THE LIBRARY OF THE UNIVERSITY OF CALIFORNIA LOS ANGELES The RALPH D^ED LIBRARY nEPAKTMK.NT OF CiEOLOCiV UNlVKRSri-^ OF ( ALIFOKNIA LOS ANGEI.KS, < ALU'. / ^^< ^,. ''^<^ •^'-H. THE ECONOMICS OF PETROLEUM BY JOSEPH E. POGUE Consulting Engineer Co-author of America's Power Resources; The Energy Resources of the United States; Prices of Petro- leum and its Products during the. War; etc. NEW YORK JOHN WILEY & SONS, Inc. London: CHAPMAN & HALL, Limited 1921 Copyright, 1921, By JOSEPH E. POGUE PRESS or BRAUNWORTH & CO. BOOK MANUFACTURERS BROOKLYN. N. V. Gcolojry Library T-rs TO >racc ^'ccMiam Poi^uc 678523 PREFACE The purpose of this book is to present, in perspective, the more important economic facts relating to petrolemii; to interpret the changes that are rapidly taking place m this field; and to project the trend of these changes into the immediate future. The book is designed to be of service to the business man, the engineer, and the practical worker, not only in the petroleiun industiy, but in those industrial fields dependent upon the products of petroleum as well. While the activities dependent upon petroleum are indispensable, the reserves of this substance are limited in size. And the rate at which the supply may be brought to the surface is falling behind the rate at which the demand for oil is growing. These conditions have already called for large iinports from Mexico. More recently, they have directed the attention of the United States toward other foreign supplies to supplement the domestic output. In the years ahead, they may be expected to bring on far-reaching changes in the technology and economic structure of the petroleum industry, changes which may even go so far as to influence strongly the inter- related industrial fields dependent upon petroleum. Many of these changes, in fact, have already registered their initial effects during the past five years. Irrespective of the quantity of recoverable petroleum under- ground, the output of this country must inevitably decline. This decline, however, may be expected to be a slow recession over a con- siderable number of years, rather than a sharp and sudden curtail- ment. The peak of production was possibly reached in June of 1921. That this record will be substantially bettered is unlikely, although it can doubtless be surpassed if the price of crude petroleum advances sufficiently. But whether the output of petroleum in the United States has actually or almost reached its maximum rate is immaterial. Likewise, the exact size of the unmined reserve is of secondaiy importance. The point to be emphasized is the coming necessity for increasing the over-all efficiency of petroleum — a problem that concerns not only the producers and refiners of oil but the manu- vi PREFACE facturers of appliances that consume its products, as well. From now on the tendency will be to use relatively less of the material itself, but to put greater effort into increasing the service value extracted from it. In the pages following, some departures have been made from the usual methods of presentation. The statistics, for the most part, are given in large units — an expedient that greatly simplifies their presentation and utilization, without any sacrifice of their significance. In general, the unit has been so chosen that the data could be expressed by three digits, with a decimal point if necessary, the third digit being raised one if the fourth digit in the original listing was 5 or over. Special emphasis is placed upon graphic analysis of the statistical data, and a number of relatively new types of charts have been introduced. The ratio chart, in particular, has been extensively employed. The graphic presentation has been so developed that the reader may gain a perspective of the petroleum industry from a study of the charts alone, without recourse to the text. The percentages and index numbers were calculated by means of a 10-inch slide rule and are precise within the limits of that instru- ment. The statistical tables have been doubly checked from the original data and it is to be hoped are reasonably free from errors. In the preparation of this book, the writer has been aided by information published, or especially provided, by many organiza- tions. He is particularly indebted to the following: American Gas Association; American Petroleum Institute; Automotive Indus- tries; Federal Trade Commission; National Automobile Chamber of Commerce; National Petroleum News; Oil and Gas Journal; Oil, Paint, and Drug Reporter; Sinclair Consolidated Oil Corpora- tion; Smithsonian Institution; Society of Automotive Engineers; Society of Western Engineers; Standard Oil Company (New Jersey) ; Tide Water Oil Company; U. S. Bureau of Foreign and Domestic Commerce; U. S. Bureau of Mines; U. S. Fuel Administration; U. S. Geological Survey; U. S. National Museum. A large number of individuals have contributed to this under- taking in a substantial manner. Many acknowledgments are made throughout the text. In addition, the writer wishes to express his cordial appreciation to: Ralph Arnold, Mowry Bates, Philip Brasher, E. J. Buchaca, F. G. Clapp, Northrop Clarey, Thomas Cox, E. W. Dean, E. De Golyer, J. A. Doyle, M. C. Ehlen, L. M. Fanning, V. R. Garfias, Chester G. Gilbert, George B. Gifford, Robert B. Harper, Frank Howard, Arthur D. Little, Isador Lubin, Van H. Manning, H. F. Mason, R. S. McBride, Chester Naramore, C. C. Osbon, W. F. Parish, Ra\Tnond Prescott, M. L. Requa, George E. PREFACE vii Richardson, E. G. Sievers, Walter C. Teagle, David White, and Samuel S. Wyer. To Grace Needham Pogue the writer is indebted for the preparation of the manuscript for the printer, a critical reading of the proofs, and innumerable suggestions in the course of the work. Special acknowledgment is also due to George Taylor and his associated artisans for their effective work in engraving the charts. The writer is fully aware of the difficulties of the task which he has attempted to perforai, and he will welcome constructive criti- cisms from any source. He offers no apology for the projection of present trends into the future. " The prime function of a science is to enable us to anticipate the future in the field with which it has to deal.'' Joseph E. Pogue. New York City, Sept. 15, 1921. CONTENTS PAGE Preface ; v CHAPTEB I. The Economic Organization of the Petroleum Industry. ... 1 II. The Resource Situation 12 III. The Trend of Oil-field Development 27 IV. Trend of Oil Production 48 V. The Transportation of Crude Petroleum 64 VI. Trend of Refinery Practice 75 VII. Analysis of Refinery Capacity 90 VIII. The Outlook for Oil Refining 104 IX. Gasoline 110 X. Kerosene 130 XI. Fuel Oil 142 XII. Lubricating Oils 164 XIII. Petroleum By-products 183 XIV. Natural Gas and Natural-gas Gasoline 195 XV. Marketing of Petroleum Products 212 XVI. Analysis of the Exports of Petroleum Products 222 XVII. Prices of Petroleuai and Its Products 233 XVIII. Relation bett^':een Price and Production ofCrude Petroleum 253 XIX. The Bearing of Automotive Transportation Upon the Oil Industry 262 XX. The Economic Significance of Cracking 272 XXI. Composite Motor-fuels 279 XXII. The Motor-fuel Problem 285 XXIII. The City-gas Problem 300 XXIV. International Aspects of Petroleum 312 XXV. Mexico as a Source of Petroleum 320 XXVI. The Relation of the Coal Industry to the Oil Industry. . . . 330 XXVII. Oii^SHALE 336 XXVIII. Full Utilization of Petroleum 342 XXIX. The Function of Statistics in the Petroleum Industry. . . . 353 IX ECONOMICS OF PETROLEUM CHAPTER I THE ECONOMIC ORGANIZATION OF THE PETROLEUM INDUSTRY The petroleum industry is distinguished among industrial activ- ities in its fomi as a nearly self-contained economic entity embracing the four related functions of production, transportation, manufac- turing and marketing. The economic organization of the petroleum industry, as differentiated from its financial structure, is shown graphically in Fig. 1. The production of petroleum has to do with the discovery, devel- opment, and exploitation of oil-bearing territory. It involves the incidental output of considerable quantities of natural gas, a source of supplementary revenue and productive of some gasoline which is blended with the ordinary supply of refinery gasoline. The pro- duction of crude petroleum deals with a wasting asset, a mobile and illusive substance, a product subject to rapid and sensational develop- ment; and takes on in consequence a unique and specialized char- acter which sets it distinctly apart from industrial activities in general. As time goes on, the field of petroleum production may be expected to enlarge its scope and include the manufacture of oil from volatile coals and oil-shale. The transportation of crude petroleum, faced with the problem of moving a bulky liquid raw material, has grown along individual lines, with the development of pipe-lines and tank-steamers to facilitate the efficient movement of this substance. Petroleum is handled in almost entire independence of the usual agencies of transport. The refining of crude petroleum is a manufacturing enterprise involving the principles of chemical control and multiple production. Through the agency of pipe-line and tanker transportation, the sub- stantial portion of the refining activity has been enabled to grow up in locations readily accessible to the markets for petroleum products. ORGANIZATION OF THE PETROLEUM INDUSTRY > Sfll z _l LL < U <0 X (/> z z o < y- 1- < H w w INTEGRATION OF THE INDUSTRY 3 The marketing of pet role vim products has been carried on largely by the refining interests, and in order to maintain an outlet for an ever-increasing flow of these materials, this phase of the industry has been extensively cultivated and highly perfected. The rapid exploitation of the petroleum resource has led to the attainment of a notable degree of competence in transportation and distribution, but, in the presence of an abundance of raw material, production and refining for the most part have developed in a wasteful and improvident manner. Conditions ahead, however, may be expected to bring a growing measure of efficiency into the realms of production and refining. Integration of the Industry. — In a fundamental economic sense, the petroleum industry is highly integrated and an activity that would be expected from a purely physical standpoint, to function with maxinnnn efficiency as a natural monopoly. The tendency toward financial integration in keeping with the underlying economic structure was effectively displayed during the earlier decades of the development, culminating in a country-wide business organization, the Standard Oil Company of New Jersey. The drift toward finan- cial integration, however, met the opposition of public economic policy, and in 1911 the Standard Oil Company was financially disin- tegrated by a judgment of the Supreme Court. At the present time, the petroleum industry is composed of the original units of the Standard Oil Company of New Jersey, operating throughout the United States without financial collusion though with a certain degree of economic consistency arising from the fundamental economic integration which could not be destroyed by legal pronouncement; and of a larger number of other dissociated units, including roughly about half of the entire industry. The companies originally comprising the Standard Oil Company of New Jersey are commonly referred to as the Standard companies, or Standard group; while all other companies are spoken of as the Independents, or Independent group. Viewed from another angle, the petroleum industry is composed of large units representing corporate enterprises with extensive aggre- gates of capital, and small units of more restricted resources and scope. The large units include companies which produce, transport, refine, and market, as well as those which undertake a less complete range of activities. The small units usually operate in only one of the four major divisions. In 1919 according to the Federal Trade Com- mission,! 21.3 per cent of the crude petroleum output of the United ' Summary of the report of the Federal Trade Commission on the Pacific Coast Petroleum Industry, April 7, 1921. 4 ORGANIZATION OF THE PETROLEUM INDUSTRY States was produced by nine Standard companies; 38.1 per cent by- large independent companies of over 1 million barrels output; and 40.6 per cent by smaller companies and companies not reporting to the Conmiission. Of the total production of the large companies, 25.6 per cent was credited to companies engaged in production solely; and 74.4 per cent, to companies which also operated refineries. In regard to the crude petroleum refined in 1919, companies belong- ing to the Standard Oil group handled 43.8 per cent ; large independent companies, 41.1 per cent; and companies not reporting to the Fed- eral Trade Commission, 20.2 per cent. Figures covering 84 per cent of the refinery consumption of the country in 1919 show that 38.3 per cent of the crude run to stills was produced by the refining companies or affiliated interests. Of the trunk pipe-line mileage, approximately 69 per cent in 1920 was in the hands of the Standard companies and practically all of the remainder belonged to large independent interests. Size of the Industry. — The magnitude of the petroleum industry is difficult to convey accurately in statistical terms. Table 1 gives a numljer of measurements, some amounting merely to rough esti- mates, drawn from a variety of sources. Table 1. — The Magnitude of the American Petroleum Industry No. of producers of crude petroleum, Jan. 1, 1921 . 4,048 No. of producing oil-wells, Oct. 31, 1920 2.58,600 Production of crude petroleum, 1920 443 million barrels Imports of crude petroleum, 1920 105 " Pipe-line companies, 1920 91 No. miles of pipe-lines, 1920 45,500 Tonnage of tank-steamers, Jan. 1, 1921 5,215,961 No. of refineries, Jan. 1, 1921 415 Daily capacity of refineries, Jan. 1, 1921 1,888,000 barrels No. of manufacturers of natural-gas gasoline, 1921 . 432 Output of petroleum products, 1920 20 billion gallons No. of compounders, marketers, and jobbers, 1920 1,578 No. of tank-cars in operation, Jan. 1, 1921 137,000* Estimated value of petroleum products sold in 1920 3 billion dollars Manufacturers and dealers in oil equipment 658 Estimated investment in American petroleum in- dustry 6 billion dollars * Includes tank-cars of all kinds in United States and Canada. INVESTMENT IN THE INDUSTRY 5 It is apparent that the petroleum industrj' is one of the major industrial activities of the country. Moreover, it represents the fuel support of automotive transportation and supplies the lubricants essential to the operation of all industrial activities, and hence under- writes the progress of modern civilization. The total wealth of the country, including real estate, railroads, mines, public utilities, and so on, is estimated to be in excess of 200 billion dollars, which indi- cates that the estimated investment represented by the petroleum industr}^ runs close to 3 per cent of the country's total wealth. Investment in the Industry. — A rough appraisal of the investment in the American petroleum industry has been made by Ross,^ and the figures thus calculated are shown in Table 2. It should be borne in mind that the figures are approximations and useful merely as indications of the magnitude of the industry as measured in financial terms. Table 2. — Estimate of the Investment in the American Petroleum Industry in 1920 (After Ross) Items Millions of Dollars Production Pipe-lines 3542 400 250 1795 660 394 370 Tankers Refineries Marketing equipment Crude inventories Refined inventories Total 7411 The estimate of production represents the present value of future production, as based on the barrel-day theory of valuing oil proper- ties. According to this method, the settled daily production is multiplied by an arbitrary number of dollars called the barrel-day price, which is usually the prevailing price times one thousand. Needless to state, such a method when applied to the whole country yields a highly generalized result. This method of valuation takes no account of increases in value due to come in respect to a deplet- ing resource, although such increments will tend to be offset by increasing production costs, and by the time element involved in a 1 See Victor Ross, The Evolution of the Oil Industry, 1920, pp. 153-159. 6 ORGANIZATION OF THE PETROLEUM INDUSTRY slowing output after the maximum rate is attained. The present value of future production represents an investment of the petroleum industry in a quahfied sense only, since upwards of 90 per cent of the oil acreage in the United States is leased from private owners. The actual investment in the crude petroleum business may also be estimated on the basis of figures published by the Federal Trade Commission, showing that the capital stock, surplus, and funded debt of 82 companies producing 62 million barrels of crude petroleum in 1919 was 366 million dollars, or 5.9 dollars per barrel of annual output. If this ratio is applied to the total 1919 production of 378 million barrels, the total estimated investment in the crude petro- leum business would become about 2200 million dollars. The pipe-line system of the country is estimated by Ross to have a 1920 replacement value of 400 million dollars, although representing an actual estimated investment of 300 million dollars. The U. S. Bureau of Mines, however, has estimated the pipe-line investment on the basis of the actual cost of the property to be approximately 500 million dollars. The refineries of the country, including wharves, railroad ter- minals, cooperage plants, tin container plants, foundries, machine shops, etc., are estimated by Ross to represent in 1920 a total invest- ment of 1795 million dollars. On the basis of reports from 138 petro- leum-refining companies in 1919 running 84 per cent of the total refinery consumption of the countrj^ whose investment was given by the Federal Trade Commission as 2088 million dollars, the total investment of the entire petroleum refining industry would amount to about 2480 million dollars. The investment represented by the American fleet of oil-tankers is placed by Ross at 250 million dollars for 1920. The original cost of the tankers completed by early 1921 will run higher than this total, since much of the tonnage was built at the height of cost. The inventories of crude petroleum and refined products, as given by Ross for April, 1920, are appraised by multiplying the quantities on hand at that time by the current market price. The investment of 660 million dollars represented by the marketing equipment, as shown in Table 2, is calculated on the basis of 4 dollars per barrel for the real estate and equipment engaged in retail mar- keting and 1 dollar a barrel for tanks and docks employed in fuel- oil sales. Included under this head are stations, warehouses, barges, tugs, trucks, tank-wagons, tank-cars, sidings, storage tanks, and so on. The total investment given by Ross is 7.4 billion dollars. This estimate may be modified to the extent of discriminating between the present worth of oil-lands and the actual investment made by the CAPITALIZATION OF THE INDUSTRY 7 crude petroleum industry in them, and by eliminating from the count the value of inventories which is an asset but not strictly an invest- ment item. The total estimated investment would therefore become: production, 2 billion dollars; transportation, 0.75 billion; refining, 2 billion; and marketing 0.75 billion; making a total of 5.5 billion dollars. Adding the additional investment represented by foreign holdings, the total investment in the American petroleum industry runs somewhere in the neighborhood of 6 billion dollars. The assets of the petroleum industry, in 1921, as compiled by the National Petroleum News,^ from annual reports of the com- panies, was 6 million dollars, exclusive of companies having assets under one million dollars. A classification of assets by sizes of com- panies is given in Table 3. Table 3. — Assets of the American Petroleum Inditstry in 1921, Compiled from Annual Reports Rank Number of Companies Assets Above $100,000,000 $50,000,000-$100,000,000 10,000,000- 50,000,000 1,000,000- 10,000,000 12 16 36 28 $3,772,873,637 1,147,417,412 944,689,248 164,717,016 Total 92 $6,029,497,313 Capitalization of the Industry. — The capitnlized value of the petroleum industiy is impossible to appraise closely because of the large number of unsubstantial concerns that appear on the record. An attempt has been made to segregate capitalization into the portion pertaining to 250 representative companies, for which the statistical record is practically complete, and the part relating to a much larger number of companies organized during the past few years whose ratio of cash investment to capitalization is not known.- The first group of companies represents the conservative and substantial element of the industry, while the second group embraces the new- comers, some legitimate, others mereh^ stock-promoting schemes. A comparative view of the annual increments to the capitaliza- tion of the two groups of companies is shown in Table 4. iMay 18, 1921, p. 41. 2 The analysis in this section makes use of the figures presented by H. L. Doherty in an address, "The Future of the Oil Business," published by the American Petroleum Institute, Dec. 10, 1920. 8 ORGANIZATION OF THE PETROLEUM INDUSTRY Table 4. — Comparison of the Annual Increase in Stock of 250 Estab- lished Oil Companies and Reported Annual Capitalization of New Oil Companies, 1913-1920 * {In millions of dollars) Year 250 Established New Oil Companies Oil Companies 1913 121 No data 1914 115 No data 1915 67 81 1916 272 419 1917 333 840 1918 132 439 1919 707 3786 1920 672 1 2787 * Data largely from H. L. Doherty. t New listings on the New York Stock Exchange in 1920. The same range of data, but on a cumulative basis, that is, showing the capitahzation outstanding at the end of each year from 1913-1920, is presented in Table 5. The capitalization given under the heading of '* new oil companies " is, of course, far greater than the paid-in capital. Table 5. — The Growth in Capital Stock of 250 Representative Oil Companies Compared with New Oil Companies, 1913-1920 * Year Capital Stock 250 Established Companies Capital Stock New Oil Companies Millions of Dollars Per Cent of 1913 Capitalization Millions of Dollars 1913 1914 1915 1916 1917 1918 1919 1920 885 1000 1057 1330 1662 1794 2502 3174t 100 113 119 150 188 203 283 358 No data No data 81 500 1340 1779 5565 8352 * Data in part from H. L. Doherty. t Estimated, see Table 4. UNIQUE CHARACTER OF OIL 9 It is apparent from Tables 4 and 5 that there has been a large flow of capital into the petroleum industry during the eight-year period under review. The quantity of capital thus engaged is greater than that listed under the 250 representative companies, but less than the sum of the " 250 estabhshed companies " and the " new oil companies," since the latter is in part real capital and in part mere paper. If 885 million dollars is accepted as a fair measure of the actual investment in the oil industry in 1913, and the growth in the value of the crude petroleum produced each subsequent year to 1920 is a reasonable indication of the increasing capital requirements of the industry, the actual paid-in capital engaged at the end of 1920 may be calculated to be approximately 5 billion, or 2 billion dollars more than the combined capitalization of the " 250 estab- lished companies." On the basis of the tangible investment as estimated in the preceding section the actual capital engaged in the petroleum industry is around 6 billion dollars. Thus it would appear that of the 1 1 billions of capital (actual and paper) that have been involved in oil, 5 to 6 billion represents a tangible quantity, while 5 to 6 billion indicates the magnitude of the oil boom. In other words, during the period 1913-1920, the actual capital absorbed into the oil industry to support its expansion was something like 4 to 5 billion dollars. During the same period, the money flowing out of the oil industry in the form of dividends was around 1 billion dollars, leaving a difference of 3 to 4 billion dollars as a rough approx- imation of the net amount absorbed. Until a few years ago, the oil industry to a large degree financed its expansion out of earnings. Of late, as indicated by the calcula- tions given above, the industry has sought outside capital to help sustain its growth. The ability to finance out of earnings was, of course, curtailed by the heavy taxation and inflated money values growing out of the war period, but with due qualifications for these factors, the recent expansion of the industry is to be credited in sub- stantial degree to the inflow of outside capital. This matter is well known in oil circles: " Up to date each inch of profit has called for a mile of investment to insure there being an inch of profit next j'ear." Unique Character of Oil. — The estimates given above, as imperfect as the}' admittedly are, indicate some interesting economic tendencies, which should be studied in relation to certain characteristics peculiar to the development of petroleum. The oil industry has to deal with three characteristics lacking or at least not so highly developed in other industrial enterprises. These are : A rapid deple- tion of a given source of crude-oil supply, calling for careful account- ing if a net profit is to be shown after final liquidation of the 10 ORGANIZATION OF THE PETROLEUM INDUSTRY investment; a shifting base of supply, leading to a rapid obsoles- cence of transportation and refinery installations; and a rapidly changing demand, likewise contributing to a speedy obsolescence of material developments. It is questionable whether these factors have been given due allowance in oil accounting. Profits of the Petroleum Industry.— The substantial portion of the petroleum industry has proved to be a very profitable activity. The dividends paid annually by 250 representative companies from 1912 to 1919 are given in Table 6. Table 6. — Dividends Paid by 250 Representative Oil Companies by Years, 1912-1919 * Dividends, Rate on Capital Stock, Millions of Dollars Per Cent 1912 64 8.43 1913 93 10.. 52 1914 75 7.49 1915 78 7.41 1916 121 9.06 1917 1.50 9.01 1918 159 8.88 1919 166 6.62 * Data from H. L. Doherty, The Future of the Oil Business, Amer. Petr. Inst., Bull. 132, Dec, 1920. Figures compiled by the Federal Trade Commission ^ for 1919 show higher earnings than those given in Table 6. For example, 82 producing companies, turning out about 16 per cent of the coun- try's total output of crude petroleum and representing an investment of 366 million dollars, showed earnings at the rate of 17.7 per cent upon this investment. Fourteen of these companies, comprising 2.6 per cent of the total production of the group, showed a loss of 2.8 per cent upon their invested capital; while 14 other companies, representing an output of 37.3 per cent of the total for the group, enjoyed profits of over 30 per cent. Thus the tendency for earnings to run higher in the case of larger companies is displayed. Figures published by the Federal Trade Commission in 1919 covering 138 petroleum refining companies, representing an invest- ment of 2088 million dollars and a refinery consumption of 84 per cent of the country's total, show an average profit of 16.8 per cent. Of this group 28 small companies representing 1.9 per cent of the 1 Summary of report on the Pacific Coast Petroleum Industrj', April 7, 1921. CONCLUSION 1 1 total investment of the group and 3 per cent of the total refinery consumption of the group, showed a loss of 8.5 per cent; while 28 large companies representing 22.2 per cent of the total investment and 22.5 per cent of the total refinery consumption, enjoyed earnings of 34 per cent. Five companies of the group with an investment of over 100 million dollars each showed an average rate of earning of 24.6 per cent. Conclusion. — Under the impetus of the profitable nature of the oil business, the industry has expanded with notable rapidity, at first supporting its growth from the wealth created by its own efforts, later calling upon outside capital to lend assistance. Such a course is economically sound during a period of youthful development, if ultimately terminated by a period of productivity in which the flow of capital is reversed. Otherwise the activity will become per- manently dependent upon outside agencies of production, an eco- nomic anomaly impossible of attainment. In absorbing of recent years more capital than it has concur- rently produced, the oil industry as a w^hole has considerably over- expanded in respect to the quantity of raw material apparently available for maintaining future operations. If this interpretation is correct, it means either an ultimate financial loss on the part of all activities not soundly developed in respect to raw material, or else such an elevation in price level as will carry for a time much of the unsound development at a reduced capacity. The outcome will probably represent a compromise between the two, with a period of price inflation preceding an era of liquidation, with the possibility of complications resulting in a revision in the economic structure of the entire industry. CHAPTER II THE RESOURCE SITUATION i Character of Petroleum. — Crude petroleum is a rrrineral readily separable into liquid fuels, viscous compounds useful for lubrication, and other products entering into the arts in a number of forms. Chemically, it is dominantly composed of carbon and hydrogen, with a small percentage of nitrogen, sulphur, and oxygen which rank as impurities. The carbon and hydrogen are combined in an almost infinite variety of ways, forming endless numbers of hydrocarbon compounds that challenge the analytical skill of the chemist. According to Maber^",^ petroleum is composed of vars'ing mix- tures of five major series of hydrocarbons, each with a distinctive relationship betw^een the nu'mber of carbon and hydrogen atoms present. These are (1) the paraffin series, Cnii2n+2, comprising the main portions of the gasoline, kerosene, and wax of commerce; (2) the naphthene series, C„H2n, a closed-chain, or cychc, type of hydrocarbon, especialh' characteristic of petroleums yielding asphaltic residues upon distillation; (3) a series of the formula C„H2n-2, represented particularly in the lighter petroleums, having some viscosity and forming lubricating distillates of light to medium bod}-; (4) a series of the fomiula C«H2n-4, typical of the asphaltic petro- leums and forming the "constituents of the best lubricants it is possible to prepare from petroleum"; and (5) the aromatic series, CnHo/z-e, cyclic in character like the naphthenes and regarded as a detriment to be removed in refining. In practice, the various types of petroleum are regarded as falling into three classes: the paraffin-base petroleums, especially rich in the hydrocarbons of the CnH2n+2 and C„H2«-2 series; the asphalt-base, or more properly the naphthene-base, petroleums, consisting mainly of the hydrocarbons of the C„H2«, C„H2n-4, and to some degree of the CnHon-e series; and intermediate types. The paraffin-base 1 For a general analysis of the petroleum resource, see Gilbert and Pogue, Petroleum: A Resource Interpretation, Bull. 102, Pt. 6, U. S. National Museum, 1918. - Composition of Petroleum and its Relation to Industrial Use, American Institute of Mining and Metallurgical Engineers, Publ. No. 158, February, 1920. 12 HE UNITED STATES ^-7—^/ Ad 'i y . i Of;* .- /)» uj'ja d v.«l ra X6« 'j HI Vf J," Tj Cj rl x<^»- if r»- .-: K»B- 03 r*' 05 rs- :.* l« 1 Abilfloe 69 Tes. Ada 44 Okla. Adftir 27 OklB. Alleo 43 Okla. AUendsle 3 III. AUuwe 27 Okla. AltaVista 80 Te«. Anec LaButtc 117 La. AugUBtn 17 Kan. Avant-RamoDn Z6& Okla. AviB 55 Te«. BadKerBaein 1 Wyo. Bald Hill 3G Okla. Bangs 70 Tex. Barbera Hill 08 Te«. Bartlesville 26 Okla. BarUctt 39 Okla. Batson 100 Tei. B&xt«r , . . , 27 Wyo. Beaumont 18 Kan. BelridK« 3 Cal. Bt(Hill 87 Tei, Big Hill 101 Tei. Big Muddy 21 Wyo. Big Piney 28 Wyo. Big Band Draw 18 Wyo. Billinga 23 Okla. Bird Crerk 32 Okla. Birds-Flat Rock 7 lU. Black 61 Tex. BlackwcU 20 Okla. BlueRidicc 03 Tex. BonaniB 8 Wyo. Boulder 35 Colo. Breokenridge 61 Tex, Broken Arrow 33 Okla. BrowDwood 68 Te«. Buck Creek 19 Wyo. Bud Kimball g Wyo. Bull Bayou 107 U. Burbank 26b Okla. BurkburneU 48 Tex. Byrd'B 60 Tex. Byron 3 Wyo. Caddo 103 La. Caddo 62 Tex. Canary 36 Okla. Carlyle 2 111. Caamalia 7 Cal. Cat Canyon 7 Cal. Cat Creek l Mont. Chanute g Kan. OkU. Okla. Ku. Tei Okl.. Cd. lU. Wyo. 0U«. T«. Tm. Okl.. K*n. Tei. Okln III. Tei. Wyo. Tei. OkU. Wyo. Wyo. Lm. Tei. Tei. Wyo. Kno. L.. Wyo. Wyo. Wyo. Ohio Wyo. Grayford ::: eo Tcr Ka». La. Wyo. Tei. Te>.' La. Wyo. Tci! Kan. Tc Ky. La. III. Wyo, Okla. Kan. Kan. Tei. Wyo. Wyo. Wyo. P.. Cal. Okla. Tei. Tei. Cal. Tei. Tea. Moorecroft Moorinptport . . . - ::: ,» u. Tci. Kan. Lt. Okl., Okla. Okla. Okla. I.a. Tei, Tei. Wyo. Okla. Okla. Wyo, Ky. OkU. Tei. Kan. Wyo. Cal. Wyo. Wyo. Wyo, Wyo, Okla. Sheep Mount.i 16 Wyo. 34 ... 28 Q J Skialook 33 13 III Som rset 82 T«». '.?. 42 40 MuikoSse Neodcaha New'beria ..'. I S u L ke 100 Colgate Hftyncsville ... 104. South Bend 62 CoaliDga South Bosque. Kpeechly 7 - Tei. P.. Co 18 - Newkirk 21 27 101 NortkTulaa ... 32 Copan ... 26 ... « Spindle Top . . SprinK Valley.. Ta. Wyo. OilCily Okxa ::: 2° ... 107a 26 52 ... 83 104 Stratlon Ridge 89 28 Hoskin. ... 90 ■» 'Jweetwater OuBchiU 110 Tabor Damon Mound... ... 92 ... 09 Humble Humboldt Independence iDialla Iol> ... 00 Okla Dayton .. , _ Taneha 30 Dkla. Peabody ... 13 Ten Sheep..,. j„» Wyo. 64 ... 106 PiedrasPinlaa.... Pierce Junclion.... ::: « Thcrmopolis, . " Wyo. tea., Douglas '.'.'. 47 Itvino g Th 33 Duk^Knowlce , . . . 55 ... 103 Thrall 76 DuDcan-Wultcr. . . Torchlight Trickham Tula*,, . Turley Upton Thorntoi Upper Lawrence , , . 71 32 , .,. 32 Co... 8 8 Jackson Ridge.... ... 5 5 Tea. ... 5 jy ^' 111 Poleaii 41 Elbing .3 Powder River ■ J2 Kirkwood Unee Creek Lark LawtoD ... 6 ... 1 J Pyramid Fossil .. 29 111. Electra Cal. Virgil Vivian Wagon Hound. :::;:!li Rariter J, Rantout ... 115 Rawhide 10 Loco 7 Wyo. 32 Lompoe ... 7 19 36 RockSprinxa ■ 27 aggoner.. 33 Okla. Wyo. Kan. La. Warm Springs.. ... 12 60 4 S'columbia ::;: "\ , McDonald MoKittriek :: I ■ Sallyarda 20 Cal. Salt Lake Sandoval SanU Ann. SanU Maria Sapulpa Saralosa :A WoitFork :;::: 1 30 Glen Rook 22 Tea. Cal. Okla. Vale Voungslown,,, iro/. ^v^6.7 BILLION BARRELS o . H \v Z ^v UJ \ > z o > 5.9 BILLION N BARRELS 05 h cr \ o z o •V 0) u [- X — > z N > z tlJ _l > D. LO z N 3 05 c?l M o 2 K Q hi >■ 0) > > -1 \^ Q- Q. s D Q. D. V. z (f> a 3 3 Q z S z 3 D to Q u z z D (0 Q UJ z i z ^^..3 U.S. PRODU :tion ■mm ^ mm ^ m ^ ^ ^ %^/^ y/AWA m^/^. ^ ^; ..3.2 BILLION BARRELS ESTIMATED UNMINED SUPPLY ■ 1930 1908 1910 1920 1922 1924 1926 1928 1930 Fig. 4. — Estimated unmined .supply of crude petroleum in the United States. After Pogue and Lubin, U. 8. Fuel Administration; data for 1908-1920 from U. S. Geological Survey; projection 1920-1930 from Bates and Lasky, Amer. Inst. Min. and Met. Eng. Distribution of Unmined Supply. — The original quantities of oil underground in the various producing fields, as well as the extent to which the different areas have been exploited, are dissimilar, and it is therefore of interest to review the distribution of the remaining supply. The resource situation by fields, on the basis of the esti- ' George Otis Smith, A Foreign Oil Supply for the United States, Publ. No. 157, American Institute of Mining and Metallurgical Engineers, January, 1920. DISTRIBUTION OF UNMINED SUPPLY 21 mates of the U. S. Geological Survey, is accordingly presented in Table 8 and interpreted graphically in Fig. 5. Table S.^ — The Quantity of Petroleum Extracted and Still Available in THE Oil-fields of the United States (Data from the U. S. Geological Survey) Fields Original Supply (Millions of Ban els) Extracted to Jan. 1, 1921 (Millions of Barrels) Per Cent E.xhausted Available Jan. 1, 1921 (Millions of Barrels) 1920 Production (Millions of Barrels) Appalachian Lima-Indiana. . . . Illinois Kans.-Okla N. Texas N . Louisiana Gulf Wyoming California Others Total 1,772 488 473 2,716 479 191 1,054 440 3,364 361 1281 455 321 1251 217 138 351 70 1321 11 72 93 68 46 45 72 33 16 39 3 491 33 152 1465 262 53 703 370 2043 350 30.5 3.1 10.8 144.2 71.0 33.9 26.8 17.2 105.7 0.2 11,338 5416 48 5922 443.4 Interpretation of Supply. — It must not be supposed that the un- mined supply can be divided by the current production and a figure obtained that will even approximate the life of the resource. The estimates were originally drawn on the basis of the present factor of recovery, which, as will appear in Chapter 28, is unduly low, and upon the present price level, which has not stimulated the utmost extrac- tion of the oil. With increasing dearth and rising prices, oil not now economically recoverable will be brought to the surface, the supply of oil will be enlarged by more efficient methods of mining, and a relatively smaller volume of oil will be made to perform a given service through more effective refining and application. The supply, therefore, may be expected to spread over a greater period of time and a wider range of essential service than would appear iirom an unqualified consideration of the figures alone. What the estimates of the unmined supply do show, therefore, is not impending exhaustion, but the imminence of a period of economic and technical proficiencj' in bringing the remaining supply of our crude petroleum into effective service. The arrival of this period may be expected to usher in changes of far-reaching signifi- cance in the structure and functioning of the petroleum industry. 22 THE RESOURCE SITUATION • APPALACHIA'hi LIMA -INDIANA ILLINOIS KANSAS- OKLAHOMA. N. TEXAS N. LOUISIANA Oil in Foreign Countries. — The limited size of the oil reserve of the United States, and the degree to which it is already depleted, naturally direct attention to foreign oil-fields. The petroleum resources of most of the rest of the world are far less thoroughly measured than those of this country; although sufficient is known perhaps, to lead to an approximation of the world's reserve, if lee- way be allowed as a margin of error. There is little, if any, doubt but that the dominant portion of the oil in the crust of the earth underlies three broad areas : the United States; the Caribbean basin, in- cluding Mexico, Cen- tral America, Colom- bia, and Venezuela; and the Caspian- Black - Sea - Eastern Mediterranean region, including southern Russia, south-western Siberia, Mesopotamia, Persia, and Palestine. These three major oil areas have an original oil content that for purposes of compari- FiG. 5.— The petroleum reserve of the United States son may be regarded by fields, showing the portion used to Jan. 1, 1921; as of the same order data from U.S. Geological Survey. of magnitude, or roughly 10 billion bar- rels each. While such figures are doubtless highly speculative, they are better than purely qualitative terms and are reasonably satisfactory as a basis of discussion. Elsewhere in the world there may be an additional 10 billion barrels, thus raising the world resource to the neighborhood of 40 billion barrels or so, of which the United States has used up approximately half of the 10 billion barrels falling immediately to her share. CALIFORNIA OTHERS f — r 1 — I O lO 20 30 40 50 60 70 80 90 100<< FIGURES REPRESENT MILLIONS OF BARRELS OIL IN FOREIGN COUNTRIES 23 The general distribution and magnitude of the principal petroleum reserves of the world have been estimated by Eugene Stebinger, of the Foreign Mineral Section of the U. S. Geological Survey, and the results of these estimates have been published and discussed by David White.^ A map compiled by the Survey showing these estimates in diagrammatic form is presented in Fig. 6, on which the estimated reserves are shown by circles proportional to the quan- titative importance of the various regions. The data upon which this map is based are shown in Table 9. Table 9. — Preliminary Estimate of the Petroleum Resources of the World, after Stebinger of the U. S. Geological Survey Regions Relative Magnitude Approximate Quantity in Millions of Barrels United States and Alaska Canada Mexico Northern South America including Peru Southern South America including Bolivia Algeria and Eg>'pt Persia and Mesopotamia S. E. Russia, S. W. Siberia and the region of the Caucasus Rumania, Galicia and Western Europe Northern Russia and Saghalien Japan and Formosa China India East Indies . Total Total eastern hemisphere Total western hemisphere Total north of the equator Total south of the equator 100 14 65 82 51 13 83 83 16 13 18 20 14 43 7,000* 995 4,525 5,730 3,550 925 5,820 5,830 1,135 925 1,235 1,375 995 3,015 615 303 312 520 95 43,055 21,255 21,800 36,400 6,655 * Since this table was ronipleted the reserve in the United States has been drawn upon to the extent of over 800 million barrels, thus being reduced to about 0000 million barrels as of Jan. 1, 1921. It should be noted that the totals given in the table " suggest a surprisingly even balanced distribution of oil between the eastern 1 The Petroleum Resources of the World, Annals of the American Academy, May, 1920. 24 THE RESOURCE SITUATION OIL IN FOREIGN COUNTRIES 25 -.Mexico:-'-' N SOUTH AMERICA (InM. PERU) •/.-/ -I ;l -/■>/■ '^-S.SpUTJH^,-/ -, America": -'oJicCb.olivIa).' xvwvvvw SLGERIA S EGYP.. >wvwwvvv .P.ERSIA.;8i-.' MESOPOTAivilA ^S.E. RUSSIA^ S.W. SIBERIA; Sc Caucasus; 1 ROUMANIA.GALICIA X W'. EUROPE ■JAPAN & ■.F.ORMOSA \x^^\s ''western, N HEMISPHERE V^.V^ V » ^\X\ X \\\\\\x v''''nvSx\\N\\^\'>' XV\V\N\\\VSVV^ ■ ^^\^^^^-^^^^" \\X^vS\\\'^^'^\V\ ^xXxx'^^X^Sx^NXSV ;;xSb;uT''h(xO(\\~ ^\^EQU>Td,R^xV ill Fig. 7. — Relative petroleum resources of the world, after data compiled by Stebinger, U. S. Geological Survey. 26 THE RESOURCE SITUATION and western hemispheres, and, as with the distribution of the world's coal reserve, a great preponderance of tonnage north of the equator." In discussing these estimates. White calls them conservative not only because they represent "the cautious judgment of a well-trained and experienced oil and gas geologist based on the best infonna- tion available at the present time, but also for the reason that the value assigned to the oil-fields of the United States is conservative." White goes on to say that " these forecasts, or geological guesses, formulated conservatively with the probability that deficiencies will be very much more than compensated by excesses, lead one to con- clude that there are probably 20 billion barrels of oil available in the world in addition to the 43 billion barrels contained in the regions covered by Mr. Stcbinger's estimates quoted above, or as much in round numbers, as 60 billions of barrels in all." The figures shown in Table 9 are graphically expressed in Fig. 7, which throws the estimates into perspective. Undoubtedly the estimates of the world's reserve as here given are the most general approximations merely, but at the least they have sufficient substance to show where the leading centers of oil production are likely to be in the future ; and they serve to emphasize the important draft already made upon the portion underlying the United States. With due qualification they must be given consider- ation in matters involving the industrial and international policy of this country. CHAPTER III THE TREND OF OIL-FIELD DEVELOPMENT The exploitation of petroleum involves three successive stages: exploration, to locate oil-bearing territoiy; development, to bring the oil into production; and production, to reduce the oil to pos- session. A sustained output of petroleum necessitates vigorous extension of productive territory, consistent drilling of the area so proven, and steady withdrawal of the oil brought into production. The first two factors are progressive, while the third is cumulative. At any given moment, the country's output of crude petroleum is a function of the number of producing wells and their average flow; but the course of production is dependent in addition upon the rate of drilling and the extension of territoiy suitable for drilling, since the average flow of old wells is a decreasing function. Exploration, or the extension of oil-bearing territoiy, is highly individualistic and is prosecuted mainly by an activity picturesquely termed '' wildcatting," whereby wells are drilled in regions of promise by individuals, corresponding somewhat to the prospectors in metal- mining, who are spurred on by the notable gain attaching to lucky strikes. To a large degree, therefore, the pioneer work of exploration falls to the lot of individual initiative and enterprise, the organized agencies of production tending to center their attention upon the acquisition and drilling of land in proven territoiy. The cost of exploration, especially that of negative exploration, does not fall heavily upon the books of the industry proper, being carried chiefly at the expense of the speculative fringe of operators playing a hazard- ous game of chance. There is no basis for estimating the cost of exploration in the aggregate, as it does not enter completely as a tangible factor into the cost sheets of productive wells . Development, or the drilling of proven territory, is the factor of prime importance in compensating for the normal declining tendency of producing wells. The degree to which the countiy's production of crude petroleum is dependent upon the new wells drilled is indicated by figures compiled by the American Petroleum Institute which show that the output of twenty largo prodiicing companies in 1919 was 172 million barrels, of which 45 million, or 26 per cent, came from 27 28 THE TREND OF OIL-FIELD DEVELOPMENT wells completed in that year. It would appear from these figures that roughly three-quarters of our annual production of oil is now com- ing from old wells, and one-quarter from new wells. Technology of Oil-field Development. — The technical features of drilling and production are complex and need be touched on here only in so far as they bear upon the economic problems. Oil, of course, is won from wells drilled vertically into the crust of the earth to a depth of usually from one thousand to several thousand feet until the productive stratum is tapped. Two methods of drilling are in vogue: the older, and more widely employed, is the standard method, which utilizes a churn drill that pounds its way downward; the newer and more efficient in formations that are not too resistant is the rotaiy method, employing a drill that bores its way downward. The drill hole must usually be protected, either in whole or in part, by the insertion of iron piping called casing, which prevents the inflow of water or the improper escape of the oil and associated gas. The completion of an oil well is a costly process running usually into tens of thousands of dollars, as it involves a large expenditure of labor, power, steel, and time as well as a considerable outlay of capital. In 1913 the average 2500-foot well in Oklahoma or Kansas could be drilled and equipped for $12,000; in 1920 a similar well cost $32,000. In Table 10 is shown an analysis of the items of cost entering into the drilling of a typical oil well 2500 feet in depth under average condi- tions with cable tools in the Mid-Continent field. Tahle 10. — ^CosT OF Drilling and Equipping a Typical 2.500-foot Well in THE Mid-Continent Field, 1913-1920 (Data from Bates and Lasky, compiled by F. W. Swift) {In thousands of dollars) I terns 1913 1914 1915 1916 1917 1918 1919 1920 * Casing Contract drilling . . Labor 5.03 2.03 1.22 3.52 4.87 3.38 1.32 3.74 4.82 3.65 1.35 3.74 6.55 4.38 1.45 4.27 9.26 5.00 1.77 5.42 10.3 5.63 2.10 6.. 