Historically, we know the tales of eternal fires where oil and gas seeps ignited and burned. One example is the site where the famous oracle of Delphi was built around 1,000 B.C. Written sources from 500 B.C. describe how the Chinese used natural gas to boil water.

It was not until 1859 that "Colonel" Edwin Drake drilled the first successful oil well, with the sole purpose of finding oil. The Drake Well was located in the middle of quiet farm country in northwestern Pennsylvania, and sparked the international search for an industrial use for petroleum.

Tarr Farm, Oil Creek Valley
Photo: Drake Well Museum Collection, Titusville, PA

These wells were shallow by modern standards, often less than 50 meters deep, but they produced large quantities of oil. In this picture of the Tarr Farm, Oil Creek Valley, the Phillips well on the right initially produced 4,000 barrels per day in October, 1861, and the Woodford well on the left came in at 1,500 barrels per day in July, 1862.

The oil was collected in the wooden tank pictured in the foreground. As you will no doubt notice, there are many different-sized barrels in the background. At this time, barrel size had not been standardized, which made statements like "oil is selling at $5 per barrel" very confusing (today a barrel is 159 liters — see units). But even in those days, overproduction was something to be avoided. When the "Empire well" was completed in September 1861, it produced 3,000 barrels per day, flooding the market, and the price of oil plummeted to 10 cents a barrel. In some ways, we see the same effect today. When new shale gas fields in the US are constrained by the capacity of the existing oil and gas pipeline network, it results in bottlenecks and low prices at the production site.

Soon, oil had replaced most other fuels for motorized transport. The automobile industry developed at the end of the 19th century, and quickly adopted oil as fuel. Gasoline engines were essential for designing successful aircraft. Ships driven by oil could move up to twice as fast as their coalpowered counterparts, a vital military advantage. Gas was burned off or left in the ground.

Despite attempts at gas transportation as far back as 1821, it was not until after World War II that welding techniques, pipe rolling, and metallurgical advances allowed for the construction of reliable long distance pipelines, creating a natural gas industry boom. Even now, gas production is gaining market share as liquefied natural gas (LNG) provides an economical way of transporting gas from even the remotest sites.

With the appearance of automobiles and more advanced consumers, it was necessary to improve and standardize the marketable products. Refining was necessary to divide the crude in fractions that could be blended to precise specifications. As value shifted from refining to upstream production, it became even more essential for refineries to increase high-value fuel yield from a variety of crudes. From 10–40% gasoline for crude a century ago, a modern refinery can get up to 70% gasoline from the same quality crude through a variety of advanced reforming and cracking processes.

Chemicals derived from petroleum or natural gas — petrochemicals — are an essential part of the chemical industry today. Petrochemistry is a fairly young industry; it only started to grow in the 1940s, more than 80 years after the drilling of the first commercial oil well.

During World War II, the demand for synthetic materials to replace costly and sometimes less efficient products caused the petrochemical industry to develop into a major player in modern economy and society.

Before then, it was a tentative, experimental sector, starting with basic materials:

  • Synthetic rubbers in the 1900s
  • Bakelite, the first petrochemical-derived plastic, in 1907
  • First petrochemical solvents in the 1920s
  • Polystyrene in the 1930s

And it then moved to an incredible variety of areas:

  • Household goods (kitchen appliances, textiles, furniture)
  • Medicine (heart pacemakers, transfusion bags)
  • Leisure (running shoes, computers...)
  • Highly specialized fields like archaeology and crime detection

As oil prices rose to more than $100 a barrel over the years, even more difficult-to-access sources became economically viable. Such sources include tar sands in Venezuela and Canada, shale oil and gas in the US (and developing elsewhere), coal bed methane and synthetic diesel from natural gas, and biodiesel and bioethanol from biological sources. These have seen a dramatic increase over the last ten years. This has led to an oversupply causing prices to plummet, briefly to less than $ 30 a barrel.

Such cycles have repeated on the average each 7 years since 1974. While prices are likely to recover somewhat in the next few years, falling cost of alternative and renewable energies and international accords on carbon emissions will limit long term demand to less than 60% of historic peak levels. In such a scenario prices may likely not reach historical high levels.

New unconventional and conventional sources may eventually more than triple the potential reserves of hydrocarbos. Beyond that, there are even more exotic sources, such as methane hydrates, that some experts claim can double available resources once more. With falling demand as a fuel, this means that oil and gas will likely be a valuable raw material for many years.

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