Industry Market Trends
How Oil Refining Transformed U.S. History & Way of Life
January 17, 2003
In 1859, two separate events would jumpstart the petroleum and the auto industriesand the timing was pure coincidence. In that year, "Colonel" Edwin L. Drake drilled the world's first working oil well in Titusville, Pennsylvania, and French engineer J.J. Etienne Lenoir made the world's first dependable internal combustion engine, which was powered by gasoline.
Col. Drake's oil well kicked off the petroleum industry, and Lenoir's work paved the way for the creation of the modern automobile. But 40 years would pass before the interdependency of the oil and auto industries would become clear.
That early period from 1860 to 1900 was marked by many technological innovations as auto inventors sought to tap the potential of the internal combustion engine, and petroleum pioneers got better at producing, refining and delivering oil and oil products. Oil industry entrepreneurs such as John D. Rockefeller and Henry Flagler discovered new oil fields, drilled deeper oil wells than Col. Drake's first 70-foot well, and made great strides in both refining and distributing refined products.
The first oil refinery, which used atmospheric distillation to produce kerosene, was constructed in 1862. Naphtha (gasoline) was a byproduct of these early distillation units, and in a few decades, would emerge as their most important product.
But first, the oil industry would have to languish through the boom-and-bust cycle of the latter part of the 19th century. Aside from wildly fluctuating oil supplies and prices, refiners struggled with Standard Oil's domination of railthe main mode of transportation for crude oil and refined products at the time. When inventory threatened to overwhelm storage capacity, independents and Standard Oil (which would be broken up in 1911) undersold each other in the market, often selling refined products, especially gasoline, at below cost.
But the automobile's rise in the early 19th century bolstered oil demand. While the country only had roughly 8,000 passenger cars at the turn of the century, by 1908, the year that Henry Ford's Model T made its market debut, that figure had swelled to 125,000.
By 1911, gasoline dethroned kerosene, used for lighting, as the top-selling product of Standard Oil of New Jersey, the country's largest refiner. Kerosene's slide was also hastened by the 1910 invention of the tungsten filament for electric light bulbs by William David Coolidge.
Refiners met the skyrocketing demand for motor fuels by advancing beyond the basic distillation processes that had been in use since the 1860s. In 1913, they developed thermal cracking, which was able to produce more gasoline and diesel from a barrel of oil, and the technique was only the first of many processing innovations that allowed refiners to fulfill market needs.
World War I further established oil's importance. England's oil-powered warships overtook Germany's coal-powered fleet. Tanks and airplanes made their debuts as weapons of war. During the time, aviation fuel was basically naphtha. To keep Allied war vehicles running, major U.S. oil companies teamed up with the Federal Fuel Administration in 1917 to systematize oil production, refining, and shipping.
The country emerged from the war to enjoy a period of economic growth. And much of the prosperity was linked to the rapid road and bridge construction that gave America's automobiles a place to go. From 1920 to 1930, the number of cars owned by Americans jumped from 8.1 to 26.7 million. The Great Depression put a dent on vehicle sales, especially during the early 1930s, but the auto industry was definitely rolling.
Oil companies prospered along with automakers. Refiners built more refineries and expanded existing facilities. They also improved thermal-cracking techniques and developed other catalytic processes to produce high-grade products. High-octane gasoline emerged in the 1930s from refiners' tireless efforts, and it would play a role in World War II.
Running on high-octane fuel, which optimizes engine performance, Allied planes outmaneuvered German planes using inferior fuels. And U.S. oil refineries kept the Allies' fuel supply comingproviding them with as much as 80% of the fuel they used during the war. Even Joseph Stalin said in a toast during a banquet toward the end of the war, "This is a war of engines and octanes. I drink to the American auto industry and oil industry."
Another important development during the war was the building of long-distance pipelines. By that time, crude and product pipelines had overtaken rail tankcars as the main method of transporting liquid hydrocarbons. In 1942 and 1943, engineers built what was then the world's longest crude oil pipeline dubbed "The Big Inch," which spanned 1,254 miles and moved crude from Texas oil fields to East Coast refineries. "The Big Inch" was followed by "The Little Inch," which transported products along a similar route. These two pipelines form part of the Colonial Pipeline system today.
After World War II, the U.S. became a world superpower and created as much wealth between 1950 and 1965 as it did from 1607, the year that saw the first permanent settlement in Virginia, until 1950. And national wealth doubled again from 1965 to 1980. Not only did the hydrocarbon industries benefit from Americans purchasing more than 8 million new cars per year in the 60s, but also started to count on commercial jets as big consumers. Jet fuel demand took off from about 50,000 bpd (barrels per day) in 1950, to 280,000 bpd by 1960, and 970,000 bpd by 1970.
The 1970s were a more sobering time, as the detrimental effect of industrialization on the environment took root in the general public's consciousness. Environmental studies proved disturbing as well as a 1969 accident on a Union Oil rig, which produced a large oil slick off the coast of Santa Barbara, California. The government championed the cause of the environment, created the Environmental Protection Agency (EPA) in 1970, and pressured the refining industry and automobile manufacturers to clean up their act.
That time period also highlighted another challengefuel economy. The United States had to acknowledge its growing dependence on imported oil. Production of petroleum (crude oil and natural gas liquids) in the country's lower 48 states hit its height in 1970 at 9.4 million bpd. And the shockingly disruptive effect of the 1973 embargo of oil imports by the Organization of Petroleum Exporting Countries (OPEC) drilled home that dependence and stressed the need for fuel efficiency.
Once again the fuels and auto industries' priorities overlapped and over the next 30 years, their individual and joint research and development efforts would produce superior engines and cleaner-burning fuels. For example, they raised the average fuel economy of new light-duty vehicles from 13.7 mpg (city driving) in 1975 to 24.2 mpg in 1988. And also claimed another remarkable achievementthe complete phase out of lead from gasoline.
Today's cars release 97% less pollution than they did in 1965, says the EPA. In fact, total U.S. vehicle emissions have decreased by over 30% even though Americans have never done more drivingalmost 140% more today than they did in 1970.
And refiners are now working on even cleaner-burning fuels to satisfy government mandates that call for the elimination of nearly all remaining emissions from light-duty vehicles. In short, the refining industry will have to do what it has since the beginningtake on the challenges of the day and overcome them through innovation.
Source: Oil Refining Changes Transportation, History, and Ways of Life
Chemical Week, Sept. 18, 2002