53 13.0 7.75 2.83 7.92 13.0 7.75 3.40 7.85 Other Total 11. 8t 13.3 13.6 16.6 21.4 24.6 31.5 32.0 * Estimated. t Corrected total. The cost of drilling, also, increases rapidl}^ with depth; roughly speaking each thousand feet below a depth of three thousand doubling the cost of the well. This factor of accelerating cost with depth has far-reaching significance in connection with future development COST OF PRODUCTION 29 work as shallower deposits become progressively exhausted; it also represents a factor limiting the depths to which deposits may be commercially exploited. Once the oil is reached, there are many natural and artificial factors entering into the rate of production such as the pressure under which the oil occurs, its viscosity, the thickness and extent of the reservoir rock, the porosity and structure of the reservoir rock, the depth of the well, the distance from other wells, the condition of the equipment, the degree of competition, the price of oil, and many others.^ In general, wells show an initial production which rapidly declines to a settled production which in turn gradually tapers off to an ultimate output so low that the well is abandoned. New wells are customarily reported in terms of their initial daily production, and this figure must be duly discounted in estimating the future output of the well. For instance, the average well in many i)arts of Oklahoma will produce daily during the first year of its life about 25 per cent of its initial daily production. Wells in some localities show an initial daily production running up to thousands of barrels, but the average initial daity production in the older fields is much less. Thus in 1918, the average initial production in the Appalachian field was 16.2 barrels; in the IlUnois field, 21.1 barrels; in the Mid- Continent field, 100.6 barrels; and in the Gulf field 331.9 barrels. During the same year the average daily production of all wells was 4.7 barrels. Cost of Production.— The cost of producing a barrel of oil is an important figure which unfortunately is not precisely known in many, if not the majority of, field operations. The price of crude petro- leum does not bear the same degree of systematic relationship to the cost of production as is the case with ordinary commodities; the price of crude petrolemn fluctuates independently of cost and may fall below the latter in times of overproduction. The unit produc- tion cost for a representative company operating in the Mid-Continent field, with a daily production of over 2000 barrels, was 2 dollars per barrel in 1919. This company realized 2 dollars and 40 cents a barrel on its sales, thus making a net profit of 40 cents a barrel. The operating costs of this company are given in Table 11. The high proportion of the total cost that is credited against indirect and non-tangible elements such as depletion, dry holes, etc., is worthy of special note. In many operations the cost is incorrectly calculated through omission of these items and false book profits are shown. • Ralph Arnold, The Petroleum Resources of the United States, Eeonomic Geology, vol. 10, 1915. 30 THE TREND OF OIL-FIELD DEVELOPMENT Table 11. -Analysis of Operating Costs in 1919 of a Representative Producing Company in the Mid-Continent Field (Data from Bates and Lasky) Direct lifting expense Depletion of property Depreciation of physical equipment Xon-tangible development expense. Dry holes and abandonments General expense Year's proportion of bonus Rentals of undeveloped acreage . . . Total 22.50 per cent 18.50 1 ( ( ( 15.60 i I 1 ( 14,55 ( ( 11 13.20 < ( 11 6.40 i I I i 5.13 it 11 4 12 It < ( 100.00 per cent The most important direct cost in producing oil is the Ufting expense. The cost of Ufting a barrel of oil for a representative com- pany in the Mid-Continent field during an average month of 1920 was G3 cents. This figure is fairly representative of the field as a whole. An analysis of the components of this item of cost is given in Table 12. Table 12. — Analysis of the Unit Lifting Cost of a Representative Pro- ducing Company in the Mid-Continent Field for an Average Month IN 1920. (Data from Bates and Lasl»y) Items Cents per Barrel Per Cent of Total Labor Overhead 17.8 15,6 13,2 8.8 6.5 1.1 28.25 24.75 20.98 13.96 10 31 1.75 Repairs Teaming Supplies Cleaning Total 63.0 100.00 According to figures compiled by the Federal Trade Commission ^ covering the majority of wells in California, the average cost of producing a barrel of oil was 27.4 cents in 1914, and 46.3 cents in 1919, an increase of 69 per cent. The component of the total cost ^ Summary of report on the Pacific Coast Petroleum Industry, Washington, April 7, 1921. THE COMPETITOR FACTOR IN PRODUCTION 31 falling under the head of lifting expense, including all expense incurred in raising the crude petroleum from the well and deUver- ing it into the producer's storage tanks, varies widely. In the case of flowing wells this expense ran as low as 1 cent per barrel with one company in 1914; while for very deep wells requiring pumping this item amounted to as much as 72 cents as shown by the records of another company for 1914. The cost of production in California, as elsewhere, shows a consistent relationship to the size of the opera- tions, as indicated in Table 13. Table 13. — Cost of Producing a Barrel op Oil in California in 1914 and 1919, BY Sizes of Companies (Data from Federal Trade Commission) Size of Company in Barrels of Annual Production Cost of Production in Cents per Barrel 1914 1919 1,000,000-250.000 28.6 49.3 72.1 49.9 74.9 121.2 250 000- 50 000 Under 50 000 Average of all 27.4 46.3 The Competitive Factor in Production. — In the drUhng and production of oil there is a unique competitive factor at work character- istic of no other substance, which has a far-reaching effect upon the econo- mic behavior of petroleum and serves to explain its economic peculiarities. This factor arises from the competi- tive extraction of a liquid from a common reservoir, as exemplified in the conditions prevailing in the aver- age oil-pool. Fig. 8, for example, represents 640 acres of oil land, where 16 companies own 40 acres each. This is by no means an exaggerated conception, since properties of 10 acres or even less are not uncommon. When A drills a well in the south- eastern corner of his lot, B, E, and F, must drill offset wells or suffer Fig. 8. — Hypothetical square mile of oil-bearing territory, showing checkerboard disposition of small property holdings — the funda- mental cause of overproduction and waste. (Adapted from Requa.) 32 THE TREND OF OIL-FIELD DEVELOPMENT their property to be drained. For every corner well so drilled, three other corner wells must be put down; and for every line well, an offset line well must be drilled as pi-otection. In tune of over- production, operator F cannot afford to shut down, because A, B, C, G, E, I, J, or K, or any combination of them, may refuse to do likewise, and oil in the ground of F wall be extracted from his prop- erty. Because of this condition, curtaihnent in output in practice comes only as a result of a natural decline in the flow of producing wells. " The small producer, no matter what happens, is between the upper and nether millstones. He is powerless to control his own or his neighbor's production. . . . " ^ The small property, overlying the oil-bearing reservoir in numbers and forming a checkerboard pattern, is prevalent in all the producing fields. Fig. 9 represents a typical portion of the Gushing pool in Oklahoma, from a map pubhshed by the U. S. Geological Survey; the concentration of wells along the property lines is striking. The conditions outlined in the preceding paragraph as characteristic of a hypothetical square mile of territory pervade the whole production of petroleum. Gompetition bctw^een small holdings is inevitable and leads to the same results in the mass as it does in the simple group of properties. In the words of Max W. Ball,^ " Ignorance there may be, carelessness there undoubtedly is, but back of ignorance, of care- lessness, of reckless, headlong methods, is the real cause — the fact that the average holding is so small that speed is the owner's sole protection. Let him be careful if he can; let him be economical if he can find a way; but careful or careless, reckless or conservative, he must be speedy if he would survive. The small holding is his master." The development and production of petroleum, therefore, are dominated by a factor which arises from a reaction between human nature and the geological occurrence of petroleum and has a sig- nificance and importance difficult to exaggerate. This factor must be held in mind in viewing any phase of the oil industrj^; the eco- nomic aspects of petroleum cannot be appraised without its proper evaluation. Its effect has been to drive the production of petroleum forward insistently and without respite, and to render petroleum pecuUarly resistent to retardation in periods of overproduction and times of reduced demand. It has contributed to making the United States the greatest producer of oil in the world, but it has assisted in reducing her reserve of oil by half. It has helped to 1 M. L. Requa, Petroleum Resources of the LTnited States, Senate Document 363, 64th Congress, 1st session, 1916, p. 16. ''Adequate Acreage and Oil Conservation, Proc. Am. Min. Cong., Nov., 1916, pp. 322-333. THE COMPETITIVE FACTOR IN PRODUCTION 33 sustain the phenomenal growth of automotive transportation bj^ providing the basis of motor-fuel in ever-increasing quantities; LEGEND o-Rig • - Drilling vffiU ■♦• - Dry hole • - Cil wall • - Gas well ■♦■— Abandoned oU well •♦•T-Abandoned gas well Fig. 9. — Map of a portion of the Cvishing oil pool, Oklahoma, showing the sub- division of the area into small properties and the resulting grouping of walls along the property lines. (After Beal, U. S. Geological Survey.) but it has hidden the necessity for the automotive engine to evolve to higher levels of thermal efficiency and to lessened dependence 34 THE TREND OF OII^FIELD DEVELOPMENT upon volatility in fuel. It has stimulated wide fields of application and supported important lines of industrial development; but it has created imminent problems in readjustment and reconstruction. Whether for better or worse, the effect of the competitive small holding in oil-field development has been extensive and profound. Bearing of Geology upon Oil-field Development. — During the past fifteen years the science of geolog}^ has been applied in growing degree to the location of the structures underlain by oil and to th,e measurement of underground conditions as a guide to exploitation. " One need look back only a few j'ears — a very few years — to a time when oil men would have laughed with scorn at the statement that there was any connection what- ever between geology and the oil industry. To-day every impor- tant company in the world has its corps of oil geologists, and upon their opinion depends the invest- ment of most of the millions of dollars which annually go into prospecting and development work." 1 It is difficult to appraise close- ly the effect of geologj^ upon the development of the petroleum resource. Wherever used, it has greatly increased the productivity of the drill and led to a fuller control of the natural extractive forces asw^ell asalleviatedthe harm- ful effects of water, though se- riously handicapped in the latter respects by economic forces aris- ing from the small holding which worked at cross purposes with it. The widespread employment of geology has also apparently speeded up the rate of production as well as reduced its unit cost. Another important service rendered by geology in the oil-fields has been in the direction of measuring the unmined supply, with results by which both industrial and national policy will be guided in growing degree in the future. 1 Ralph Arnold, Oil Geology in Relation to \aluation Work, Bull. Geol. Soc. America, vol. 31, 1920, pp. 433-440. 1913 1914 Fig. 10. — Oil acreage in the United States by years, 1913-1918; data from U. S. Geological Survey. PRODUCING OIL-WELLS 35 Table 14. — Oil Acreage in the United States (Data from the U. S. Geological Survey) {III thousands of acres) Fee Lease Ratio of Fee to Lease Total 1913 1914 1915 1916 1917 1918 1051 1445 988 1169 1019 1394 7,088 8,342 9,014 8,025 11,436 13,036 14.8 17.3 11.0 14.6 8.9 10.7 8,139 9,787 10,002 9,195 12,455 14,430 Table 15. — Producing Oil-wells in the LTnited States, October 31, 1920 (Data from U. S. Geological Survej') Producing Oil-wells (Thousands of Wells) Average Daily Production per Well (Barrels) Pennsylvania Oklahoma Northwestern Ohio 67.7 50.7 21.1 19.5 18.5 16.8 15.7 14.0 9.49 9.40 7.80 2.56 2.40 1.70 1.00 0.14 0.07 0.3 6.0 0.3 1.1 0.8 1.7 6.7 0.2 32.3 22.9 3.1 31.6 1.1 49.7 55.9 34.6 4.1 West Virginia Central and Eastern Ohio Illinois Kansas New York California Central and Northern Texas. Kentucky Northern Louisiana Indiana Coast Texas Wyoming and Montana Coast Louisiana Colorado Country 258 . 60 4.9 36 THE TREND OF OIL-FIELD DEVELOPMENT OKLA 50 7 Oil Acreage. — The acreage in the United States reported by the U. S. Geological Survey as oil-bearing is shown by years from 1913- 1918 in Table 14 and Fig. 10. Most of the oil acreage is operated on a royalty basis, only 10.7 per cent of the total being held in fee in 1918. The total acreage classed as oil-bearing in 1918 amounted to 14 million acres, or approximately 22,500 square miles — 0.74 per cent of the area of the United States exclusive of Alaska. Producing Oil-wells.— On October 31, 1920, there were approximately 258,600 producing oil-wells in the United States, with an average daily production of 4.9 barrels per well. The number and average size of the wells in the various fields are shown in Table 15, where conditions may be seen to range from 14,040 wells in New York averaging 0.2 barrel daily to 1000 wells in Wyoming and Montana averag- ing 55.9 barrels daily. (See also Fig. 11.) In general, the older fields have great numbers of small wells, while the newer fields are charac- terized by fewer wells of greater flow; there is a relationship also between productivity per well and the price of crude petroleum, since small wells must be pumped at added produc- tion costs. Thus in periods of rising prices many small wells, especially in the older fields, are brought into play, only to relapse into inaction when prices fall below their respective economic limits. The distribution of producing wells on January 1, 1919, more recent data in sufficient detail being unavailable, is shown on a map of the United States in Fig. 12. The relative Fig. 11.— Number of density of wells in the Appalachian field points producing oil wells ^^ ^^le intensity of exploitation in this region, in the United States mi i • -i i r i • -i 1 he change m the number oi producmg oil- I N V/ OHIO 21 1 T m -•.••ICLINOIS; KANSAS 15.7 CALIF. 9.46 ^ALL OTHERS 15.7 FIGURES ARE THOUSANDS OF WELLS on Oct. 31, 1920, by fields; data from U. S.GeologicalSurvey. wells in various states for the period from 1913 to 1920 is shown in Table 16. It is apparent that in most states the number of producing wells is being augmented, which means that new wells are drilled in greater number than old wells become extinct. New Wells Completed. — The number of new wells completed in the various fields in each year from 1913-1920 is shown in Table 17, PRODUCING OIL-WELLS 37 38 THE TREND OF OIL-FIELD DEVELOPMENT Table 16. — Producing Oil-wells ix the United States, 1913-1920, by States fData from U. S. Geological Survey) (In thousands of welh) 1913* 1914* 1915* 1916* 1917* 1918* 1920t California 6.82 7.13 7.31 7.78 8.36 8.97 9.49 Colorado 0.09 0.09 0.09 0.09 0.09 0.10 0.07 Illinois 14 1 14.8 15.2 15.8 16.1 16.0 16.8 Indiana 3.81 3.05 3.40 3.41 2.90 3.67 2.53 5.84 1.94 7.51 1.80 8. 68 2.40 15.7 Kansas Kentucky 0.97 1.03 1.06 1.86 2.89 3.62 7.80 Louisiana 99 1.18 1.54 1.73- 1.89 2.19 2.70 New York 10 7 11 1 11.0 11.2 11.4 11.4 14.0 Ohio 31.2 31.8 30.8 30.8 30.0 30.0 40.0 Oklahoma 24 1 27.8 29.1 31.7 35.1 37.7 50.7 Pennsj'lvania . . . . 55.3 58.3 58.4 58.4 58.9 58.9 67.7 Texas 3.54 3.85 4.33 5.19 6.02 7.13 11.1 West, ^'irginia. . . . 14.5 14.9 15.3 15.9 16.2 16.4 19.5 Wyo. and Mont. . Total 0.20 0.26 0.32 0.42 0.72 0.94 1.00 169 179 181 189 197 203 259 * December 31. t October 31. Table 17. — Wells Completed in the United States by Fields, 1913-1920 (Data compiled chiefly from Oil and Gas Journal) 1913 1914 1915 191G 1917 1918 1919 1920 Eastern.. . 7,905 5,909 4,085 6,234 5,435 4,413 5,192 5,682 Lima-Ind. 1,605 452 966 800 693 824 1,057 C.Ohio... 768 952 469 582 605 940 1,242 Illinois. . . 1,583 756 1,459 647 397 370 385 Ky.-Tenn. 179 104 1,091 1,651 2,190 3,734 2,888 Kansas. . . 2,174 2,362 1.088 3,637 3,469 4,671 3,442 3,163 Oklahoma 9,131 8,297 4,603 7,730 6,717 8,374 8,196 9,187 N.Texas.. 761 755 295 576 1,020 1,225 3,564 6,479 N. La.... 541 448 476 546 472 533 724 1,163 Gulf 731 564 859 1,113 1,562 1,677 1,238 1,760 Wyoming . 74 134 277 248 286 348 California. Total U. S. 575 421 240 645 736 589 559 587 25,582 22,891 13,984 24,620 23,091 25,615 29,069 34,021 NEW WELLS COMPLETED 39 50,000 100 1914 1915 1916 1917 1918 1919 1920 1921 Fig. 13. — Wells completed annually in the United States by fields, 1913-1920. JData from Oil and Gas Journal. 40 THE TREND OF OIL-FIELD DEVELOPMENT while the data are plotted on a ratio chart ^ in Fig. 13 in order to in- terpret the trend of this development work. The notable decline in drilling that characterized 1915 in response to the 1914-1915 period of overproduction in the Mid-Continent field is suggestive of the probable course of drilling in 1921, following the 1920 period of over- production. The marked increase in drilling activity in northern Texas and northern Louisiana during 1919-1920 in particular forms a conspicuous feature of the chart. Not all wells drilled strike oil, and the numerical relation between new oil-wells and dry holes over a period of years is shown in Table 18 and Fig. 14 for the great Mid-Continent field. In this region, about a 100- 90- 80- 70- 60- so- 40- 30- 20- 10- 0- FlG KANSAS OKLAHOMA N.TEXAS N.LOUISIANA 1912 1914 19' 1918 1920 1912 1914 1916 1918 1970 1912 1914 1916 1918 1920 1912 1914 1916 1918 1920 14. — Ratio of dry holes to total wells drilled in the Mid-Continent field by years, 1912-1920. After data compiled from Oil and Gas Journal by Bates and Laskv. quarter of the drilling is usualh^ non-productive. No distinct trend is revealed by the data as to whether drilhng in the aggregate is becoming more successful by virtue of the widespread application of geological science, but presumably this latter factor is tending to offset the growing difficulty of locating productive formations as the unknown portion of the reserve is progressively diminished in size. Relation between Producing Wells and New Wells Completed. — For the period 1910-1920, the ratio of new wells to total producing 1 The ratio, or semi-logarithmic chart, is used frequently in this book because of its value in analyzing and interpreting economic data. By virtue of the scale, the slopes of the curves are proportional to the percentage changes, and comparisons between separate curves on the same chart may accurately be made. For a detailed description of the ratio chart consult Irv'ing Fisher, The "Ratio" Chart for Plotting Statistics; and J. A. Field, Some Advantages of the Logarithmic .Scale in Statistical Diagrams, .Journal of Political Economy, vol. 25, 1917, pp. 805-841. NEW WELLS COMPLETED 41 Table 18. — Wells Drilled in Mid-Contixent Field, by States, 1912-1920^ Wells Drilled Percentage Dry Wells Initial Production Oil Dry Gas Total Total Average Barrels per Well Kansas: 1912 1913 1914 1915 1916 1917 1918 1919 1920 536 1422 1753 610 3142 2712 3463 2638 2327 160 260 270 147 370 538 935 630 690 253 334 317 331 112 177 273 174 147 949 2016 2340 1088 3624 3427 4671 3442 3164 16.8 12.9 11.5 24.1 10.2 15.7 20.0 18.3 26.4 7,245 22,467 18,932 11,319 248,846 319,093 342,853 172,479 181,845 13.5 15.8 10.8 18.6 79.2 117.6 99.0 65.0 78.0 Oklahoma : 1912 1913 1914 1915 1916 1917 1918 1919 1920 4712 6965 6410 3397 6086 5027 5529 5203 6303 843 1308 1343 885 1120 1360 2071 2278 2036 438 578 539 342 377 410 754 715 758 5993 8851 8292 4624 7583 6797 8354 8196 9097 14.1 15.3 16.2 19.1 14.8 20.0 24.8 27.8 30.8 228,886 334,050 976,244 1,036,170 521,895 365,314 372,558 487,939 773,900 48.6 48.0 152.3 305.0 85.8 72.7 67.4 93.8 122.8 Texas (North): 1912 1913 1914 1915 1916 1917 1918 299 581 497 307 500 728 896 2921 4590 124 208 221 198 145 290 285 598 1686 11 10 26 23 38 23 10 45 233 434 799 744 528 683 1041 1191 3564 6509 28.6 26.0 29.7 37.5 21.2 27.9 23.9 16.8 29.5 28,213 57,435 25,003 52,663 49,728 51,128 148,362 1,736,712 1,046,427 94 3 98.9 50.3 171.5 99.5 70.2 165.5 594.9 228.2 1919 1920 LouisLAJMA (North) 1912 1913 1914 239 356 302 349 324 302 391 518 62 93 94 89 141 99 85 119 52 70 52 26 55 56 57 67 131 353 519 448 464 520 457 533 704 1246 17.6 17.9 20.9 17.0 27.1 21.7 15.9 16 9 30.0 84,098 151,955 102,193 198,116 54,871 59,272 173,460 453,669 640,853 359.9 426.8 338.4 567.7 169.4 196 3 443 . 6 875.7 735.0 1915 1916 1917 1918 1919 1920 873 242 * From compilation by Bates and Lasky from Oil and Gas Journal. 42 THE TREND OF OIL-FIELD DEVELOPMENT wells in the United States has averaged about 12 per cent; that is, roughly 1 well has been drilled each year for every 8 wells producing. The trend of the number of new wells in comparison with the old wells is shown for a number of years in Table 19. Table 19. — Producixg Wells and New Wells Completed in the United States by Years, 1908-1920 (Data from U. S. Geological Survey) Producing Wells, Dec. 31 (Thousands of Wells) Average Daily Production per Well (Approximate) (Barrels) Wells Completed During Year (Thousands of Wells) 1908 142 16.9 1909 147 3.3 18.3 1910 148 3.7 14.9 1911 153 3.6 13.8 1912 158 3.8 17.2 1913 169 3.9 25.6 1914 179 4.1 22.9 1915 181 4.5 14.0 1916 189 4.4 24.6 1917 197 4.5 23.1 1918 203 4.7 25.6 1919 29.0 1920 259* 4.9* 34.0 * October 31. Fig. 15 illustrates how the mounting production of crude petro- leum has been dependent upon an increasing campaign of drilling and a growing number of producing wells. The general conformance in trend between the three curves appearing in Fig. 15 should not escape attention. The output of petroleum depends upon the total yield from old wells plus the production of new wells, each of the two components of the total being a function of the number of wells and their average productivity. Since wells display individually a declining production, the composite output can be maintained or increased only by adding new production in sufficient degree to compensate for the falhng off in old production. For example, the average dechne of produc- tion in the Mid-Continent field is 17 per cent of the preceding year.^ 1 See Bates and Lasky, Statistical Review of Mid-Continent Field, National Petroleum News, March 30, 1921, p. 71. PRODUCING WELLS AND NEW WELLS COMPLETED 43 In 1919 this field produced 197 million barrels; if no new wells had been drilled during 1920, the production in 1920 would have fallen to 164 milhon barrels. In 1920, however, 14,000 oil-wells were drilled in this field and the total output of the field was 249 million barrels. Thus new production to the extent of 85 million barrels was contributed by the 14,000 new wells drilled during the year, or approximately 6000 barrels for each new well. The average initial daily production of the new wells in 1920 was 188 barrels; assuming an even rate of drilling throughout the year, the new wells averaged six months' performance each. Consequently, the average output MILLIONS OF BARRELS AND THOUSANDS OF WELLS 500 400 300 200 1 1 BtS^ ^ foceij; J^ MU^ 5°^ p jODUc; ION Ot CBi^S t^ ISANDS \^„~-^ -^ ■ — PROD JCING_ iJEiiS \T_EN D OF V ^^ .-^/ ''H^IHG ^ sh^ / / ilH^ tvAOV) 5M»5>.-'J "^ ^^i" f-tts / \ / / 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 100 50 40 30 20 Fig. 15. — Comparison of producing wells, new wells, and production of crude petroleum in the United States by years, 1908-1920; data from U. S. Geo- logical Survey. per new well for the year would have been 34,300 barrels (188X365 -^2), if output had been sustained at the initial rate. The factor of decline, however, brought the performance down to 6000 barrels, a discount of 83 per cent. New production is not reported directly by the oil journals or other statistical sources, but may be calculated from a knowledge of the wells drilled and their average initial daily production, if the average annual rate of decline is also known. The trend of the number of wells drilled and their initial unit output in the Mid- Continent field is plotted on a ratio scale in Fig. 16 from data given in Table 18. The effects of the development of the Cushing pool in 1914-1915, and of the bringing in of large wells in Oklahoma, North 44 THE TREND OF OIL-FIELD DEVELOPMENT Texas, and Louisiana in 1919 are strikingly shown. The fact that no new pools of large size were brought into production during 1920 resulted in a reduction in the average initial production per well from 253 barrels in 1919 to 188 barrels in 1920, as clearly shown in the chart. This decline in unit production, however, was compen- sated by the greater number of new wells brought in, so that new 4000 3000 2000 1500 1000 900 800 700 600 500 400 300 200 150 100 90 80 70 60 50 40 30 ) TOTA . INITIA . PRODUCTION / (I NITS OF ,000 BBL '•) > / / \, y / "^-..^^^ / / / / f / / 1 1 AVERAC IE INITI (UNITS \\. PRODUCTIOh ■ 1 BBL.) 1 1 / 4 PER V\ /ELL 1 1 1 / 1 1 1 1 1 1 1 1 1 i ^""^^•-v.^ ,.^ / '^\ / / ' \ / /-- / A i / \ W WELLS DRILLED (UNITS OF 100 wells) 1913 1914 1915 1916 1917 1918 1919 1920 1921 Fkj. 16. — Trend of drilling activity in the Mid-Continent field by years, 1913-1920. production mounted from 48 million barrels in 1919 to 85 million in 1920. Relation between Production and New Wells Completed. — The dependence of production upon the }>ringing in of new wells is shown for the Mid-Continent field in Fig. 17, in which the volume of production is plotted on a ratio scale against the number of new wells by months for the period of 1917-1921. It is immediately PRODUCTION AND NEW WELLS COMPLETED 45 apparent that the upward trend of the production curve is supported by a corresponding trend for the number of new wells. The latter curve, however, shows a marked seasonal variation, reaching a maximum in the summer months and declining during the winter months. This seasonal characteristic of drilling has a systematic, but deferred and modified effect upon production, which shows a less accentuated response to the season. In addition, the number of MILLIONS OF BARRELS AND THOUSANDS OF WELLS oo 90 1 80 70 60 50 40 30 20 PF ODL CTl JN^ ^ / \/ V- 7n / .^ 1^ '^-^ I ■''''^ 10 ' .>^ -- Vv\ ^eLls COMP -ET £D 8 * '' /' \;' i-j 6 5 3 2 I 19 17 "^ 18 19 19 — 19 20 19 21 DECREASE -(.100^ -j+ SO 60 H4- 40 + 20 -4 o - 10 - 20 - so - 40 Ll_ 50^ Fig. 17. — Relation of wells completed to production in the Mid-Continent Field by months, 1917-1920. completions is influenced by general economic conditions, though to a less degree than might be expected, as illustrated by the rela- tively moderate decline in new completions during the industrial depression of 1920-21, the recession shown being httle more than the normal seasonal decline. The competitive factor here is so powerful that drilling activity responds only with reluctance to depressing influences. Decline Curves. — The importance of driUing for the maintenance of a mounting production of petroleum is exemplified by the declining 46 THE TREND OF OIL-FIELD DEVELOPMENT production invariably displayed by a single well or group of wells, if unsupported by the bringing in of new wells. The typical course of an oil-producing property is shown in Fig. 18, where the production of a group of actual wells in Oklahoma is plotted on a ratio scale. By fitting a straight Une to the curve and determining its slope, it BARRELS becomes apparent that the rate of decline averaged 40 per cent a j^ear for the ten-year period under obsers'^ation. The production of the country is mere- ly a composite of a great number of in- dividual properties, each yielding de- cline curves after drilling is com- pleted. After a regional group of properties, or field, reaches its maximum produc- tion, it enters upon a long course of decline, as may be seen in Fig. 21, page 55. The en- trance upon the decline comes when the production of new wells fails to ■"1907 1908 1909 1910 1911 1912 1913 1914 1915 1916 make up for the Fig. 18.— Decline in output of a tjijical Oklahoma decrease of the old. property over a ten-year period; data from Arnold Although this situ- and Darnell. ation has overtaken a number of fields, it has not yet dominated the aggregate of fields, although it soon may be expected to do so. The dechne curve of the country as a whole can scarcely be predicated on the basis of the dechne curves of the older fields, since changing technology' and rising price may be expected to considerably modify the decline curves we know from experience. UjUUU \ 5,000 > \\ V 'LINE OF 4'o;e ANNUAlIdECl'iNE \ /CURVE SHOWING ACTUAL DEC -INE 1 N \ J?\ RECORDED PRODUCTIO H 2,000 N. s N 1,000 sj K. ^ 500 -V k \ 300 200 100 \, \ \ \ \\ \ \ \ fv 50 V \ 30 1 20 FUTURE PRODUCTION BY DECLINE CURVES 47 Estimating Future Production by Decline Curves. — Many thousand decline curves have been plotted by petroleum engineers, and afford a mass of recorded experience indicating that decline curves are notably symmetiical. It has also been proved by experience that such curves " can be extended beyond the actual period of production by continuing the curves in accordance with their sym- metry and that such projections, if skillfully made, provide fairly trustworthy estimates of the future production of the well." ^ The technique of employing production data for estimating oil reserves and the rate at which the}^ may be recovered has been skillfully developed, and the valuation of oil properties, with due allowance for depreciation and depletion, has been made a quantitative procedure. The requirements of the U. S. Treasury in regard to the taxation of oil properties have greatly stimulated the accuracy of appraisals, since the rulings of the Treasury have been carefully drawn up on a scien- tific basis by a corps of able petroleum geologists and engineers, and carelessly prepared tax returns are not accepted. Conclusion. — Petroleum exploration and drilling are more or less amenable to the ordinary accelerating or retarding factors that affect industrial operations in general; but the output of crude petroleum, under the impetus of a small-unit competition that cannot afford to let up substantially under any cncumstances, proceeds without regard to outside pressure. In consequence, the production of crude petroleum responds quite laggardly to changed conditions, being affected mainly in its exploration and drilling stage several months removed from production proper. The necessity for an ever- expanding campaign of drilling to replace the declining output of old wells places a cumulative burden upon oil-field exploitation which cannot be perpetually borne. Sooner or later new wells in adequacy cannot be found and the production of the country as a whole will inevitably display the decline that inexorably affects the well, the property, the pool, and the field; a waning output will supervene and the production curve of the country will describe a declining course, gentler in slope perhaps than the composite curves we now know from experience, forcing into prominence far-reaching changes in tech- nology and economic procedure, profoundly affecting the com- position and structure of the petroleum industry. ' Arnold, Darnell, and others. Manual for the Oil and Gas Industry under the Revenue Act of 1918, N. Y., 1920, p. 85. See also Real, The Decline and Ultimate Production of Oil-wells, with Notes on the Valuation of Oil Properties, U. S. Bureau of Mines, Bull. 117, 1919. CHAPTER IV TREND OF OIL PRODUCTION The production of crude petroleum is strongly influenced by the geological conditions under which it occurs and the economic cir- cumstances under which it is dominantly exploited. Its liquidity and occurrence under pressure, on the one hand, lead to prolific out- flow when once productive deposits are tapped ; while, on the other, its development from surface properties that divide the underground mineral unit into many arbitrary portions, institutes a competitive extraction that does not decline materially in the face of over- production. These circumstances, which are unique with petro- leum, coupled with the pioneer spirit that has been present in this country, are responsible for a mounting output remarkable for its rate of increase. Moreover, because of its ready adaptability to service, the quantity produced has always been able to force room for itself in low-use directions after the higher demands for its products wei'fe satisfied, fo a considerable degree, therefore, the yield of crude petroleum has been promoted by factors forcing the output in advance of fundamental requirements, which, in turn, has stimu- lated a rigorous extension of markets and uses, but with surplus always in evidence to find an outlet as fuel. In short, supply has shaped demand. The Mounting Course of Production. — The economic character- istics of petroleum just outlined serve to explain the remarkable rise of production in this country from less than one million barrels in 1860 to 443 miUion barrels in 1920. Fig. 19 depicts on a ratio scale the steep slope of the production curve over the past sixty years, from which it is apparent that the output has roughly doubled every ten years. A closer analysis of this curve reveals the fact that its trend from 1860-1880 averages 13 per cent a year; from 1880-1900, 6 per cent annually; and from 1900-1920, 10 per cent yearly.^ The smoothness of the curve during the past decade, as compared with previous decades or production curves of other materials, is 1 Determined graphically by fitting straight lines by inspection to the three portions of the curve. 48 COMPARISON WITH GROWTH OF COUNTRY 49 worthy of note as reflecting close conformity to a geometric pro- gression. Comparison with Growth of Country. — The production of crude petroleum has, of course, increased far more rapidly than population, Fig. 19. — Growth in the production of crude petroleum in the United States, by years, 1860-1920, compared with the output of pig iron, increase in popu- lation, and other indices. as illustrated by Fig. 19 which measures the rate of growth of each. In 1902 the per capita production of petroleum was 1 barrel, while by 1920 this ratio had increased to 4.3 barrels. In this respect 50 TREND OF OIL PRODUCTION petroleum shares distinction with most of the other minerals, as contrasted with agricultural products which display rates of growth roughly parallel to the population increase. Of greater significance, however, is a comparison with the indus- trial growth of the country. Such a comparison is afforded by plotting pig iron production against crude petroleum output, as given in Fig. 19. An extensive investigation of the physical produc- tion of the United States by E. E. Day of the Harvard University Committee on Economic Research has shown that pig iron produc- tion is the best single index of manufacturing activity available and in fact shows a remarkably close conformance with the composite index calculated from a wide range of production data.^ It is apparent from Fig. 19 that the curves for crude petroleum and pig iron show a fairly parallel development for the period 1860-1900, but from 1900 to 1920 petroleum displays the more rapid increase. It was during the latter period, of course, that the great oil-fields of the Mid-Continent, Gulf Coast, and California regions came into flush production, and the output of petroleum in consequence went ahead of the normal industrial growth of the country (see Fig. 22). An index of the growth in the country's productivity as pre- pared by Walter W. Stewart is introduced into Fig. 19 to afford further comparison of the degree to which petroleum output has forged ahead of the average production of all conmiodities in the past twenty years. The angle between the two curves is a measure of this divergence and is strikingly great; the conformance between the two curves from 1890 to 1900 should also be noted. The rise of automotive transportation, which has largely taken place since 1912, has profoundly affected the oil industry, and the relationship between crude oil production and automotive registra- tions is quantitatively shown by a comparison of Curves A and E in Fig. 19. The steepness of Curve E is notable, but is the characteris- tic slope of industrial youth. Relation to Other Countries. — For many years the United States has been producing around two-thirds of the petroleum brought to the surface in the world. Her two largest competitors in produc- tion have been Russia and Mexico, the three countries combined turning out around 90 per cent of the world's supply. The trend of production in these leading covmtries is presented in Fig. 20, where the slopes of the lines are proportional to the percentage changes and the curves are consequently directly comparable. The marked parallelism between Curves A and B is readily understandable in view of the dominant contribution to the world's supply made by 1 The Review of Economic Statistics, Dec, 1920, p. 367. TREND OF PRODUCTION BY FIELDS 51 the United States. Production in Russia (Curve C) shows a rapid development in 1880-1890, a sharp but less accentuated rise between 1890 and 1900, exceeding the output of the United States in 1898 and the three years subsequent, and a fluctuating but somewhat declining course during the two decades of the present century, with an abrupt decline in 1917. Mexico (Curve D) displays a phenomenal growth in production from approximately 1 million barrels in 1906 to 163 million barrels in 1920, with a tendency throughout the past decade to increase at the rate of about 25 per cent a year. The curve for Mexican production is characteristically that of a youthful, flush producer, with somewhat greater steepness than normal because of the unusu- ally large wells in that country. The data upon which Fig. 20 is based, together with production figures for the less important countries, are presented in Table 20. Trend of Production by Fields. — The production of the United States as a whole is a composite of many individual fields, some young and growing in output, others mature and stable, still others old and waning in vigor. It is necessary, therefore, to bring the com- ponents of the country's supply into comparison, in order to analyze their relationships one to another and to the whole. For this pur- pose, the productions of the various oil-fields since 1900 are plotted on a ratio scale in Fig. 21, which reflects the trend of each contributor. The chart is somewhat confusing because of the necessarily large number of curves appearing upon it, but the complex of lines reveals unmistakably the tendency of all fields to spring quickly into prom- inence, to maintain themselves with fluctuations for a period, and then to enter upon a long decline. The curve for Illinois is typical and represents, with due qualifications, the course to be followed by the immature fields, such as North and Central Texas and the Rocky Mountain, of whose trend curves only the early, youthful portions appear in the chart. Study of Fig. 21 will emphasize the degree to which the maintenance of the total output is dependent upon the com- ing in of a growing number of new fields, as the older fields in increas- ing numbers enter upon a waning course. It is obvious, and indeed susceptible of rigorous mathematical proof, that a progression of this • kind must eventually reach a point where the declining functions will dominate and force the composite curve downward. The significance of Fig. 21 can scarcely be over-stressed. The semi-logarithmic scale upon which the data are plotted yields a type of curve that truly reflects a picture of all the complex factors — physical, chemical, geological, economic, and psychological — that enter into production. The curves are not merely graphic expressions 52 TREND OF OIL PRODUCTION < S o a o ^ o (4 f^ OS t-i cs ^H ^H O OJ J-H P ^ D o 00 lO CO ■* :0 C2 X IN ■* X o rr> ■o •O X -.o » C5 N ■O X o (N >c is c^ IN M M IM CO CO CO CO ■<«< •* ■* •o "O ii5 to lis N n -* t> CO CO CO CO C) C-i M ^ O) IN ^ CO IN -r O o o o o o C o o o o o o o o o O •I t^ O O *^ o o o o o O o o o o o o o o o o o -< o '•O M © LO CO 1^ ffl CO c^ » c^ C) CO c-t <:^ 13 o o o o o c o o o o o o o c O c o o o o O a a) CO C5 CO o —1 •"»• lO a) 3 > « o o o o 1 >> rt o i-O f o or, ■■D — Ol CO ■M CO o o o o o ^ CO IN t- a ■^ t^ ■o •o t- o c r> o o o o o o o a* eS o 1 o o o o o o o " " " " " " " *"* o o o -H M cs ^_ LO CO X IN o f IN X r» o s o o o o »— < c^ LO X CO Ml C o o o o o o o o o ■< '^ ^^ m X .. ^ ^ X o o c^ '-' t^ C-l ■T c o c ^ = - =^ — 01 — -^ , ■ to I" o ■* o -* •o CO o X i< CO 'a "B • o c^ ■* >o o t^ o: to o « to H^ • o o o o o o o o " (N oj a « o IN t^ o t^ C-. to IN o X ir X — sJ -c = C-l -r »»• t^ o a: C-. t^ X T ^ IN ace IN ^ £ t^ o cr, LO m •* o ^ C>) CO ^~ LO CO IN o ■n CO •* IN O (_ C<1 (N ot CO ■* lO ^~ O CO CO CO 1^ —1 as TJ> in m m to t^ Ph o o o o o o o ^ — "* '^ "^ IN '- N o IN CO ^ o 05 X O •r o ■* O LO n "-I o CO o to Ti- -^ C-. •* C) 'T o o r~ LO e ^ '^ C^ CO ■* 'l" ■* iC to to to t~ t^ !>• X X X X X X Of) o o o c^ 00 e^ lO CO N ■o —' o to X o o t^ to ■* s a ^ (N "N CO M* ^ y, X c: ir. rt CO CO IN Ol X CO X to t^ « —' " '^ " 1^1 ^ m r^ ^ LO X, crs o ■* 1^ LO (Tl S5 CO o o O) X (N X ■* (N 03 CO TJ< O - s t: qk^ t c^ to o t^ CO C5 O -H - M o - - M CO (N CO "5 to' g (N o o LO o o o N o CO IM o X o ■c X o LO LO O '& lO o •-0 (Ti iC on ^^ c^ to o o X O) r~ X cs o o LO O « 00 00 f~ I^ liO lO o o to t- o -o t^ t^ •V o CO o '/■ u» o CO -" CO o o c '- ■M o o t~ to to to t^ N 03 X CO X ■-< o o o !-, o o o „ CO (N CO c^ to lO to e^ Oi LO CO t- o fi, " ^ o to X CO on o CO (N to t~ X C-i ■N Tf X o CO t^ •«" '^ M rt (N IN CM IN C^ ■N CO CO CO CO ■* ^_ fN CO •^ lO e r^ X a o ^_, IN CO Tf >n to h- X o o o O o o o o o c o — N c» 05 c-. o o Cs C: cr. C-. C-. cs 05 o o> o 05 05 CS O OS 1 RELATION TO OTHER COUNTRIES 53 BARRELS lOOO 900 800 TOO 600 lOO 90 80 70 60 50 1 J / , / A.-WOF LD^y-~~J y 1 B.ur ITED STATES i / / /--^ ' / / / J ' / ^-'* C.-RL SSIA^ ^ / / / \ ,y ^■'H/"' \j / t^^ ' I / J\ 1^ 1 1 \ a/ / 1 1 / \ \rJ . / / ^1 i 1 1 1 t 1 1 / I 1 D.-MEXlCO^^^ / / / / hi ^ SCALE OF INCREASE OR DECREASE + ioo«$ + 80 1+ 60 J+ 40 20 J- 20 I- 30 J- 40 5036 1880 1890 1900 1910 1920 Fk;. 20. — The annual production of crude petroleum in the United States com- pared with other leading countries, 1880-1920. 54 TREND OF OIL PRODUCTION 2 ^ .2 X •"■ o ■r. O J ."t; Ti< 00 C5 CO o t^ lO o o m CO o o CO 00 CO ^ .-H in CO 00 CO o 00 o rH CO IM o r^ o) O) O) -i- CO 00 o CO in t^ ■>!< c S M IN IN CJ C^ IN CO CO CO CO ij' ;3 M •^ o t~ ■* o ^ o -co o o o o • o lO oq CO i-H r/1 o ro o -^ CO cS • lO 05 O C5 o o r~ o 00 t^ IN in CO IN IN •* O CO CO - o o IN CO o o lO CO o O c:5 OJ -ti 00 lo r-4 CO o in " " IN IM !N ca N. -H o in CO oo o O O in "i- m c^ IN C5 CO CO ^ >, O o o o ^ IN CO ^ CO CO IN CO t^ ^ " " •^ t^ • T»H 1-H CO in 00 a o I— 1 •^ CO CO 05 fH ■ o o CO t^ IN CO CO CO t^ t^ 00 CO --1 CD O • o M< ^ ^ in in in O t^ 05 o o o oo O ^ ^ rt rt o o o o • • • •

IN rt IN ^ rt ^ rH ,-1 IN CO IN CO CO in ■* 00 ^ IN CO ■* CO CO ri )— ( "^ m X o >:»< CO t^ O -< CO CO o o o t^ 00 Tti ^ 00 ~ ■ o ^ -/> o CO rt CO- CO ^ o ^ IN CO CO CO CO IN (N (N rt IS '"' •^S" ;^ 03 ^ fl CO 00 C5 t^ ro 00 o CO o r^ o -f 00 ~ oj t^ Tf CO o ■^ "-• IN CO "-• t~ o c» CO CO t^ (^ CO o en >—< >o t> 05 ^ rt t^ in CO (N IN ^ o O -H CJ o o o o o CO o 00 o oc CO ro r/1 -)i CO 0> IN — < O Ol -J" ^ ^ O •* 1" ^ lO CO CO CO CO CO IN >> c a in O IN (N t^ •* ■* in in ■* IN »-i CO O CO « 5^ o o o -^ O o o o o o o o o rt CO ■<*< in 00 >*; t^ o f O -f ^ t~ c~. in o ^ CO 00 00 CO o 05 in 03 CO f O CO CO o in CO ^ r^ r^ ro CO tH CO t^ rt CO o IN C^ CO CO CO ^ in l^ oo 00 o o 00 05 05 05 rH rH 03* o IN o 00 CO CO 00 ^^ CO i~- N m ra CO CO in i^ Cf) cr> O CO C^l r^ CO 00 o 1-1 > Tf CO IN C^ -H o a o c r-t o C-l -1 o o 00 00 t^ C5 X ^ " IN c^^ t- 00 ^ CO ■* in 05 Tji -H o o lO o CO 00 (N o CO O 00 o t^ in 00 t^ t^ C^ IN •* o ^ rt o CO CO ^ IM o o C5 00 00 CO 00 t^ t^ t^ 1^ CO t^ c^ c^ C-) lO o ^ t^ T-l CO 1^ ^H C^ -rf CO 5 -0 >H 00 IM 1-0 C^ CO ■n (N CO ■* 00 o ^ IN CO 'f m o r~ 00 C5 o C3 o o o o o o o o ^ rt ,-H ,-. c>i o o o 05 O o o a o C5 m O 05 05 05 C5 C5 C5 C5 C5 >■ *"* •"* •^ t-H »-H .— 1 t— 1 I— 1 f— 1 1— < f— t TREND OF PRODUCTION BY FIELDS 55 1900 1905 1910 1915 1920 Fig. 21. — Trend of petroleum product ion in the United .State.s, 1900-1920, by fields. 56 TREND OF OIL PRODUCTION of statistics; they are visualizations of economic forces; and while these forces cannot always be resolved into their components, they can be observed, measured, weighed against one another, and with due precaution projected ahead. Production data by states and by fields for a number of years past are given in Tables 21 and 22. Table 22. — Petroleum Produced in the United States, 1913-1920, by Fields Data from U. S Geological Sun^ey Year Appala- chian Lima- Indiana Illinois Mid- Continent Gulf Rocky Mts. Califor- nia United States II 1"" o o y. St s o z y. 1" m o Z X •5 m o Z X a •B C Is m o X o -a p Si Sffl o X o •a a Si c — u X o 73 c 1913 25.9 100 4.77 100 23.9 100 84.9 100 8.. 54 100 2.60 100 97.8 100 248 100 1914 24.1 93 5.06 106 21.9 92 98.0 115 13.1 153 3.78 145 99.8 102 266 107 1915 22.9 88 4.27 90 19.0 80 123 145 20.6 241 4.45 171 86.6 89 281 113 1916 23.0 89 5.06 106 17.7 74 137 161 21.8 256 6.48 249 91.0 93 301 121 1917 24.9 96 4.27 90 15.8 66 164 193 24.3 285 9.20 354 93.9 96 335 135 1918 25.4 98 3.91 82 13.4 56 179 211 24.2 28412. 8 492 97.5 100 356 144 1919 29.2 115 3.44 72 12.4 52|l97 232 20.6 241 13.6 523 102 104 378 152 1920 30.5 118 3.06 64 10.8 45 1 249 294 26.8 314 17.5 673 106 108 443 178 Composite Character of Production. — The composition of the production curve for the whole country is interpreted in a differ- ent manner in Fig. 22, in which the yields of the various fields are superimposed on a natural scale. This chart clearly indicates the wedge-like character of the growth — how a mounting production becomes increasingly dependent upon the development of new fields. It also stresses the dominant position held by Oklahoma and Cali- fornia and points to the great number of smaller contributors that must be found to compensate for the decline of these major fields. It should be observed, moreover, that Oklahoma started downward in 1919 only to be temporarily revived in 1920 by the sharp rise in crude oil prices that came in the first quarter of that year, and that Cali- fornia is rapidly approaching its peak. The important contribution made by North and Central Texas in 1919-1920 should not escape attention nor should the fact that this field has alread}^ seen its best days. Fig. 22 may be profitably examined in conjunction with Fig. 21 since the two present complementary analyses of the trend of production that may sei-ve as the basis of generalizations as to the future. COMPOSITE CHARACTER OF PRODUCTION 57 Figs. 21 and 22 show clearly the marked stimulation in output that came in 1920 under the influence of the price advance. While the extent of this increase in output is an encouraging indication that there is still considerable resilience in the situation, it should be remembered that the cost was a proportionately greater advance in price, and there is obviously a limit to increases gained in this manner. (See Chapter 18.) On the whole, Figs. 21 and 22 indicate that production in the United States is fast approaching its limit, and there is much evi- dence to suggest that 1921 will register the maximum rate of output MILLIONS OF BARRELS 440 Fig. 22. — Production of crude petroleum in the United States by years, 1890-1920, showing the relative importance of the contributions made by the individ- ual fields. that this country will enjoy. It should be observed that this deduction is based upon a study of production curves, that is to ssiy, is the result of mathematical analysis, and is not predicated upon estimates of the size of the unmined supply. The apparently limited quantity of petroleum still underground, however, offers additional and corroborative evidence of our proximity to the peak of production in the United States. Comparative Importance of Fields. — The relative importance of the major producing fields in the United States is shown in Fig. 23, where the dominance of the Mid-Continent and California produc- tion is outstanding. The main advance in the country's output 58 TREND OF OIL PRODUCTION in 1919-1920 is readily seen to lie in the increased productivity of the Mid-Continent field, comprising Oklahoma-Kansas, North and Central Texas, and North Louisiana. The relative importance of the two major fields is shown in per- centage form in the table following: Table 23. — Percentage of Country's Total Output of Crude Petroleum Contributed by the Mid-Continent and California Fields, 1913-1920 1 1 1 Mid-Continent i Year (Okla.-Kans., N. | and C. Texas, | N. La.) 1 California Others, United States, Per Cent Per Cent Per Cent Per Cent 1913 34 39 27 100 1914 37 38 25 100 1915 44 31 25 100 1916 46 30 24 100 1917 49 28 23 100 1918 50 27 23 100 1919 52 27 21 100 1920 56 24 20 100 The Widening Gap between Production and Consumption. — While the production of crude petroleum in the United States has been growing at a rapid rate (see Fig. 19 and Table 22), the con- sumption of crude petroleum, since 1915 at least, has been increasing still more rapidly, as shown by the following series of index numbers: Table 24. — Comparison of Domestic Production and Consumption of Crude Petroleum, in Percentages of the Figures in 1913 (Figures for 1913 = 100) Year Production Consumption 1913 100 100 1914 107 100 1915 113 105 1916 121 122 1917 135 145 1918 144 158 1919 152 161 1920 178 204 GAP BETWEEN PRODUCTION AND CONSUMPTION 59 It is thus seen that from 1913- 1920 domestic production in- creased 78 per cent, while dur- ing the same period consumption advanced 104 per cent. The discrepancy was made possible by the growing imports from Mexico, as will appear from examination of Table 25, which shows also the method emploj-ed in calculating consumption. The monthly trend of supply and demand for the period 1917- 1920 is shown in comparative form in Fig. 24, which represents an interpretation of the current situation. Annual data show the broad features, but in order to appraise the fluctuations within the year, recovu'se must be had to monthly statistics. The curves appearing in Fig. 24 depict the economic forces at work, and should be looked at as a moving picture of what is transpiring. The semi-logarithmic scale upon which the data are plotted re- duces the fluctuations to a per- centage basis, thus revealing the trends, permitting accurate comparisons to be made, and interpreting the change in terms of their economic signifi- cance. In view of the general slow- ing down in industrial activity during 1920, it is interesting to observe the increasing production throughout the year, together with the sharply mounting im- ports. These conditions alone were shaping up for a temporary overproduction, which required KANSAS ■ OKLAHOMA t' CALIFORNIA - I J O d: U O 1 ^ - 1 -1 o d: -1 — h Fig. 23. — Monthly production of crude petroleum during 1919 and 1920 by fields. Note the outstanding impor- tance of the Mid-Continent field, 60 TREND OF OIL PRODUCTION only the decline in demand toward the close of the year to precipi- tate a falling market. Trend of Stocks. — Between production and utilization there is a supply of crude petroleum of considerable magnitude held in storage 1 1 ' J \ ' ' MILLIONS OP BARRELS A ^ER ^GE PRK n r \ 200 100 SO SO 70 60 50 ■40 30 ■ f "■■"* -- PII E L INE U N ARK ETir GC CX'S ST( ICK5 .V • S DO MES TIC co^ tSUA IPTI 3N ^a V '^ \ ** MAF iKE" ED PRO DUC TIO ::4 <^^^i>_ ^ ^ f '•^^' : J ST 3CK i --' -''' 7^ \. \ / / 1 V ^ / v/ IMP ORT 3 — A A/ A f pv 1 \ .A t \ r ^ 7 / ■J 19 17 19 18 19 19 19 20 19 21 DOLLARS PCR BARREL OR DECREASE '''+80 +60 +40 +20 -10 -20 -50 -40 -50^ Fig. 24. — Trend of the crude petroleum situation in the United States by months, 1917-1921. by (a) producers, (6) pipe-lines and tank-farms, and (c) refineries. Beginning August, 1920, the U. S. Geological Survey classified the petroleum in storage according to the division given above, but here- TREND OF STOCKS 61 tofore statistics of stocks have been available for (a) pipe-line and marketing companies, and (6) refineries. Stocks, as usually referred to in the literature, represent the oil held in storage by the pipe-line and marketing companies, and unless otherwise specified the term is so used in this book. The size of the country's stocks of petroleum is shown in Table 25 for the period 1913-1920 in comparison with production and con- sumption. It is apparent that the stocks have for some years aver- aged around 140 miUion barrels, although both production and con- sumption have been rapidly progressing in size. While the stocks from 1913-1916 may have been a trifle ample as a working reserve, the ratio of stocks to consvmiption has rapidly fallen subsequently. This ratio may be advantageously expressed in terms of the number of months during which the stocks could supply the country's require- ments, and the expression shown in Table 26 for 1909-1920 is illumi- nating, for it indicates that our working reserves of crude petroleum have fallen from an eight-months' supply in 1910 to a three-months' supply in 1920. Table 2.5. — Comparison of Domestic Production and Consumption of Crude Petroleum by Years, 1913-1920 (Data from U. S. Geological Survey) (In uiillions of barrels) Year Domestic Pro- duction Imports Exports Net Imports Avail- able (Prod. + Net Imports) Stocks End of Year Changes in Stocks Consump- tion Crude Run to Stills 1913 248 17.8 4.6 13.2 261 122.8 - 0.1 261 1914 266 17.2 2.9 14.3 280 141.6 + 18.8 261 191 191.5 281 18.1 3.7 14.4 295 163.8 +22.2 273 191G 301 20.6 4.0 16.6 318 162.4 - 1.4 319 247 1917 33.5 30.1 4.0 26.1 361 146.0 -16.4 378 315 1918 356 37.7 4.9 32.2 387 121.7 -24.3 413 326 1919 378 52.8 5.9 46.8 424 127.9 + 6.2 418 .361 1920 1 443 106 8.0 98.0 541 138.2* + 10.3 531 434 ♦Includes Mexican stocks held in United States by importers (5.8 million barrels). Stocks, of course, ixrv a rather sensitive barometer of the month- to-month fluctuations in tlK> relation l)etween supply and demand, any sustained aceuniiilation of stocks being normally followed by a decrease in market price, and vice versa. 62 TREND OF OIL PRODUCTION Table 2G. — Tke.nd of the Stocks of Crude Petroleum in the United States IX Terms of the Country's Requirements Year Stocks at End of Year (Millions of Barrels) Monthly Consumption (Millions of Barrels) Number of Months Supply Represented by Stocks 1909 117 13.9 8 . 4 months 1910 131 16.0 8.2 " 1911 137 17.6 7.8 " 1912 123 20.0 6.2 '* 1913 123 21.8 5.7 " 1914 142 21.8 6.5 *' 1915 164 22.8 7.2 " 1916 162 26.5 6.1 " 1917 146 31.4 4.7 " 1918 122 34.5 3.5 " 1919 128 35.0 3.7 " 1920 134 44.3 3.0 " MONTHS 10 9 8 7 6 MILLIONS OF BARRELS 200 1 1 1 1 1 .^ RELATIVE STOCKS ^ IN ^ UMB :r of MONTHS I 1 \ / y" \! \ ^ \ > K \ \ y " X w ^CTl MILL JAL IONS STO OF B CKS ARRE LS \ - -10% J-20'/S l-SO'"* -40% -50jf 1-70^ 1910 1911 1912 1SI3 1914 |915 1916 1917 1918 1919 192C 1921 Fig. 25. — Chart showing the change in the actual and relative quantity of crude petroleum in storage in the United States by years, 1909-1920. Conclusion. — It may be gathered from the data presented in this chapter that the production of crude petroleum in the United States has enjoyed a remarkable and sustained rise to the startling level of 443 million barrels in 1920; that the rapid increase in output CONCLUSIONS 63 has drawn Into production a growing proportion of the resource; that the mounting volume of oil thrown on the market has pro- moted a wide range of uses which in turn have gathered impetus and stimulated a consumption met with difficulty by the combined pro- duction of the United States and Mexico. The situation has shown an accretionary, accelerating growth which cannot be indefinite^ sus- tained and there is much evidence to sound a warning that the turn- ing-point is near when our growing dependence upon petroleum can no longer be met by efforts looking merely to an increase in supply, but changes in technology and economic procedure will be called into action to multiply the service obtained from the quantities available. CHAPTER V THE TRANSPORTATION OF CRUDE PETROLEUM The liquidity of crude petroleum has led to the development of a remarkable system of transportation without parallel in its cheapness and efficiency. This sj^stem comprises a network of pipe-lines spread over much of the country, supplemented by specially designed tank-steamers for coastwise and foreign trade. A relatively small quantity of crude petroleum is handled by the railroads in tank-cars. To a preponderant degree, therefore, the movement of crude oil is independent of the normal transportation agencies upon which com- modities in general depend. Pipe-lines.^ — The oil pipe-line, first introduced about fifty-six years ago, has so developed that now the American petroleum indus- try is served by a pipe-line system nearly 50,000 miles in aggregate length, approximately IS per cent of the combined length of all the railroads. The magnitude of this arterial complex pulsating with oil has been frequently overlooked in considering the role played by transportation in the resource development of the United States. A comparison with the railway systems of the country is afforded in Table 27. Table 27. — Comparison between the Oil Pipe-lines and the Railroads of THE United States Number of Miles Relative, Per Cent Number of Miles per 100 Square Miles of Territory Estimated Value (Millions of Dollars) Oil pipe-lines * . . . . Railroads f 45,. 500 2.53,626 18 100 1.53 8.53 500 19000 * Estimated for 1920: Trunk lines, 34,000 miles; gathering lines, 11,500 miles, t 1917. 1 For a detailed, though slightly out of date, description of the Mid-Continent pipe-line system, consult Report on Pipe-line Transportation of Petroleum, Federal Trade Commission, 1916. The pipe-lines of Wyoming are described in Report on the Petroleum Industry of Wyoming, Federal Trade Commission, 1921. 64 PIPE-LINES 65 As the term is used in the oil industry, a pipe-line is not merely a line of pipe, but consists of the whole plant employed in the process of transportation, including initial, intermediate, and terminal tankage systems, power plants, pumping stations, systems of com- munication along the line, and all other things necessary to safely and expeditiously move the oil from one point to another. ^ The pipe-line system includes trunk-lines extending from the oil-fields to the refining centers and gathering lines in the producing areas that act as feeders to the main channels. There are approximately 34,000 miles of trunk lines in the United States, the most important being shown in Fig. 26. The combined length of the gathering lines is estimated at 11,500 miles. The relation of gathering lines to trunk lines in a large oil-pool is illustrated in Fig. 27. The pipes for conveying the oil are made of steel and are laid near the surface of the ground. The main lines average about 8 inches in diameter, with the gathering lines smaller. The oil is forced through the pipes by means of pumps operated by steam or internal combus- tion engines. The pumping stations in the eastern and mid-western region are usually about 35 miles apart ; but in California the average interval is about 12 miles because of the greater viscosity of the oil and the necessity of heating heav\^ oil to facilitate its movement. The construction cost of most of the lines was about OOOO dollars per mile, based on S-inch pipe; and the average pumping station cost from 130,000 to 250,000 dollars. In California in 1914 the cost of building an 8-inch line, including stations, was about 20,000 dollars a mile. Oil is produced from thousands of wells, by hundreds of pro- ducers, but for the most part is transported by a few large pipe-line companies. The oil from the wells is first run directly into the producer's tanks, where it has a chance to settle. From there it flows by gravity or is pumped to the pipe-line company's working tanks, either through lines owned by the producer or through gath- ering lines estabhshed by the pipe-hne company. The common practice is for the pipe-line company to operate gathering lines which begin at the producer's tanks and to follow up new production with pipe-line extensions. The carrying capacity of a pipe-line varies wath the size of the pipe, the chstance between pumping stations, the pressure at which the oil is pumped, and the viscosity of the oil. The cubic capacity of an 8-inch line is 328 barrels per mile. The daily capacity of an 8-inch 'For a discussion of tliQ oil pipe-line, consult Forrest M. Towl, Pipe-lines, Existing Facilities and Future Needs, American Petroleum Institute, Nov. 17, 1920. 66 THE TRANSPORTATION OF CRUDE PETROLEUM K - ^ V 3 o •g o / '"-. ^''^is^ \ i.N0m)3A^ i* j--\ T ^ T^^^yilK, ^> I^ o A /[ A^ %^->^ ^ ^ /^ \\i.'^^ i \ ^ \ "™T7.»_ \2 \z y\ ^1. 7 -N V.^^^--^' 7 4 ^f^ A^ > ^^^ \ "■ '' " / '^ 'v «■ 1 ^ \ lr\\ ^^^^^ A \ ^ '\ ^'' O 1 Oj^ a. 1 J>^ S)HA.i -1) \S; ^'i ^^ ' O 1 ^t ¥ C"*^ ^' o ^iir 1 'd < ]\ J 1 ^,v- \ //'So ' Z Kl ) ^sS ? X- 1 iV / '^ Sv 1 < 1 vy Vf 1 '^ N ° 1 ^ r^=#l» Vj I ^-M if^H^ rsr """T ^j/^ \ ^ y^-ir-— 1 < 1 < l"^ < ^ ^1^ ^ '■M.,,-'^ 1 y \ I 7 K) < ^y' Q 1 Q ' ^ I 1 ' K /" < 1 1 f — — -'--r- — 1 1 l1_ i /' 1 1 o ' ~ ■ 1 < 1 """ i ^^ O ' £r o ' , / 1 a-^ ' O 1 ' ^ -""''^ / -' / ^' ~ ; / o - : p° / " ; - 2 r ' ^ ' i / f 1 ^-_ 1 S "^ y *" ~ - — .' / ( ~T~~' I ' ^ 1 j-^ / ' < 1 z ' I- , O ; 'V r ^ Vi^ ,-'--0 t / ^ 1 N / ,.y t~- <---_ /' .? ^-^ 1 ~~~ — ^^. ' / ° / ~~~~-^' 1 s \ ^ ' z ) o ; / ^l^....'^^^ ^ y'""'"*.^ 7 -' ^{C^, P 3-^ 1/ LfiMi- to 1 o ( ■^ x' '"'' ^^C'J^jF ,u^ > ^ ^x / ^^/-/.-''^^^^^^^ c 13 ^ A >">V. ^-^' c ^ PIPE-LINES 67 pipe-line, operating at a pressure of 800 pounds per square inch and transporting oil of 38° Baume gravity, is 21,000 barrels. The oil in transit in pipes east of California at the end of 1920 was 16,700,000 barrels. The average daily production of crude petroleum in the United States in 1920 was approximately 1,210,000 barrels. Practically all of this oil was transported by pipe-line. Some of it moved only a few miles, while some was probably carried upward of 1500 miles. About 150,000 barrels per day was taken to the Atlantic seaboard through a connecting system of lines. A large quantity was delivered to Baton Rouge and the Gulf ports through long lines. Probably the entire quantity, approximating 200,000 tons daily, moved on the average more than 500 miles.^ The movement there- fore approximated 100 million ton-miles per day. The daily ton- miles of freight hauled by the railroads of the country are slightly more than 1 l)illion, indicating that the pipe-line systems reduce the freight load of the United States by something like 10 per cent. In addition to the tanks that are an integral operating part of the pipe-line system, most of the pipe-line companies provide facilities for storage of crude petroleum in large quantities. Some of the storage-tank farms operated by the pipe-line companies are located in the oil-fields, while others are at convenient points along the line or at its terminus. A tank-farm consists of a group of circular steel tanks, generally of 37,500 to 55,000 barrels capacity, separated by earthen banks as a fire protection. Some of the tank-farms are very extensive, the largest having capacities upward of 10 million barrels. The gross pipe-line and tank-farm stock of crude petroleum east of California at the end of 1920 was 107 million barrels. Congress has imposed upon the pipe-line companies the ol)liga- tions of common carriers and has placed them under the supervision of the Interstate Commerce Commission " for the purpose of assuring that the charges and facilities for transportation shall be reasonable and that there shall be no discrimination between shippers." Up to the present, however, comparatively little use has been made of pijx^-lines as common carriers, most of the oil produced having been purchased by the pipe-line companies at the producer's tanks, or else handled by integrated interests engaged in the combined activity of production, transportation, and refining. Transporta- tion by pipe-line is, of course, much cheaper than by railroad; and the economy of pipe-line transportation has for the greater part been reflected in lower prices for oil products. The cost of trans- ' Towl, loc. cit. 68 THE TRANSPORTATION OF CRUDE PETROLEUM porting crude oil in 1913 from a number of points in the Mid-Con- tinent field to important refining centers is shown in Table 28. Table 28. — Cost of Transporting Crude Oil in 1913 by Pipe-line (Data from Federal Trade Commission) Shipping Point Destination Distance (Miles) Trunk- line Cost per Barrel (Cents) Gathering- line Cost per Barrel (Cents) Combined Trunk and Gathering Cost per Barrel (Cents) Gushing Pool. . . Gushing Pool . . . Gushing Pool... Gushing Pool.. . Glenn Pool .... Electra Pool . . . Electra Pool . . . Electra Pool . . . Neodesha, Kans Woodriver, 111 Griffith, Ind Port Arthur, Tex Baton Rouge, La. . . . Fort Worth, Tex .... Beaumont, Tex Sabine, Tex 117.01 505.54 686 . 05 583 . 09 513.60 137.74 448.82 479 . 36 2.64 8.45 11.03 21.61 22.03 3.48 11.34 19.16 3.99 3 99 3.99 5.08 3.99 5.45 5.45 5.45 6.63 12 . 44 15 . 02 26 . 69 26.02 8.93 16.79 24.61 The differences between the published pipe-line tariff rates and railroad rates for shipping crude petroleum is indicated in Table 29. Table 29. — Comparison of Pipe-line ajnd Railroad Tariff R.-vtes for Shipping Crude Oil between Characteristic Points in 1916 (Data from Federal Trade Commission) Shipping Point Destination Railroad Tariff Rate per Barrel Trunk Pipe-line Tariff Rate per Barrel Margin Between Railroad and Pipe-line Rates Gushing Pool . . . Gushing Pool . . . Gusliing Pool . . . Gushing Pool . . . Gushing Pool . . . Gushing Pool . . . Gushing Pool . . . Gushing Pool . . . Gushing Pool . . . Gushing Pool . . . Gushing Pool . . . Gushing Pool . . . Gushing Pool . . . Glenn Pool Neodesha, Kans Woodriver, 111 Whiting, Ind Cleveland, Ohio Pittsburgh, Pa $0,311 .544 .622 . .979 1.054 1.054 1.348 1.348 1.320 1.403 .392 .329 .466 .544 $0,200 .340 .420 .580 .590 .590 .700 .685 .700 .700 .200 .275 .400 .375 so.'ui .204 .202 .399 .464 .464 .648 • .663 .620 .703 .192 .054 .066 .169 Buffalo, N. Y Philadelphia, Pa Marcus Hook, Pa Baltimore, Md Bayonne, N. J West Dallas, Tex Fort Worth, Tex Port Arthur, Tex Baton Rouge, La PIPE-LINES 69 The pipe-line has exerted a far-reaching influence upon the petro- leum industry. By rapidly following up new oil-field developments, it has afforded the ever-mounting flow of crude petroleum an outlet •5 .2 bC .22 II ll o3 o3 O a; o >. Oh a o a fe to markets. Without the pipe-line, tlic petroleum resource could not have been brought so rapidly into full jsroduction; and, in turn, without the notable growth in oil exploitation that this country has experienced, the pipe-line coifld not have been stinuflated to its present spread. Th(^ pipe-line is l)y nature a large-scale ent(M-prise, 70 THE TRANSPORTATION OF CRUDE PETROLEUM and it is not surprising to find the development of the pipe-line systems of the country largely due to the efforts of large aggregates of capital. According to the Federal Trade Commission/ about 69 per cent of the trunk pipe-line mileage of the country is in the hands of the Standard companies and practically all of the remainder belongs to large independent interests. Though interstate pipe- lines are legally common carriers, they are used mainly by the oil companies owning them or affiliated with them. This intimate con- nection with pipe-line transportation is an important advantage to refineries in obtaining adequate supplies of crude petroleum and getting them at the lowest cost. While the concentration of pipe-line control has placed the dis- position of the crude-oil production of the countrj^ for the most part in relatively few hands, the degree of integration attained may be looked upon as the inevitable result of the effort to market ade- quately the accelerating output of crude petroleum. With produc- tion highly individualistic and at all times tending to outstrip devel- oped demands, it devolved upon the manufacturing and distributing activities to facilitate the flow of the raw material to the distributing centers in proximity to demand, if full advantage was to be taken of the opportunities offered. Accordingly the pipe-line became part of the developmental effort, rather than an outgrowth of the competi- tive, individualistic efforts in the field of production. Oil Tankers. — For ocean transport, the oil tanker represents the most efficient agency for carrying petroleum, and of recent years, with the development of the oil-fields of the Gulf Coast and Mexico, a growing number of oil tankers have come into use. A comparison of tanker tonnage with the total merchant tonnage for the world is afforded in Table 30. Table 30. — Comparison between the Oil-tanker Tonnage and the Total Merchant Tonnage of the World Year Tankers (In Thousands of Gross Tons) Total Steam TonnageJ (In Thousands of Gross Tons) Tankers (In Percentage of Total) 1914 1920 2325* 5216* 45,404 1 53,905 1 5.1 9.7 * End of year. t June 30. I Lloyd's Register of Shipping It is thus apparent that the tanker tonnage of the world is not only nearly 10 per cent of the total merchant tonnage, but tanker con- 1 Report on the Advance in Price of Petroleum Products, Washington, June 1, 1920, p. 21. OIL TANKERS 71 struction has been growing at a much greater rate than other types of shipping. Especially has the building of tankers in the United States been speeded up since 1917, as indicated in Table 31. Table 31. — The Growth of Oil-tanker Tonnage in the United States and THE Rest of the World by Years, 1913-1921 * Year Number of Tankers D. W. Tonnage Per Cent Increase American Foreign Total 1913 1914 1915 1916 1917 1918 1919 1920 1921 1 52 54 92 124 152 189 242 298 403 283 290 283 284 301 429 402 376 512 335 344 375 408 453 618 644 674 915 2,156,987 2,325,326 2,538,070 2,845,414 3,331,368 4,699,659 4,995,122 5,215,961 7,554,724 7 9 12 10 41 6 5 43 * Data from The Lamp, April, 1921, p. 5. These figures differ from those reported in Lloyd's Registry of Shipping, but are probably the most accurate compilation available. t On the assumption that the tonnage building the first of the year will be completed during the year. The bulk of the international crude-oil movement is between Mexico and the United States. In 1920 roughly 180 milhon barrels of crude petroleum were moved overseas, of which 106 million barrels, or 59 per cent, represented shipments from Mexico to this country. The net carrying capacity of tank-steamers plying between Mexican and American ports is approximately 6 barrels per deadweight ton. The average tanker running between Mexican harbors and New England or New York is a 10,000-ton tanker or larger, with a capacity of 60,000 barrels or more per trip; the average tank-steamer plying to New Orleans has a tonnage of about 8000 tons and a carrying capacity of about 45,000 barrels; while smaller tankers of 3000 to 5000 tons and oil barges make the run between Tampico and Florida and Texas ports.^ The average number of barrels transported per tank-steamer trip has increased from about 28,000 in January, 1917, to 48,000 in August, 1920, indicating that larger units are being con- stantly put into service. The distance and average round-trip time for a tanker voyage from Tampico to American and other ports are shown in Table 32. 1 For details regarding the Mexican tanker situation, sec \ . R. Garfias, Principles Governing Mexican Taxation of Petroleum, Publ. No. 1054, American Institute of Mining and Metallurgical Engineers, Feb., 1921. 72 THE TRANSPORTATION OF CRUDE PETROLEUM Table 32. — Distance axd Time Required for Round Trip from Tampico to Selected Ports by Oil T.vn'ker, Average Speed 10 Miles per Hour, ■mTH Allowance for Days Lost in Repairs, Dry-docking, etc. (Data from V. R. Garfias) Port Distance, Time, Round Trip Miles in Days 3668 38 1951 24 2030 25 475 12 2276 27 5518 54 2874 32 1485 20 474 12 2131 26 473 12 473 12 Antofagasta, Chile Baltimore, Md Bayonne, N.J Beaumont, Tex Boston, Mass Buenos Aires, Argentina Callao, Peru Canal Zone Freeport, Tex Fall River, Mass Galveston, Tex Houston, Tex Before the war, tanker tonnage could be contracted for at 70 dollars per ton. During the war the price reached 200 dollars a ton and higher, but in common with prices in general, the price declined to 140 dollars or so bj' early 1921. In a 10,000-ton tanker costing 200 dollars a ton, the cost per barrel for transporting oil from Tampico would be as follows: to Texas ports, 42.5 cents; to New Orleans, 53 cents; to Florida ports, 57 cents; and to New York, 88 cents. If the tanker cost only 100 dollars a ton, the transportation costs would become: to Texas ports, 31.8 cents per barrel; to Xew Orleans, 39.6 cents; to Florida ports, 42.8 cents; and to New York, 65.9 cents. Of the Mexican oU shipped to the United States in 1920, about 54 per cent went to New York and other North Atlantic ports; 26 per cent to Texas ports; and the remaining 20 per cent to New Orleans and Florida ports. The approximate tonnage of tank-steamers in operation and under construction the first of 1921 by companies exporting ^Mexican oils is shown in Fig. 28. It is to be noted that if the construction program as indicated in the chart is completed the available transportation will be nearly doubled. Since a ]\Iexican production of 163 million barrels in 1920 was handled b}' existing tonnage, it would appear that unless Mexican production doubles in 1921, there will be a surplus of tanker transportation facilities. Indeed, tanker con- struction throughout the world has been overstimulated, at a period of maximum costs, and a surplus of such shipping existed in 1921 as TANK-CARS 73 compared with the oil immediately to be moved. The oil-trans- porting interests, in consequence, found themselves in somewhat the same plight that befell the United States Shipping Board in its failure to coordinate construction with traffic. 1568 1136 ^^^oPERATiNG r:;-;:-.;:! BUILDING T0TAL=2704 STANDARD OIL CO. OF N.J. EAGLE OIL & TRANSPORT PAN AMERICAN PETR. & TRANS. STANDARD OIL CO. OF N.Y. SHELL TRANSPORT CO. TEXAS CO. UNION OIL CO. OF CALIF. SINCLAIR CONS. OIL CORP. ATLANTIC GULF OIL CO. GULF REFINING CO. FIGURES ARE THOUSANDS OF GROSS TONS Fig. 28. — Tank steainors in operation and under construction by companies exporting Mexican oils, Feb., 1921; data from V. R. Garfias. Tank-cars. — Tank-cars are mainly employed for the transpor- tation of petroleum products, although a small percentage of the crude petroleum supply is handled in this manner.^ Tank-cars of some kind have been in use in the petroleum industry for over fifty years. At the outset they were tub-cars, consisting of a wooden ' For an account of the development of tank-cars, see Max Epstein, Tank-cars, American Petroleum Institute, Nov. 17, 1920. 74 THE TRANSPORTATION OP CRUDE PETROLEUM vat or set of vats on a flat car. Soon it became necessary to devise more efficient units, and the forerunner of the modern tank-car was developed, consisting of a steel cyHnder strapped to a flat car. There were virtually no standards or rules of construction until 1903, when the Master Car Builders' Association adopted designs and specifica- tions for tank-car construction. The modern tank-car is now " the strongest, most durable, most carefully built freight car in the train." Originally the tank-car was developed for carrying crude petro- leum from the wells to the refinery, the refined products being shipped in barrels. The pipe-line, however, has modernly come to care for the transportation of a growing proportion of the crude petroleum, while the mounting volume of petroleum products to be moved has called for increasing numbers of tank-cars for this purpose. Of recent years tank-cars have been employed mainly for carrying loads from the refinery, and onlj' in minor degree as a feeder to the plant. But as the search for new production proceeds and new or tem- porary fields are brought in, the tank-car reassumes its original function and handles the crude from fields not yet developed to the degree where pipe-lines may be profitably constructed. The number of oil tank-cars in operation in the United States is not definitely known, but the approximate number of tank-cars of all kinds in use in this country and Canada is shown in the following tabulation. Table 33. -Number of Tank-cars in the United States and Canada on January 1, 1914-1921* 1914 49,901 1915 50,899 1916 56,752 1917 67,817 1918 83,918 1919 98,657 1920 110,534 1921 137,493 * Data from The Lamp, April, 1921, p. 6. The majority of the tank-cars in use are owned by oil companies, or by separate tank-car corporations, a small proportion only being controlled by the railroads themselves. The Interstate Commerce Commission has reported that on Jan. 1, 1918, there were 67,000 privately owned and 11,277 railroad-owned tank-cars in service, these figures including cars used for the transportation of other liquid products as well as petroleum oils.^ 1 Case No. 4906, In the Matter of Private Cars, Interstate Commerce Com- mission, April 1, 1918. CHAPTER VI TREND OF REFINERY PRACTICE The petroleum industry turns out a wide range of commodities under a confusing and perplexing multiplicity of names. The products of major importance, however, are four in number, and the matter may be simplified by viewing the composite output as shown in Table 34. Table 34. — Generalized View of the Most Important Petroleum Products Major Products Principal Varieties Gasoline Aviation gasoline Motor gasoline Benzine Naphtha Kerosene Water-white Standard-white Mineral seal Distillate Fuel oil Gas oil Residual fuel oil Lubricating oils Neutral oils Cylinder stocks Paraffin oils Primary by-products Paraffin wax Asphalt Road oil Petroleum coke Secondary by->^roducts (fabricated) Greases Petrolatum Medicinal oils, etc. The refining of crude petroleum involves the principle of joint- production — the manufacture of a given product necessitating the 76 TREND OF REFINERY PRACTICE output of other products — and this fundamental characteristic of oil refining, in view of the varied types of crude petroleum, the circum- stances attending their exploitation, and the rapidly shifting char- acter of the demands for petroleum products, has led to wide local variations in refinery technolog\' in the attempt to fit the supply to the requirements of the country. The basic principles underlying the refining of petroleum have changed very little since the early days of this industry, but the degree to which these principles have been applied has shown a constant evolution from partial to full application as each field of operations has matured. Thus refineries vsLiy from small, rude plants, which merely skim off the lighter com- ponents, gasoline and kerosene, selling the residuum as fuel oil, to large, chemically controlled manufactories that turn out the whole range of products obtainable in the present state of the art. Methods of Refining. — Crude petroleum is manufactured into petroleum products by a process of distillation, by means of which successive components are vaporized and separately condensed, the resultant distillates being then redistilled or chemically purified to yield the finished products entering into commerce. Certain of the compounds, which decompose at temperatures of vaporization, are removed as residual bodies, instead of as distillates. There are two fundamental types of distillation in general use: (a) dry distillation, in which heat is applied directh^ to the still by coal, gas, or oil fires alone, and (6) steam distillation, in which fire is applied to the still but superheated steam is continuously bubbled through the boiling oil.^ Dry, or destructive, distillation is the simpler and cheaper method, and is widely employed in new developments and on cheap oil. Its use ordinarily involves some degree of decomposition of the heavier components of the oil, and the viscous or lubricating compounds are impaired in quantity and quality. Dry distillation is employed where the maximum yield of bulk products — gasoline, kerosene, fuel oil — is desired. Steam distillation is the more involved and expensive method, and is employed by most of the older refineries, where the focus is upon a full extraction of values and especially upon the manufacture of lubricating oils. Its use protects the components of the crude oil from undue decomposition during the course of distillation, as the steam has the effect of lowering the boiling points of the hydro- carbons. * A good technical description of oil refining is given by C. W. Stratford, Petroleum Refining, Journal of the Society of Automotive Engineers, July, 1918, pp. 69-87. SKIMMING PLANTS 77 With two basic methods of refining, three groups of crude petro- leums (paraffin-base, mixed-base, and asphalt-base), and a varied economic setting in respect to the products that may profitably be disposed of, a great many different types of refineries have developed. It is impossible to make a rigorously logical classification of refinery types, but in a general way oil refineries group themselves as follows: Table 35. — Impoktant Types of Refineries Method of Name Distillation Kind of Crude Economic Focus 1 . Skimming plant . . . Dry Mixed and paraffin-base Light products (gas- oline andkerosene) 2. Intermediate plant Dry Mixed-base Light products; some lubricants 3. Complete plant.. . . Steam Paraffin-base Lubricants; light products 4. Complete plant.. . . Steam Mixed-base Lubricants; light products 5. Complete plant. . . . Steam Asphalt-base Lubricants; light products 6. Topping plant Dry Asphalt-base Fuel oil 1 i 1 The characteristic yields of the six major refinery types are shown graphically in Fig. 29. The methods of manufacture followed in each case are different; and brief descriptions, emphasizing the economic characteristics, are given below. Skimming Plants.' — Skimming plants, as the name miplies, remove only the lighter fractions from the crude petroleum, and are not concerned with the manufacture of products from the heavy residues, which are Imnped together and sold as fuel oil. (See Fig. 29a.) The skimming plant is the simplest and cheapest type of refinery and makes merely a rough separation of the raw material into a few products in ready demand. Around 40 per cent of the refinery capacity of the United States is of the skimming type, the bulk of the installations being in the Mid-Continent region in proximity to producing fields yielding oils rich in gasoline. Skimming plants produce a notable proportion of the country's gasoline supply, but are wasteful of the lubricating values contained in the oil. They are very profital)le where accessible to cheap oil, but quickly become uneconomic when adjacent fields decline in * Refinery types are discussed by H. H Hill, Kefinory Problems, U.S. Bureau of Mines, 1920. 78 TREND OF REFINERY PRACTICE OQCOo'^C'-'^^^'-'OOO^jCo'^'-) ^^^^^^ M Oiij too o 2 X-Cvj p o !C c, o « o O o f=3 INTERMEDIATE REFINERIES 79 output or when the price ratio becomes unfavorable to this type of plant. The skimming plant is an accompaniment of flush produc- tion, springing up quickly and as quickly becoming dormant as cir- cumstances shift. In many instances, sldnuiiing plants are changed into intermediate plants (Type 2, Table 35, and Fig. 296) bj^ the addition of re-run stills and equipment for the removal of wax and the treatment of the heavier distillates, thus evolving into refineries capable of manufacturing lubricating oils. Intermediate Refineries. — Refineries employing drj^ distillation, operating mainly on mixed-base crudes, and focusing upon light products, with incidental attention to the manufacture of lubricating oils, though usually called complete refineries, may be appropriately termed intermediate refineries. The yield of a typical plant of this Fig. 30. — Sketch of a tjiiical small skimming plant in the Mid-Continent Field, after R. W. Cunningham. type operating on Mid-Continent crude is shown in Fig. 296. As the term intermediate implies, plants of this type are one stage removed from skimming plants, but they do not take full advantage of the viscous components of the crude; the}^ extract these but partially and in the form of so-called paraffin lubricating oils, with yields smaller in volume and inferior in worth to the lubricating oils obtain- able from the same crude in complete refineries employing steam dis- tillation. Complete Refineries. — Complete refineries are those making relatively a full extraction of values by the method of steam distilla- tion. The details of a complete refinery differ according to the type of crude employed; and in general these differences are such that complete refineries may be subdivided into three varieties: (1) those handling Pennsylvania, or paraffin-base crudes, (2) those employ- ing Mid-Continent, or mixed-base crudes, and (3) those running GuK Coast, or asphalt-base crudes. 80 TREND OF REFINERY PRACTICE a; b o 0) -s; The Pennsylvania type of complete re- finery is the most mature and the best known. (See Fig. 29c.) Its refinery practice is dictated by the focus upon obtaining the maximum yield of lubricating oils, especi- ally the viscous variety known as cylinder stock. Because the lighter products of paraffin-base crudes are readily distilled off, while the compo- nents of the cylinder stock decompose upon vaporization, the lat- ter is recovered as a heavy residual oil which yields finished cyUnder stock upon subsequent treatment. The distillation can be conducted in this man- ner because the crude petroleum contains no asphaltic material which would be left behind as a contami- nation in the residual cylinder stock. The characteristic practice in s t e a m-r e fi n i n g Pennsylvania crude oil is shown diagrammati- cally in Figs. 31 and 32. With mixed-base petroleum, such as much of that produced COMPLETE REFINERIES 81 in the Mid-Continent field, the complete refinery is forced to vary its practice in order to remove the asphaltic content at a relatively early stage in the distillation process and thus prevent its accumulation < m o along with the residual cylinder stock at the end. (See Fig. 29d.) This is accomplished, after the gasoline has been distilled off, by treating the oil with sulphuric acid, which precipitates the heavy asphaltic bodies in the form of an acid sludge; the remaining oil is 82 TREND OF REFINERY PRACTICE then subjected to further distillation, cylinder stock being left as a final residual product. With asphaltic crudes, such as those of the Gulf Coast, the com- plete refinery may still further varj^ its practice, and in the direction of simplification, since in crudes of this type the entire lubricating content may be distilled off (because their boihng points are lower than the lubricating components of corresponding viscosity in paraffin-base crudes). Thus the asphaltic content offers no par- ticular difficulty, since it may be left to constitute the residuum, the lubricating oils having passed off as distillates. Refineries of this type have enjoyed a notable development in the past few years in the Gulf Coast region, and have opened to full utilization a type of crude employed mainly heretofore in the manufacture of fuel oil. Topping Plants. — A variant of the skimming plant, used for heavy crudes such as those of California and Mexico which con- tain small percentages of light components, is the so-called topping plant. This type of refinery is concerned primarily with the pro- duction of fuel oil, removing from the crude oil the volatile com- ponents which, if left in the fuel oil, would render it unsafe for gen- eral use. These light liquids are called tops and distillates and cor- respond roughly to the gasoline, naphtha, and kerosene of skimming plants. The difference between a topping and skimming plant is primarily one of economic focus, arising from the type of crude oil available; both are immature, effecting merely a rough separation of values. Topping plants are numerous in California, and of late a large capacity has been installed along the Atlantic Seaboard to handle the quantities of Mexican oil coming into this country. The yield of a typical topping plant is shown in Fig. 29/. Refineries with Cracking Plants.^In many refineries are sup- plementary batteries of pressure stills employed in converting gas oil partly into gasoline under the application of high temperature and pressure. Most of the installations of this kind are attached to the larger complete refineries. The raw material and typical yield of the process is shown in Fig. 33. Cracking installations have developed and expanded in response to a demand for gasoline that is outdistancing the ability of normal refining, thus calling into play an enforced yield in addition to that ordinarily obtainable. In 1920 perhaps as much as a tenth of the country's entire supply of gasoline was made in pressure stills from gas oil. The growth of cracking has created a number of problems of the first importance which are treated in detail in subsequent chapters. TREND OF REFINERY TYPES 83 Trend of Refinery Types. — It is evident from this brief analysis of the refinery situation that there are four stages in the evolution of refinery practice, through which the refineries of the country are in general passing. At the outset of new developments, with cheap and abundant crude petroleum, skimming and topping plants develop according to the type of crude ; then, with advancing condi- tions, these incomplete plants either fail or else change into inter- mediate refineries that effect a fuller extraction of values; later, with increasing stress, the growth is in the direction of complete re- fineries, in which fuller advantage is taken of the potentialities present in the crude oil ; and finally pressure stills are installed to carry the extraction of values still further by converting a low- value product into one of greater worth. While this evolutionary trend is not entirely sharply defined, and local compli- cations are present, it is practically certain that ultimately the complete plant with cracking installations will quantitatively dominate the situa- tion, just as this type of plant now leads in economic and financial strength. Trend of Refinery Output.— The trend in output of the principal petroleum products in the United States over the period for which figures are available is shown in Table 36 and Fig. 34. Fig. 34 is a ratio chart in which the slopes of the curves are proportional to the percentage changes; it may be observed that the production of gasoline and fuel oil has been increasing at a notable rate, and one in excess of the increase in output of crude petroleum. The production of lubri- cating oils and kerosene, on the other hand, has been increasing less strikingly and at a much slower rate than crude petroleum. With due allowance for imported crudes, there is evidently a shift taking place in the proportionating of the output in favor of gasoline and fuel oil. This arises of course from the mounting requirements of automotive transportation, which have sent the demand for gaso- • •• • • • * .V.v.v.*.;::::::::::;'.'.".; - • • • • • • . • • • • * • • * • • • • . • • • • , • • • • . . • , . . • :;;;:.;.;. rV-.yqASOLj'N.E.;-':^^^^^^ • * • • • '■■■■■"■ '^^V.". ■'■■■■■;."•;.': • • • • • ■.'•/*• • • • * • * • • • ,* • • • • ••...;• • . • • • 1 * . . . • •, • • • , • • • 1^ GAS OIL ;,* ••••*..• !•...•• ^ • . • • • • • • . . • • • • • • • • • • • • • • * • • * • • • • , FUEL OIU • • 61% . • * • • • • , . • • • • • • • * • • •..•.••- • . • • .';.:•/.:;';: * .*. •'•* • •.* •.••.-.•• • .*. •.'.• • -.••.•.•. /...•. . •*.*•••• •• ••• • • . • / • . ~ LOSS .5*^ Fig. 33. — Chart showing typical prac- tice in manufacturing cracked gaso- Une. 84 TREND OF REFINERY PRACTICE MILLION^ OF BARRELS 600 lOO 90 80 70 60 / / ^ f CRUDE PETROLEUM-^^ ^ y / ^ X • GAS & FUEL OIL-^ / / 1 y y y 1 i r / ,^ ^ X GA 50LINE / / — / , ^--"' "-/ /' / KEROSENE I ^^^^^' / A. ,^' / 1^ / / / / 1 / L UBR. O ILS ■V •' • / f^ '- / "^ ^^ ,^y y • y y SCALE INCREASE DECREASE +ioo^ + 80«« + 60;^ + 40f + 20^ O^ - 10^ - 20j6 - 30* 1914 1916 Fig. 34. — Trend in output of crude petroleum and it.s prinoipal products in the United States, 1899-1920. PRODUCTION OF PETROLEUM PRODUCTS 85 line insistently forwavcl, supported by the vigorous development of the oil-fields of this countiy and Mexico. The production of kerosene and lubricating oils has followed along to the capacity of their respective demands, much of the potential lubricants hav- ing of necessity to be marketed in the form of fuel oil. Production of Petroleum Products in Recent Years. — The output of the principal petroleum products by years from 1917-1920 is shown both statistically and graphically in Fig. 35. It is to be observed that enormous volumes of these materials are manufactured and a notable advance in output has recently taken place. The change in the relative importance of the products is shown in the percentage comparison in the right-hand half of the chart. The increase in the relative output of gasoline is especially noticeable. Table 36. — Production of the Principal Petroleum Products in the United States, 1899-1920 Gasoline j Kerosene ■ i G.\s .\ND Fuel Oil Lubric.\ting Oils | Year Prod. Mill. Gals. Index Nos. Yearly Change Prod. Mill. Gals. Index Nos. Yearly Change Prod. Mill. Gals. Index Nos. Yearly Change Prod. Mill. Gals. Index Nos. Yearly Change 1899* 1904* 1909* 1914* 1916t 1917t 1918t 1919t 1920t 281 291 540 1500 2059 2851 3570 3958 4883 18 19 36 100 137 190 2.38 264 325 + 38%: + 25% + 10% + 23% 1259 1357 1675 1935 1455 1727 1825 2342 2320 65 70 85 100 75 89 94 121 120 + 19% + 6% + 28% - 1% 305 360 1702 3734 4664 6513 7321 7627 8861 8 10 46 100 125 174 196 204 238 +40% + 13% + 4% + 16% 170 315 537 517 624 754 841 847 1048 33 61 103 100 121 146 162 164 203 +21% + 11%: + 1%: + 24% * Census of Manufactures. t U. S. Bureau of Mines. Source of Petroleum Products, — The proportions of the principal petroleum products manufactured in various parts of the country are shown in Table 37, the outputs of each product being grouped according to refinery districts. The data presented in Table 37 are graphically interpreted in Fig. 36, in which the relative contril>ution of each product made by various parts of the country may be conveniently viewed. Relation of Refining Costs to Crude Costs.— In the refining of petroleum, the cost of the crude oil is the largest factor, in many instances running up to 70-80 per cent of the total costs. Data for 1917 for a number of refineries are shown in Table 38 as indicative of the situation: 86 TREND OF REFINERY PRACTICE i^VVVVVVVVVV^^VV^VVVVWV o 00 a: o o UJ O < Z O 00 L.J ^ :3 m 3 o^ ^ =3 ,_ +3 o q: o o < RELATION OF REFINING COSTS TO CRUDE COSTS 87 Table 37. — Output op the Principal Petroleum Products in the United States in 1920 by Refinery Districts Refinery District Gasoline, Per Cent Kerosene, Per Cent Gas and Fuel Oil, Per Cent Lubricating Oils, Per Cent Others, Per Cent East Coast Penn., etc Ill.-Ind., etc Kan.-Okla., etc.. . Tex.-La Wyo.-Colo., etc... Calif 19.9 5.9 14.4 20.0 23.4 6.2 10.2 21.4 7.5 9.4 17.0 30.8 5.0 8.9 21.9 2.3 6.4 15.1 27.0 2.4 24.9 31.5 18.2 12.1 8.7 19.3 1.4 8.8 14.0 3.4 13.7 6.4 28.0 15.3 19.2 Total 100.0 100.0 100.0 100.0 100.0 Table 38. — Relation of Operating Costs to Crude Costs in a Number of American Refineries in 1917 Data from Oil Division, U. S. Fuel Administration. Refinery Location Cost of Crude, Per Cent Operating Costs, Per Cent Total, Per Cent No. 1 No. 2 No. 3 No. 4 No. 5 No. 6 No. 7 East East East Middle West Middle West Oklahoma Texas 78 79 70 80 84 87 80 22 21 30 20 IG 13 20 100 100 100 100 100 100 100 Table 39. — Relation of Crude Cost to Refining Costs in California in 1914 AND 1919, Based on Data for 15 Refineries (In Per Cent) Item General and administrative expense, and depreciation Refinery operating expense Delivered cost of crude Total 1914 1919 7.1 13.5 79.4 100,0 8.3 17.7 74.0 100.0 TREND OF REFINERY PRACTICE The relation of the cost of raw material to refining cost is shown for California in Table 39 from figures compiled by the Federal Trade Commission ^ for 15 refineries representing a total investment of 47 million dollars out of a total for the state of 50 million dollars. ^KEROSENE VgAS & FUEL OIL LUBRICATING OILS .ALL OTHERS 40 50 60 70 SO 90 lOO^ Fig. 36. — The output of petroleum products in the United States in 1920 by refinen' districts. Relation of Labor Costs to Refinery Output. — The ratio of man- power to the volume of materials handled in oil refining is small, as compared with the run of manufacturing operations. An indication of this relationship is shown in Table 40. 1 Summary of Report on the Pacific Coast Petroleum Industry, April 7, 1921, p. 13. RANK OF PETROLEUM PRODUCTS 89 Table 40. — Relation of Man-power to M.\terl\ls Handled in American Petroleum Refineries during First Seven Months of 1918 (Data from U. S. Fuel Administration) Number of Refineries Location Average Number of Barrels Run DaUy per Man Average Wages per Barrel Run, Cents 6 33 7 6 5 38 2 12 109 East Coast 9.37 10.04 9.80 74.00 31.10 27.00 42.40 31.80 17.57 46 37 44 5 13 15 14 14 24 Eastern Illinois and St. Louis Northern Texas Gulf Oklahoma Rocky Mountain Pacific Coast Country Rank of Petroleum Products. — The relative importance to the oil refiner of the products manufactured from crude petroleimi is indi- cated in Table 41, which shows the average returns per barrel of crude petroleum refined in 1918. Table 41. — Estimated Average Returns per Barrel of Crude Petroleum Refined in 1918 (Data from Bureau of Engineering, Oil Division, U. S. Fiiel Administration) Rank Product Dollars Per Cent of Total 1. 2. 3. 4. 5. 6. 7. Gasoline Gas and fuel oil 1.922 1.213 .419 .378 .121 .042 .0069 .210 44.5 28.2 9.7 8.8 2.8 0.95 0.15 4.9 Lubricating oils Kerosene Wax Asphalt Coke All others Total 4.31 100.0 It is apparent from this table that gasoline represented nearly half of the income to the average refinery in 1918 — to such an extent has the oil industry become involved in the field of automotive trans- portation. CHAPTER VII ANALYSIS OF REFINERY CAPACITY There are approximately 500 petroleum refineries in the United States ranging in size from plants capable of running 500 barrels of petroleum daily or even less to large manufactories equipped for handling upwards of 40,000 barrels each day. These plants in the aggregate represent a refining capacity in excess of the crude petro- leum available as well as in excess of requirements for refined products; a large proportion of the plants are grouped about the oil-fields at a distance from the markets; and many turn out a very limited range ot products with a sacrifice of values. The oil-refining industry as a whole has grown somewhat out of adjustment to supply, demand, markets and other factors to which it is geared, and a considerable readjustment in the structure of this portion of the petroleum industry is taking place and lies ahead. In view of this circumstance, it is important to analyze the location, size, type and degree of utilization of the country's refinery capacity, with a view to determining the stability attained and the extent of the changes in prospect. Location of Refinery Capacity. — In spite of the development of an extensive pipe-hne system for transporting crude petroleum to the consuming centers for manufacture there into petroleum products, a large share of the refiner}^ capacity of the country is in those states producing petroleum in great quantities, such as Texas, California, Oklahoma, Pennsylvania, Louisiana, Kansas, and Wyoming. The degree to which refining is centered in the oil-producing states is graphically shown in Fig. 37, where New Jersey stands out as the marked exception to this rule. The number, size and location of refineries are given in greater detail in Table 42, where figures for a number of years permit a view to be had of the location of new developments. It will be observed that points along the East Coast, and the states recently coming into prominence as oil producers (Texas, Louisiana, and Wyoming), show the most marked growth in refinery installations. Size of Refineries. — The average capacity of the refineries of the country is approximately 4500 barrels a day. The largest refineries, 90 LOCATION OF REFINERY CAPACITY 91 as readily apparent from Table 42, are in New Jersey, with an average capacity of 27,000 barrels daily; the largest of the New Jersey plants is at Bayonne, with a daily capacity of 40,000 barrels. To indicate in further detail the range of refinery capacities in the various parts of the country, recent refinery statistics have been first grouped into TEXAS CALIF. OKLA. N.J. PENN. LA. KAN. WYO. ILL. IND. MD. OHIO N. Y. MO. MASS. R.I. S. C. KY. W. VA. GA. UTAH NEB. COLO. MINN. ARK. TENN. DAILY CAPACITY IN THOUSANDS OF BARRELS lOO 150 200 250 300 350 400 450 [OPERATING Fig. 37. — Refinery capacity of the United States in Oct., 1920, by states; data from Oil Weekly. the six refinery districts estabhshed by the U. S. Bureau of Mines in reporting refinery output and then classified into five groups according to size. The results are shown in Table 43 and graphically interpreted in Fig. 38. The dominance of refineries above 10,000 barrels daily input is at once apparent, while the relatively exten- sive installations of rofineri(>s running 5000 barrels and under in the Kansas-Oldahoma and Texas-Louisiana regions are equally striking. 92 ANALYSIS OF REFINERY CAPACITY The overwhelming preponderance of refinery capacity in the south- central states and near the Atlantic and Pacific seaboards is no less notable. Fig. 38 will bear careful comparison with Fig. 2 showing Table 42. — Growth of the Refinery Capacity of the United States by States, 1918-1921 (Data from U. S. Bureau of Mines) States Texas 22 California.: 38 Number of Refineries, J.\N. 1 1918 1919 Oklahoma New .Jersey Louisiana. Penn Kansas. . . WyoniinK- Illinois. . . Indiana. . . Maryland. Xrw York Mass Ohio Missouri. . Kentucky. R. I W. Va.... VirKinia. . . Geoigia.. . 04 10 26 37 79 4 12 48 31 .") 11 2 4 7 1920 64 41 87 7 13 56 33 10 14 3 I jBuild- 1921 I ing Jan.], 1921 Daily Capacity of Refineries, Jan. 1 (In Thousands of Barrels) 1918 1919 4 4 7 7 3 12 Utah 1 Colorado.. 2 Nebraska | . . . . Minnesota Arkansas . 1 Tennessee. S.Carolina New Mex. Total. 207 289 19 Ruild- 1921 ins jjan. 1, I 1921 195 283 204 94 00 . 9 85.4 59.5 31.8 35.9 30.0 212 281 233 317 1366 J310 |313 ;24!) 277 100 111 07 . 9 72 . 217 120 90.9 102 118 71.4 SO. 2 j 84.7 52.3 I 01.0 ' 00.7 40.0 j 58.0 i 54.6 30.5 47.2 53.2 15. 34. 41 7 7 50 6 00 5 00 21) 1 20 Average Size of Refineries Jan. 1, 1921 (In Thou- sands of Barrels per Day) 24.4 i 24.4 10.2 10.4 7.00 42.0 35.0 35.0 24.4 1 34 5 15.8 17.0 2.001 11.7 15.2 15 7,70 5 . 00 0.80 1.25 0.50 7.701 7.90 I ! 4.00 0.80 1.50 . 80' 1.70i I . 50 0.30 1.50 0.30 0.00 i . 50 4.00 4 00 1 . 75 1.50 1.00 . 50 0.50 10.00 2.00 1180 I 1295 I 1531 ! 1888 I 76.6 4.5 7.6 3.5 27.2 6.30 2.1 2.5 5.1 4.0 13.0 10.5 5.0 11.7 2.9 3.4 2.2 7.5 1.5 5 4 4 0.0 0.8 1.0 0.5 0.5 the oil-fields of the country. If the industrial and agricultural density of the country is held in mind, the analysis of refinery figures just given will point to the regions where further refinery develop- TYPES OF REFINERIES 93 ments are likely to take place. It is quite apparent that refinery installation is unduly concentrated in the south-central states and a high refinery mortality is in consequence to be looked for in that region. Types of Refineries. — An economic classification of refineries into fundamental types has been given on page 77. Unfortunately OVER 10,000 BARRELS DAILY CAPACITY 5,001-10,000 BARRELS 2,501 ■ 5,000 BARRELS UNDER 2,501 BARRELS E.COAST PENN. ILL. IND. KAN. TEX. - LA. WYO. CALIF. ETC. ETC. OKLA. ETC. COLO. FIGURES IN RECTANGLES ARE THOUSANDS OF BARRELS DAILY CAPACITY Fig. 38. — Refinery capacity in various parts of the country, Oct., 1920, by sizes of refineries; data from Oil Weekly. statistical data arc wanting for measuring the aggregate capacity of each type. The Bureau of Mines, however, has published a list of refineries ^ in which each refinery is classified according to the range of products turned out. This list yields information of value with reference to the relative miportance of the refinery types, although the figures must be used with some discretion, since a single plant may include two or more components of different character. For example, many of the refineries along the East Coast classified by the 1 Petroleum Refineries in the United States, January 1, 1921, U. S. Bureau of Mines. 94 ANALYSIS OF REFINERY CAPACITY Bureau of Mines as complete plants are really dual plants, comprising a complete refinery and in addition a topping plant. Table 43. — Refinery Capacity of the United States in October, 1920, by Refinery Districts and Sizes of Refineries * (In thousands of barrels 'per day) Refinery District Under 1001 Barreb 1001-2500 Barrels 2501-5000 Barrels 5001- 10,000 Barrels Over 10,000 Barrels Total East Coast Penn, etc 2.1 29.3 .5t 8.9 1.5t ..36.9 9.2t 25.5 12. 2t 4.2 2. If 10.7 .3t 2.5 13.5 12.3 1.3t 97.2 15. 2t 62 16t 5.5 8.6 20.5 13.3 29 5t 85.4 12. 5t 143 15t 7.5 21.7 3t 86.5 22.9 26.5 6t 79.5 6.5t 60.5 36t 10 17t 40 266 15t 64 74.0 267 108 1 47 263 378 15t 79 .5t 141 14t 373 43t 557 187 1 74 19t 344 3t 111., Ind., etc Kan.-Okla., etc Texas-Louisiana. . . Wyo.-Colo., etc. . . . California Total 118 25. 6t 202 32. 5t 325 35. 5t 287 65. 5t 1015 123 1 1946 282t * Data from U. S. Bureau of Mines and Oil Weekly, Oct. 15, 1920. t Refinery capacity under construction, Oct., 1920. The refinery capacity of the countrj' on January 1, 1921, classified according to refinery types as determined by the range of products turned out, is shown in detail by states in Table 44, while the figures for the countiy as a whole are interpreted graphicallj^ in Fig. 39. The quantitative importance of the skimming types is especially notable and the data shown illustrate the dominance of such plants under present conditions. Relation of Capacity to Storage. — The supply of petroleum prod- ucts is contingent upon refining capacity, while the ease with which the continuity of the supply is maintained is in part dependent upon the extent of storage facihties. The storage capacity in respect to gasohne is particularly important, since the demand for this product is strongly seasonal in character, being roughly twice as great in summer as in winter, and the dependence of the supply upon the activit}^ of the skimming plant is especialh' marked. In periods such as the winter of 1920-21 when numbers of smaller plants shut RELATION OF CAPACITY TO STORAGE 95 90,1 80;^ 40,'? 30,'i COMPLETE PLANTS SKIMMING PLANTS down, the question arises as to the probable effect upon the quantity of gasohne accumulating in storage to meet the peak demand of the coming summer. Considerable light is thrown upon this point b}^ Fig. 40, which shows for various parts of the country the approxi- mate gasoline storage present in the large, medimn-sized, and small refineries. This chart is based upon the gaso- line actually in storage on March 31, 1920 1 (the month when gaso- line stocks are usually at their highest level); and is therefore a fairly good index of the dis- tribution of storage capacity subsequently, since further develop- ment of storage will not substantially affect the relations shown. It is at once apparent that the gasoline storage capacity of small re- fineries is practically in- significant as measured against that of large refineries. Comparison of Fig. 40 with Fig. 38, more- over, indicates that storage capacity for gasoline is roughly proportional to refin- ing capacity, with the notable exception of the Illinois-Indiana district, where the gaso- hne storage vastly exceeds the normal ratio; and of California, ' From data sup;)lied by H. F. Mason of the U. S. Bureau of Mines. SKIMMING & LUBR. PLANTS WAX PLANTS SKIMMING & ASPHALT PLANTS TOPPING PLANTS ALL OTHERS FIGURES IN RECTANGLES REPRESENT DAILY REFINERY CAPACITY IN UNITS OF 1000 BARRELS Fio. 39. — Refinery capacity of the United States on Jan. 1, 1921, classified by tyjx's of refineries; data from U. S. Bureau of Mines. 96 ANALYSIS OF REFINERY CAPACITY Table 44. — Refinery Capacity of the United States on Compiled from data collected (In thousands of Topping Plant Skimming Plant Skimming AND Asphalt Sklmming AND Coke Asphalt Plant Skim., Lub. AND Asphalt State Tops, Distillates, Gas and Fuel Oils Gasoline Kerosene, Gas and Fuel Oils Gasoline, Kerosene, Gas and Fuel Oils, Asphalt Gasoline, Kerosene, Gas and Fuel Oils, Coke Distillates, Gas and Fuel Oils, Asphalt Gasoline, Kerosene, Gas and Fuel Oils, Lubricating Oils, Asphalt Texas 4.75 161.85 15 California 59.3 56.95 20.6 0.85 23.15 Oklahoma.. . . 176.8 New Jersey . . 5.5 Louisiana .... 3 36.25 37 Pennsylvania. 1.305 5 10 Ivansas 56.15 Wyoming. . . . 1 20.9 9.8 Illinois 24 Indiana 3.2 Maryland 3 New York . . . Massachusetts 10 25 Ohio 4.6 Missouri 5 Kentucky .... 8.2 5 Rhode Island. 10 5 West Virginia. 0.5 Virginia o Georgia Utah Colorado. . . . 0.05 Nebraska. . . . 1 Minnesota . . . Arkansas .... 1 1 Tennessee 0.5 S. Carolina.. . New Mexico. . Total 83.05 562.205 88.1 14.8 33.85 33.15 Percentage.. . 4.4 29.8 4 7 0.8 1.8 1.8 TYPES OF REFINERIES 97 Jan. 1, 1921, by States, Classified by Types of Refineries by the U. S. Bureau of Mines) barrels per day) Skim., Lub. AND Coke Skimming AND Lubricating LUBRICAT-I ING Plant i Wax Plant Complete Plant Unclas- sified Total, Jan. 1, 1921 Building, Jan. 1, 1921 Gasoline, Kerosene, Gas and Fuel Oils, Lubricating Oils, Coke Gasoline, Kerosene, Gas and Fuel Oils, Lubricating Oils Gas and Fuel Oils, Lubricat- ing Oils Gasoline, Kerosene, Gas and Fuel Oils, Lubricating Oils, Paraffin Wax Gasoline, Kerosene, Gas and Fuel Oils, Lubricating Oils, Paraf- fin Wax, Coke, or Asphalt, or Both 39.5 6.5 5.4 130 2.75 365.75 41.65 52.6 4.2 95.5 2 313.35 44.9 1.1 52.0 2 276.8 7.5 210.0 1 216.5 6 2 1 40 25 119.5 5 11.250 0.8 29.745 59.5 117.6 12 3 4.3 1 0.1 2 1 4 0.2 1 0.5 3 9.5 35 1 2.9 6.2 4 4 23.3 50 38 34 26.9 12 1.5 5 84.65 66.7 54.6 53.2 42 35 35 34.5 17 15.2 15 7.7 5 4 4 1.75 1.5 1 0.5 0.5 0.2 1.2 3 0.05 10 2 12 167.35 12.4 149.945 724.7 6 7 1888.3 76.6 1 0.6 8.9 0.6 7.9 3.8.4 3 100 98 ANALYSIS OF REFINERY CAPACITY PENN. ETC. ILL. -IND. KAN. TEX. - LA. ETC. OKLA. ETC. WYO. COLO. :%%1^0VER 10,000 BARRELS ^'\6:-i 1 1 ! 1 1 1 1 1 1 1 WYO. -COLO 63 : :-::;37;:: m 1 1 1 i 1 1 1 1 1 1 CALIF. 64 1 :<:3^; m 1 j 1 1 1 i 1 1 1 1 COUNTRY 68 4-:;;.'':-:- ■:::;32:: ■■:■■■■ i ! : 1 1 1 1 Fig. 43. — Proportion of installed refinery capacity in use in Oct., 1920, in various parts of the coiuitry; data from U. S. Bureau of Mines and Oil Weekly. Conclusions. — The foregoing analysis of refinery capacity affords quantitative evidence for a number of deductions that are fairly well known qualitative^ ; namely, that refinery capacity is con- siderably greater than the needs of the countrj^; that much of this capacity is poorly located for survival; that a notable percentage of the capacity is of the skimming or incomplete-run type and hence poorly adapted for profitable operation with high cost crudes; that the installation of refinery capacity enjoyed an accelerating growth well into the period of industrial depression ; and that the oil-refining industry as a whole is handicapped by idle capital investment to the extent of unused refinery capacity. Projected into the future, these conditions spell considerable readjustment in the refinery situation; first, as a result of the period of business liquidation of 1920-1921 ; and, second, as a result of the stringency in domestic crude supply that is due to follow. CONCLUSIONS 103 On the whole, it is apparent that the refinery situation reflects in no uncertain terms the peculiar economic conditions surrounding the production of crude petroleum; small, incomplete refineries spring up in proximity to flush production only to die again as the wave of oil-field development passes on. The growth of refinery capacity has apparently been influenced more by supply than demand; the future, it would seem, will dictate a closer-knit coordi- nation with all the economic factors involved through a process of elimination that will affect developments projected without due regard to these considerations, CHAPTER Vlli THE OUTLOOK FOR OIL REFINING CENTS PER GALLON DECREASE +1D0fo ■20 J- 10 1-20 Conditions are grad- ually developing in the oil situation under which those refineries running domestic crudes, which are not prepared to operate as plants turn- ing out lubricating oils, will have to go out of business as unprofitable enterprises. This deduc- tion is based upon the trend of prices and values as revealed during the eight-year period, 1913— 1920, the continuation of which, following the industrial depression of 1921, is predicated upon the growing inability of the domestic output of crude petroleum to meet the country's require- ments. Trend of Prices, 1913- 1920.^ — The course of market conditions for crude petroleum and its principal products for 1913-1920 is shown graphically in Fig. 44, in .. ... Trend of the average prices of crude which the slopes of the petroleum and its principal products in the five curves indicate the United States by years, 1913-1920. direction and intensity 1 A fuller discussion of prices is given in Chapters 17 and IS, which should be consulted in the present connection. 104 uu bU 1 40 1 L JBRIC/ OIL kTlNG X— -" / 1 1 \SOLI^ E >/ 20 1 ■— ^ -^ > ::^^' 10 "^ ~ / / / y^ 9 8 7 6 ^^^ y^ ~~ — KERO SENE / / •■■ CRl IDE PETROL EUM ^^^^ ' .•■ 5 4 ] / y /••;' FUEL OIL 3 ^ .* ^ 2 1 ■% 1913 1914 1915 1916 1917 1918 1919 1920 Fig. 44.- TWO TYPES OF PRICES 105 PER CENT ftvEHiAGE PRICES FOR 1913 = lOO 500 of the economic forces at work. The outstanding feature of the chart is the marked advance over the past few years in the price of lubricating oils contrasted with the relative!}^ moderate rate of increase in the price of gasoline. The advances in the prices of crude petroleum, fuel oil, and kerosene are intermediate in degree between lubricating oils, on the one hand, and gasoline, on the other, though tending to ap- proach the former. The differential changes in prices of the four major joint-products of crude petroleum are of great importance, for they in- dicate corr esponding changes in the conditions under which oil-refining may be profitably con- ducted. The trends shown in Fig. 44 will not maintain themselves through the price depression of 1921, but revealing the habit of oil prices on a rising market they may be ex- pected to reassert them- selves when oil prices next begin to advance under pressure from the crude petroleum situa- ^°^' , Fig. 45. — Trend of the i)rice levels of crude Two Types of Prices. petroleum and its i^rincipal products in the — The prices of lubricat- United Statrs by years, 1913-1920, in percent- ing oils and fuel oil are ages of the average prices in 1913. determined in a highly competitive market by the normal operation of supply and demand, whereas the prices of gasoline and kerosene are to a dominant degree decided by the tank-wagon price set for these products by large marketing companies. This fundamental distinction be- tween the two groups of prices should be held clearly in mind as it is an important key to the course of prices in the future. In short, 1913 1914 1915 1916 1917 1918 1919 106 THE OUTLOOK FOR OIL REFINING the one set of prices is quite sensitive to the vagaries of the market, while the other set of prices is open to additional influences with a stabilizing re- sult. Fig. 45 illustrates the extent to which the prices of crude petro- leum and its principal products increased be- tween the pre-war year of 1913 and 1920. It will be observed from this chart that the prices of lubricat- ing oils and fuel oil, together with crude petroleum, rose to higher levels than the prices of kerosene and gasoline, the last named having ad- vanced the least of all. This relationship is significant and sug- gestive of the funda- mental difference ex- isting between the two sets of prices. For purposes of comparison, the price level of commodities in general is also entered upon Fig. 45, and it may be ob- FiG. 46. — Trend of the output of crude petroleum and ggj-ved that this in- its principal products in the United States, 1914- , ,. -f , 1920, compared with the trend of gasoline produc- . "' ' ' ^ ~ tion. imposed upon the price curves, will di- vide them into the two fundamental groups already noted. The Stress Product. — Although gasoline has advanced in price in less degree than the other petroleum products, it may be math- ematically demonstrated (see Fig. 46) that a greater discrepancy between supply and demand has developed in respect to gasoline 1913 1914 1915 1916 1917 1918 1919 1920 THE PROFIT PRODUCT 107 SCALE OF INCREASE OR DECREASE + 100^ 10 20 30 n- 40 -I- 50 5< than in regard to the other petroleum products. Fig. 46 shows the trend in output of the four major petroleum products, together with the trend in production and consumption of crude petroleum. The straight line indicating the average trend of gasoline production is fitted to the curves showing the trend of production of fuel oil, kero- sene, lubricating oils, and crude petroleum. The angle between the average trend line of gasoline production and the trend lines of these other products indicates that the demand for gasoline is the major economic force sending millions the oil industry for- I'A'-li*!'^ ward. It is observable that the gasoline de- mand is notably strong- er than the supply of crude petroleum, even if imports of crude petro- leum are added to the domestic production, and in consequence a marked lagging in the output of fuel oil and kerosene is taking place in order to compensate for the discrepancy. It is a striking fact that the petroleum product which has been enjoying the strongest demand is the one which un- derwent the slightest price advance. The Profit Product. — The growth in value of the total quantity of crude petroleum and its principal products produced in this country over the past few years is shown in Fig. 47. The close coincidence of gasoline and crude petroleum should especially be noted. The inter- pretation of this chart becomes clearer if the following relationships, which are not commercially correct, but in an economic sense are true, are accepted as valid, namel}^: that gasoline receipts pay for the raw material; kerosene receipts pay for refining; and fuel oil receipts pay for marketing, leaving the receipts from lubricating oils as profit. Referring to Fig. 47 in detail, it will be observed that the cost of 2000 lOOO 900 800 / / A 600 /'^ K f><. CRUDE ^ PETROLEU VI 400 300 200 100 90 80 70 60 50 GA 50LINE // .• / .• / ^ Y //^ "^^ / FUEL OIL .• V / / /' LUBSv^ /4kef OSENE \ ^ '^ .y ' ,>■■' 1913 1914 1915 191S 1917 1918 1919 1920 Fig. 47. — Trend of the value of the domestic output of crude petroleum and its principal products by years, 1914-1920. 108 THE OUTLOOK FOR OIL REFINING domestic crude in 1920 exceeded the value of gasoline produced, a circumstance throwing a greater burden upon the other products. A close coincidence in values is to be observed for fuel oil, kerosene, and lubricating oils. In view of this chart, and in the light of events in the refining industry, the conclusion is offered that skimming plants are profitable only in periods of flush production and many of these enterprises have already found it unprofitable to continue in business. Refineries of intermediate character are next in line to feel a continuation of the type of stress already affecting skimming plants. Only lubricating plants, therefore, will remain as the logical survivors of a continua- tion of the present competition, which, it should be observed, is operating not only between industrial units, but between the economic forces at play in the fashion pointed out above. Many refineries not making lubricating oils, therefore, under the conditions lying ahead ma}' be expected to show no profits and in consequence to fail. Why Gasoline Prices will Continue to Lag. — A change in the course of gasoline prices in the direction of accelerated rise in level, would obviate the consequence otherwise in store for the economically inefficient refinery. Gasoline prices, however, may not be logically expected to show a departure from their past performance. This product has come into such universal use and touches the public at so many points that it has essentially become a public utility in an economic sense. The surmise is made that this fact is not only recognized but has been acted upon by the marketing companies setting the price pace for gasoline; and the price has been tempered accordingly. But this deduction does not rest alone upon surmise. Figs. 44^6 are presented in support of this theory. In no other way could a stress product show the mildest advance in price amongst its fellows. Why Non-lubricating Refineries will Fail. — Fig. 48 shows the increase in value of the main petroleum products over recent years compared with the cost of the domestic crude petroleum entering into their fabrication. Imported crude pet role imi and minor petro- leum products do not appear on the chart because of the lack of sta- tistical data, but these groups approximately balance, and the chart presents the true situation as it stands. The price of domestic crude petroleum in the long run will continue to advance (irrespective of minor fluctuations immediately ahead) and the price of gasoline will also continue to lag in its advances behind the prices of its joint- products. The condition developing in 1920 and shown in Fig. 48, where gasoline and most of the kerosene are necessary to support the cost of crude, leaves Httle margin of profit for plants not making WHY NON-LUBRICATING REFINERIES WILL FAIL 109 lubricating oils. This differential is decreasing under the influences of the forces gathering impetus in the situation, and within a very few years the failure of refineries which are running domestic crude, DOLLARS 2800 1800 1600 1400 t200 200 — COST OF DOMESTIC CRUDE VERTICAL BARS REPRESENT VALUE OF U.S. PRODUCTION iBfc LUBRICANTS KEROSENE 1914 1916 1917 1918 1919 1920 Fig. 48. — Comparison of the relative importance of the principal petroleum products as sources of revenue to the oil industry, 1914-1920, contrasted with the cost of crude petroleum. but are inadequately equipped for extracting the full range of values from their raw material, may be expected to be widespread. CHAPTER IX GASOLINE Gasoline cannot be commercially manufactured as a single product, since its production involves the output of at least two other products, kerosene and fuel oil. Gasoline, in consequence, is a joint- product of crude petroleum, and its whole economic status is colored by this circumstance. Before the advent of the automobile, the production of kerosene in growing quantity necessitated the output of more gasohne than could be absorbed by the small market for this product; gasoline was then troublesome to dispose of and state inspection laws were passed to prevent the adulteration of kerosene with gasoline. With the rise of automotive transportation, however, the demand for gasohne soon exceeded that for kerosene, thus reversing the relation- ship of the two products. Now the production of kerosene is inci- dental to the manufacture of gasoline, and there is a growing tendency for the light components of kerosene to be included in the gasohne turned out, so insistent is the demand for the latter; although state inspectors are still maintained at pul)lic expense to keep the gasoline out of kerosene. The commercial supply of gasoline is composed of natural, or straight-run, gasoline; a volatile gasoline won from natural gas; synthetic gasoline made by " cracking " heavier petroleum distillates; and naphthas which alone would rank as light kerosene. Natural Gasoline. — Natural gasoline, also known as straight-run gasoline, is made up of the components of crude petroleum that distil off at relatively low temperatures. A few years ago, natural gasoline was the only type of gasoline on the market and for that reason is still commonly believed to be the best type obtainable. Many automo- bile users have been educated to demand straight-run gasoline, and feel that the more common blended varieties are inferior substitutes. As a matter of fact, however, the greater part of the gasoline mar- keted to-day is some sort of blend and " many of the blended products are preferable to straight-run products, particularly if the added con- stituent is so-called * casing-head ' gasoline derived from natural gas."^ 1 Hill and Dean, Quality of Gasoline Marketed in the United States, Bull. 191, U. S. Bureau of Mines, 1920, p. 5. 110 NATURAL-GAS GASOLINE 111 Natural-gas Gasoline. — Between 1910 and 1920 a rapidly increas- ing and significant yield of gasoline has been attained through the recovery of a highly volatile gasoline from natural gas, which has been blended with straight-run gasoline or with distillates too heavy to rank alone as gasohne. The raw product is commonly called casing- head gasoline ^ and it enlarges the gasoline supply to a greater extent than its actual volmiie, since its employment renders available for motor use considerable quantities of distillates that in their original state lacked a large enough proportion of low-boiling constituents to make satisfactory motor-fuels. Because of the cheapness with which casing-head gasoline could be won as a by-product from natural gas, and the scope for expansion offered by the field, the growth of the casing-head gasoline industry has been rapid. In 1920 casing-head gasoline was responsible for around a tenth of the country's total gasoline output. The growth of this contribution, however, has begun to slacken, and a general survey of the natural gas situation would seem to indicate that contributions froin this source have already reached approximately 50 per cent of theu" ultimate capacity. Developments pointing to the same conclusion are to be found in the fact that the casing- head gasoline industr^^ grew up on the basis of the compression process which extracts gasoline from " wet " gas heavily laden with gasoline vapor, whereas attention is now turning in growing degree to the leaner so-called dry gas which requires a more intimate absorp- tion process to yield results. Cracked Gasoline. — A growing quantity of gasoline is manufac- tured from heavy petroleum fractions by processes of cracking dis- tillation, whereby the hea\y hydrocarbons are decomposed or " cracked " into lighter, more volatile components approximating straight-run gasoline in performance. Cracked gasoline is not used as such, but is blended with straight-run gasoline and casing-head gasoline to make a commercial product. Most of the cracked gaso- line is made by the Burton process, developed and controlled b}' the Standard Oil Company of Indiana, but leased bj^ this organization to certain other companies. The total quantity of cracked gasoline now produced is not definitely known, but in 1918 the output was approximately 360 million gallons, or about one-tenth of the country's total production of gasoline, a ratio which probably obtained with little change in 1920. ' In 1921, manufacturers of gasoline from natural gas formed an "Association of Natural Gasoline Manufacturers" and adopted the trade name "natural gasoline" to supersede "casing-head gasoline" for gasoline made from natural gas. As used in this book, however, natural gasoline designates gasoline won from |)etroleum by straight refining. 112 GASOLINE Changing End-point of Gasoline. — Gasoline is not a single chem- ical product possessing definite properties, but is a series of related compounds running from hydrocarbons with small, light molecules to hydrocarbons of larger and heavier molecular character. Gasoline, therefore, is a chain of compounds ranging from hght, highly volatile components through graded intermediates to relatively heavy, less volatile end-products. The character of the compounds at the light and heavy^ ends of the series is fixed at any given moment by the dic- tates of commercial practice and economic requirements, but in a manner that may be correlated with the conditions of supply and demand governing the production of gasoline. 4fb 450 ANALYSES BY 0=U.S. BUREAU OF MINES ,J..os]^^^^/r^ 425 A= AUTOMOTIVE FUEL CLUB, DETROIT X= MISCELLANEOUS '-°^^ ■:/-' \x^ 400 i^^^ A. > Kj 375 350 /O ^ GASOLINE/ <^ y \ ^ ■^^ -r^ X ^/xf< K A /' •V - .=.3^— / KEROSEN ■\^ r^^ \ . FKT^ g3^ — ^^^ y^ 19 17 19 18 19 19 19 20 19 21 CHANGING END-POINT OF GASOLINE 115 DEGREFS CENTIGRADE 230 from kerosene to gasoline, and back again as the season progresses. This seasonal relationship is not sharply defined throughout the years charted, but such departures from this tendenc}^ as appear arise from the influence of the conditions of supply and demand, an oversupply of gasoline or an undersupply of kerosene tending to reverse the normal seasonal proclivity. Thus in 1919 the relative abundance of the gasoline supply coupled with the reopening of the far-eastern markets for kerosene injected counter forces that modified the seasonal reflex. On the whole, however, the various factors can be closely enough measured to permit the character of the gasoline supply to be projected ahead and the end-point to be anticipated, yielding results of practical value to the oil pro- ducer and oil marketer, as well as to the in- terests concerned in the design and modi- fication of the auto- motive power plant. Thus far in this section emphasis has been laid upon the be- havior of the end- point, since this char- acteristic is the key to the character of the gasoline supply. In specific problems, however, the whole dis- tillation curve is important, although the various components of the supply display a tendency to behave in conformance with the change in end-point, as indicated in Fig. 51, which shows the distilla- tion curves for the average gasoline in use over a number of years. The cause of the rising end-point of gasoline does not seem to be comprehended in all quarters. While doubtless the result of attempts to adulterate the gasoline supply in some specific instances, the change in general is undoubtedly an economic response to a demand that is outdistancing supply and forcing modifications in the char- 1 1 L — 18 20 i iii\ 1 fi f r 5— 1ii19 ' / T I / 1 1 1 / 1 A E— 1' 17 } / / 1 / / 1 1 / f U 1 315 / 1 i 1 / 1 1 / / 1 1 1 / 1 ' / / / / / / / /f 1 , '1 / , '/ / y 1 / ^'- ^ /' / / / / A ^ / ' / // / , / / / / / / • / / /. i 1 1 1 \/f 1 1 / 1/ 1 ' A A L .. DROp'° ^° ^° ^'^ ^° ®° ''^ ^° ^^POi'nT PER CENT DISTILLED Fig. 51. — Trend of the change in volatihty of gasoUne, 1915-1920, showing the rise in end-point; after R. E. Fielder, Society of Automotive Engineers; data from U. S. Bureau of Mines. 116 GASOLINE INCREMENT DUE TO RISE IN ENDPOINT INCREMENT DUE TO CASINGHEAD GASOLINE INCREMENT DUE TO CRACKING GASOLINE PRODUCTION ON BASIS OF 1914 PRACTICE '1914 1916 1917 Fig. 52. — The economic components of the gasoUne production of the United States, 1914-1920. acter of the supply Fig. 53. — Trend of the gasoline supply of the States, 1914-1920, showing relative impor- tance of the several components. gasoline, supplemented in recent years With the end-point of 1914, for example, the gasoline supply of 1920 would have fallen some 10 per cent short of meeting the requirements of the market. The end-point of gaso- line has a fundamental bear- ing upon automotive trans- portation, which is treated in further detail in Chap- ter 22. Components of the Gaso- line Supply. — The gasoline supply, as already noted, is composed dominantly of natural, or straight-run, b}^ a growing volume of SOURCES OF SUPPLY 117 TOTAL OILS RUN TO STILLS = 19. 5 BILLION GALLONS cracked gasoline, casing-head gasoline, and heav\' ends, the last mentioned being reflected in a rising end-point. The three sup- plementary types of gasoUne develop in a measure together since no one is marketed alone but goes into use in blended form. Casing- head gasoUne and heavy ends are particularly complementary. The relative contributions made by the various components of the gasoline supply cannot be determined with close accuracy, because of the absence of exact statistics; but ^^gasoline [y^ an interpretation based upon available figures and estimates, checked by economic reasoning, is given in Fig. 52, which indicates the growing degree to which the gasoline supply is be- coming dependent upon the supplementary con- tributors. The same data, converted into per- centages, are presented in Fig. 53, as emphasiz- ing the trend of the situ- ation. Sources of Supply. — The production of gaso- line is fau-ly well dis- tributed in reference to the location of demand, although a considerable volume is transported Fig. 54.— The production of gasoline in the United from the south-central States in 1920, by refinery districts, states to the more populous areas to the north and northeast. The quantity produced in the various refinery districts of the country in 1918, 1919, and 1920, together with the percentage yields in respect to the total oils run to stills, is shown in Table 48, the figures for 1920 being interpreted graphically in Fig. 54. Current Trend of Supply and Demand. — The trend of the major factors entering into the interplay between supply and demand is shown by months for the period 1917-1921 in Fig. 55. The data are plotted on a semi-logarithmic, or ratio, scale in which the slopes of EAST COAST PENN., etc. ILL.-IND., etc. KAN.-OKLA., etc. TEX.- LA., etc. WYO.-COLO„ eti>. 1 I I i i I i r . O lO 20 30 40 5Q 60 70 80 90 lOO^ FIGURES IN RECTANGLES ARE MILLIONS OF GALLONS 118 GASOLINE the lines are proportional to the percentage changes; thus the various factors charted are directly comparable and the effect of a change in any one item upon the other items may be observed and analyzed. The chart is presented not only as an interpretation of current developments, but as a suggested means for keeping track of condi- tions ahead, since the data are readily obtainable from month to month for posting on an original chart similarly designed. Table 48. — Production of Gasoline in the United States by Refinery Districts, 1918-1920 1918 1919 1920 Produc- Per Cent Produc- Per Cent Produc- Per Cent Refinery District tion in of Total tion in of Total tion in of Total Millions Oils Millions Oils Millions Oils of Run to of Run to to Run to Gallons Stills Gallons Stills Gallons Stills East Coast 719 242 24.0 27.8 780 270 22.8 28.4 971 288 25.2 29.3 Pennsylvania Illinois, Indiana .... 461 36.5 571 34.6 703 35.4 Kansas, Oklahoma. . 865 29.4 881 30.8 979 32.2 Texas, Louisiana 637 17.4 800 20.1 1144 21.7 Wyoming 212 30.5 238 28.4 301 30.1 California Total 434 12.9 418 12.3 490 14.4 3570 22.6 3958 23.0 4882 25.0 The outstanding features of Fig. 55 are: The upward trend of production; the marked complementary relationship between domestic consumption and stocks, reflecting the highly seasonal character of the gasoline demand ; the failure of the successive peaks of the stocks curve to show an upward trend paralleling that of production; and the strongly fluctuating character of the exports curve. A statistical summary of the gasoline situation, upon which Fig. 55 is partly based, is given in Table 49. Relation of Production to Stocks. — The size and trend of pro- duction by months, compared with the stocks of gasoline on hand, in the various refinery districts in the United States for 1919 and 1920, are shown graphically in Fig. 56 based on data given in Table 50. The chart brings together in one comparable view the refinery statistics for gasoline in a form suitable for drawing deduction as to RELATION OF PRODUCTION TO STOCKS 119 the variations in supply and demand in various parts of the country. As with Fig. 55, the type of chart is presented as a practical method of interpreting a extensive range of statistics difficult to analyze in tabular form. AV. EXPORT PR :e / iVEF AGE DO iHES no PRICE ,' J, - ^ ^> -^ > -^ ^s ^! — ' >^ ^ .^ MILLIONS OF GALLONS 900 800 700 600 ,' ,-^ / ^- r^\ / \ / 400 300 200 100 / X'STCCKS N 1 '^ \ , ' '^ r^ \/ _ \ / oooC^SU^ -Ji \\ - \ / ^ ^ \ *■ \ 1 l\ 1 DC \ \ MESTIC cot IPTI 3N A 1 V / \ ( V \ 1 1 v' , 1 A !/■ \ \ A A A \ E iCPO ?TS7^ \/\/ \ A / A J a/ -J \ J \ V \ / L /V V , / \ V / \ / \ M V 19 17 19 18 19 19 195 >0 192 >1 CENTS PER GALLON 40 OR DECREASE +100^ + 80 + 60 + 40 + 20 - to J- 30 1-40 -1-50^ Fig. 55. — Trend of the gasoline situation in the United States by months, 1917-1921. A notable feature of the chart is the seasonal demand reflected by the valleys in the curves for stocks, stressing the importance of the seasonal factor in the marketing of gasoline. Demand for Gasoline. — The demand for gasoline during the past decade has not only grown tremendously, but its character has also changed notably, in response to the requirements of automotive 120 GASOLINE Table 49. — Summary of the Gasoline Situation Period Produc- tion, Millions of Gallons Stocks,* Millions of Gallons Exports, Millions of Gallons Domestic Consump- tion, Millions of Gallons Average Domestic Price (Tank- wagon), Cents per Gallon Average Export Price, Cents per Gallon By years, 1914 1915 1916 1917 1918 1919 1920 1500 2059 2851 3570 3958 4883 412 297 447 462 210 282 356 416 559 372 635 3129 3436 4256 13.0 11.7 18.9 20.6 21.7 22.2 26.5 12.0 12.0 19.3 22.4 25.0 24.7 27.2 By months: 1919. January. February March . . April. May. June. July . . August September October. . November December 304 284 311 320 354 338 342 327 340 363 339 336 383 458 546 594 594 594 515 435 371 354 378 447 48 27 22 28 26 32 25 30 37 41 31 29 170 182 201 245 327 306 397 378 367 340 284 238 22.5 22.2 22.2 22.2 22.2 22.3 22.2 22. 22. 22. 22. 22. 23.8 23.6 24.9 25.3 27.0 24.1 24.1 24.8 25.4 23.9 26.0 24.7 By months: 1920. January. February March. . April . May. June. July . . . August . September October. . November December 337 323 367 356 381 415 423 444 454 466 453 464 516 563 626 644 578 504 413 323 288 301 355 462 31 32 47 44 69 69 82 59 40 65 40 65 237 244 257 295 378 420 432 475 449 388 359 292 23.1 23.8 25.1 25.9 26.3 26.8 26.8 27.5 28.2 28.2 28.1 28.0 23.8 24.5 24.6 28.6 26.7 27.0 27. 27. 29. 28. 29. 28. By months: 1921. January.. February . March . . . April May June 460 572 55 295 27.6 388 681 54 225 25.0 420 713 47 341 24.0 426 747 57 335 23.5 449 800 41 355 22.0 430 751 39 440 21.4 30.8 30.7 27.4 26.6 25.2 24.0 ♦ End of period. DEMAND FOR GASOLINE 121 transportation. At the present time the volume of gasoline consumed by passenger automobiles, trucks, and tractors, and going into the export trade, constitutes over 90 per cent of the supply, the uses STOCKS ON HAND "^"-up^s PRODUCTION EAST COAST ILL.-IND. etc. KAN.-OKLA. etc. WYO.-COLO. etc. 1920 1919 1920 Fig. 56. — Production and stocks of gasoline in the various refinery districts of the United States by months, 1919-1920. once dominant for cleaning, solvent purposes, and in chemical man- ufacture, having been relegated to an entirely subordinate position. Measurement of the components of the gasoline demand may be made by multiplying the average number of cars, trucks, and tractors in use each year by factors representing their respective average w GASOLINE I .S S P 6 Q ^ MIX)--: Tl< ■#-* u^.,- •1" Mt^ to coo ij" xt CO CO X 00 lo -^ 05030i i-tcor* lOt^-* -HOIN ■*t^c -H~l X OiO « Mt)C(r iJilN ■* to CO CO coc^jo lOXr. 0 Ch wJ •*t-c*: rtt-5C CO 00 00 (Ncor^ O-rPiOl COOJC- mt^o -Ht^,-l O tay co-*Tt 000 to lon^ X cont 00 xxc^ 1000 CO fJ CL, nOiK rococc CO CO CO CO CO CO T CO CO CO coco-"* ■*■*•* ■* cj 10 00 to ^ t^NCO ■>lr -HXt^ Clf-HiO 00Or-< (M-Ht- cocoes •*xo (K co-.Tti 0-<)<0 uooot^ tO-Hli- rHXCO COOX P4 OiO'-O -,0 ■■0 OOt^ l^t^t^ t~OX xoc- oc-.o rtO^ f d ^ coi^t^ ODt^X Ot^C-J Tf >no C cot^-i< ococo ^ cocji-i 051< C t^uOO ococo o> ■A O Ch 000 t^»t^ t^-wt^ t^I>t^ 00 00 t^ot^ ot^x xoo oxx y- ^ wo -*i-Ot^ OON'* toxio (NCOO xoo lOO-* r-wco UJiOtO 000 cot^u: eO T»o CO z CL, CCCOM in 10 10 lOi-'i'ti i-oi'sco If*'.'; ttoo CO too 000 » (N'^in CDOOb- U5iO>0 ■^ooo xoo «O COOIN OCOX o>oi-- fOcot~ 005 10 o (NiNCO (NIN(N .-H,-I(N co COt^lO COI^IN C^ r-tOOK fOO- coi) ricioq C^C^C-1 t^ INOJCsl INC) C^ CJCq M ININ IN X "** IN H ^ CO OC^iO c Ort X (MIN -HC^ X OOM >Ot)iO 0>'*'t« ■*O5 03 .0I^ oot- t^XCl 000 r^ t^ OS ■ >> '. J2 n 2 g~ < > ^1 - a > 3^ 5 4) III « m T. C < > > a > 1 -"St. = > s « d 05 DEMAND FOR GASOLINE 123 annual consumption of gasoline; and subtracting the total, together with the quantity exported, from the figures representing the coun- try's total production which leaves a small quantity covering miscel- laneous uses. The results obtained are approximations merely, because the basic data are imperfect, but the broad features of the demand may be drawn with sufficient closeness to indicate its trend and composition. Fig. 57 analyzes the trend of the gasohne demand for the period 1910-1920 and is based on registration figures for cars and trucks, the best available data for tractors, and the following consumption factors (see Table 51) modified somewhat for 1920. Table 51. — Antmual Consumption Factors for Cars, Trucks and Tractors Passenger Cars Light Trucks Heavy Trucks Average Trucks Tractors Av. annual consumption 300 gals. 1000 gals. 2000 gals. 1500 gals. 2000 gals. These factors are based upon an investigation conducted by the War Industries Board in 1918,^ modified by additional calculations and experience. The factors cannot be accepted as exact, and indeed they change from year to year. Most factors generally used repre- sent a combined figure for cars and trucks. In both 1919 and 1920 the consumption factor for cars and trucks combined was 400 gallons (domestic consumption minus 20 per cent for tractors and miscella- neous uses, divided by average number of automotive units in use). On this basis for 1920, assuming 7,450,000 cars and 800,000 trucks as the average number in use during the year, the average consump- tion would be, in gallons per year: Passenger Cars Trucks Combination 335 gals. 282 gals. 1000 gals. 1500 gals. 400 gals. 400 gals. Without going into further detail, it may be stated that the true consumption factors of cars and trucks lie somewhere between the limits of 335 and 282 for cars, and 1000 and 1500 for trucks. Since, however, there is a tendency (since 1918) for the annual mileage of passenger cars to become greater, while the number of light trucks 1 M. J. Gillen, Regulation of Uses of Motor Cars, Gasoline, Rubber Tires, and Rubber, War Industries Board, Nov. 4, 1918 (manuscript). 124 GASOLINE is increasing relative to heavy trucks, the factors of 335 gallons per year for cars and 1000 gallons for trucks are advanced as satisfactory for application to the years immediately ahead. In Figs. 57, 58, and MILLIONS OF GALLONS 9,000 8,000 7,000 6,000 5.,000 4,000 3,000 2,000 ^ ^ ^^ y / y -i> ,-f / ■^ -J^ ^ y y / 900 800 TOO 600 t'''*^ *v ^^y / ^4^/ jy /' ^^ \^y\ 4/ y^ \ yx:.-i' ^^/ ) ,.tcks_x^J ^ „ .^^y f ^ \ x .' / / ^-v ^ / _M\S ^ >^ oc f ^ z. .^^- " Vv. / / / / 300 20.0 \50 100 90 '" J > X y- f/ / ^ / f"/ "'^ / y /y ^^^^ / / / / <^ w Ay ^/ .^y oV i^y 60 50 >^^ . coNsu^ IPTI ON ^ / / \ \, ^ '> ^ -19 20, 5CK N, 1 > )19 STO CKS \ 1 918 STOCKS'iV.!^ '--.. ,---■■ '\\ * \ \ / ,■ "^ x1 ^1 JAN. FEB. MAR. APR. MAY JUNE JULY AUG. SEP. OCT, NOV. DEC. SCALE OP INCREASE OR DECREASE P-1+iooii + 80s£ + 60i{ + 4Q«S + 20Jt Of, - 10!« - 2.0'}, - 30^ -j— 40^ - 50^ // Fig. 60. — The seasonal variation in the demand for gasoHne compared with seasonal changes in the volume of gasoline in storage. Table 53. — The Seasonal Demand for Gasoline in the United States ,, , Index Months ^. , Numbers Percentage of Year's Total January February 100 108 120 135 160 185 210 220 195 165 147 125 5.4 5.8 6.4 7.2 8.5 9.9 11.2 11.8 10.4 8.8 7.9 6.7 March May June July August September October November December 100.0 SEASONAL VARIATION IN DEMAND 129 The significance of the decHning ratio of stocks to requirements is further shown in the following tabulation : Table 54. — The Significance of the Stocks of Gasoline in the United States in September, 1917-1920 Sept., Sept.. 1917 1918 Sept., Sept., 1919 1920 Ratio of stocks to domestic consumption . . . No. of days' supply represented by stocks. . 116% 35 85% 26 100% 30 65% 19^ i The peak-load problem, long recognized and aggressively handled in the electrical industry, is growing in seriousness in connection - 505J Fig. 61. — The converging trend of gasoline stocks and gasoline consumption, pointing to the growing difficulty of supplying the peak requirements of with the supply of gasoline. Gasoline storage is not developing as rapidly as the peak of demand is rising, and unless this relationship is reversed the supply wiU thin out to a stringency in an early summer ahead, even granted an adequacy of crude to maintain production. Should a shortage of crude at the same time supervene this stringency will break into a shortage, calling widespread attention to the situa- tion. CHAPTER X KEROSENE Kerosene, that fraction of crude petroleum intermediate in character between gasoline and distillate fuel oil (gas oil), affords an interesting example of a product whose economic status has been profoundly affected by modern technical changes in fields impinging upon its own. Once the mainstay of the oil-refining industry, kero- sene has been relegated to a relatively subordinate position, and the output of this product in the United States has recently reached its maturity. When the petroleum industry developed in the United States following the discovery well on the Drake farm in Pennsylvania in 1859, a product distilled from coal and known as " coal oil " was in widespread use as an illmninant. It was soon found that crude petroleum, by a process of distillation and chemical treatment, could be made to yield an illuminating oil suitable for use in lamps. For many years, the efforts of the oil-refining industry were mainly devoted to the development of kerosene and the extension of markets for this product with sufficient speed to give vent to the mounting volume of crude petroleum. Domestic markets alone proved inad- equate, so the foreign field was vigorously attacked and American kerosene was sent to the four corners of the globe, to lengthen the days of the peoples of the entire world. '' It would be difficult indeed to estimate the value to the world at large of this cheap and convenient source of light, which has been aptly termed ' one of the greatest of all modern agents of civilization.' " The supply of raw material for the manufacture of kerosene con- tinued to grow and toward the close of the Nineteenth Century the commercial development of gas and electricity began to narrow the domestic market, throwing still greater emphasis upon the impor- tance of expanding the foreign outlet. In the meantime the volatile components of the crude petroleum had to be separated from kero- sene and thus a supply of gasoline was being developed, without a corresponding demand, and gasoline for a time became a drug on the market. Into this setting came the commercial development of the internal combustion engine and the phenomenal rise of automotive transportation, with results familiar to everyone. Kerosene was 130 THE WANING STATUS OF KEROSENE 131 soon forced to the background, and gasoline has supplanted kero- sene as the leading representative of the joint-products of petroleum. The Waning Status of Kerosene. — In 1899 the output of kerosene was 58 per cent of the crude petroleum run to stills; while in 1914 this proportion had dropped to 24 per cent; and in 1920 to 12.7 per cent. The declining ratio of kerosene output to crude run is shown for the years for which figures are available in the following table : Table 55. — Percentage of Kerosene Produced from the Crude Petroleum Run to Stills in the United States, 1899-1920 Data from U. S. Census and U. S. Bureau of Mmes Year Crude Run to Stills, Billions of Ciallons Kerosene Produced, Millions of Gallons Kerosene Produced, Percentage of Crude Run 1899 2.18 1259 58 1904 2.81 1357 48 1909 5.07 1675 33 1914 8.04 1935 24 1916 10.4 1455 14.0 1917 13.2 1727 13.1 1918 13.7 1825 13.3 1919 15.2 2342 15 4 1920 18.2 2320 12.7 VALUE OF PRODUCTION 1899 1914 1920 1899 1914 1920 Fig. 62. -The relative importance of kerosene compared with other petroleum products in the United States in 1899, 1914, and 1920. The value of the kerosene produced in the United States, in pei centages of the value of the total products of the still, was 60 per cent in 1899, 24 per cent in 1914, and approximately 14 per cent in 1920. The trend of the i-elative decline in output and in value of kerosene is shown graphically in Fig. 02. 132 KEROSENE Sources of Supply. — The quantity of kerosene produced in the various refinery districts of the United States in 1918, 1919, and 1920, together with the percentage 3delds of the total oils run to stills, is shown in Table 56. (See also Fig. 63.) Table 50. — Production of Kerosene in the United States by Refinery Districts, 1918-1920 Refinery District 1918 1919 1920 Produc- tion, Millions of Gallons Per Cent of Total Oils Run to Stills Produc- tion, Millions of Gallons Per Cent of Total Oils Run to Stills Produc- tion, Millions of Gallons Per Cent of Total Oils Run to Stills East Coast Pennsylvania, etc . . . Illinois, Indiana, etc. Kans., Okla., etc.. . . Texas, Louisiana . . . Wyoming, Colorado . California Total 486 137 187 415 435 62.7 103 16.2 15.7 14.8 14.1 11.9 9.0 3.1 703 191 217 393 569 65.7 204 20.6 20.0 13.1 13.7 14.3 7.8 6.0 497 173 217 394 714 117 207 12.9 17.6 10.9 13.0 13.7 11.7 6.0 1825 11.6 2342 1 13.6 2320 11.9 It will be observed that there is a marked variation from year to year in the percentage yields of kerosene. This flexibility reflects the readiness with which the limits of kerosene are shifted under varying economic conditions, the light ends of kerosene going into gasoline or not as occasion demands, and the heavy ends being like- wise interchangeable with gas oil. In general, the year 1919 shows much higher kerosene yields than do 1918 and 1920, a circumstance to be correlated with the fairly abundant supply of gasohne relative to demand in 1919 and the contrary tightness of supply in 1918 and 1920. Fig. 63 emphasizes the importance of the contribution to the countrj^'s supply of kerosene made by the south-central states. Relation to Gasoline. — The tendency over the past few years for the light ends of kerosene to be incorporated into the gasoline supply has been fully discussed in Chapter 9. In addition to this progressive transfer from year to year, as the demand for gasoline mounts, there is a seasonal relationship within the j'ear, the kerosene output rela- tive to the quantity of oils run to stills being in general less in summer than in winter. The calculations supporting this conclusion are presented in Talkie 57. RELATION TO GASOLINE 133 The degree of cor- relation between season and percentage yield of kerosene may be effectively shown by recalculating Table 57, taking the jdelds for the third quarter of the year as a base of 100. The results of such a calculation are presented in Table 58. It is apparent that the kerosene yields bear a very consistent and definite relation to the season, the only exception being offered by the Wyo- ming-Colorado refinery district. The relation- ship is definitely trace- able to the demand for gasoline, which as shown in Chapter IX, falls upon the four r.:::;.|OTHER pnoDUCTS >i - ■ '•' AND LOSSES TOTAL OILS RUN TO STILLS =19.5 BILLION GALS. nvv EAST COAST PENN., ETC. ILL. IND., ETC. KAN. OKLA., ETC. WYO. COLO., ETC. T^l \ — i \ — \ \ — \ — r lO 20 30 40 50 60 70 80 90 lQO<( FIGURES IN RECTANGLES ARE MILLIONS OF GALLONS Fig. 63. — The production of kerosene compared with the production of other petroleum products in various parts of the United States in 1920. Table 57. — Percentage Yields of Kerosene Relative to Total Oils Run TO Stills in Various Parts of the United States During the J^our Quarters of 1920 Yield op Kerosene in Percentages of Total Oils Run to Stills Refinery Districts First Quarter Second Quarter Third Quarter Fourth Quarter Year East Coast Pennsylvania, etc. 111., Ind., etc Kan., Okla., etc. . Tex., La Wyo., Colo., etc. . California Country 15,7 18.9 11.8 14.4 15.3 10.6 6.6 13.6 11.4 18.0 10.9 12.6 13.2 13.3 5.9 11-6 10.0 15.8 9.6 10.8 12.9 12.1 5.6 10.6 10.2 17.9 11.4 13.8 13.1 11.3 5.9 11.5 12.9 17.6 10.9 13.0 13.7 11.7 6.0 11.9 134 KEROSENE quarters of the year, in percentages of the full year's requirement, as follows : Ist Q. 2d (2. 3d Q. 4th Q. 17.6 per cent 25.6 per cent 33.4 per cent 23.4 per cent Plotting the average gasoline demand against the average kero- sene yields, we get two complementary curves, as shown in Fig. 64, which reflect the seasonal response made by the kerosene supply to the gasoline demand. In other words, in summer more of the light kerosene ends are introduced into the gasoline supply than in winter. This tendency is in keeping with the seasonal variation in the end- point of gasoline, as interpreted in Fig. 49, page 112. Table 58. — Yields of Kerosene by Quarters of 1920 in Percentages of THE Yield in the Third Quarter of the Year Rpfinery Districts First Quarter Second Quarter Third Quarter Fourth Quarter East Coast 157 120 123 133 119 88 118 128 114 114 114 127 102 110 105 110 100 100 100 100 100 100 100 100 102 113 119 128 101 94 105 109 Pennsylvania, etc Illinois, Indiana, etc Kansas, Oklahoma, etc . . . Texas, Louisiana Wyoming, Colorado, etc. . California Country Current Trend of Supply and Demand. — The trend of the major factors entering into the interplay between supply and demand is shown by months for the period 1917-1921 in Fig. 65, the supporting data appearing in Talkie .59. The outstanding features of the chart are: The horizontal trend of domestic consumption; the high ratio of exports to domestic consumption; the upward tendency in stocks on hand in 1919 and 1920; and the steady price advance in 1919-1920 in particular, showing only a slight recession in the fourth quarter of 1920. Fig. 65 is presented as a type of chart particularly suitable for use in following the current situation from month to month, and the flow of the hues across the page giving the basis for drawing conclusions as to developments lying ahead. Relation of Production to Stocks. — The size and trend of pro- duction by months compared with the stocks of kerosene on hand in the various refinerv districts in the United States for 1919 and 1920 ANALYSIS OF DEMAND 135 are shown graphically in Fig. 66. The chart brings together the refine -y statistics for kerosene in a form suitable for drawing deduc- tions as to the variations in supply and demand in various parts of the country. The type of chart is presented as a practical method of interpreting a complex range of statistics difficult of analysis in tabular form. The data on which the chart is based are given in Table 60. 4TH Q. Fig. 64. — Seasonal correlation between the demand for gasoline and the yield of kerosene. The outstanding feature of Fig. 66 is the large accumulation of stocks in the East Coast and Texas-Louisiana districts. A con- trast is offered for the year 1920 between the declining production of the East Coast district and the steadily advancing output of the Texas-Louisiana region. Analysis of Demand. — The demand for kerosene is mainly for purposes of illumination and heating, although of recent years a growing quantity has come under requisition for power purposes in tractors, motor-boats, and stationary engines. The exact percent- age consumed for power purposes is difficult to ascertain, because reliable statistics on the number of power units in use are not avail- able and many appliances are designed to use either gasoline or kerosene. A rough interpretation of the trend of demand, with no pretense to exactitude, is presented in Fig. 67. It will be observed that export requirements have alwaj's bulked large, although foreign shipments suffered serious curtailment during the war, particularly in 1917 and 1918 when the far eastern markets were difficult of access because of the shortage in shipping. The increase in domestic demand has been slight compared with the rapid rate at which gasoline requirements have grown; and much, if not all, of the recent increase has been due to the employment of kerosene for power purposes. 136 KEROSENE Table 59. — Summary of the Kerosene Situation Period By years: 1914. 1915. 1916. 1917 1918. 1919. 1920. Produc- tion, Millions of Gallons Stocks,* Exports, Domestic Consump- | Millions of Millions of tion, Millions Gallons Gallons of Gallons 1935 1010 837 1455 855 1727 498 658 1825 380 491 1452 2342 339 979 1404 2320 393 862 1404 Average Domestic Price (Tank- wagon) Cents per Gallon Average Export Price, Cents per Gallon 7.6 7.1 7.9 8.5 10.2 12.7 17.1 6.3 6.0 6.5 7.4 10 12 15 By months: 1919. January. February March. . April . May. June. July. . August September October. . November December 159 164 170 183 190 179 206 220 199 227 215 229 332 303 295 276 245 253 280 296 312 329 347 339 68 67 54 93 80 124 76 84 73 94 70 93 138 126 124 108 142 47.1 103 120 110 115 132 144 10.9 10.9 11 1 11.4 11.8 12.4 13.3 13.9 14.0 14.3 14.3 14.6 10.0 11.2 12.0 10.8 12.3 11.9 12.0 12.6 13.2 12.6 14.9 12.8 By months: j 1920. January. February March . . April . May. June. July. August September October. . November December 196 195 191 184 181 174 172 189 199 214 215 211 328 330 335 376 419 421 411 379 379 384 399 393 81 76 80 68 57 62 59 75 63 70 81 90 127 116 107 74 81 110 124 146 135 140 119 127 15.6 15.8 16.3 16.6 16.6 17.0 17.1 18.0 18.2 17.8 17.8 17.8 13 4 13 7 13 9 14 7 17 2 17 1 16 5 16.9 14 8 15 1 16 15 7 By months: 1921. January. . February . March. . . April May June 205 419 79 100 17.5 163 430 68 84 14.9 169 446 64 89 14 6 156 459 59 84 14.0 145 452 52 100 12.6 142 435 64 95 . 11.5 18. 16 15 15 11 12.8 * End of period. ANALYSIS OF DEMAND 137 There are many specialized uses to which kerosene is put, on which consumption statistics are not available. One of the most interesting of these uses is in the tail-lights on trains, where a special type of long burning kerosene is still employed even when the train ^ < ^ \ AVi RAC E D OME STIC ; PR ICE > ^ ^ z::^ AV. EXF ORT PR CE ^ -^ MILLIONS ^ -' ' ^ 600 500 400 300 200 lOO 90 ,.-^^ "\ -*** v,^ ,,- - ^ ../ \^ ST OCK S _ •v-- /N r^ V s J „ x PR ODU 1 CTK S^ DC MES TIC co^ ISUA IPTl / ^ / / DN \ V s 1 / 1 \i' , ', ( \ ; / 1 / VI \y\ M \ V / / \y N. 70 60 50 \ ', 1 / ' ' \ V V' \ A \ ■^ 1 1 /' ' \i r\ 1 \ V /^ y \ v / \ r ; V \ V A / \l ■\ 30 20 i\ / V V J ^\ L -EX 'OR- s 19 17 19 18 19 19 19 20 19 21 Fig. 6.5. — Trend of the kerosene situation in the United States by months, 1917-1921. is otherwise illuminated with gas or electricity. The persistence of kerosene in this connection illustrates the fundamental importance of form value, since the cardinal requirement is dependability under any emergency, to which the form of kerosene is better adapted than either gas or electricity. 138 I^ROSENE n Q O " Q m O M H § CO O < o NM(N ooo t^i'sci c) 1(3 tOt^ XOr^ OlMOs (M.--i T-icc;o T)i(No c^irco -rt^O o — -.c; OOC<5 -h:<3-* O-O-"! OO—i OXO "-iTjft^. INi-icO MX'* cc cc o t^ O O lO •-H-*iO C<1(N05 t>-X"-l M05l<'0 CS Ti-i C0t»iiO OCSIM -^ON x-*o oc^o c^t^o ooco ^roo XiO^ TO CO cc CO 05 lOCOO Ot^cO OMCO CSL't^ XOt~ COCOX -H1"i.O xt^o .-i(Ni-l .-1-Hrt (NNM C^ICO-*- X(NX c^ »o CO XXX XMC'l ■* uOtji M-O O 0)0^ ^^ o t^ t^ CO w CI ~; lO co c. o CO >c o i.o t^ m r- 1-» o x co co OlNt- .-l(N>0 05-* COtJhX OCOOl COOX5 "COO O O t^ O O '-I •-coo >-n 3 3 -; o •e^ OZQ XOO OOSi-l i-iOOl ■*OCO oirat-i Tjiri^ IM050 -^ici-i ooo XXh- t~XO rii-ii-H ,-.i-ir^o oox doo OOi-H OTf— 1 MrtO — i-*tD cot^ t^ fCOCO CI O O X -^ "O O CO CO O O t C^ O CO -to i-O tONO o oco ooco ©•*o oxt^ oot>- L- 03 oi 3- '-*■>?-( 3 ■^ s 3^ a) s-i-e CZQ O' o -t o o o CO t^ o CO CO ■* ooo t~ t o ot^x t^xo o CI oxx xo—i i^o-* ooo »-" CO CO CI ooo ooco o-*o OOrH OXX ■*co— 1 cocqi^ oxx I^CIX OCOO (N(NO OOO ooo COXO ooo ■^ccc^ cc CO ^^ *o^^ cs THE CHANGING CHARACTER OF KEROSENE 139 The Changing Character of Kerosene. — The major use of kero- sene is for lighting and in the early days of its development constant GALLONS lOO 50. 25 50r o' 50r O' loo 50 50ri 25 O PRODUCTION 1919 zjza ^s ^ as; Z^ ^ ^ 1920 STOCKS ON HAND EAST COAST PENN., etc. ILL.-IND., etc. KAN.-OKLA., etc. WYO. -COLO., etc. 1919 1920 50 O 50 25 o 50 25 O 50 25 O n25o 200 i 150 lOO 50 25 50 H 25 O Fi(i. ()<). — rroduction and stocks of kerosene in the various refinery districts of tlie United States, by months, 1919-1920. effort was expended upon obtaining a product with requisite wick- climbing properties. Even in testing the commercial product to-day, no chemical examination has succeeded in replacing the practical 140 KEROSENE test in a lamp. No end of ingenious work has also been devoted to perfecting the kerosene lamp, so that to-day we have a delicately adjusted balance between the physical properties of the fuel, on the one hand, and the mechanical properties of the appliance, on the other. Of late years, however, the shift of the light kerosene ends into the gasoline supply, together with certain compensating changes at the heavy end of the series, has somewhat disturbed the balance and created new problems in the manufacture of kerosene. 2500 Z'ODO 1500 TOOO 1909 1914 1917 1918 1919 1920 Fig. 67.^ — Analysis of the demand for kerosene, 1909-1920. If the demand for gasoline dictates still deeper cuts into the crude, causing further encroachment upon the light kerosene ends, a point will soon be reached when the supply will be thrown out of adjust- ment with the whole range of appliances to which it is now comple- mentar3\ Here again, therefore, we*have a curious example of how shifting economic currents critically affect the mechanical details of technical developments. The Future of Kerosene. — The demand for motor-fuel is so in- sistent that it is already encroaching upon the supply of kerosene, both directly and indirectly — directly by the development of engines designed to burn kerosene, and indirectly by the blending of light kerosene ends with the gasoline supply. Much attention has also THE FUTURE OF KEROSENE 141 been devoted to cracking kerosene into gasoline, although com- mercial success has not yet been attained in this direction. The future requirements for motor-fuel loom so large that it seems inevitable that kerosene should be still further encroached upon. Whether this tendency will proceed to the point of com- pletely extinguishing the product as an illuminating agent cannot wholly be foreseen, although it would not be entirely unexpected if this product some years hence should be known as " the light that failed." Over against this contingency, however, must be placed the social importance of kerosene to the farm and rural community; and while the economic pressure of rising price will tend to divert it from this social role, counter forces of a politico-economic nature may set up adequate defense to save a modicum of supply from utter extinction. CHAPTER XI FUEL OIL In ail economic sen.se, fuel oil is the residue left over from the country's supply of crude petroleum after other demands are satisfied. MILLIONS This product comprises three varieties : Crude used as such; residuum fuel oil derived mainly from skimming and top- ping refineries; and dis- tillate fuel oil, or gas oil, turned out chiefly by in- termediate and complete- run refineries. The rela- tive proportions of these three types carry consid- eralile significance in re- spect to the future course of this commodity. A rough approximation of the ratio of crude oil used as such to fuel and gas oil is given in Fig. 68. The U.S.Bureau of Mines has estimated the ratio of distillate fuel oil to Fig. 68. — The relation between fuel oil, other oil products, and crude oil fuel in the United States, 1910-1920. residuum fuel oil for the year 1918, as follows: Table 61. — Fuel-oil Supply in 1918 by Types of Fuel Product Millions of Barrels Per Cent of Total Distillate fuel oil, or gas oil ... . Light residuum fuel oil Heavy residuum fuel oil 19* 48 164 8 21 71 * The American Gas Association estimates the 1919 output of distillate gas oil to be 30 million barrels, as likewise does the Census of Manufactures for 1919. 142 SOURCES OF FUEL OIL 143 ]GAS & FUEL 1 OIL AND LOSSES TOTAL OILS RUN TO STILLS = 19.5 BILLION GALLONS EAST COAST PENN. ETC. ILL. IND. ETC. KAN. OKLA. ETC. It will be observed from these proportions, which have not greatly- changed since 1918, that residuum fuel oil overwhelmingly predom- inates over distillate fuel oil, with the heavy variety of residuum in striking excess of the light. Fig. 68 and the table above emphasize the residual character of fuel oil, which suggests why this product has so characteristically commanded a low price and suffered wide fluctu- ations in market value. Sources of Fuel Oil. — Fig. 69 compares the out- put of fuel oil with the production of other oil products in various parts of the country in 1920. It will be noted that the refineries of the East Coast, of Oklahoma- Kansas, of Texas-Louisi- ana, and of California represent the dominant sources of this product. Leaving the California output to one side, since the Far West and exports consume the fuel-oil of that state, the oil fuel available to the rest of the LTnited States is seen to be derived almost entirely from refineries on the East Coast and in the south-central portion of the country. The rapid development of the oil-fields of the Mid-Continent, the Gulf Coast, and Mexico is directly responsible for this grouping of production, since crude petroleum has thereby been made available in advance of the higher types of requirements and in consequence the major portion has been forced to find an outlet for the time being in the only available direction — as steam raising fuel in competition with coal. This outcome has also been accentuated by the growing prominence of heavy^ asphaltic crudes in the country's supply, a type of raw material ill adapted to yielding at once high percentages WYO.-COLO. ETC, CALIF. ! ' ' 1 "1 1 T lO 20 30 40 50 60 70 80 90 1003 FIGURES IN RECTANGLES ARE MILLIONS OF GALLONS Fig. 69. — The production of gas and fuel oil compared with the production of other petro- leum products in various parts of the United States in 1920. 144 FUEL OIL of the more desirable oil products by means of the technology devel- oped for treating the lighter oils. To a notable degree, fuel oil is the accompaniment of oil-field development in advance of adjustments in demands and in refining technology. The output and percentage yield (with reference to the total volume of oil distilled) of fuel and gas oil ^ in the various refinery districts of the United States for 1918, 1919, and 1920 are shown in the following table: Table 62. -Production axd Percentage Yield of Fuel and Gas Oil in the United States by Refinery Districts, 1918-1920 Refinery District 1918 1919 ■ 1920 Produc- Per Cent Produc- Per Cent Produc- Per Cent tion, of Total tion, of Total tion, of Total Millions Oil Millions Oil Millions Oil of Run to of Run to of Run to Gallo-s Stills Gallons stills Gallons Stills East Coast 1119 37.3 1226 35.9 1941 50.3 Pennsylvania, etc.. . 202 23.2 169 17.8 208 21.1 Illinois, Indiana, etc. 344 27.2 408 24.8 564 28.4 Kan., Okla., etc. . . . 1344 45.6 1259 44.0 1337 44.0 Texas, Louisiana . . . 1934 52.9 1912 48.1 2392 45.9 Wyoming, Colorado. 244 35.1 280 33.4 213 21.3 California Total 2138 63.6 2300 67.7 2206 63.8 7321 46.3 7627 44.3 8861 45.5 It will be observed that while the percentages of oils distilled that were turned into fuel and gas oil have remained fairly constant over the three-year period for the country as a whole, marked changes have taken place in several of the refinery districts. For example the East Coast refinery district shows a jump from a 35.9 per cent yield in 1919 to a 50.3 per cent yield in 1920, an advance attributable to the great volume of Mexican crude subjected to topping in the latter year; while the Texas-Louisiana and Wyoming-Colorado dis- tricts show a steady dechne from 1918, a change arising from the growth of complete-run refineries on the Gulf Coast and of cracking installations for converting fuel oil into gasoline in Wyoming. With a curtailed supply of crude and a mounting demand for hght dis- tillates, the average percentage yield for the country as a whole will ultimately tend significantly downward. ' In the official statistics, ga.s oil and fuel oil are not separately reported. RELATION TO REFINERY PRACTICE 145 Relation to Refinery Practice. — There are four connected and overlapping stages in the evolution of refinery practice in the United States, through which the older producing fields of the country have entirely passed and tlirougli one or tlie otlier stages of which the newer fields are now progressing. Thus the crude petroleum pro- duced may be (a) used as such, with a modicum of preparation; (b) subjected to topping or skimming processes, in wliich a part of the gasoline and kerosene is extracted, leaving the dominant portion of the crude as a residuum to be used for fuel; (c) treated to more com- plete refining, in wliicli a larger number of commodity values, includ- ing lubricants, are extracted ; or (d) submitted to cracking refining, in which not only an approach to a full extraction of commodity values is made, but a portion of the less valuable components is subjected to rigorous treatment for conversion into more valuable products. Where the crude is used in the raw state, practically the whole output is fuel oil. With topping or skimming refining in its various stages, from 50 to over 90 per cent of the raw material is turned out as fuel oil. With transition to complete refining, the proportion of fuel oil becomes decreasingly less and partly of a superior quality (distillate gas oil); and when cracking refining is introduced, fuel oil (or rather its preferred variety, gas oil) becomes in turn the raw material for further refining, and the yield of fuel oil is cut down in still further degree. Topping and skimming plants go along with flush conditions in oil-field development. They spring up quickly wherever the supply- of crude petroleum is abundant and cheap ; they require a relatively small outlay of capital and for a period are profitable, in many instances exceedingly so. With high cost crude, however, they become uneconomic, and either cease to operate or change to plants making a fuller extraction of values. Up to the present the topping and skimming capacity of the country, while showing fluctuations in conformance to conditions of supply and demand in the oil market, has been increasing, owing to the upgrowth of new plants in excess of the plants going out of existence or chaiiging over to more complete refineries. The development of topping plants has also been stim- ulated by the mounting imports of crude oil from Mexico, although many skimming plants were forced out of existence in the Mid- Continent and Gulf regions under the conditions of reduced demand that came into play in late 1920 and early 1921. As oil-production conditions mature, however, the topping and skimming types will tend to give way to complete refineries and the relative yields of fuel oil will decline to proportions characteristic of such refinery districts as Pennsylvania and Illinois-Indiana. (See Fig. 69.) 146 FUEL OIL Development of Cracking Refining. — In response to the expanding demand for motor-fuel the upgrowth of cracking refining has been conspicuous since 1915. In 1920 roughly 15 million barrels of gaso- line were contributed by cracking, over the quantity producible without its aid. This output, in turn, represented a consumption of from 30 to 40 million barrels of distillate fuel oil, or gas oil. The inevitable result of such a large diversion of gas oil was seen in the 1920 shortage of this product and the concurrent agitation of the gas manufacturers under this head. The evident inability of cracking growth to keep pace with the increasing demand for motor oil has been reflected in a change in end-point of gasoline, which in turn has increased the consumption of motor oil as a result of crank-case dilution. This effect has further stimulated the upgrowth of complete-run refining at the expense of skimming processes. Thus another cycle of events has been tending in the direction of curtailment in fuel oil output. The various factors in the situation are complex, displaying many fluc- tuations and reversals; but the net changes are toward an ultimate curtailment in the percentage yield of fuel oil. Excessive Competition in Marketing Fuel Oil. — In recent years, the output of fuel oil in the newly developed oil sections of the country has created unsettled marketing conditions for this product. Because of the bulk in which fuel oil was produced, the difficulties of main- taining adequate storage, the seasonal character of the demand, and other factors, keen competition in marketing resulted. In point of fact, competitive efforts in excess of what was advantageous or even necessaiy were frequently in evidence, since lack of confidence on the part of refiners with storage tanks approaching the limit of capacity often led to a feeling of overproduction, which resulted in drastic price cutting and other measures destructive of profitable disposal. Such conditions were aggravated also by a periodic over- production of crude petroleum, as in the Gushing field in 1915, in the North Texas fields in 1919, and throughout much of the country in 1920-1921. As the situation is shaping up ahead, with a dearth of crude petroleum and growing demands in prospect, the competitive condi- tions surrounding the marketing of fuel oil will be largely mitigated. A foretaste of this prospect was afforded in the winter of 1917-1918 under the stress of war conditions. The reaction of 1919, arising from an overstimulation of productive effort in the face of an imme- diate stoppage in war requirements, was merely a passing incident. In late 1919 the influences outlined above come forward with due effect accentuated by the coal strike and by restrictions in transpor- TREND OF FUEL OIL PRODUCTION 147 lOO 90 80 70 60 SO / 'V y" ^ op A / ^ / ,^5 /I' ^ y- ■"/ .'t^' ''/ > ^ / / /■ / — - vc s^$^ y. ^ - '' M / -v^ ,--■ A f J • ^ / ^ ^'% i^ v^ ^ ^ ^ ^ •' SCALE OF INCREASE OR DECREASE 100,1 2 + I _ 80^ 60;? 40;{ 20«« o^ io;« 20^ 30;{ 40!< 50^ 1911 1912 1913 1914 1915 1916 1917 1918 1919 I92U TREND OF PRODUCTION ACTUAL PRODUCTION tat ion facility. Again in 1920-1921 conditions swung to the opposite extreme, when a highly stimulated crude produc- tion both in this country and Mexico found an in- appropriate economic set- ting in a time of industrial depression. But ultunate- ly supply will lag perman- ently behind demand and then the whole country may be expected to exper- ience a growing scarcity of this product. Trend of Fuel Oil Pro- duction. — T he rate at which the production of fuel oil and gas oil has been increasing in the United States during the past decade, compared with the increase of gasoline, kerosene, and lubricating oils, is shown graphically on a ratio scale in Fig. 70. It will be observed that the straight line fitted to the curve for fuel oil is steeper than the trends of kerosene and lubricating oils, ])ut less steep than the trend of gasoline. The relative volumes of the four pro- ducts turned out diu'ing the same period are de- picted in Fig. 71. The sharp rise in gasoline de- mand (Fig. 70) is seen to have notably restricted the output of kerosene (Fig. 71), and to have begun to _, ^, n,, 1 x- ^- f ii f exert a similar effect Fig. 71. — The relative proportions of the four princi!)al petroleum i)n)(luets i)rodured in the ^pon the production of United States, 1910-1920. fuel oil. Fig. 70. — The relative growth in output of the four principal petroleum products in the United States, 1910-1920. 1911 1912 1913 1914 1915 1916 1917 1910 1919 1920 148 FUEL OIL Table 63. — Summary of the Gas axd Fuel Oil Situation Period Produc- tion, Millions of Gallons Stocks,* Millions of Gallons Exports, Millions of Gallons Domestic Consump- tion, Millions of Gallons Average Domestic Price, Dollars per Barrel Average Export Price, Dollars per Barrel By years: 1914 1915 1916 1917 1918 1919 1920 3734 4664 6513 7321 7627 8861 578 659 714 847 703 812 964 1124 1201 618 847 6039 6954 7891 0.90 .72 ,04 .57 2.01 1.59 2.79 15 16 19 70 2.33 2.22 2.78 By months : 1919. January. February March. . April . May. June. July . . . August . September October. . November December 690 554 575 589 652 632 638 686 683 680 663 685 646 693 749 808 789 812 818 830 862 829 791 714 75 37 37 46 43 54 45 39 39 66 82 57 528 471 482 485 629 564 587 635 612 649 619 705 1.88 1.60 1.55 1.44 1.40 1.37 1.44 1.49 1.62 2.53 2.53 2.10 2.31 2.16 1.97 2.15 2.15 1.91 2.08 2.34 2.36 2.14 By months: 1920. January. February March. . April . May. June . July .... August . . September October. . November December 618 590 687 643 707 690 751 834 837 823 823 859 652 590 580 591 619 642 655 709 771 799 809 837 75 52 68 78 70 68 79 59 60 93 65 84 605 600 629 554 609 599 659 721 714 703 748 747 2.33 2.33 2.88 3.02 2.74 2.44 2.13 2.10 2.05 2.25 2.88 3.31 3.33 3.08 2.96 3.16 By months: 1921. January.. February . March . . . April May June 837 921 110 643 1.92 733 993 73 588 1.44 758 1005 69 677 1.39 813 1056 72 690 1.39 817 1163 51 659 1.23 826 1249 62 678 1.08 26 36 85 48 52 09 * End of period. CURRENT TREND OF SUPPLY AND DEMAND 149 Current Trend of Supply and Demand. — The trend of the major factors entering into the interplay between supply and demand is shown by months for the period 1917-1921 in Fig. 72, the supporting data being presented in Table 63. The outstanding features of the chart are: The distinctly complementary relationship between stocks COLLARS PER BARREL 4.00 Fig. 72.— Trend of the gas and fuel oil situation in the United States by months, 1917-1921. and price; the tendency for production to show a marked seasonal variation in conformance with the demand for gasoline; and the degree to which exports have fallen away since 1918. Relation of Production to Stocks. — The size and trend of pro- duction by months compared with the stocks of fuel and gas oil on 150 FUEL OIL 'A JS n O o H .1^ ■7J ^ Q O M H 3 r1 /. r/! 0 05N XX-* r-oo cot^oo IN ooc 03'-<(N (N t^M 1.0 c^ootc t^ lO— 1 ^H 00: IN IN IN C^ (N(N 00 .-^r-lIN IN ^ Oi , 5D-* 1/5 ■*« ^oo O C-) o rfOO T) ooxc ■*coo XNt^ X-HC OiN — rH Tt-CO O-H X <>. "g O co-.c-t ooo ooO'ii ^ lO — i.O i.O ^ ■n >o OS lOI^O -^ rorocc ^ -f Tl TfCOTH CO COM OlINC^ (NCJ C> CO CO CO Tjn xoco o OOt^ir »0 **! Ttl lOOC^ OOCO OXOS Cr 1 > t4 li o V c < > ^1 > • _ c _> 4) S J- o o OZQ OS OS 0! d o RELATION OF PRODUCTION TO STOCKS 151 PRODUCTION STOCKS ON HAND ''/Mv/y/' .V /^ 1919 ^--,^^/:,^ 1920 EAST COAST PENN., etc. ILL.-IND., etc. KAN.-OKLA., etc. TEX. -LA., etc. WYO.-COLO., etc. . ,., ,A...„ 4---^Vt/^.-AV ■.■/.'"V. '919 v////. ,--•-■,>/ -///, o=: 1920 Fig. 73. — Production and stocks of gas and fuel oil in the various refinery districts of the United States by months, 1919-1920. 152 FUEL OIL hand in the various refinery districts in the United States for 1919 and 1920 are shown graphically in Fig. 73, with the supporting data given in Table 64. The chart brings out the marked increase in production during 1920, especially on the East Coast and in Texas- Louisiana, compared with a general increase in stocks over the same period. The stocks on hand in California, however, display a sharp departure from this tendency in the latter part of 1920. Analysis of Demand. — Fuel oil is used mainly for fuel in the indus- tries and for transportation. Much of the power employed in the Pacific States and the Southwest is generated by this liquid fuel. The East is less dependent upon fuel oil, although the extension of its use here has also been rapid. The advantages of oil over coal are many and well known (see Fig. 74) and need not be detailed here. Steaming Storage Evaporation Heat Value Freight Labor Boiler Capacity Deterioration and Ash Combustion Efficiency 'Warn i Fiu. 74. — Graphic comparison of the efficiency of coal and oU as fuel; after Tide Water Oil Company. Granted a bountiful supply at a low price, its field is as wide as that of coal itself. Fuel oil is the principal energy dependency of industry and transportation in the far West. The absence of an adequate supply and the relatively high price of coal make fuel oil a highly important factor in the entire Pacific coast region. An adequate supply of petroleum is probably of greater importance for the Pacific Coast than for any other section of the country, as it constitutes the principal or only source of fuel for heating purposes, marine and river navigation, railways, public utilities, and for mining and manufacturing activities (see Fig. 75). The petroleum industry of California supplies most of the fuel needs of Arizona, California, Nevada, Oregon, and Washington (see Fig. 76). The extent of the far-western dependency upon an exhaustible resource has turned active attention to the development of water-power in this region, DEMAND BY MARINE TRANSPORTATION 153 and hydroelectric installations have not only greatly increased in recent years but would appear to offer the principal avenue of relief to the eventual decline of California's oil-fields. Detailed information on the consumption of fuel oil in the rest of the country is wanting, but a rough division of the supply into principal uses is shown in Fig. 77, prepared from data for 1918.^ It will be of interest to appraise the trend of the most important demands, having in mind that if the supply proves inadequate requirements of lower economic standing will have to go b}'^ default in favor of those of higher economic rank. STEAMSHIPS PUBLIC UTILITIES MINING & SMELTING INDUSTRIES ALL OTHERS Fig. 75. — Utilization of California fuel oil in 1917 by territories and types of uses; data from California State Council of Defense. Demand by Marine Transportation. — The mei-chant shipping of the world is rapidly turning to h\v\ oil as a source of power. The advantages to be derived from liquid fuel in the place of coal are so outstanding in facilitating bunkering, increasing the radius of steam- ing, and conserving labor in firing, that this trend will undoubtedly increase rapidly, especially in view of the highly competitive situa- tion developing between the merchant marines of Great Britain and the United States. The shift from coal to oil in the marine field has been spectacular. The new construction in shipping occasioned by the submarine ravages during the war has served to accentuate ' Kindly supplied by G. B. Richardson, U. S. Geological Survey. 154 FUEL OIL Fig. 76. — Distribution of California fuel oil in the western states; after California State Council of Defense. DEMAND BY ]VL\IIINE TRANSPORTATION 155 the change. At the beginning of 1921 the world's merchant shipping approximated 55 million tons. Of this tonnage, around 9 milHon tons is alread}^ on an oil-burning basis, of which nearly a million tons is fitted with Diesel engines. Expressed in terms of oil, this shipping when fully employed represents an annual fuel oil demand of approx- imately 90 million barrels. The rate of change from coal to oil may be judged from the fact that of the total world tonnage in 1918-1919, PRODUCTION CONSUMPTION ;S CRUDE 1 43 1 v/; USED AS FUEL 17:; ) GAS & FUEL OIL MARKETED BY REFINERIES ,24'. EXPORTLD BUNKER OIL MERCHANT MARINE (1919) PACIFIC COAST R.R. n2] vX-- OTHER RAILROADS 5 ^^H OILFIELD FUEL GAS OIL USED IN GAS MANUFACTURE INDUSTRIES WEST OF ROCKIES INDUSTRIES EAST OF ROCKIES Figures are Millions of Barrels. Fig. 77. — Consumption of fuel oil iu the United States in 1918 by tj^ies of uses. 12 per cent was fitted to use oil, while in the following year the pro- portion had increased to 18 per cent. (See Table 65.) The shift from coal to oil is being accomplished in two directions: By the conversion of coal-burners to oil-burners, and through the con- struction of motor vessels. The second aspect of the situation is just beginning to come effoctivety into Ijearing in the United States; but construction of motor ships in Great Britain and on the conti- nent of Europe is proceeding apace. While the motor ship using oil has a strong advantage over the oil-fired steamer in point of 156 FUEL OIL economy, evidently much of the world's shipping will make the transi- tion to oil through an intermediate stage of oil firing, which means for the present that 10 million barrels of fuel oil may be roughly estimated as the requirement of each million tons of shipping depend- ent upon oil. Table 65. — Classification of the World's Tonnage of Shipping by Types OF Fuel Data from Lloyd's Register of Shipping, 1919-1920 * 1918-19, Per Cent 1919-20, Per Cent Coal as fuel Fitted to use oil fuel for boilers Fitted to use oU in internal-combustion engines Sail power only 82 10.5 1.5 6 76 16.3 1.7 6 100 100 * Compiled by The Naval Annual, 1920-1921, London, p. 180. An analysis of the vessels turned out and under construction by the U. S. Shipping Board shows that the merchant marine of the United States is substantially on an oil-burning basis, as indicated by Table 66. The commitment of the Shipping Board to an oil- fired pohcy has already had a marked effect upon the fuel oil market. The requirements of the Board in 1920 were upwards of 30 million barrels. And while the industrial depression of 1920-1921 greatly curtailed this demand, the vigorous resumption of international trade may be expected to revive and intensify the fuel requirements in the marine field. Table 66. — Tonnage Produced and under Construction by U. S. Shipping Board, November, 1920 * Constructed, in Thousands of D. W. T. Under Con- struction, in Thousands of D. W. T. Total, in Thousands of D. W. T. Per Cent Oil-burners 4159 2141 2245 422 18 283 9269 4581 2159 49.4 23.3 27.3 Coal-burners Coal or oil (convertible) . . Total 8544 724 2,528 1 100 Data from U. S. Shipping Board. DEMAND BY RAILROAD TRANSPORTATION 157 In recent years there has been a rapid growth in the quantity of fuel oil laden on vessels engaged in foreign trade, which increased from 14 million barrels in 1919 to 26 million barrels in 1920. A con- siderable portion of the total was used by vessels flying foreign flags and in a sense constituted foreign shipments. Data covering the quantity and price of this oil in 1919 and 1920 by important groups of ports appear in Table 67. Table 67. — Quantity and Value of Bunker Oil Laden at U. S. Ports on Vessels Engaged in Foreign Trade in 1919 and 1920 Data from U. S. Bureau of Foreign and Domestic Commerce Quantity, Millions of Barrels Value, Dollars per Barrel 1919 1920 1919 1920 Atlantic Coast ports Gulf Coast ports 8.41 2.32 3.29 16,7 3.95 5.64 2.37 1.67 1.69 2.80 2.37 1.86 Pacific Coast ports AllU.S. ports 14.0 26.3 2.09 2.53 In addition to the merchant shipping requiring oil, the navies of the world are alread}" largely on an oil-burning basis. The advan- tages of oil over coal for naval operations are too outstanding to be denied. While the naval demand is small in comparison with the requirements of merchant shipping, about 5 million barrels annually for the American Navy, this demand is a most insistent one and must be met irrespective of price. On the whole, it is evident that oil for merchant marine transpor- tation has assumed important proportions, and the strength of this demand is such that if necessary it can divert fi'om industrial pur- poses the quantity needed for shipping requirements. Demand by Railroad Transportation. — Fuel oil is used in large quantities by the railroads of the United States; and in the Far West railwa}^ transportation is largely dependent upon this fuel. The geographical distribution of the railroad demand for fuel oil is shown in Table 68, while the growth in the demand from 1909 to 1920 is indicated in Table 69. The advantages of oil over coal for railway transportation are not so outstanding as with marine transportation. Yet sufficient advantage is present to make it probable that in event of shortage the railway demand will rank distinctly above industrial demand in the price it can afford to pay for oil fuel in competition 158 FUEL OIL with coal. In this general connection it should be borne in mind that motor locomotives are a possibihty, but their development would serve merely to raise the status of the demand, as is true in the matter of motor ships. Table 68. — Distkihution of the Kailw.w Dkmand for Fuel Oil in the United States in 1919 and 1920 Data from Amcirican Petroleum Institute {In millimifi of barrels) Section 1919 1920 Eastern I 0.12 Southern | 0.87 Middle West and Southwest ' 11 .6 0.03 1.03 15.6 20.6 4.45 Southwestern Pacific 18. 1 Northwestern 4 . 52 Total 35.2 41.8 Table 69. — Growth in the Con.su.mptiox of FielOil by American Railroads, 1909-1920 Data from U. S. Geological Survey and American Petroleum Institute (In millions of barrels) 1909 19.9 1910 23.8 1911 29.7 1912 33.6 1913 33.0 1914 31.1 1915 32.8 1916 38.2 1917 42.2 1918 36.7 1919 35.2 1920 41.8 Demand by Public Utility Power Plants. — Public utility power plants in the United States consumed 1.'^ million barrels of fuel oil in the production of electricity in 1920, as compared with 11 million barrels in 1919. The geographical distribution of this consumption is shown in Table 70, DEMAND BY AUTOMOTIVE TRANSPORTATION 159 Table 70. — Consumption of Fuel Oil by Public Utility Power Plants in THE United States During 1920, by States Data from U. S. Geological Survey {In thousands of barrels) California Texas 5625 2883 821 631 488 449 346 321 312 239 153 143 Mississippi Alabama Arkansas Wvomine 110 97 84 82 80 39 31 26 25 1 24 ' Kansas Florida Louisiana Missouri Oklahoma Rhode Island Nebraska New York Maine Connecticut South Dakota Oregon Georgia Arizona Massachusetts Washington Others 73 Total 13,082 j Demand by Automotive Transportation. — Up to the present automotive transportation has been supported almost exclusively by the volatile products of the petroleum industry. An increasing quantity of distillate fuel oil, however, is now converted into gaso- line, and this item will continue to enlai'ge and make growing inroads upon the fuel oil supply. In addition, internal combustion engines using superior grades of fuel oil are coming into play, and a significant portion of the heavy traction element of automotive transporta- tion may ultimately pass substantially to a heavy-oil basis. Oil refiners are already meeting this tendency with the production of special distillates designed for internal combustion engines of the injection type. Once under full swing the heavy-oil automotive engine may come to represent a very large requirement. The fuel oil supply is thus under requisition in two directions as a source of motor-fuel, and so insistent may such demands be expected to become in the futm-e, that the product will gradually be diverted from most of its present applications and brought increasingly into action as a support to automotive transjiortation. Demand by Heavy-oil Stationary Engines. — The heavy-oil sta- tionary engines of the Diesel and semi-Diesel types are coming into growing importance in the United States. No data are available for estimating the present consumption under this head, but in mines and for oil pipe-line pumping and irrigation work in th(^ Middle and Far West, and for many light and power plants of small size, 160 FUEL OIL there is an increasing utilization of this type of prime mover. It is certain that the heavy-oil engine already playing such an important part in power production in the older countries of Europe will enjoy a rapidly expanding use in the United States, and a significant demand for suitable types of fuel oil may therefore be anticipated on this score. Demand for Gas Manufacture. — A considerable quantity of fuel oil is consumed annually in the manufacture of gas. In the Far West where coal is lacking, residuum fuel oil is used for the produc- tion of oil gas; but in the rest of the country distillate fuel oil under the name of gas oil is employed to enrich gas made from coal or coke. (See Table 71.) The demand for gas oil was easily met so long as Table 7L — Estimated Consumption of Gas Oil in the Manufacture of Carbureted Water Gas and Mixed Gas in the United States During 1920 BY States * Data from American Gas Association {hi thnnsands of harrels) New York Illinois Pennsylvania New Jersey Massachusetts Michigan District of Columbia Connecticut Missouri Iowa Indiana Maryland Minnesota Texas Virginia Louisiana Rhode Island 6928 218.'i 1976 1332 1072 555 435 388 343 285 281 278 270 233 202 184 177 Nebraska . . . Georgia .... Wisconsin . . Washington . Delaware . . . Florida New Hampshire. Alabama South Carohna . . Colorado Ohio North Carolina . . Tennessee. . . . Maine South Dakota. Vermont Others 153 1.52 149 122 83 76 63 59 58 36 38 36 33 31 30 22 40 Total 18,324 * Does not include approximately 4450 thousand barrels of fuel oil used in manufacture of oil gas in the Pacific States. there was a surplus seeking an outlet in this direction. With the upgrowth of cracking, however, a shortage of gas oil developed, and the gas industry is deeply concerned with the ultimate effect of this change. The price of gas oil is now determined by the value of DEMAND FOR INDUSTRIAL PURPOSES 161 motor-fuel, and the gas companies can obtain their accustomed supply only by entering into competition with automotive transportation. But since the price of gas is limited by public utility regulations, it seems probable that the gas industry will find increasing difficulty in paying a competitive price, and in consequence will be forced either to change their practice so as to use residuum fuel oil, which will tide them over for a time, or else gradually give up the employ- ment of oil, which is not fundamentally essential w^ith improved methods.^ In fact, when properly reorganized along modern lines, the gas industry will not only be able, to operate without contributions from the oil industry, but will actually be able to contribute light oils as a new source of supply to oil refineries. The conversion of coal into gas under l)y-product practice not only has this possibility for the immediate future, but changes in this direction are Hkely to come with some measure of raj^idity. Demand for Industrial Purposes. — Putting to one side the fuel oil employed for other purposes, there was left in 1918 about 86 million barrels for the use of industry. Of this quantity about 36 million barrels was consumed west of the Rocky Mountains, where indus- trialism has grown up dominant^ on an oil-fuel basis. This left roughly 50 million barrels to satisfy the industrial demands east of the Rockies. While these figures have changed somewhat since 1918, they go to show that the industrial field is meagerly served by fuel oil, in spite of the great furor that of recent years has developed in regard to the industrial shift from coal to oil. It is evident on closely analyzing the resource that the trend in this direction has been greatly exaggerated. Of the fuel oil consumed for industrial purposes east of the Rockies, a considerable proportion is used in the metallurgical industries where oil serves a distinct and unique purpose. Counting off this portion, there is left a really insignificant quantity as com- pared with the hundreds of millions of tons of coal consumed in industry. Under the conditions prevailing over the past few j^ears, efforts were made to enlarge the eastern demand for fuel oil in railroad transportation and industry in competition with coal. This ten- dency was greatly accelerated during the war, and many came to see this outlet as the true direction in which fuel oil might come into its own. During the fall and winter of 1919-1920, in pursuance of the example of 1917-1918, widespread propaganda was put into effect in favor of oil as a sul)stitute for coal. So vigorously was this idea pushed, and so uncritical were many in respect to its accomplishment, that the coal associations became apprehensive over the possibility 1 See Chapter XXIII. 162 FUEL OIL of serious inroads being made upon their industry, and arguments were even advanced to the striking miners at the time that the coun- try was no longer fundamentally dependent upon their efforts in mining coal. The pubhc was also led to expect that a new element had been introduced into the fuel situation, and that the growing smokiness of cities and the fuel troubles of New England, and so on, could be remedied by the newcomer, oil. The unsoundness of the general view that prevailed in the latter part of 1919 may be seen from Fig. 78, which shows the meagerness of the country's supply of fuel oil as compared with coal. To replace with fuel oil the coal consumed annually in the United States would require a production of crude petroleum of upwards of 3 billion barrels, a quantity sufficient to exhaust the entu'e do- mestic petroleum reserve in two years. Demand for Domestic Purposes. — In connec- tion with the efforts directed toward the sub- stitution of oil for coal in industry, there was considerable planning in Fig. 78. — The relative importance of coal and oil favor of widespread do- as fuel in the United States, 1910-1920, mestic consumption of fuel oil, especially in New York and New England. Such a project, however, may be regarded as an incidental offshoot of the general agitation, and there is no prospect of significant developments of this kind, in view of the fact that the domestic demand must of necessity take what is left after commercial requirements are satisfied. Summary of Demands. — It would seem from this recital that the manifold demands for fuel oil are simultaneously enlarging at the same time that the factors influencing the supply of fuel oil are losing force. Among the multiplicity of demands crowding in upon the supply of fuel oil, a great variety exists as regards economic strength, which is one way of sa\'ing that certain of these demands can afford to pay more for fuel oil than can others. Where such is the case, 191t 1912 1913 1914 1915 1916 1917 1318 1919 1920 CONCLUSION 163 and shortage develops, lower demands must go by default in favor of higher requirements. On this basis, residuum fuel oil will gradually disappear from the market, augmenting the supply of motor-fuel and increasing the output of special distillates adapted primarily to the needs of the heay\'-oil engine. These clianges may be expected to come into play rather quickly, so that a matter of a few years may see the fuel-oil situation quite radically at variance with that obtain- ing in 1921. Conclusion. — Fuel oil offers such a range of advantages over coal for ocean shipping, and such high economy can be effected through the use of the heayv' oil motor, that the world's shipping is rapidly turning or planning to turn to this ideal fuel. In view of the Imiited nature of the resource, this tendency, once under full swing, may be expected to bring an advance in price such as will largely withdraw the product from its industrial fuel role, especially since the demand for gasoline at the same time will be pulling more and more heavily upon fuel oil through the avenue of cracking. As soon as fuel oil is fairly caught between the pressure of this twofold motor demand, its availability for purely industrial purposes on land in competition with coal will rapidly become a thing of the past. Fuel oil to the present has remained cheap only because of its production in advance of the growth of demands adjusted to its real possibilities. It is questionable, however, if the world's resources in petroleum can support for more than a transient period widespread shipping operations on an oil-fuel basis. Ultimately automotive transporta- tion on land may be expected to come into direct competition with marine transportation for petroleum supplies, and then the economic advantage now in favor of petroleum fuel oil for ocean shipping will be forced back to the side of coal in some form. CHAPTER XII LUBRICATING OILS Introduction. — Of the various products derived from petroleum lubricants represent the most intricate and perplexing to describe. The manufacture and application of lubricating oils is an art rather than a science; little reliable published knowledge exists in this field, and a dearth of scientific investigation has been accorded it. Even among practical lubricating men, there is no uniformity of practice or methods, and diverse opinions are available on almost every point. The subject is complicated further by variations in the character of the crude petroleums from which lubricants are manu- factured, by diversity in the types of refining employed in various parts of the country, and by an obscure and illogical nomenclature that adds to the confusion. The art of lubrication is still largely a matter of individual knowledge and trade secrets; and much remains to be desired in the way of accurate information on the subject. Relation to Crude Petroleum. — The lubricating components of crude petroleum are a graded series of heavy hydrocarbons possessing sufficient viscosity, or body, together with certain other inadequately understood properties, to fit them for lubricating service. The quantity and character of the lubricating components recoverable vary with the type of crude petroleum employed. The paraffin- base petroleums upon proper treatment yield up to 25 per cent of lubricating oils; the asphalt-base petroleums, up to 40 per cent or so; while the mixed-base crudes run from perhaps 10 to 20 per cent. In regard to the lubricating components of crude petroleum, Mabery states ■} " The next series of hydrocarbons, of the general formula, C„H2„_2, is found in all petroleum. Collecting in the fractions above 300° C. and having some viscosity, they form the lubricants in Appalachian petroleum that are prepared for sewing machines, t\TDewriter machines, and for other similar light lubrication. The higher members of this series are also constituents of the heavy motor- car lubricants. Heavy petrolemn, in general, is composed to a large 1 Composition of Petroleum and Its Relation to Industrial Use, American Institute of Mining and Metallurgical Engineers, Publ. No. 158, Feb., 1920, p. 4. 164 RELATION TO REFINERY PRACTICE 165 extent of these hydrocarbons; but although in such general use, their structure has not yet been ascertained. Next in order is the series C„H2„_4, made up of hydrocarbons possessing a high viscosity; C25H46 is one of them. These hydro- carbons form the constituents of the best lubricants it is possible to prepare from petroleum. Heavy petroleum with an asphaltic base contains these hydrocarbons in large proportion, and lighter varieties in smaller amounts. With boiling points above 250° C. in vacuum, the decomposition, when distilled with dry heat, is partly prevented by the use of steam in the still or, better, by excluding air and reduc- ing the boiling points by exhaustion when these hydrocarbons may be distilled repeatedly with but slight decomposition. Straight petro- leum lubricants are, therefore, made up mainly of a few viscous hydro- carbons of the last two series mentioned, and they are graded by varjdng the mixtures to provide for the kincl of lubrication desired." The lubricating components of paraffin crudes are lighter in weight and less volatile (vaporize at higher temperatures) than the lubricating components of asphaltic crudes; because of this fact, coupled with differences in the behavior of the associated paraffin wax and asphalt, the recovery of the lubricating content differs in the two types of crude. Thus the lubricating oils in paraffin-base crudes are only partly distilled off, the larger portion being recovered in the form of a residue ; whereas with asphaltic crudes, the lubricating content is completely distilled off, leaving a residue of asphalt. This basic difference in lubricating yield gives rise to two main types of lubricating oils, residual lubricating oils (called cylinder stocks) and distillate lubricating oils (embracing all other varieties), — a distinction which has far-reaching economic consequences. The bulk of lubricating oils in this country is still m^ade from paraffin-base crudes, although there is a marked tendency of late to bring a growing quantity of mixed-base and asphalt-base crudes into luljricating production, especially since the Eastern paraffin crudes are running short of requirements. The dominant place held by the paraffin crudes in lubricating manufacture is due to the early avail- ability of the Pennsylvania |)araffin-base crudes and to their peculiar adaptability for yielding oils of sufficient body and heat resistance for utilization in steam-cylinder lubrication. Thus the paraffin crudes have largely determined the current practice in the refining and application of lubricating oils; and prevailing opinions on matters of lubrication are still largely colored by the historical precedence of the Pennsylvania crudes. Relation to Refinery Practice. — There are two principal methods of refining in use in this country — steam distillation and dry, or destructive, distillation. The first is used where high-grade lubri- 166 LUBRICATING OILS eating oils are to be produced; the second causes some decomposi- tion, or cracking, and is employed where a maximum yield of gasoline is sought without reference to lubricating output, although a lessened and inferior yield of lubricating oil may at the same time be gained. A full extraction of lubricating values reduces the output of the more volatile distillates such as gasoline and kerosene. As the demand for lubricating oil increases, one refinery after another changes from destructive distillation practice in which the focus is upon gasoline, to steam distillation practice in which the prime objective is lubricating oil. Thus the refineries of the countrj^ may be classified into (a) skimming plants, in which the volatile distillates are hastily removed from the main body of the crude, which is thereby left in the form of residual fuel oil; (b) plants running to coke, wax, or asphalt, in which the practice has evolved to a fuller extraction of components, but with the focus still upon a maximum yield of light distillates, destructive distillation still dominant, and the yield of lubricating oil incidental or entirely lacking; and (c) plants running to lubricating oils, in which the main effort is directed toward the maximum yield and quality of these com- ponents. According to figures compiled by the U. S. Bureau of Mines in Januar}', 1921, skimming plants constitute about 35 per cent of the refinery capacity of the country; plants running to coke or asphalt, in which lubricating manufacture is lacking or merely incidental, about 19 per cent; and plants paying considerable attention to the production of lubricating oils, approximately 46 per cent. It is thus apparent that much of the refinery capacity has not advanced to lubricating output, as is indicated also by a recovery factor of only 5.4 per cent while the average lubricating content of the crude supply of the country is upwards of 25 per cent. A vast volume of potential lubricants is burned annually in the form of fuel oil. Basic Types of Lubricating Oils. — Fundamentally there are two types of lu])ricants from which the numerous grades on the market are manufactured ; these are residual lubricating oil (cylinder stock) and distillate lubricating oil. Residual lubricating oil is made from paraffin-base and mixed-base crudes by steam distillation only. Distillate lubricating oil embraces three main varieties: (a) non- viscous neutrals, made from all three types of crude by steam dis- tillation; (6) viscous neutrals, of heavier body than the non- viscous neutrals, made from all three types of crude by steam distillation; and (c) paraffin oils, made from paraffin-base and mixed base crudes by destructive distillation. The relations of these major types of basic lubricants are shown in the following table: RESIDUAL LUBRICATING OIL 167 Table 72. — Principal Types of Lubricating Oils Types of Crude Steam Distillation Destructive DlSTILLATION Distillate Residual Distillatc Paraflfin-base Non-viscous neutrals Cylinder stocks Viscous neutrals Paraffin oils Mixed-base Non-viscous neutrals Viscous neutrals Cylinder stocks Paraffin oils Asphalt-base Non- viscous neutrals Viscous neutrals Residual Lubricating Oil (Cylinder Stock). — Cylinder stock is the residue left after gasoline, kerosene, gas oil, and lubricating dis- tillates have been distilled off from paraffin-base or mixed-base crudes. Practically all of the Eastern paraffin crudes are made to yield a maximum output of cylinder stock, but only a small portion of the Mid-Continent paraffin and mixed-base crudes are yet refined for this product. Asphaltic crudes do not produce c^dinder stock, since their entire lubricating content may be distilled off, leaving a residue of asphalt instead of cyhnder stock. Cylinder stock is relatively highly resistant to heat, and [r. con- sequence is used for the lubrication of steam cylinders, a service which distillate lubricating oils are unable to render satisfactorily because of their lower heat resistance. Cylinder stock is also highly viscous, or heavy-bodied, as compared with the neutrals made from paraffin-base and mixed-base crudes (although distillate lubri- cants of comparable body may be made from asphaltic crudes), and hence is widely in demand as a blending agent for giving the requisite body to oils designed for the lubrication of heavy service engines, machines, and motors. Much of the cylinder stock produced is filtered to gain a bright, attractive color, a property which the consumer has been taught to fancy and deem essential. Non-viscous Neutrals. — These oils are the light-bodied, low-vis- cosity distillates produced from paraffin-base and mixed-base crudes in connection with the manufacture of cylinder stocks, and from asphaltic crudes that are run to lubricating oils. They are used for the lubrication of light machinery, especially the spindles of textile mills; but, lacking sufficient body, they must l)e blended with more viscous oils for the general run of lubricating service. Produced in 168 LUBRICATING OILS greater quantities than required by light machinery, they are not in strong demand and theh price is relatively low. Viscous Neutrals. — These oils are distillates of heavier body than the non- viscous neutrals; they are produced from parafiin-base and mixed-base crudes which are run to cylinder stock, and from asphaltic crudes which are subjected to proper refining. The viscous neutrals of asphaltic origin include oils of higher viscosity than those made from the paraffin crudes, being partly comparable in body to cjdinder stock. The viscous neutrals of paraffin origin lack sufficient body for heavy-service lubrication, and hence for many purposes are blended with cylinder stock. The heavier-bodied neutrals of asphaltic origin have sufficient viscosity to support their utilization in unblended form for heay>'-service lubrication. Paraffin Oils. — The so-called paraffin oils are lubricants incident- ally recovered in processes primarily concerned with the maximum output of gasoline and kerosene. Thej^ are not quite equal in qual- ity to the neutrals and stocks, since they are refined by destructive distillation which impairs the yield and quality of the lubricants recovered. The paraffin oils have been improved in many instances by better methods of manufacture, and although they may ulti- mately play a waning role, a large volume of such oils will undoubtedly continue to come on the market for a considerable period. Blended Lubricants. — The four major types of lubricating oils — non-viscous neutrals, viscous neutrals, cylinder stocks, and paraffin oils — may be used singly or appropriate^ blended. For light machinerv", such as the spindles of textile mills, the non-viscous neutrals are usually emploj^ed, while the lubrication of steam cyl- inders demands a cylinder stock; but for the majority of appli- cations a neutral or paraffin oil is mixed with a cylinder stock, the function of the latter being to give the mixture sufficient body, or viscosity. For the better class of lubricating service, such as high- grade machineiy and internal combustion engines, the paraffin oils are not regarded as adequate; hence much of the lubricating demand, including most of the high-grade (most profitable) portion, draws its requirements from the neutrals and cylinder stocks. The growth of industrial activity, during the past years in particular, has not only increased the demand for lubricating oils of all kinds, but the development of better grades of machinery and new types of engines has thrown a relatively greater demand upon the neutrals and cylinder stocks, to the growing exclusion of the paraffin oils and inferior tjTDes; at the same time that the trend of lubricating require- ments has been in the direction of more viscous oils, to the projection DEVELOPMENTS OF LUBRICANTS 169 of a growing burden upon cylinder stocks, upon which the attain- ment of any considerable degree of viscosity has heretofore been dependent. In short, the demands for the various types of lubri- cating oils have been growing at different rates, with a strong swing toward oils of greater viscositj", and this tendency has been met by increasing use of blended oils, particularly mixtures of neutrals and cylinder stocks. In this wise, c^'linder stocks, which are preferred for steam-cyhnder lubrication because of their resistance to high temperatures, have come generally to be regarded as essential to the manufacture of high-grade lubricants of all other types requir- ing considerable body. Development of Lubricants from Asphaltic-base Petroleums. — While the changes in demand noted above were taking place, the growing production of asphaltic crudes, in the face of a slowing output of paraffin crudes upon which lubricant manufacture had been depend- ent, was stimulating the upgrowth of processes and refineries capable of making neutral oils from crudes which earlier were deemed fit only for yielding fuel oil. There is now an appreciable and increasing out- put of neutral oils of asphaltic-crude origin, and the neutrals so made cover a range of viscosities corresponding not only to the viscosities of the neutral oils made from paraffin-base crudes, but partly to those of cylinder stocks as well. In fine, so far as viscosities are concerned, the asphaltic crudes yield distillate lubricating oils of nearlj' as wide a scope as the combined distillate and residual lubri- cants obtained from the paraffin-base and mixed-base crudes. Since lubricating practice was established and developed on the basis of paraffin crudes, the introduction of lubricating oil of asphaltic- crude origin has naturally been handicapped by an immature tech- nology and a prejudiced market. The majority of practical oil men, brought up in the paraffin school, are reluctant to see any virtue in the newcomer, while oil men interested in the development of lubri- cants from asphaltic crudes are naturally strong advocates of their products. In consequence not only is there no unanimity of opinion on this point in the oil business, but two distinct and opposing points of view prevail — a situation that may be found even within a single company. The published and privately expressed opinions of the leading petroleum chemists and technologists in the country, how- ever, are practically unanimous in asserting that for all purposes other than steam-cylinder lubrication the lubricating oils made from asphaltic crudes are inherently as serviceable as those made from paraffin crudes. The Supply of Lubricating Oils. — The production of lubricating oils in the United States by refinery districts for the years 1918, 1919, 170 LUBRICATING OILS and 1920 is shown in the following table, while the data for 1920 are presented *i;raphically in Fig. 79: Table 73. — PuoDrrTio.v and Pehcentacje Yields of Lubricating Oils in the United States, 1918-1920 Refinnry DLstrict 1918 1919 1920 i Produc- tion, Millions of Gallons Per Cent of Total Oil Run to Stills Produc- tion, Millions of Gallons Per Cent of Total Oil Run to Stills Produc- tion, Millions of Gallons Per Cent of Total Oil Run to Stills East Coast Pennsylvania, etc. . . Illinois, Indiana, etc. Kan., Okla., etc. . . . Texas, Louisiana . . . Wyoming, Colorado. California Total 257 183 97.5 110 123 3.65 66.9 8.6 21.0 7.7 3.7 3.4 0.53 2.0 280' 181 102 93.2 121 3.48 65.6 8.2 19.0 6.2 3.3 3.0 0.41 1.9 329 190 126 91.2 203 14.6 92.1 8.5 19.3 6.3 3.0 3.9 1.46 2.7 841 5.33 847 4.92 1047 5.37 MILLIONS OF GALLONS lOO 200 300 400 EAST COAST PENN. ETC. ILL.- IND. ETC. KAN.- OKLA. ETC tex.^la. WYQ. COLO. ETCM 14.6 PERCENTAGE OF TOTAL CH.8 RUN TO STILLS 15 2p Fig. 79. — Output and percentage yields of lubricating oils in the ITnited States Vjv refinery districts in 1920. It may be seen from these exhibits that while the bulk of the lubricating oil is manufactured in the East, a notable and growing quantity is made in the Middle and Far West. The per(!entage yields are also seen to vary between wide limits — from 19.3 per cent TREND OF THE CURRENT SITUATION 171 in the Pennsylvania district, where lubricants have been longest manufactured, to 1.46 per cent in Wyoming, of recent note as an oil producer. These variations are another reflection of the great volume Fig. 80. — Trend of the lubricating oil situation in the United States by months, 1917-1921. of crude petroleum used from which the lubricating content is not extracted. Trend of the Current Situation. — The trend of the major factors entering into the current interplay between the supply and demand 172 LUBRICATING OILS Table 74. — Summary of the Lubricating Oil Situation Period Produc- tion, Millions of Gallons Stocks,* Millions of Gallons Exports, MUlions of Gallons Domestic Consump- tion, Millions of Gallons Average Domestic Price I job- bing), I Cents per Gallon Average Export Price, Cents per Gallon By years: 1914. 1915. 1916. 1917. 1918. 1919. 1920. 517 624 754 841 847 1047 137 139 137 161 192 240 261 280 257 275 411 582 574 612 15.6 14.9 18.3 19.5 30.9 32.2 48.9 13.7 13.5 16.5 20.6 29.4 30.9 38.0 By months: 1919. January. February March. . April. May . June. July . . . August . September October. . November December 68 63 67 71 76 65 67 73 70 79 76 72 158 152 165 170 174 175 174 171 159 153 149 137 22 27 21 30 19 25 16 21 22 24 26 28 27 42 33 37 53 39 52 57 60 61 54 56 33.3 33.2 32.5 32.4 31.8 31.9 31.9 31.7 31.6 31.6 31.6 32.7 36.5 34.6 28.9 26.4 33.0 30.7 34.1 29.8 29.1 28.9 28.9 30.9 By months: 1920. ' hs: January. . . February. . March .... 76 74 82 142 133 131 24 33 44 47 50 40 39.5 45.4 50.8 April May Jime 86 89 95 140 136 133 39 42 27 37 52 66 51.4 51.7 55.7 July August .... September . 92 91 86 132 131 130 28 34 29 65 58 57 52.1 51.4 50.0 October . . . November . December . 93 91 91 136 142 161 33 34 51 55 51 21 48.6 46.0 44.9 32.1 33.8 36.4 33.6 33.9 38.5 38.5 37.8 41.4 40.9 46.0 39.5 By months: 1921. January. . February . ]\Iarch . . . April May June 86 184 38 25 38.6 72 202 30 24 33.6 73 223 15 37 31.1 76 250 23 26 29.9 1 70 262 17 51 23.8 ' 63 261 15 49 23.8 1 44 40 43 35 34 29.8 * End of period. RELATION OF PRODUCTION TO STOCKS 173 of lubricating oils is shown in Fig. 80. The outstanding features of this chart are: The marked rise in production and exports in 1920; the sharp advance in price during the first half of 1920, followed by a steady fall the second half; and the declining stocks over much of 1919 and 1920. The supporting data for Fig. 80 are given in Table 74. Relation of Production to Stocks. — The volume of lubricating oils produced monthly in the various refinery districts of the country during 1919 and 1920, compared with the stocks on hand, is shown graphically in Fig. 81. The advance in output of Texas-Louisiana in 1920 over 1919 attests the growing attention latterly devoted to lubricating manufacture on the Gulf Coast. The size of the stocks in the East is worthy of especial note, as well as the general tendency for the stocks in all sections of the country' to increase in the closing months of 1920. The data entering into Fig. 81 are given in Table 75. No recent figures are available for the country at large showing the output of the various types of lubricating oils, nor the relative degree to which the stocks of these types have accumulated. Infor- mation of this kind would be of the highest value in indicating the future course of the lubricating market. Partial information of this character is available, however, in the U. S. Census of Manufactures and is presented in the table following ; Table 76.- — Production of Lubricating Oils in 1914 and 1919 by Types Data from U. S. Census of Manufactures Type Production Value Millions o: Gallons Per Cent of Total Cents per Gallon 1914 1919 1914 1919 1914 1919 Pale or paraffin .... Red or neutral Cylinder oils Others Total 93 116 103 205 123 211 235 250 18 22 20 40 15 26 29 30 8.7 10.7 13.3 10.7 22.9 21.2 25.1 25.8 517 8l9 100 100 10.8 24.0 The Demand for Lubricating Oils. — The demand for lubricating oils during the past five years has not onh' been increasing in quan- tity, but shifting in character. The growth of demand is indicated approximately by the country's output of lubricants, since pro- 174 LUBRICATING OILS m {H A Q g B O o E- '►^^ H '~' «^ O Q -1 U ■^ H rn «o c^ co-^ ooco 01 -HO OiN-H !h o lOiOO r~i^t^ 1^ t-'.O >o-t CO '^•coco ■*coco CO CO CO COt10^ Ot1<0 003IN t^oo OC-ICC to coo Tf — i(N ININ03 U rHOTl< t^(MO r>D O ri r^ iO-l<-< 1C03 10 M.MCO CO — o t- p^ ooo t»t-.!0 OWt^ t-t^t- t^l^OO 00 CO 03 03 03CO C3C3 03 2 CO o < COt)<0 OMO i-HOM l^O-* OOd (NINO •*OCO l^OiO o lOO-* INCO-< -fiM-f •l<',OiN -l»IC0O3 CO CO It" y, O c» ,-irtrt ■""^^ i-i--H-<— 1 mi^iN -T)o ■OC0C3 03C0t^ 03003 eoid CO 01 Pi tO-joo iCCO-* LO CO 1.0 C0 03 03 n o U IN XO ^■OCO o — o 00 -f 0)0 0r-<03 coo3r~ — oc^ f-.003 0'-. o iM^tH INOIO) lO -r CO -1< OC0 03 003CO lOCOCO eoiN»-i tS Ph CO l-ll-l i-H -H ■^"^ '^ f-(— <— 1 *"* CllNt^ 0)0!N Tiioco O-OTf OC^GO rtOt^ one -H LO Ol X o lO lO o O O O -l■|^^ C3 COXM C300 occx CO CO CO 03XC^ IMCIC^ (M Cl^M CilN "-1 i-H 1— 1 f-H rtC^-H C-l-<.-l I-H I-H IN M CO co^ "d IN thr- coooo co^>n O-t-l COi-iOl COOtJI H o •^ t~oo oes 03 CO CO CO >OCOt)I LOCO 00 ddt^ xt^t^ CO rH^,-H (NOl^ '^'^'^ ^ ''v^ . -^ ^ ^ '*< O CO IN to CJ o o 1-HMC^ ^-*t^ co^^ r,fflT)< o-*^ 0--DIO (NOOOO oco-< 1 ~ ^iNO M-*-* Tr'i>-i> :ot}-, .. o ■* O3C0b- (NO-' l-OCO Oirsa I^COtII ifXO ^ T) (M-^O TtOCO C0-<1 OOO'O CO C3t> 0-^03 COLO 00 OOINCO 03t-03 t^-*co CO 03 CO P4 C<5INt)( iniCT»i in o >.o CO »o >o oc Tf COiO >C CO CO iCt^iO CO COIO o ^ Tf t^iO •* -HCO OC<1CO lO-l.t^t>. oo«o I-O-*-!)! •O^".': lO" lO TfLOLO o w ■c OOO tOC^tO .-HO-H ot~oo -tr^Tll COOOOC cie>i o 03XC0 -Hcn-- O-HC ^t^o t^iosd c lOTtih- XmtD xt--o 03 C^ v-ic< rtC^I(^ M(NM or ININC-^ (NMC> CMMIN ocico IN '"' CO (i 1 < > 'i 1 «• c > "5 < l>4 a 02 ■ (- & c c > o o ^ a- > Hi s 03 a "c c c £g 2:Q < ' 03 THE DEMAND FOR LUBRICATING OILS 175 duction in a general way adjusts itself to demand. The shift in the character of demand, however, is of even greater significance and a view of this factor is presented in Fig. 82. With the data available it has been possible to divide the demand only into its principal com- PRODUCTION STOCKS ON HAND ""^op"' MILLIONS OF GALLONS 30 20 H 10 20 r loi 'S '^D PT 919 1920 EAST COAST PENN. ETC. ILL. - IND. ETC. KAN. - OKLA. ETC. WYO. COLO. ETC 1919 60 50 40 30 -j20 _ 10 n40 30 20 H 10 o 1920 i'S Fic. SI. — Production and stocks of lubiiciiting oils in the various refinery districts of the United States by months, 1919-1920. ponents — exports, railway consumption, industrial consumption, and automotive consumption. Such a division, however, is sufficient to show that automotive demand has cut sharply across the field, giving a new aspect to the situation. Close study of Figs. 82-85 will indicate more strikingly than words the relative importance of the various 176 LUBRICATING OILS demands and the highly significant position attained In- the; require- ments of automotive transportation. IIOO ' 800 600 r^:*'i2- 0^ U. S. PRODUCTION OF uJgS 400 300 - lUrtw ^ — ~ / EXPORTS coNSur '[PTION --^^ '^' ^ / 200 ~y' ^ ^^ ../ y A^x ^ <:jy y / 30 20 15 10 8 6 4 RAILRO ,0 002 SOMP^i'^ ^y^ ^-_^ y '"/' y ^ y / y^^ // /^ # / 4 f/ / i/ ^ v f 2 / / /^ / / 1 / __^ ■^ DECREASE ■flOO^ + 80 + 60 1+ 40 {*■ 20 i- 10 20 {- 30 40 ■I- 50 5t 1911 1912 1913 1914 1915 1316 1917 1913 1919 1920 1921 Fig. 82. — Trend of supply and demand f:: LUBR. OILS" '{////■^ IN U.S. ON / JAN. 1, 1921 i 30o: V'--.: 200 1911 1912 1913 1914 1915 1916 1917 1918 iai9 1920 1921 Fin. 85. — Analysis of the fj;n)wth in tho demand for lul)rifatinp; oils in the ITnited States, lyiU-1920. highty refined types of lubricating oils and upon the lubricants of heavier body. This unmistakable trend is reflected in a growing market for viscous neutrals and cylinder stocks, in contrast to non- viscous neutrals and especially the paraffin oils and other types made incidental to the manufacture of gasoline and kerosene. The Automotive Demand for Lubricating Oils. — The phenomenal growth of automotive* transportation is familiar to all, and the requirements of this field have occasioned a rapidly mounting pro- 180 LUBRICATING OILS duction of motor-oil. The significance of the motor-oil demand may be gathered from Figs. 82 and 85 where its striking rate of increase is graphically shown. The growth in motor-oil consumption has been calculated by multiplying the average number of cars, trucks and tractors in use by an appropriate consumption factor. The data are given in the following table : Table 78. — Automotive Demand for Lubricating Oils {000 omitted) Average Gallons of Average Gallons of Average Gallons of Total Number Motor Oil Number Motor Oil Number Motor Oil Gallons of Year Passenger Consumed Trucks Consumed Tractors Consumed Motor Oil Cars Factor: in Factor: in Factor : Consump- in Use 25 Gallons Use 75 Gallons Use 75 Gallons tion 1910 460 11,500 15 1,125 6 450 13,075 1911 610 15,250 27 2,062 10 750 18,062 1912 780 19,500 42 3,150 15 1,125 23,775 1913 1060 26,. 500 65 4,875 16 1,200 32,.575 1914 1350 33,7.50 108 8,100 17 1,275 4.3,125 ' 1915 1870 46,7.50 167 12,525 20 1,500 60,775 1916 2700 67,500 250 18,7.50 30 2,250 88,500 1917 3800 95,000 360 27,000 50 3,750 125,750 1918 5000 125,000 550 41,250 90 6,750 173,000 1919 6000 1.50,000 820 61,.500 162 12,150 223,650 1920 7236 178,000 990 74,300 300 22,. 500 274,800 The accelerating demand for automotive purposes, which now represents about a quarter of the country's total output of lubri- cants and approximates the entire domestic industrial demand, is having a marked selective influence upon the lubricating market. Automotive lubrication requires principally four grades of lubricating oil — light, medium, heavy, and extra heavy — with a growing swing to the heavier grades brought about by the rapid increase of trucks and tractors, together with a growing appreciation of the fact that the general practice in the past has been in the direction of oils of inferior body. To meet the requirements of automotive transporta- tion from lubricating oils manufactured from parafiin-base and mixed- base crudes, it has been thought necessary to blend cj'hnder stocks with viscous or non-viscous neutrals to gain the requisite body. This procedure placed an unexpected and unprecedented demand upon the heavy-bodied oils, nameh', the cylinder stocks and especially the filtered varieties, with the result that a shortage of such products accompanied by a marked advance in their price developed early in 1920. SEASONAL CHARACTER OF AUTOMOTIVE DEMAND 181 The growing stress falling upon the heavier-bodied motor-oils by virtue of the natural trend of automotive growth has been accom- panied by a change in character of the fuel consumed. The decreas- ing volatility of gasoline caused by the incorporation of a growing proportion of heavy ends into the marketed product has given rise to a condition in which the lubricating oil in service is subjected to dilution, or thinning. This condition has contributed to the neces- sity for heavier-bodied oils, and the future would seem to indicate that the growing demand for motor-fuel will lead to further dilution and therefore swing the general practice in even greater degree toward heavier-bodied motor-oils. Table 79. — Estimated 1921 Domestic Demand for Motor Oil by Months Month January .... February . . . March April May June July August September. . October . . . . November. . December. . Total Per Cent of Year's Total Required Each Month 5.4 5.8 6.4 7.2 8.5 9.9 11.2 11.8 10.4 7.9 6.7 Millions of Gallons Required Each Month 15.5 16.6 18.3 20.6 24.4 28.4 32.2 33.8 29.8 25.2 22 7 19.2 Per Cent of Year's Total Required Each Quarter 17.6 25.6 33.4 23.4 100 286.7 100 Seasonal Character of Automotive Demand. — The consumption of motor-oil displays a seasonal variation corresponding to the increased employment of motor vehicles in the warm months. The course of the motor-oil demand throughout the twelve months of the year follows closely the variations in gasoline requirements, and may be worked out on the same basis as that given on page 128. The seasonal curve will vary slighth^ from year to year according to the rate at which the demand is increasing. The estimated 1921 demand for motor-oil, distributed over the twelve months of the year, is shown in Table 79. 182 LUBRICATING OILS The estimate of the total demand is arrived at as follows : Millions of gallons 8.5 million cars at 25 gallons discounted 10 per cent 191 1.1 million trucks at 75 gallons discounted 10 per cent 73 0.3 million tractors at 75 gallons 23 287 The numbers of cars and trucks are determined by averaging the registration figures for January 1, 1920, and January 1, 1921, in order to get the average number of units employed during the year. The normal gallonage is discounted 10 per cent to allow for a de- creased utilization probable as a result of the industrial depression. The final results, of course, are only approximate, but are perhaps of sufficient accuracy to serve a useful purpose. CHAPTER XIII PETROLEUM BY-PRODUCTS The petroleum industry turns out four products of major impor- tance — gasoline, kerosene, fuel oil, and lubricating oil, with many- varieties falling under each head — and a number of additional sub- stances which may be termed by-products. The most important of these by-products are paraffin wax, asphalt, coke, petrolatum, and grease. These products are used in their crude state and also form the basis for the manufacture of secondary products, an application particularly true of wax and petrolatum. The petroleum industry, therefore, affords an example of multiple production, the fabrication of expanding series of products from a single raw material. The Development of By-products.^ — Industries, such as the petroleum industry, engaged in the extraction of values from raw materials, have developed under the influence of demands for one or more products, and only under ideal conditions do those demands become so balanced as to cause a complete extraction of the values present, thus leading to full utilization of the raw material. Usually an industry in the early stages of its development produces one or more main products, and rejects what is left over as waste. This waste is regarded as a necessary accompaniment of production, and is discarded in lack of a demand calling for its use. As such indus- tries develop, products of value come to be fabricated from the so- called waste, the activity then turning out by-products in addition to the main products, and less waste. But the development of by- products is a slow process, and an imposing loss of potential values accrues by this delay. When maturely developed, an industrial activity produces main products balanced in respect to demands, by-products fully developed to current needs, and no waste. There are few activities in the United States that have attained this measure of effectiveness. In the course of industrial growth, the output of main products is under the control of a natural law whereby supply and demand seek mutually and automatically to affect a balance against disturbing * For a detailed discussion of the economic role of by-products, see C. G. Gilbert and J. E. Pop;ue, The En(>rgy Resources of the United States, Bull. 102, vol. 1, U. S. National Museum, pp. 95-97. 183 184 PETROLEUM BY-PRODUCTS external factors. The production of waste and by-products, how- ever, is under no such control, but is determined by the output of main products. Hence the supply of incidental products tends always to exceed the demand. Industry itseK inclines to bring these products into use, but is limited by restrictive circumstances common to American economic practice. The industrial activity is often too small or poorly organized to make by-product recoveries, which usually gain their value from a cumulative effect possible only under large-scale operations. If the activity is financially strong and efficiently organized, it tends to build up by-products in so far as they are end-products that may enter immediately into consumption. Small pendent industries may even be added in order to make the conversion. But if the potential by-products are of the intermediate order, requiring outside industries to carrj'" them forward into use, and the requisite industrial activities are lacking, inadequate, or too foreign in scope to be built up by the parent activity, the whole matter gets beyond the reach of industrial stimulus. Such is the case with the majority of by-product possibilities. The parent industry can do little or nothing; independent activities to handle such materials are slow to develop, hampered by the uncertainties of a supply fluc- tuating independently of the pressure of their demands, hesitating to build at the mercy of conditions beyond their control. But apart from these handicaps, where profits are readily attain- able from the main products, there is little pressure forcing attention to by-product accomplishments. The loss involved in the non- development is not felt as such. Under pioneer conditions and in a new country richly endowed with opportunities for quantity pro- duction, the intricacies of by-product upbuilding are not apt to be thoroughly sounded. Table 80. — Production of Paraffin Wax in the United States Year In Millions of In Percentages of Pounds Production in 1914 1899* 256 67 1904* 262 69 1909* 313 82 1914* 380 100 1916 1 386 101 1917 1 481 127 1918 1 505 133 1919t 467 123 1920 1 541 142 * Census of Manufactures t U. S. Bureau of Mines PARAFFIN WAX 185 Such is the case with petroleum. Chemically without equal in its by-product possibilities, this substance has been developed with prime regard to its main products, and with but the merest beginning toward the realization of its by-product values. PRODUCTION MILLIONS OF POUNDS 40 20 20, 10 o' 10 'is ~\ STOCKS ON HAND N '^rtT^^^-^^'^^T^?^ 1919 EAST COAST 1920 1919 1920 Fig. 8G. — Produotioii and stocks of paraffin wax in the various refinery districts of the United States by months, 1919-1920. Paraffin Wax. — Paraffin wax is produced in large quantities because it must be removed in the refining of paraffin crudes from which lu])ricating oils are manufactured. In consequence, large supplies of this connnodity have tended to accumulate, in spite of 186 PETROLEUM BY-PRODUCTS iH (6 iz; n O o H 2; o ^ w n CO « u C; H ^ < ^ H CB o O 1 W n H m o H 2: c> 2 P p:i tt g s !»1 2 < t» ►^ a 03 iZ5 O Q O « 3 ';?> c»oo so — CO O O lT i/J O C>1 00 o m ot^n -Hioco cooo CC050 00 O O O 00 rl4 c3 cc ro 'S* CO CO — — X o ■-'; "O L- -c rt I- .- — ■ (N — c^ CO -t » o M o c; c-j t o -i t^ o -^ o t^ cc X -^ -^ --• O c^i CO »r CO CO ■* O lO CO O CO M 1-0 H o>co t» -.C t- O uo o :0 CO O t^ U5 O t^t»t^ oooooo ooo Ti'cO'* •^•^c^ Nc^co -^coN CO N >-0 1-0 CO t~ -< i-oci CO O lO »C • c^ •» 1-0 -< r» c. o 00 i-o o •* so or-oi Oh- 1.0 ooM o XOOO lOCO-h -1"'^c^ 1.0 c. o t^t^t^ t^ooo ot~t^ t^b-r^ -t t^ MO OOCO 1.0 OO) LOC-. -^ t^O>-H cji^co XCIO OOO OOO OOt^O _■ xr*-- O'*-)" t-Sco O-ro & oot^ ocot~ !2--2 -TtO OCp ~ '- t T >. «^ « S — o O C 4- CO 1" uO ■<»< o o < i-O CO CO ■* OC-. "> — t^O CiCOCi — --0 C-l O O i-O (-• 1.0 'O i-O -r iM 01 ■* CO (N M CO •-< --I C-1 C) M M ~) M X O O M X CO OMCl 01 --X L0X1" CO-HCO t^c; X — o« oox xcoo -"M Mr-rlN c>J-^-" ■-1MCO i-Ol^CO X03-^ XO-* LOO-H O OC5 xo-* CI O -< -r lo C". CV — LO o i.- o O t^ O 1-0 Tf t^ OOO t^ t^ o CO O Ol 1.0 -* X Ol X t~ 1.0 X t^ MINCO CO coo LOCO CO 0'»"-0 (NCOCO ocoai OCiO 'i'COO 0-«i-!< LO O T»< O 1.0 X t^ X XXX : O X M O CO cq C5 S 2o ^ S '- -r >. i* s 3 - O |>£ o O o OZQ -*xx 0C5O (N — rt xxo xt^t~ NOIOJ t^oo OOO t-xo oxo •txo INt~t^ cooo -r Tjico-* eooi'l' •*->l>"5 oc»o 'I'co-* OOIO (MM O OMco XM-H ■* — C^ — OO ot-x ocoo 'l"-*-»l -. o ^.1- t^or^ -r -r -f coo-H -)• -r o o o o 'I'OIO o ?i r-. O t^ — OCOX t^oo I^X o OTX X X')' t» C) ASPHALT 187 its rather ready application without intricate fabrication to a grow- ing variety of uses. The production of paraffin wax for the years enjoying a statistical record is shown in Table 80. The production and stocks of paraffin wax in the various refinery districts in the United States are shown graphically by months for 1919 and 1920 in Fig. 86, with the supporting data given in Table 81. It is to be noted that the stocks relative to output are unusually large. Asphalt. — Asphalt is mined in its natural condition and extracted from crude petroleum of asphaltic base. Native asphalt is obtained largely from the famous pitch lake in Trinidad. Petroleum asphalt is derived largely from California, Gulf Coast, and Mexican crudes. The production and imports of asphalt of various types for the United States are given in Table 82. Table 82. — Marketed Pkoduction axd Imports of Asphalt by Years, 1913-1920 Data from U. S. Geological Survey (In thousands of short tons) Produced Produced in Domestic Imports, Native Year from Domestic U.S. from Mexican Production, Petroleum Petroleum Native* 1913 437 114 93 207 1914 361 314 80 137 1915 665 388 76 135 1916 688 572 98 147 1917 702 646 82 187 1918 605 598 60 115 1919 615 675 88 105 1920 1 688 1044 199 127 * Includes related bitumens t Estimated. The production and stocks of asphalt in the United States by months during 1919 and 1920 are shown in Fig. 87, the supporting data being given in Table 83. It is apparent that the bulk of the asphalt is manufactured on the East Coast (from Mexican petroleum), in the Gulf States of Texas and Louisiana, and in California. Coke. — Petroleum coke is the residue left from the destructive distillation of crude oil. It is used as fuel and for the manufacture of electrodes. Its production in the United States by years from 1914 to 1920 is shown in Table 84. 188 PETROLEUM BY-PRODUCTS H Mi a bi H 2 rn ^ g X 73 2 Q c ^ >< C3 ^ ■f « *^ 2 *^ C ^ — m ;rj ^ < ^ p S P a 3 Q J» o W ^ fa H-* Id r/! a o Ph b ,J ,pl o O r^ CO O "S CM Q u H 1 yj 1—1 a o 2 1-H <5 2 O H U & O O « Cl. OO— — CIO c-.c-.x l^Xt^ -HM-H Mc;?) Mr~o L-; t^ 1^ X C-. c. 3 o X — — C-. 3 XOM ! -O X 00 O lO • r^ ci odd odo> OOO COOOW i-- — — C-. X ;•. X o L-: X X C-. cc in o m o OS TO X t- -*r-t^ rfcioa t~c^n ONC^ ooo ooo ooo oco o X OO X ot-o •^Tji CO Mt-w oxoo ior«.-i t^ L- c: — Tf "* CO lo Tl< xt o t^ -^ t~ X L- t^ X X o — —•coo r-t^'i' X C5 X CI O) C-1 M CI CJ CI D C) .-I ^ >-l ciXTO ~:i-'^co -r'-STO OMo ^ 1-^ T Lt CO TO -- — M -J lC O CI ocio ^cio C — ci-r — O — — I I'CJO -^i—O COOTO TO t^ 'l" TO -< m TO TO r; X c> r» r: t^ c Tj- Ci TO TO L*^ lO t^ l'^ : ■ h : =ii "5^^ >^S^ 3>S -.^s - OXO oxr- inot^ •» O ■>1< C» O lO or^x xoo O'^oo —1—100 OTOO ox ' : C; TO OCX O TOO t-. -r CI o OTOO TfOO — lOTO TOTOO ■ >>2 5? ■3 5''^ 3 <5 ooos-M (Nt^ IT t^xcc -H,-HlO OS-* "O O OOMt^ iO^C»" OCOOS ■r)< — -< — — t^ OS X 0- ^- t^ CO -r)<10r-< IM «CC ■*Tl"fl TjfqicO woo IN C^C^ — IN010) C-JINCO O U !Xl 13 O OiNtC WO-* d-^^ ot^>o IN OC'l c ooo-t OCsX od-i lffllN'1' X'xsx coosc-j 'f'coco t~ lO to »r iOOtH MM-! lO too t^ Oi c IC o T3 u PL, 00 Tf coio •^ u- TfilNCO O lO^lT ^Mir t'THTf 0050 coiNcs cOTiO(N OOt" — ooc »0«0 If -iTfX -*t^o OS ■-1IMCS (M C^ ■- I-, r-l.-, ,_, c f-t f- — 1-1 1-1 1-< O ^ c- C^ •iC'- 0-. ^ —,10"" 00 co^ NC^CO O0>O-H t^cD.- IOCS a COO CO .-lOTf CDCDOC Tfcoo I> rHOS iO^ -^ loroc CSNCO ceo CO ■<: o t^t^lT t^tocc t^oot^ OOt^M i-hC 'I't^OS — o-^ M .-H l-H ^H ^0- tt^ t^ •o OSTf ^ o N(N >r oc^o- a:aa:) co-ioi ooooc Cd« c O'l' X OS OSO o^c oxc OOOGO — IN 00 o ooc- CTiOSC 1-1 OSO — IN CO o ,-< — 1-1 1- — — — — rH ^ OTflTt CO to O^iO n^ Oi ooooe<- OO-H OMX ---I^Cv- < .J O 02 o-*o: »OC0 00-— — C^I .- 1-4 1-<1- 1-1 — O ooc IN 0(N o-<«-*C<5 C£ MNC 01 ol -t CO CO CO C0*>O ,_ P-I ■* ij .3 coc^;: t^i^r- rf IN ■* CC M -<(NOS INl^C o CC-I 71 •-}< t^c COOC 03'<1<0 T-l(N 00 Oi-it- l~ -xt- — iCO—i COCO OS o o MOt^ xt-t- CD005 tOt^iO t^ OS 00 OS 00 x oot- ooo a z; t» "^ — —1 •"* o OS OS r -3 p ana (NOOC t^OOO OS "-to OStOIN (N « 00 CO lO X CO — t^ o oc ^-ft- — MIM INC^ 00 t-- OSOO OS-HC iOiOtJ, iot^r~ ^ '"""' ^ 1-1 o; rH 1-1 1-1 1-11-,— t^ ,—1 -3< Tt MOOS *xo Ji OiO^ COO) OS occr -oOr cocot- xoo xxco o «0(NC TflO^ OIN 1-1 iC-Cr 0500C T»>.-ll- XX-* IN-*(N R 1-H.- ^rt(N (NINO) •-<-4 ,-, 1-1 1-1 1- 02 I^ r, lO^^ OOOl-K ooo0l^ X01-! -H-1<0 lO* Oi ■73 O-*00 ooot^ C0"l0: O OOSt lOiO't INiOlN co*!^ T3 MOCC ■0- COS CO >o PL, INMM """ ' ' N — 04 O) L« ;' .r? Xt i?< >>& ^ ^?^ a o 5 Cos ^ > L =^ 1 0- c > ■5 fa 5 « ■ g o c o CZQ C OS- c < > 1 a- c 3 > "S fa 3^ 3 ^ "" E 3 P > 5 O O 0) Ol o 03 IN O Ol > OS > PETROLATUM 191 The current trend of the production and stocks of petroleum coke by months for 1919 and 1920 is given in Fig. 88, with the supporting data in Table 85. PRODUCTION STOCKS ON HAND 30 25 20 15 10 5 O 5 O 20 15 10 :i io 5 O 15n io 5 O ^^^sssiiisi^i:/ K.-^, 1919 ,-^y 1920 EAST COAST ILL.. IND. ETC. KAN. -OKLA. ETC. WYO. - COLO. ETC. 1919 1920 Fig. 88. — Production and stocks of petroleum coke in the vtirious refinery districts of the United States by months, 1919-1920. Petrolatum. — Petrolatum, the basis of vaseline and widely used in pharmaceutical preparations, is a petroleum product of especial interest by virtue of its extensive use in various fabricated forms. It is one of the few by-products of petroleum which has suljstantially 192 PETROLEUM BY-PRODUCTS measured up to its capabilities. The production of petrolatum for a few recent years is shown in Table 86. Table 8G. — The Production of Petrolatum in tbde United States Year Production, Millions of Gallons Value, Millions of Dollars 1914* 6.07 1919* 10.23 1920 1 6.79 1.24 3.75 * Census of Manufactures. t U. S. Bureau of Mines. The product reported is not homogeneous with that given above for 1914 and 1919. Prices of various grades of petrolatum in January, 1921, are shown in Table 87. Table 87. — Wholesale Prices of Petrolatum, January, 1921 Grade Cents per Gallon Snow white 18 15 12 7 6 5.5 5.25 Lily white Cream petroleum jelly .... Amber Dark amber Veterinary Dark green Greases. — There are no satisfactory commercial lubricants of hydrocarbon or fatty-oil origin that are sufficiently thick and other- wise suitable for the lubrication of all types of transmissions; hence it has been necessary to find a means of artificially thickening avail- able oils to the desired consistency. Various types of greases (thick- ened oils) are manufactured to meet this need. Greases are saponified fatty oils, of either animal or vegetable origin, which are combined with viscous hydrocarbon oils. Most trade-marked greases are scented and dyed. Greases are used for transmissions, gears, axles, and other types of lubrication requiring a highly viscous product. A characteristic grease is axle-grease; many products of this tj^pe contain mineral matter, such as mica or graphite. The production of greases in tlie United States for the latest year for which figures are available is given in Table 88. MEDICINAL OILS 193 Table 88. — Production of Greases in the United States in 1914 and 1919 Data from U. S. Census of Manufactures Types 1914 1 1919 1 Quantity, Thousand Gallons Value, Thousand Dollars Average Price, Cents Per Gallon Quantity, Thousand Gallons Value, Thousand Dollars Average Price, Cents Per Gallon Lubricating greases. Axle greases 4980 2948 1625 668 32.6 22.6 12,599 5,318 6044 2103 48.0 39.6 Medicinal Oils. — Oils with medicinal properties are manufactured from petroleum in considerable quantities. Formerly such oils were obtained almost entirely from abroad, but the American products have almost supplanted the imported varieties. The production of medicinal oils in 1919 and 1920 is shown in Table 89. Table 89. — Production of Medicinal Petroleum Oils in the United States, 1919-1920 1919 1920 1,129,932 gallons 1,375,081 gallons The price of various grades of mineral medicinal oils in Jan- uary, 1921, is shown in Table 90. Table 90. — Price of Heavy White Mineral Medicinal Oil in January, 1921 Grade Per Gallon 880-885 specific gravity . . . | $1 . 75 865-870 specific gravity . . . j 1 . 20 850 specific gravity ... I 1 . 00 Miscellaneous Products. — The U. S. Bureau of Mines in its monthly reports on the refinery output of the United States includes a group of miscellaneous products. The composition of this group for the years 1919 and 1920 is shown in Table 91. 194 PETROLEUM BY-PRODUCTS Table 91. — Output of Miscellaneous Petroleum Pkoducts in the United States, 1919-1920 Data from U. S. Bureau of Mines (In thousands of gallons) 1919 Binder Flux Medicinal oUs. . Paint products. Petrolatum .... Road oil Roofer's wax. . . Sludge products Acid oil Bottoms Distillates Pitch Residue Slops Tailings Tar Tops Unfinished Wash out Wax tailings . . . Others Total . . . 1,685 1,786 31,285 34,710 1,130 1,375 76 351 6,421 6,794 77,638 60,789 158 177 14,994 19,230 3,766 5,379 14 571,238 787,685 474 242 40 6 379 837 19,326 5,907 3,545 4,682 108,956 107,901 376,229 451,267 122 33 3,017 3,417 58,387 1,278,864 1,492,584 The Future of Petroleum By-products. — A considerable range of by-products has alread}^ been manufactured from a portion of the crude petroleum brought into use; but the possibilities in this direction are much greater than the attainments and the bulk of crude petroleum utilized yields few, if any, by-product values. The by-product accomplishments of the more progressive portion of the petroleum industry are shown in Fig. 89. As crude petroleum advances in price and further attention is accorded chemical research, an enlarging by-product return may be counted on in the petroleum industrj'. Petroleum and coal-tar are the chief raw materials of synthetic organic chemistry, and the values hidden in these two substances, as already so well demonstrated in the case of coal-tar, can scarcely be overestimated. Liquefied Gases- Petroleum Ether tpdmlnn Motors ) Hydrocarbon -< Alcohols Carbon Black PETROLEUM (Raraffine Base "1 JNaphthenlc Base( |AsDhalt(c Base [ [Mixed Bases J Oil \oa>Manutaciiira les & Road Oils /Oxidized AsphalK — j Fell Baturatmg 1=— ■ Coke — (Fuel) Acids ["'"'"'"""""*'"'"'■ — iDB-Bmul.ltylnB Agentt i & Pitches— J huric Add— (Fertillzf Fig. 89.— The principal oommercial products of petroleum. (CourUiy of the Standard Oil Company of N«ip Jertty) ■right. f»21. Standato CHAPTER XIV NATURAL GAS AND NATURAL-GAS GASOLINE ^ Natural gas occurs in intimate association with petroleum and independently in gas-pools in the proximity of oil deposits. This substance is accordingly commercially produced not only as a by- product of petroleum but separately as a distinctive undertaking. The bulk of the natural gas consumed in the United States is brought into use by large corporations oi^erating as public utilities, but quantities of gas are also disposed of by oil-producing companies. The magnitude of natural-gas service in the United States is not generally appreciated. Large sections of the country have long been partly to wholly dependent upon this ideal fuel. Domestic consumers number upward of 2| million, and billions of cubic feet are annually employed for industrial heating and the generation of power. The consumption of natural gas in the United States in 1919 in comparison with the quantity of artificial city-gas used in that year is shown in Table 92. Table 92. — Consumption of Natural Gas Compared with the Utilization OF City-gas in the United S^tates in 1919 Data from U. S. Geological Survey and American Gas Association {In millions of M . cubic feet) City gas: Carburetted water-gas . Coal-gas Oil-gas Surplus l3y-])r()(luct gas Total Natural gas * Includes some gas made by other processes. 1 It is impossible .to discuss natural gas adequately without drawing upon the work if S. S. Wyer, who has done so much to elucidate the natural gas situation. For a detailed discussion of this subject, reference may be had to Wyer, Natural Gas: Its Production, Source, and Conservation, Bull. 102, Pt. 7, U. S. National Musuem, Smithsonian Institution, 1918. 195 196 NATURAL GAS AND NATURAL-GAS GASOLINE Consumption of Natural Gas. — The actual production of natural gas in the United States is not known, since billions of cubic feet are wasted, used in the field, and otherwise unaccounted for. The quan- tity entering into consumption, however, is a matter of statistical record and is shown in Table 93 for the period 1915-1919. It will be observed that the bulk of the gas is employed for industrial purposes, the ratio of domestic consumption to total consumption being 35 per cent in 1915, 31 per cent in 1916, 32 per cent in 1917, and 38 per cent in 1918. Table 93. — Consumption of Natural Gas in the United States by Years, 1915-1919 Data from U. S. Geological Survey Ga8 Consumed No. of Pro- Number of Consumers Domestic Industrial Total ducers, Units of 1 Domestic, Units of 1000 Indus- Volume, Average Volume, Average Volume, Average trial, Units of Price, Units of Price, Units of Price, Units of 1,000,000 Cents 1,000,000 Cents, 1,000,000 Cents 1 M. per M. M. per M. M. per M. 1915 7205 2195 18,358 217 28.32 411 9.68 628 16.12 1916 7697 2362 18,278 235 28.63 518 10.21 753 15.96 1917 7573 2431 18,620 258 30.76 537 11.67 795 17.87 1918 7101 2509 16,581 271 31.35 450 15.23 721 21.29 1919* 639 25.00 1 * Estimated. The trend of the consumption of natural gas in the United States over the period 1906-1919, divided into its domestic and industrial components, is shown in Fig. 90. This chart indicates that the con- sumption of natural gas reached its maximum in 1917 and there- after has shown a decline at approximately the same rate that char- acterized its previous increase. The diagram illustrates the fact, already too well known in all natural-gas consuming regions, that the annual output of this fuel has passed its maximum, and con- sumption is consequently suffering progressive curtailment. This outcome carries additional interest in that it presages what will inevitable overtake the petroleum resource. In the words of the Director of the U. S. Geological Survey: "Natural gas is a mine that is largely worked out; it has seen its best days and future dividends to the nation cannot equal those of the past." CONSUMPTION OF NATURAL GAS 197 QUANTITY SCALE 1000 900 800 700 600 100 90 80 70 60 50 40 1 ,.AM fMllluONS OFjIL ilSi''*' coNS'J!i:> c^ Fli- ^ \o2^ \1ILLI0NS_°£ ^Z .^> JSTRIA L CON s^ L/ SUjvjp ..o^Sli!^ iS^ 3*^ h^ - 0< >MES1 fi-^ on»*s ^ ^ ^VJ»«PT>0V*j^ po^:^ . Ot •A --;«.-^> « s WWg ^iaT i tl i [ i« gri i l i :i i r4TB | i\ V / \ 1 \ \ / \ V j ' \ \ \ — AVE R. I oac 52 — ■ i oi PE AK .OAI )\ — • / \ / \ 1 \ ^ / ' JULY AUG. SEP. OCT. NOV. DEC. JAN. FEB. MAR. APR. MAY JUNE MONTHS Fig. 96. — Typical monthly domestic load of a natural jias company; after S. S. Wyer. PRICE OF NATURAL GAS 203 volume basis, or' one-tenth the price on a B.t.u. basis. This dis- crepancy between the price of natural gas and its nearest analogue is highly significant; it indicates that natural gas has been exploited and sold on an uneconomic basis of opportunism; that the country has paid for its natural-gas service with a portion of the resource itself. HC cc UR FO N9 LY R i UM DE ER ER; MA VIC ND E- \ MUCH OF THE EQUIPMENT MUST Bt HtLU FOR THIS PEAK LOAD AND WILL BE USED NOT MORE THAN 4 HOURS DAILY DURING, SAY, 20 OF THE COLDEST DAYS OF THE YEAR, THE SMALLNESS OF THIS IS EVIDENT FROM THE FOLLOWING: NUMBER OF HOURS IN A YEAR IN WHICH THE FIXED CHARGES ARE ACCRUING, 24 X 366 = 3760 = 100^ HOURS PEAK LOAD EQUIPMENT IS USED 4 X 20 = 80=lr^ U. FT. OF GAS USED PER HOUR 8 8 8 8 o o ^ <^ / —i V ^ V s. OiiUO.UUU - / 1 ^1 1 " r^ ^ \ \ \ VE RAC OF E PC LO/ D LC s )AD OOO f- \ 12 1 23456789 10 11 12 1 23456789 lO 11 U2 NOON TIME Fig. 97. — Typical hourly natural gas load in winter; after S. S. Wyer. A comparison of the prices of several types of gas for a number of years is given in Table 96. Wastes of Natural Gas. — It is difficult to describe without the use of superlatives the inefficient manner in which natural gas has been exploited in the United States. " Of all the pieces of extravagance of which the American people have been guilty, perhaps their reckless and wasteful use of natural gas is the most striking. . . . "^ " The history of the natural-gas industry is an appalling record of almost ' Van Hise, The Conservation of Natural Resources in the United States, p. 60. 204 NATURAL GA8 AND NATURAL-GAS GASOLINE Table 96. — Average Price of Natural Gas Compared with Price of Various Types of Manufactured City-gas (Average price per M. cubic feel) Year Natural Gas Coal-gas I Oil-gas and Water-gas Domestic | Industrial All 1915 1916 1917 1918 SO. 2832 $0.0968 .2863 : .1021 .3076 .1787 .3135 .1523 SO. 1612 SO. 92 . 1596 ' . 1787 . 89 .2129 1 01 SO. 90 .86 .90 unbelievable waste. -i^or- 80 — FrELD AND MAIN UNE LOSS 100 BILLION DISTRIBUTING PLANT LOSS INDUSTRIAL 200 BILLION J The common inethofls of production, trans- mission, and use have resulted in wasting more gas than has ever been utilized." 1 "The annual reports of the con.servation commit- tee of the Natural Gas Association of America are stinging indict- ments of a criminal system, fostered by both the gas com- panies and the public, that has resulted in wasting more gas than has ever been util- ized. "^ The losses of nat- ural gas arise from ex- cessive competition in drilling, hasty pro- duction, leakage in transmission, ineffi- cient appliances, im- proper utilization, and many other causes.^ Many of these con- 1 Use and Conservation of Natural Gas, U. S. Fuel Administration. 2 S. S. Wyer, Natural Gas: Its Production, Service and Conservation, U. S. National Museum, Bull. 102, Pt. 7, 1918, p. 51. ' See Wyer, loc. cit., pp. 52-66, for a detailed account of natural-gas wastes. .CONSUMERS " I WASTE 200 BILLION ^ GAS ACTUALLY UTILIZED BY IQO BILLION INDUSTRIAL & DOMESTIC ULTIMATE CONSUMERS Fig. 98. — Analysis of the losses involved in the opera- tions of a large gas company; after S. S. Wyer. CONSERVATION OF NATURAL GAS 205 ditions are subject to correction and the life of the resource would be materially lengthened if the matter were accorded con- structive economic and engineering treatment. An analysis of the operations of a large natural-gas . company made bj^ Wyer shows that of a total output of 600 billion cubic feet of gas in the course of fourteen years of operating history, only 17 per cent was actually utilized by the consumer (see Fig. 98). A view of the average waste of natural gas by the domestic consumer is given in Fig. 99; it is -VOOi 95 — LEAKAGE TN HOUSING PIPING AND FIXTURES 5 45 WASTEFUL COMBUSTION CONDITIONS IN |(f() USING GAS AT HIGH PRESSURES AND LONG I FLAMES FOR COOKING l(^) BURNING GAS AFTER COOKING IS FINISHED l(t') BURNING GAS BEFORE FOOD IS READY TO COCK |((0 NOT TURNING GAS DOWN AFTER BOILING BEGINS |(f') IMPROPER MIXTURE ADJUSTMENT l(^') USELESS RADIATION (■(/) USING MORE HEAT THAN NEEDED 20 — 10; HEAT UNITS ACTUALLY UTILIZED Fig. 99. — Analysis of average home wastes of natural gas; after S. S. Wyer, U. S. Bureau of Mines. estimated by Wyer that the efficiency' of most cooking and healing appliances could be trebled and the elimination of all preventable wastes in domestic consumption would " add fifteen to twenty j-ears to the pei-iod that natural gas will be available for domestic use."^ Conservation of Natural Gas. — There is critical need for increas- ing the service value of the declining sui^ply of natural gas by elim- inating preventable losses in its production and transmission, and by ^ Technical Paper 257, U. S. Bureau of Mines, p. 21. 200 NATURAL GAS AND NATURAL-GAS GASOLINE increasing the efficiency of its utilization. As pointed out by Wyer;! " The natural-gas industry is in a transition stage, going from the large volume and low-priced Ijasis of the past to the small volume and inevitable higher price of the future. Strong individualism domi- nated the past. Public policy will ultimately require that legalized and regulated collective co-operation, rather than cut-throat compe- tition, dominate the future. The greatest need of the industry to-day is the adequate recognition of the dominating factors in the natural-gas problem, which are : 1. Mandatory pooling of field operations coupled with an adequate market price. 2. Education of the natural-gas producers, and of the public, coupled with national constructive legislation." Other more specific measures advocated by Wyer- include: Removal of all gasoline suspended in the gas; the intensive and extensive use of compressors in order to extract a larger percentage of the gas from the ground ; careful measurement of the gas produced, in the field, into and out of transmission lines, and into distributing plants, in order to have a constant check on the leakage; attention to the disintegrating action of stray electric currents, upon the gas mains; development of lower distributing pressures; more efficient utilization, through proper adjustment of old apphances and con- struction of more efficient appliances; and the placement of nat- ural gas upon a price-level adequate to insure efficient develop- ment, discourage improper industrial consumption, and in general render this product worth saving. The steps likely to be taken from now on toward insuring a fuller utilization of natural gas than has characterized the past will cany additional interest as forecasting the measures that may later come to be applied to petroleum. Carbon Black from Natural Gas.^ Carbon black is an amorphous form of soft carbon made by the incomplete combustion of natural gas. Fifty-two million pounds were produced in the United States in 1919, having an average value of 7.3 cents a pound. In its manu- facture, 50 billion cubic feet of natural gas was used, nearly 8 per cent of the country's entire consumption of natural gas in that year, and the yield was approximately 1 pound of carbon black from each M cubic feet of gas. The carbon black industry establishes itself ' U. S. National Museum, Bull. 102, Pt. 7, 1918, pp. 62-63. 2 Present and Prospective Supply of Natural Gas Available in Pennsylvania, 1918, pp. 68-69. 3 See E. G. Sievers, Carbon Black Produced from Natural Gas in the United States in 1919, U. S. Geological Survey, May, 1921. GASOLINE FROM NATURAL GAS 207 in the vicinity of cheap natural gas. The distribution of the industry- is shown in Table 97. Table 97. — Puoduction uf Cauuon Black in tuk United States in 1919, BY States Data from U. S. Geological Survey States No. of Plants Carbon Black Produced Natural Gas Consumed Millions of Pounds Average Price, Cents per Pound Millions of M. Cubic Feet Average Yield per M. Cubic Feet, in Pounds West Virginia 23 7 2 2 2 29.9 14.0 4.87 2.92 0.32 7.8 6.6 4.7 8.3 15.0 23 1 1 1 "^ Louisiana 20.3 4.31 1.95 0.23 0.7 1.1 1.4 1.3 Wyoming, Montana. . . . Oklahoma, Kentucky . . . Pennsylvania Total 36 52.1 7.3 49.9 1.04 About 45 per cent of the output is used in the rubber industry as a tire filler; 25 per cent is employed in the manufacture of printing ink adapted to fast press work; 17 per cent is exported; and 10 per cent is used in making stove polish. From the point of view of conservation, the manufacture of carbon black is a constructive enterprise only where the gas, already under production, enjoys no domestic or industrial market. Vast quantities of natural gas have been improperly utilized in the manufacture of this product. Gasoline from Natural Gas.^ — Natural gas consists of a mechan- ical mixture of permanent gases and condensable vapors; the con- densable constituents are water vapor and gasoline vapor. The gasoline vapor may be condensed and recovered in liquid form, and in recent years natural gas has become a substantial source of com- mercial gasoline. Natural gas from gas-wells is leaner in gasoline vapor than the gas produced from oil-wells; natural gas lean in gasoline vapor is termed dry gas, while a product richer in gasoline vapor is called wet gas.^ The natural gas that flows from oil-wells coming out l)etween the casing and the tubing is fre(}uently termed 1 For detailed statistical data on this subject, see E. G. Sievers, Natural-gas Gasoline in 1919, U. S. Geological Survey, 1921. 2 These terms have reference also to the content of water vapor. 208 NATURAL GAS AND NATURAIv-ClAS GASOLINE casing-head gas, and the gasohne made from this gas is called casing- head gasoline. In the Mid-Continent region, the industry manu- facturing gasoline from natural gas is spoken of as the casing-head gasoline industry, a name changed by the trade in 1921 to the nat- ural gasoline industr3^ The growth in output of natural-gas gasoline in the United States has been notably rapid, as shown in Fig. 100. It will be observed that the output of this type of gasoline is rapidly approaching a lim- iting factor, the total quantity of natural gas consumed; and that the yield per unit of natural gas treated is declining, as indicated by the crossing of curves B and C in Fig. 100. Statistical data showing the growth of the natural-gas gasoline industry are presented in Table 98. Table 98. — Growth of the Natxjral-gas Gasoline Industry in the United States Data from U. S. Geological Survey Year Gasoline Produced in United States Millions of Gallons Total Gasoline Produced from Natural Gas, Millions of Gallons Natural Gas Treated, Millions of M. Cubic Feet Average Gasoline Yield per M. Cubic Feet Gas, Gallons Number of Plants Daily Capacity of Plants, Thousands of Gallons 1911 1912 1913 1914 1915 1916 1917 1918 1919 20.59 2851 3570 3958 7.43 12.1 24.1 42.7 65.3 103 218 283 352 2.48 4.68 9.89 16.9 24.1 209 429 449 480 3.00 2.6 2.43 2.43 2.57 0.496 0..508 0.63 0.74 176 250 341 386 414 596 886 1004 1191 37.1 61.3 152 179 232 49.= 902 1022* * Estimated. The marked increase in output that characterized 1916 should not escape attention. This sudden expansion came as a result of the recovery of the gasoline market from the depressing effect of the Gushing overproduction. Gasoline is recovered from natural gas chiefly by two methods, the compression method and the absorption method. Before 1916, the output was obtained almost exclusively by the compression method from wet gas flowing from oil wells. From 1916 on, the absorption method has come into growing importance, extending the commercial extraction of gasoline to the so-called dry gas, too GASOLINE FROM NATURAL GAS 209 lean in gasoline content to warrant treatment by compression meth- ods. The relative contributions made by the two processes for the period 1916-1919 are shown in Table 99. 900 800 TOO 600 500 400 300 lOO 90 80 70 60 50 CO. fi ■"iL o*;i '~~ ""--. N,^ 0.L ga4 CW\ LUO^iS^ V. r-\^ M>PTlO M OF iW^iS — — ^■■ OTAL f' "^ 1 ^ h / 1 F \ 4 /f '/ 5. NAT URAL- 3AS G ^S0LI^ -// PRqDUCE OF pALLO 3 (MIL -as) — IONS // / [■ y f / VOLU TREA EXTF ,GASC ME TED F ACTIO LINE . CU. GAS OR N OF WILLI INS / / / / // / // / / / / / / / / l+ioo;^ \^ 80 \\- 40 J+ 20 1- 20 30 40 -I- 50^ 1907 1908 1909 1310 1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 1921 Fig. 100. — Trond of the production of natural-gas gasoline in the United States compared with consumption of natural gas, by years, 1911-1919; data from U. S. Geological Survey, In 1919 over half of the natural-gas gasoline was produced in Oklahoma; West Virginia, California, and Pennsylvania ranking next in order. The relative importance of the various states as contributors during the period 1911-1918 is shown in Fig. 101. 210 NATURAL GAS AND NATURAL-GAS GASOLINE Table 99. — Output of Natural-gas Gasoline in the United States, 1916-1919, BY Methods of Production Data from U. S. Geological Survey By Compression * By Absorption 1 Gasoline Gas Average Gasoline Gas Average \ ear No. Produced, Treated, Yield per No. Produced, Treated, Yield per of Millions Millions M. Cubic of Millions Millions M. Cubic Plants of of M. Feet Gas, Plants of of M. Feet Gas, Gallons Cubic Feet Gallons Gallons Cubic Feet Gallons 1916 550 85 36.7 46 18.6 172 1917 784 169 79.5 2.123 102 49.0 350 0.140 1918 865 220 99.9 2.20 139 62.8 349 0.18 1919 1025 261 117.7 2.21 166 90.4 375 0.24 * Includes some production by vacuum pumps. The average price per gallon for natural-gas gasoline for a number of selected states and the countiy as a whole is given in Table 100. Table 100. — Average Price of Natural-gas Gasoline in the United States, 1911-1919 Data from U. S. Geological Survey (In cents per gallo7i) Year Oklahoma West Virginia California Pennsylvania Whole Country 1911 5.40 7.18 7.47 7.16 1912 6.3 9.6 10.8 10.6 9.6 1913 8.94 10.54 10.87 11.01 10.22 1914 6.44 7.45 8.36 7.79 7.28 1915 7.46 8.54 7.60 9.66 7.88 1916 12 . 13 16.12 13.37 17.77 13.85 1917 18.71 19.93 15.40 20.01 18.45 1918 17.3 19.9 15.5 20.6 17.8 1919 17.1 23.3 14.2 21.7 18.2 Natural-gas gasoline is a highly volatile product, with a rela- tively low initial point and end-point. It vaporizes too readily to be used in its raw condition and, having the capacity to contribute to less volatile petroleum distillates the quahties requisite in motor- fuel, it is employed for blending with kerosene, naphtha, or straight- run gasoline of relatively high end-point. This product, therefore, is responsible for the output of something like twice the quantity of commercial gasoline represented by its own volume. By virtue of its low-boiling constituents, natural-gas gasoline contributes volatile GASOLINE FROM NATURAL GAS 211 components that permit easier starting of the engine and give greater operating flexibihty when properly blended. In times of strong demand, however, natural-gas gasoline is frequently emploj'ed PERCENTAGE OF OUTPUT 20 40 60 so WEST VIRGINIA OHIO PENNSYLVANIA OKLAHOMA JlUlllllllJ lUIIHIIIIIUIUII 4 Q ^ is the high degree of proficiency attained in the distribution and market- ing of its products. The crude oil is carried by pipe-line or tank- steamer to refineries in proximity to demand, whence the refined products are distributed in tank-cars to the consuming centers and from there in tank wagons to the points of consumption. This vast and extensive machinery of distribution is for the most part operated by the industry itself as an integral part of its manufacturing activ- ities. The petroleum interests have paid unremitting attention to the means for extending the markets for petroleimi products. The incentive for this attention has been ever present in the form of a production of crude oil that grew more rapidly than the normal industrial development of the countiy. A lavish supply of petro- leum was continuously forthcoming under the impetus of the highly competitive, individualistic methods of JDroduction in vogue, and exerted a constant pressure in the direction of forcing an adequate outlet for the products involved. In consequence, the efforts to adapt this raw material to industrial and social needs came to be highly organized, wliile the production of the raw material itself found sufficient stimulus in the undirected energy of the wild- catter and the ready productivity of the resource. To-day, there- fore, we find the marketing of oil, with its preparatory steps of transportation and refining, to be a closely integrated enterprise, handling tremendous volumes of products, through diverging and ramifying channels of distribution of a unique and singularly effi- cient character. In contrast to the oil industry, which has thus far focussed its main efforts upon the distribution of its products, with efficiency in production under neglect, stands the automotive industry. This great activity came upon the scene with a large potential demand ready to be filled; the problem here was not marketing, but pro- duction. In consequence, the automotive industry developed with ever}^ effort bent upon quantity production, in an attempt to satu- 212 DEVELOPMENT OF OIL MARKETING 213 rate the demand with the greatest possible dispatch; the matter of placing the product was relatively simple. Accordingly^ the auto- motive industr}' stands to-day as an activity whose effectiveness in production is carried to a high degree of attainment, with market- ing a wholly subordinate issue; while the oil industry enjoys an effectiveness in marketing that is scarcely' to be found elsewhere in the entire industrial field with production disorganized and wasteful. The contrast is significant. The automotive void is rapidly becoming filled; while the demands for the products of petroleum have been encouraged to an insistence that cannot continue to be fully met from the resources in sight. The relative focus of the two indus- tries may soon be expected to change. The automotive industiy, with little further advance possil)lo in production efficiency, wdll turn its attention to marketing its product against a gathering sales resistance; while the oil industrv^ from now on will find its chief problem in gaining efficiency in production in order to more ade- quately meet the demands which will mount apace without direct attention. Development of Oil-marketing. — In order to gain a proper per- spective of the developments in the marketing of mineral oils, it is necessarj^ to review briefly the recent history of the industry. We have already noted that the production of crude petroleum has grown mainly on the basis of individual enterprise in the drilhng and operation of wells under highty competitive conditions, while the activities having to do with transportation, refining and marketing have tended toward integration under the direction of large-unit, corporate enterprise. At the end of the first decade of the present century, a minor part of the output of petroleum products came from a large number of independent companies, and the remainder from the Standard Oil Company of New Jersey, which operated throughout the United States as a single unit and under the supervision of one executive.^ The marketing of petroleum products was then carried on by the Standard Oil Company, In' the Independent Companies affiliated with refining, and by oil jobbers who bought directly from the inde- pendent refiners. In 1911, after long and sensational litigation, the Standard Oil Company of New Jersey w^as dissolved by judgment of the Supreme Court, and the original organization broken up into thirty-three * For a detailed discussion of marketing practices, consult A. G. McGuire, Prices and Marketing Practices Covering the Distribution of Gasoline and Kerosene throughout the United States, U. S. Fuel Administration, 1919. 214 MARKETING OF PETROLEUM PRODUCTS separate and independent units, occupying territories with geographic rather than commercial boundaries and requiring for each unit a separate and independent aihninistration. The result of the dissolution decree upon the marketing of petro- leum products is described as follows by the U. S. Fuel Administra- tion : One of the immediate and permanent results of the application of this principle was to limit the interest of the executives of the new commercial entities to market values in the territory in which they operated. The factor which had worked to exert national rather than sectional influence upon the trend of the markets and to estab- lish a general level of prices for petroleum products, subject only to transportation and similar normal variations, had been wiped out of existence. The fragments which had formerly constituted the Stand- ard Oil Co. (New Jersey) were then found, in their new corporate form, to be unable separately to perform the service to the public which had been accomplished by the complete organization. Many of the units were without the equipment both to manufacture and distrib- ute petroleum products in the territory in which they operated at the time of tlie court decree. Some of them, formerly merely marketing subsidiaries of the original corporation, were now faced with the necessity of finding new sources of supply. The corollary to this was that those units which in the general scheme had been devoted principally to the refining of oil found that new markets for their output were the first essential to their existence. It is no reflection upon the high purpose and public zeal which brought about the attempt at Government control to say that experi- ence has shown that action to be an economic mistake and that the new order which it established accentuated rather than retarded the conditions which it was designed to correct. This development has not been the outcome of lax or unintelligent enforcement of the dis- solution order, for the weight of evidence accumulated as the result of keen and almost constant surveillance by several departments of the Government is entirely in support of the conclusion that the dis- solution decree has l^een scrupulously observed. The separate units do not compete, but, in general, limit their activities to the territory in which they were operating at the time of the decree in the Standard Oil case. The active competition of two or more of them for business in the same territory would have much the same effect on outside competitors as a combination between them to suppress competition, and might well create the suspicion that this was the purpose. By not invading each other's territory they perhaps follow the only practical course to avoid charges of collusion and of attempts to evade the decree in the dissolution suit. These units trade with each other in conformity with the law, but after eight years the dissolution decree has been found neither to have destroyed nor lessened the influence of the so-called Standard Oil companies in their respective territory. It has simph^ proved that legislation can not change the operation of economic laws. The admitted efficiency which characterized the original corpora- MARKETING OF GASOLINE 215 tion was not removed by the dissolution decree and is still in evidence in the detached organizations. The advantage of large cash reserves, the possession of strategic commercial locations, the experience gained from acquaintance with the industry virtually since its incep- tion, have all contributed to maintain the position of this particular group and to continue its influence upon markets and prices. After eight years of operation under the dissolution decree, the premier position and influence of the Standard Oil group remains unques- tioned. The present situation conclusively demonstrates that legis- lation can not change the working out of fundamental economic principles. Marketing of Gasoline. — Gasoline is marketed by the so-called Standard Companies, bj^ the Independents, and by jobbers.^ Roughly two-thirds of the gasoline distributed in the United States is marketed by the Standard Companies which purchase part of this quantity from the independent refiners, since the former group refines only about one-half of the oil run to stills in this country. The Standard group has developed a highly perfected system of distribution involving the direct placement of the product in the hands of the consumer through the medium of service stations, tank-wagon delivery, and tank-stations in sparsely settled districts. Every step in the movement of the product from the refinery to the ultimate consumer has been worked out with the utmost regard to economy and efficiency, and the distribution of gasoline stands almost without a rival in the commercial field. The large independent refineries market much of their gasoline through service stations and tank-wagon delivery; but, as the de- velopment of the requisite marketing organization and equipment is a large-scale enterprise demanding extensive investment, the smaller independents, as well as the larger ones in part, sell their product to the Standard Companies, and to jobbing organizations operating independently in localized territories. The jobber, indeed, is some- what complementary to the small skimming plant; and hence job- bing is most active in the Middle West, where the products of the small refinery are available in greatest abundance. Before the Standard Oil combination was dissolved in 1911, the whole area of the United States was divided among its eleven mar- keting companies, and each one operated almost exclusively in its assigned field. After the dissolution, the existing marketing arrange- ments by which there was this division of territory remained undis- turbed, and accordingly the various Standard companies to-day 1 It is common pract i('o in the trade to designate the companies formerly combined in the Standard Oil Company of New Jersey as the Standard group, and all other companies as the Independents. 216 MARIvETING OF PETROLEUM PRODUCTS operate separately in the original territories without substantial change. The location and extent of these marketing territories are shown in Fig. 102. The Standard companies take the lead in deter- mining the sale price of gasoline by announcing the price at which this product may be purchased from the tank-wagon. The retail price at service stations is usually 2 cents higher than the tank-wagon price. The other marketing companies and the jobbers in any given territory usually adjust their prices in accordance with the tank-wagon price as determined by the Standard companies. The tank-wagon price, in turn, tends to fluctuate in sympathy with the price of crude petroleum and with the price of the products made jointly with gasoline from this raw material. " Price initiative to-day seems to be left generally to the Standard companies and competition is apparently more directed to developing facilities for getting busi- ness than to seeking to obtain it by underselling."^ Occasionally, where there is an abundant supply of gasoline, the independent marketers and jobbers in a given locality may begin to sell under the prevailing tank-wagon price. Usually, in such instances, a price-cutting war develops, and the price of gasoline is forced down below a profitable level. Of late years, the jobbing interests have sought to avoid the precipitation of this type of cut- throat competition, but a revival in the tendency was apparent in 1921. Mainly as a result of the dissolution of the original Standard Oil Company into separate activities, occupying distinctive and non- overlapping territories, the gasoline market has in some degree become sectionalized, with minor divergences and inconsistencies in marketing practices and price from locality to locality. It thus comes about that two adjacent points on opposite sides of a state line may see a difference of as much as 2 or more cents in the price of gasohne. For example on January 1, 1921, the tank-wagon price of gasoline in New York, served by the Standard Oil Company of New York, was 31 cents; whereas the tank-wagon price of gaso- line in Newark, N. J., served by the Standard Oil Company of New Jersey was 28.5 cents a gallon. This sort of divergence in price has given rise to much misunderstanding and criticism, but could scarcely be altogether avoided under the circumstances surrounding the marketing of this product without an undue duplication of marketing agencies. The division of territory amongst the companies of the Standard group has also given rise to divergencies in marketing practice in dif- 1 The Advance in Price of Petroleum Products, Federal Trade Commission, Washington, 1920, p. 53. MARKETING OF GASOLINE 217 218 MARKETING OF PETROLEUM PRODUCTS Table 101.— Marketing Practice of the Standard Oil Companies in Various States in 1918 (After A. G. Maguire, U. S. Fuel Administration) Name of Standard Oil Co. Operating in — - Retail Service Stations Price Remarks Standard Oil Co of New York, Connec- None. . . Single New York ticut, Massachu- setts, Vermont, New Hampshire, Rhode Island, and Maine Atlantic Refining Co. Pennsylvania and Many . . 10 per cent off retail Also 10 per cent off Delaware for resale retail for large consumers taking direct from tank- wagon Standard Oil Co. Maryland, Virginia, None. . . Wholesale price for (New Jersey) West Virginia, District of Cclum- bia. North Caro- lina, and South Carolina resale 1 cent per gallon extra to the consumer Do New Jersey ..do.... Single One pi ice in New Jersey on account of State law Standard Oil Co Ohio of Ohio Great many Resale 1 cent under retail price. Other- wise retail price applies Standard Oil Co of Kentucky, Missis- Few General tank-wagon Service stations Kentucky sippi, Alabama, price 2 cents off for sell gasoline at Florida, and resale tank-wagon price Georgia Standard Oil Co of Louisiana, Arkan- Many . . Single Louisiana sas, and Tennessee Magnolia Petroleum Texas, Oklahoma, ..do.... Resale 2 cents under Co. and Arkansas tank-wagon price Standard Oil Co of Illinois, Indiana, Great Single Indiana Michigan, Wiscon- sin, Missouri, Iowa, Minnesota, North Dakota, South Da- kota, Kansas and few stations in Oklahoma number Standard Oil Co. of Nebraska Few ....do Nebraska Continental Oil Co. . | Colorado, Utah, ..do.... Wholesale except at New Mexico, service stations Wyoming, Mon- where 2 cents extra tana, and Idaho charged Standard Oil Co. of California, Arizona, Many. . 2 cents less when for California Nevada, Oregon, and Washington resale MARKETING OF KEROSENE 219 ferent parts of the country, as shown in Table 101, reflecting the conditions prevailing in 1918, which have not changed substantially since that time. Marketing of Kerosene. — Kerosene is marketed in much the same manner as gasohne; only the service station is unimportant, and the major part is distributed to the consumer through the agency of the tank-wagon and tank-station; considerable use is also made of the retail store. The price of kerosene is usually determined in the same manner as the price of gasoline; the tank-wagon price charged by the Standard companies being followed by the other marketers. There is a systematic differential between the price of the two products, and the two prices tend to fluctuate in unison. Of recent years, however, the differential has been narrowing since the price of kerosene has advanced the more rapidly of the two. The export trade in kerosene is large and the marketing of kero- sene abroad has received careful attention. To-day American kero- sene reaches literally to the four corners of the globe, since markets nearer at hand were inadequate to afford outlet to the supply of this commodity. The five-gallon kerosene can is a familiar object in the most out-of-the-way regions. Marketing of Fuel Oil. — The distribution of fuel oil is entirely different from that of gasoline or kerosene. Consumed in bulk by industrial establishments, railroads, and steamships, its placement does not require the attenuated distribution demanded by gasoline and kerosene. It is sold for the most part under direct consignment from the refuiery to the consumer and much of the supply is con- tracted for in advance. Its market price in the past has tended to fluctuate widely under varying conditions of supply and demand, especially as a result of the tendency of crude petroleum to display a periodic acceleration in advance of demand, and consequently the need for anticipating conditions has been particularly important in order to secure advantageous disposition. The storage capacity demanded by fuel oil has rendered the matter of marketing especially difficult for the small refiner, who must keep this product continuously on the move to make room for the new output. In consequence, the small refiner is unable to maneuver with the purpose of taking advantage of market condi- tions. On the contrary, it frequenth' happens that an appearance of oversupply is created entirely fortuitously by a coincidence of accumulating storage in adjacent refineries, to the entire demoraliza- tion of the local maiket . Marketing of Lubricating Oils. — Lubricants present a third type of problem in marketing. These products are highly fabricated into 220 MARKETING OF PETROLEUM PRODUCTS a diversity of types to meet a wide range of specialized demands. They are not bulk products in the sense that gasoline or fuel oil are, but require individual treatment in their placement into use. The motor-oils, which now constitute a substantial portion of the entire output of lubricants, are in part handled like gasoline through service stations and by tank-wagons to garages and stores. Lubricating oils designed for industrial service are usually sold directly on contract to the industrial establishments. The selling of such oils customarily involves an engineering sei'\'ice to fit the oil to the functions it is designed to perform. Lubricating sales are conse- quently often handled by an engineering, or semi-engineering, staff; some companies employ lubricating engineers who work in conjunc- tion with the salesmen, A considerable volume of lubricating oils is handled by jobbing interests, some of whom buy the base oils and compound them into special grades bearing the jobber's name. This tendency, together with the competition prevailing amongst the refiners, has resulted in a confusing multiplicity of brands and an extensive range of adver- tising and other specialized sales effort. Inspection Laws. — In the early days of oil-marketing, the various states passed oil inspection laws with direct reference to the flash point of kerosene, in order to safeguard the users of this product from explosions. Ver^^ little attention was devoted to gasoline beyond a requirement that it should be retailed in marked containers and labeled " dangerous." With the growth of automotive transporta- tion, however, the conditions of a few years ago have been reversed and there is no tendency for any gasoline to be left in the kerosene to lower its flash point; hence the basis of the kerosene inspection laws is obsolete. A number of states and a few cities have tried to regulate the qual- ity of gasoline, but most of such requirements are unreasonable and unscientific, and their enforcement would materially reduce the out- put of gasoline. "Most of the laws have obviously been drafted by people lacking even an elementary knowledge of the methods of producing and analyzing gasohne." The U. S. Fuel Administration made a canvass of the state regulations and found them to be wholly impracticable and in some instances ridiculous. Since then a Federal committee on the standardization of petroleum has worked on the matter and with the Bureau of Mines has succeeded in bringing some degree of consistencj' into the situation. Unscientific and obsolete requirements have proved a troublesome and costly handi- cap to the marketing of petroleum products. MARKET ANALYSIS 221 Market Analysis. — Of recent years, many of the marketing com- panies have devoted considerable attention to the measurement of the size and geographic disposition of the various demands for petroleum products, in order to eliminate waste effort in distribution and salesmanship. Service stations are usually located on the basis of a count of automobiles that pass. The expansion of marketing equipment has proceeded, in part, upon the exact measurement of the consumptive requirements of the territory to be served. And wide use has been made of the registration figures for automobiles and trucks, in order to determine the rapidly expanding requirements for gasoline and motor-oil. A well-advised marketing company should know the exact distribution of automotive equipment and manufacturing activity in its area of operations. CHAPTER XVI ANALYSIS OF THE EXPORTS OF PETROLEUM PRODUCTS \'^m^-^!r. BREADSTUFFS MINERAL OILS MEAT & DAIRY PRODUCTS Introduction. — Exports of mineral oils from the United States constitute one of the leading commodity classes entering into foreign trade and represent an important fraction of the petroleum products refined in this country. In 1920 the value of the exports of mineral oils was 6.8 per cent of the total value of all exports, while in 1919 the proportion was 4.4 per cent and in 1918, 5.7 per cent. The only groups of commodities that bulked larger in the 1920 export returns were cotton and breadstuffs, each represent- ing about twice the value of the mineral oils sent abroad. (See Fig. 103.) Exports of mineral oils are confined largely to the four major petroleum products — gasoline, kerosene, fuel oil, and lubricating oils — the relative volume of crude petroleum exported being small. Thus, of the total mineral oils shipped abroad in 1920, only 10.9 per cent in quantity and 5.3 per cent in value represented crude petroleum. C( m- pared with domestic production, exp«>rts of crude petroleum in 1920 iimouLted to 1.8 per cent, while exports of petro- leum products represented 16.1 f'^^ ^^ nt. Fk;. 103.— Value of the exports Ratio of Exports to Domesticl^^'o^^ic- of mineral oils compared with tion. — The American petroleum in^^^^lry other exports from the United ^^^^^^ ^^^^ ^ nearly 20 per cent g^^^^Ger States in 1920. , . ^ : , ^ thi volume oi petroleum products . m is neoessaiT to meet domestic rec ^e- ort ments, the surplus being sold abroad under the heading of exp^j»;^. Fig. 104 shows in graphic form the proportions of the domestic ou t^'.t of gasoline, kerosene, fuel oil, and lubricating oils which went r^l~' foreign trade in 1920. It will be observed at once that the prop-i - 222 ALL OTHERS FIGURES ARE MILLIONS OF DOLLARS THE FUNCTION OF EXPORTS 223 tions of kerosene and lubricating oils exported are much higher than the proportions of gasoline and fuel oil. The ratio of exports to domestic production over the past few years for the leading petroleum products is shown in the table follow- ing: Table 102. — Ratio of Exports to Domestic Productiox for the Leading Petroleum Products, 1914-1920 Year Gasoline and Naphtha, Per Cent Kerosene, Per Cent Fuel Oil, Per Cent Lubricating Oils, Per Cent 1914 1916 1917 1918 1919 1920 14.0 17.4 14.6 15.6 9.4 13.0 52.1 58.8 38.1 26.9 41.7 37.2 18.8 20.6 17.3 16.4 S.l 9.6 37.2 41.8 37.2 30.6 32.5 39.2 I EXPORTED |.::.-:.-1 UNEXP0RTED 637 GASOLINE & NAPHTHA KEROSENE LUBRICATING OILS - . . 1 I I r ^ lO '20 30 40 50 60 70 80 90 ldO<< FIGURES IN RECTANGLES ARE MILLIONS OF GALLONS Fig. 104. — Relation of the volume of the lead- ing petroleum products exported to the quantity produced in the United States, in 1920. Table 102 indicates the extent to which foreign markets are essential to give an adequate outlet to the leading petroleum products produced, especially kero- sene and lubricants. Ex- ports of gasoline relative to production were fairly steady over the past few 3^ears, whereas the ratio for fuel oil showed a declining tendency, while the ratios for kerosene and lubricants displayed a marked decline during the war years of 1916-18 with an advancing tendencA' thereafter. The Function of Exports. — The purpose of exports from a trade standpoint is to give outlet to surplus domestic production, thus maintaining sufficient taut- 224 ANALYSIS OF THE EXPORTS OF PETROLEUM PRODUCTS ness between supply and demand to sustain prices. In normal times, also, an industry enjoying a large export trade is more stable than one more dependent upon domestic markets, as the business cj^cles in different countries do not coincide, and the composite demand is more nearly equalized. A secondary' purpose is the placement of products in a more profitable market than is afforded at home. There is a more fundamental function of an economic character, especially true of the oil industry, in the part played by exports in sustaining a more nearly balanced outlet for joint-products and SCALE OF INCREASE OR DECREASE 1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 1921 Fig. 105. — Exjaorts of petroleum products from the United States by years 1910-1920. in stimulating the commercial flow of products ahead of the pro- duction of crude petroleum. For example, the output of crude petroleum has mounted so rapidly, under a stimulus arising only in part from demand, that domestic markets for refined products were unable to keep pace; thus the vigorous construction of foreign mar- kets became an economic necessity, as exemplified in the efforts that have gone into sending kerosene to the four corners of the globe. Of recent years, also, when the domestic demand for gasoline has been increasting more rapidly than the demands for the joint-products of gasoline, a foreign outlet for kerosene, fuel oil, and lubricants has tended to better proportionate a demand thrown badly out of GROWTH OF EXPORTS 225 balance by the phenomenal rise of automotive transportation in this country. Growth of Exports. — The trend of exports for the principal petro- leum products over the past decade is presented in Fig. 105. It is there seen that up to 1918 the volume of fuel oil and gasoline exported was increasing sharply, while the shipments abroad of lubricating oils were growing at a slower ratio, with exports of kerosene declining. The effect of the war was strongly pronounced only for kerosene, which suffered because of the difficulty of access to far eastern markets. The termination of the war, however, reversed the situa- tion, sharply curtailing in 1919 the exports of gasoline and fuel oil, at the same time sending the exports of kerosene upward toward a pre-war normal. This sharp reversal of export conditions in 1919 had a marked effect upon the domestic situation, contributing to the laxity of the gasoline and fuel oil market and to the strength of the kerosene market. In 1920, in spite of the continuation of unstable conditions abroad, the foreign shipments of gasoline, fuel oil, and lubricants showed notable increases over 1919, kerosene only falling away in some measure. The volume of refined oils exported from 1910-1920 is given in Table 103. Table 103. — Exports of the Prixcipal Petroleum Products from the United States by Years, 1910-1920 {In millions of gallons) Year Gasoline and Naphtha Kerosene Fuel Oil Lubricating Oils 1 1 1910 101 940 118 164 1911 137 1112 134 183 1912 186 1026 266 216 1913 188 1119 427 208 1914 210 1010 704 192 1915 282 837 812 240 1916 356 855 964 261 1917 416 658 1125 280 1918 559 491 1201 257 1919 372 979 618 275 1920 635 862 847 411 Value of Exports. — The value of the principal petroleum products exported from the United States from 1910-1920 is shown in Talkie 104. A graphic comparison of the value of these exports in 1913, 226 ANALYSIS OF THE EXPORTS OF PETROLEUM PRODUCTS 1919, and 1920 is given in Fig. 106, which emphasizes the notable increase over the period under view, the value of refined oil exports 549 FIGURES ARE MILLIONS OF DOLLARS / 1913 GASOLINE & NAPHTHA KEROSENE LUBRICATING OILS. CRUDE PETROLEUM 1919 1920 Fig. 106. — Value of petroleum products exported from the United States in 1913, 1919, and 1920. roughly doubling the 1913 figures in 1918, and trebling the 1913 record in 1920. Fig. 106 also brings out the marked advance in the value COMPARISON OP EXPORT AND DOMESTIC PRICES 227 of the lubricating oils exported in 1920, as compared with 1919 as well as relative to the increases registered for the other petroleum products. Table 104. — Value of the Principal Petroleum Products Exported from THE United States by Years, 1910-1920 (In millions of dollars) Year Gasoline and Naphtha Kerosene Fuel Oil Lubricating Oils 1910 8.41 55.6 3.73 20.9 1911 11.5 61.1 3.88 23.3 1912 20.5 62.1 6.60 28.3 1913 28.1 72.0 11.1 29.6 1914 25.3 64.1 19.2 26.3 1915 33.9 50.0 22.5 32.5 1916 68.7 55.9 27.1 43.0 1917 93.1 49.0 45.7 57.6 1918 140 50.4 66.6 75.6 1919 92.0 119 32.6 85.1 1920 175 132 55.9 157 Comparison of Export and Domestic Prices. — The prices realized on the petroleum products exported may be determined by dividing the value of exports by the gallonage. A comparison of the average Table 105.— Comparison of Average Export Prices with Domestic Prices FOR THE Principal Petroleum Products by Years, 1913-1920 Year Gasoline and Naphtha Kerosene Fuel Oil Lubricating Oils Average Average Average Average Average .\verage Average Average Export Domestic Export Domestic Export Domestic Export Domestic Price, Price, Price, Price, Price, Price, Price, Price, Cents Cents Cents Cents Dollars Dollars Cents Cents per per per per per per per per Gallon Gallon Gallon Gallon Barrel Barrel Gallon Gallon 1913 14.9 15.6 6.4 7.9 1.09 1.06 14.2 15.4 1914 12.0 13.0 6.3 7.6 1 . 15 .90 13.7 15.6 1915 12.0 11.7 6.0 7.1 1.16 .72 13.5 14.9 1916 19.3 18.9 6.5 7.9 1.19 1.04 16.5 18.3 1917 22.4 20.6 7.4 8.5 1.70 1.57 20.6 19.5 1918 25.0 21.7 10.3 10.2 2.33 2.01 29.4 30.9 1919 24.7 22.2 12.2 12.7 2.22 1 . 59 30.9 32.2 1920 27.6 26.5 15.2 17.1 2.77 2,79 38.2 49.0 228 ANALYSIS OF THE EXPORTS OF PETROLEUM PRODUCTS export prices so determined with the average domestic prices calcu- lated from price quotations is given in Table 105. It may be observed that export prices for gasoline and fuel oil have in general run slightly above the corresponding domestic prices, while the reverse has tended to be true of kerosene and lubricating oils. 641 ■•.180:- ;-r,-p;,;r34^uf,'4r 19 18 ioV^^'ISc^C^fgS FBAUCE UNITED KINGDOM CANADA ITALY NEW ZEALAND ARGENTINA GERMANY BRAZIL ALL OTHERS FIGURES ARE MILLIONS OF GALLONS Fig. 107. — Destination of gaso- line and naphtha exported from the United States in 1920. UNITED KINGDOM FRANCE NETHERLANDS BRITISH INDIA JAPAN ITALY GERMANY DENMARK BELGIUM CANADA ALL OTHERS FIGURES ARE MILLIONS OF GALLONS Fig. 108. — Destination of kerosene e.xported from the United States in 1920. Distribution of Exports. — The countries to which the exports of mineral oils are consigned are given in full detail in the reports of the Bureau of Foreign and Domestic Commerce.^ A summary of 1 Monthly Summary of Foreign and Domestic Commerce, and Foreign Com- merce and Navigation of the United States (Annual). DISTRIBUTION OF EXPORTS 229 such data for the year 1920 is given in graphic form in Figs. 107 -110. Fig. 107 shows that over half of the gasoHne exported in 1920 went 411 862 v.•:::1;87•:••^^ ,;-/5r' yiti?jj2m UNITED KINGDOM CANADA \ NETHERLANDS MEXICO PANAMA ALL OTHERS FIGURES ARE MILLIONS OF GALLOHS Fig. 109. — Destination of fiu'l and gas oil o.xportctl from the United States in 1920. ■ •.■.•66-. mnw? ;°rsrAOoo<<.y?' UNITED KUMGDQM SWEDEN ARGENTINA ALL OTHERS FIGURES ARE MILLIONS OF GALLONSi Fic. 110. — Destination of lu- bricating oils exported from the United States in 1920. to France and the United Kingdom. German}^ is also shown as luiving entered the market in appreciable degree. 230 ANALYSIS OF THE EXPORTS OP PETROLEUM PRODUCTS In Fig. 108 is seen a more equable division of kerosene among a greater number of nations. China appears as a large foreign con- sumer of this prockict, second only to the United Kingdom. Ger- many ranks along with Italy and Denmark. MONTHLY AVERAGE BY YEARS MONTHLY AVERAGE BY MONTHS 1910 1915 GASOLINE AND NAPHTHA KEROSENE FUEL OIL GAS OIL AND RESIDUUM LUBRICATING OILS CRUDE PETROLEUM 1920 1919 1920 Fi(i. 111.^ — Exports of mineral oils from the United States. The destination of fuel oil exports is analyzed in Fig. 109, which shows the United Kingdom and Canada as the leading recipients, with Italy, Chile, Netherlands and France as taking second place. CURRENT TREND OF EXPORTS 231 Table 106. — Exports of the Principal Petroleum Products from the United States Data from Bureau of Foreign and Domestic Commerce {In millions of gallons) Monthly Average Gasoline and Naphtha Kerosene Fuel Oil (Including Gas Oil and Residuum) Lubricating Oils 1913 16 18 24 30 35 47 93 84 70 71 55 41 36 59 68 80 94 100 17 16 20 22 23 21 1914 1915 1916 1917 1918 1919 January February March April 31 48.0 27.0 22.4 27.6 26.1 31.8 24.5 29.6 34.7 40.5 31.0 29.2 82 68.4 67.3 54.3 93.2 79.9 124 76.2 84.0 75.6 94.3 65.5 93.3 1 52 74.6 36.9 36.9 45.9 42.6 54.2 44.8 39.0 38.6 65.9 81.6 56.6 23 21.5 26.9 21.3 30.1 19.1 25.1 15.5 20.7 19.7 23.9 26.3 27.5 Mav June Julv August September October 1 November December 1920 January February 53 30.6 32.3 47.1 43.5 69.0 68.5 81.8 58.7 39.9 65.3 40.0 66.8 72 81.2 75.7 79.7 67.7 56.5 62.0 58.5 74.6 62.7 69.6 80.7 89.7 71 74.6 52.1 67.8 78.3 69.8 67.8 78.9 58.8 59.9 92.5 65.2 84.2 34 23.7 33.2 44.2 38.7 41.6 26.5 28.3 34.2 28.5 32.5 34.4 50.5 April May June July August September October November December 1921 January February March April Mav 54.5 53.6 47.1 57 . 40.5 38.6 29.0 79.1 68 . 2 63.9 58.8 51.9 64.2 36.0 110 72,9 69.3 72.3 50 . 6 62. 1 76.8 37.9 30.5 14.7 22.6 16.8 15. 1 18.9 June July 232 ANALYSIS OF THE EXPORTS OF PETROLEUM PRODUCTS Mexico and Panama are interesting names to find included, since the first-named is herself a prominent producer of fuel oil. Fig. 110 shows the distribution of American-made lubricating oils, which in 1920 went largely to the United Kingdom, France, Germany, Belgium, and Italy; but small quantities penetrated practically every country in which manufacturing is carried on. If the indus- trial activity of the United States is approximately equal to that of the rest of the world, as would appear to be the case from a com- parison of the energj^ materials used here and abroad, the export figures indicate that roughly half of all foreign commerce and industry is lubricated by the products of American petroleum. In terms of world figures, these estimates go to show that approximately three- quarters of the lubricating needs of the entire world are dependent upon the American oil industry. Current Trend of Exports. — The trend of exports of the principal petroleum products by months during 1919 and 1920 is shown in Fig. Ill in a form facilitating comparison, the supporting data being presented in Table 106. The data and their graphical interpretation are presented as an example of a convenient method for following the situation currently. Future of Petroleum Exports. — The outstanding foreign market for petroleum products is Europe, although considerable quantities of kerosene go to the Far East, particularly China, and South America is coming in for a growing share of the mineral oils sent abroad. Since the armistice, European credits have been in an unsettled condition, although throughout 1919 and 1920 Europe's buying power was artificially sustained first through vast loans extended by the United States Government and later on through credits extended, in part indirectly, by American banks. For the coming few years, the foreign demand for American goods is difficult to appraise, but raw materials and products in which the ratio of labor-cost to raw material costs is low (such as refined mineral oils), may be expected to enjoy a brisker demand abroad than goods whose values are largely fabricated into them. Taking a long-range view ahead, we are faced by an ultimate shortage of crude petroleum in respect to the requirements of the domestic market alone, in contrast to the conditions of the past in which an oversupply was forced to seek relief abroad. As foreign oil-fields become more actively productive, and American oil-fields commence their inevitable decline, the proportions of American petroleum products shipped abroad may be expected to assume a waning role. CHAPTER XVII PRICES OF PETROLEUM AND ITS PRODUCTS Introduction. — For the purpose of analyzing the price relations ships of crude petroleum and its products, the period of 1913-1921 was selected, and weighted average monthly prices for the commodi- ties shown in Table 107 were calculated from the weekly quotation- appearing in trade journals. Table 107. — Data Used ix Price Analysis Commodity Quotation Composition of Average Source of Data 1 . Crude petroleum . . . 2. Gasoline 3. Kerosene At wells Tank-wagon Tank-wagon At refinery Jobbing Five grades Five cities Five cities Five locations Five grades Average of Xos. 2, 3, 4, and 5 327 commod- ities National PetroleumNews National Petroleum News National Petroleum News National Petroleum News Oil, Paint and Drug Re- porter Monthly Labor Review, U. S. Bur. Lab. Stat. 4. Fuel oil 5. Lubricating oils .... 6. Petroleum products. 7. All commodities. . . . Wholesale The weighted average prices so obtained were then recalculated in percentages of the respective average prices for the year 1913, thus getting series of index numbers which render the various price trends directly comparable with one another, as well as with indices of prices in general which are similarly compiled by the Government and other agencies. An added advantage of this method of treat- ment is that reference may at all times be had to the pre-war price- level of 1913. The price data presented in this chapter are a continuation, with some minor modifications, of the price figures published by the U. S. Fuel Administration and War Industries Board in 1919, where refer- ence to the detailed figures for the period 1913-1918 may be had.^ 1 Pogue and Lubin, Prices of Petroleum and Its Pro'Uicts During the War, U. S. Fuel Administration, Washington. 1919, 55 pp.; also published by the War Industries Board as Part 36 of History of Prices During the War. A portion of the present discussion is based upon that investigation. 233 234 PRICES OF PETROLEUM AND ITS PRODUCTS Table lOS. — Index Numbers of the Prices of Crude Petroleum and Its Principal Products in the United St.\tes by Months, 1913-1921 {Prices f„r 1013 = 100) Crude Petroleum at Wells Petroleum Products Gasoline Tank- wagon Kerosene Tank- wagon Fuel Oil at Refinery Lubricat- ing Oils, Jobbing All Com- modities, U. S. Bur. Labor Stat. 1913, Year Months: January. . . February. . March .... April May June July August .... September. October , . . November. December . 100 87 95 100 99 100 100 101 10.3 104 104 104 lOG 100 101 101 101 102 102 101 101 100 100 99 98 97 100 101 103 104 104 103 103 100 99 99 99 96 93 100 99 99 99 99 101 101 101 101 101 101 101 99 100 102 100 100 105 104 101 100 102 97 96 99 96 100 100 100 100 100 100 100 100 100 100 100 100 101 100 100 100 99 98 98 100 100 101 102 101 101 99 1914, Year Months: January. . . February. . March .... April May June July August. . . . September. October . . . November. December . 82 107 108 106 100 83 77 75 75 67 62 61 61 89 97 96 95 95 93 91 88 85 84 83 82 82 83 94 93 92 91 90 85 81 78 77 75 73 73 97 99 99 99 99 97 97 95 90 95 95 95 95 85 99 100 98 93 91 90 83 80 73 71 70 68 101 100 100 99 102 102 102 102 102 102 102 102 102 100 100 99 99 98 98 99 100 103 104 99 98 98 1915, Year Months: January. . . February. . March .... April May June July .4ugust. . . . September . October. . . November. December . 65 62 63 58 56 55 55 55 59 73 77 80 92 80 80 78 76 76 76 76 75 76 78 85 92 98 75 73 72 69 69 69 69 66 67 71 82 91 100 90 92 90 90 87 86 86 89 89 90 91 94 99 68 67 66 61 62 62 62 64 65 66 70 83 85 97 97 95 95 95 95 95 95 95 95 100 100 104 101 99 101 99 100 101 99 101 100 99 101 103 106 PRICE OF CRUDE PETROLEUM 235 Table 108. — Index Numbers of the Prices of Crude Petroleum and Its Principal Products in the United States by Months, 1913-1921 — {Cont.) Crude Petroleum at Wells Petroleum Products Gasoline Tank- wagon Kerosene Tank- wagon Fuel Oil at Refinery Iiubricat- ing Oils, Jobbing All Com- modities, U. S. Bur. Labor Stat. 1916, Year Months: January. . . February. . March .... April May June July August. .. . September. October . . . November. December . 117 108 115 123 126 130 130 129 112 101 103 106 117 114 104 109 113 113 119 119 119 118 114 113 114 114 121 . Ill 107 125 127 129 129 129 127 120 116 114 114 101 101 102 102 105 105 105 102 100 98 98 95 96 98 99 101 102 98 88 90 91 91 95 98 109 111 119 103 103 101 101 127 127 127 127 127 127 127 127 124 110 112 114 117 118 119 119 123 128 134 144 146 1917, Year Months : January. . . February. . March. . . . April May June July August .... September . October. . . November. December . 155 130 147 148 148 149 151 152 152 170 170 170 170 130 120 125 126 127 129 129 132 132 133 135 135 137 132 122 129 130 132 132 132 132 132 135 135 135 135 108 99 102 105 105 108 108 108 108 113 111 113 lis 147 123 130 131 131 133 138 157 157 157 165 166 175 127 127 127 127 127 127 127 127 127 127 127 127 127 176 151 156 161 172 182 185 186 185 183 181 1S3 182 1918, Year. . . . Months: January. . . February. . March .... April May June July August. . . . September. October . . . November . December . 194 174 177 184 193 196 196 196 197 204 204 204 204 160 152 154 156 158 162 162 162 163 164 164 164 102 139 135 135 135 135 139 139 139 141 142 142 142 142 130 124 124 124 124 129 129 129 134 130 130 136 136 189 ISO 179 179 187 197 198 198 193 195 104 185 184 201 183 195 199 202 202 202 204 206 206 206 203 203 196 185 186 187 190 190 193 198 202 207 204 206 206 236 PRICES OF PETROLEUM AND ITS PRODUCTS Table 108. — Index Numbers of the Prices of Crude Petroleum and Its Principal Products in the United States by Months, 1913-1921 — (Cont.) Crude Petroleum at Wells Petroleum Products Gasoline Tank- wagon Kerosene Tank- wagon Fuel Oil at Refinery Lubricat- ing Oils, Jobbing All Com- modities, U. S. Bur. Labor Stat. 1919, Year Months: January. . . February. . March .... April May June July August. . . . September . October . . . November. December . 197 202 197 195 192 192 192 192 192 197 197 202 208 159 166 161 158 157 157 157 158 159 160 160 159 179 142 . 144 142 142 142 142 142 142 142 142 142 142 142 162 139 139 141 145 150 155 169 177 178 182 182 186 149 169 150 145 135 131 129 129 131 135 140 152 237 209 216 216 210 210 206 207 207 206 205 205 205 212 212 203 197 201 203 207 207 218 226 220 223 230 238 1920, Year Months: January. . . February. . March .... April May June July August. . . . September . October . . . November. December . 301 250 260 300 30S 312 312 314 314 314 3H .312 307 225 190 202 223 228 235 242 236 238 237 230 221 215 170 148 152 161 166 168 172 172 176 180 180 179 178 217 198 201 207 211 211 216 218 229 230 226 226 226 262 219 219 270 275 304 299 294 292 284 258 230 200 318 256 295 330 334 336 361 338 334 325 316 298 292 243 248 249 253 265 272 269 262 250 242 225 207 189 1921: Months: January. . . February. . March .... April May June July August.. . . 288 192 174 176 159 127 112 110 200 176 164 160 142 137 131 129 177 160 154 151 141 137 132 129 222 189 186 178 160 146 1.37 137 181 135 131 131 116 102 96 97 251 218 202 194 1.54 154 148 148 177 167 162 154 151 148 148 152 Index numbers for six series of oil prices — crude petroleum, gaso- line, kerosene, fuel oil, lubricating oils, and these four petroleum products averaged into a composite — are presented in Table 108, together with index numbers representing the run of wholesale PRICE OF CRUDE PETROLEUM 237 prices in general in the United States. The last-named series of index numbers, representing an average of 327 commodities in which due allowance is made for the relative importance of the different items, are those calculated by the U. S. Bureau of Labor Statistics and published in the Monthly Labor Review — the official measure of the country's wholesale price-level. Price of Crude Petroleum. — The major portion of the crude petro- leum produced is purchased by pipe-line companies. Nominally these companies transport the oil at tariff rates, but actually they buy the oil outright, paying the market (posted) rate which is sup- posed to be the delivered price at the refinery less transportation. The price in a given district is determined by the announcement, or posting, by one of the purchasing concerns of the price it will pay. When competition exists, the other purchasing concerns usually follow at once. To the base-price may be added certain premiums for quality, delivery, credit, etc., and from the base-price certain deductions are made for sand, water, etc. In times of sharp demand, much oil is purchased at a premium above the posted price, whereas in periods of slack, quantities of oil may be purchased below the base-price. The following premiums were paid by one independent purchasing concern in the Mid- Continent field during a recent four-year period : Table 109. — Premiums Paid for Crude Petroleum by a Purchasing Concern IN THE Mid-Continent Field (Data from Bates and Lasky) Year Millions of Barrels Purchased Millions of Dollar s paid in Premiums Premium per Barrel 1917 1918 1919 1920 216 586 841 88 18.5 134 494 23 8 . 5 cents 22.9 cents 58 . 75 cents 26. 12 cents No systematic public record of the premiums paid is kept, so recourse must be had to the posted prices in determining the trend of the crude petroleum market. Index numbers representing the weighted average of the posted prices of five grades of petroleum — Pennsylvania, Illinois, Kansas-Oklahoma, Gulf Coast and California — are given in Table 108 and plotted on a ratio scale against gasoline, kerosene, fuel oil, and lubricating oils in turn in Figs. 112, 115, 116 and 117. ' See also Fig. 122, page 256, in which the average price of crude petroleum is plotted against the domestic production of crude petroleum. 238 PRICES OF PETROLEUM AND ITS PRODUCTS There were nine major events in the price histor}- of crude petro- leum in the nine-year periotl of 1913-1921, to which the crude oils east of the Rockj^ Mountains were closely sympathetic, with Cali- fornia less definitely reactive.^ These may be described separately as outstanding features, to which all other circumstances are subor- dinate, and are to be held clear]}- in mind as carrj-ing a dominating influence into the price relations of petroleum products. (See Fig. 112.) INDEX 500 300 250 200 100 90 80 70 / J c ^UDE PETROLEUM ( / i" GAS( ILINE /^ \ f ' ' 'r- \ / I \ \ 1 / ^ ' ' \ / \. » / 1913 1914 1915 1916 1917 1918 1919 1920 192.1 Fig. 112. — Relative prices of crude petroleum and gasoline by months, 1913-1921, in percentages of the average figures for 1913. (Average prices in 1913 = 100.) 1. The 1913 Period of Normal Price Advance. — The j-ear 1913, together with the early months of 1914, was characterized by a normal advance in crude prices resulting in general from the rapidly increasing demand for petroleum, and in particular from a ten- dency toward declining production in the Pennsylvania field, which reacted to bring a rise in price and inclined to set the pace for the rest of the country. 2. The Cuiihing Overproduction of 1914-1915. — The strengthen- ing markets of 1913 stimulated a countiy-wide drilling campaign, which culminated in the tapping of the deep sands of the Gushing ' It should be held in mind that the petroleum situation in Cahfornia stands rather sharply apart from the rest of the country, owing chiefly to the geographic and commercial individuality of that section. PRICE OF CRUDE PETROLEUM 239 Pool in Oklahoma in April, 1914. Production "went wild"; oil in endless quantities poured forth from a multitude of wells drilled in frenzied haste. Excepting in California, the bottom dropped out of the entii'e crude-oil market. The price slump was unprecedented in the history of the oil industry. The effect upon the petroleum industiy of the outbreak of the European war in Juh^, 1914, was largely drowned in the flood of Gushing oil. 3. The Recovery of 1915-1916. — Each action has its reaction and Gushing proved no exception. By August, 1915, Gushing, while still productive, had run its course. Encouraged by an ever-accel- erating demand for gasoline, and by the purchase and removal from the open market of large quantities of surplus Gushing crude, prices recuperated with even greater rapidity than they had declined, and by the end of 1915 the market was just surmounting its pre-Gushing level. This advance continued through the first quarter of 1916, but after the manner of such things overreached itself. Overstim- ulated drilling, especially in the Mid-Gontinent field, brought a surplus production with a corresponding price depression, far less serious, however, than the disastrous overproduction of the Gushing days. 4. The Minor Slump of 1916. — The recovery from Gushing, then, was too rapid. There came a temporary relapse, strongest in Mid- Gontinent prices, and the last half of 1916 saw a repetition of the Gushing depression on a minor scale. With the turn into 1917, however, the recovery was complete. 5. The War Stimulus of 1917-1(^18.— Vnder the stimulus of war conditions — strengthening demands, increasing production costs, eagerness to insure adequate increases in output, and the general atmosphere of increasing prices — the prices of crude advanced at intervals the country over, until in early 1918 they attained a height in general roughly double the pre-war level. The reaction was uni- form and singularly coincident on the part of the crude petroleums of the entire countiy. 6. The Governme7ital Stabilization. — The tendency toward price advance under war stimulus was checked with the advance of 25 cents per barrel in Mid-Gontinent crude in April, 1918, and def- initely controlled in the latter half of 1918 by a plan of voluntary stabilization put into execution by the National Petroleum War Service Gommittee representing the petroleum industry, and the Oil Division of the United States Fuel Administration representing the Government. 1 Prices wei-e thus staliilized and brought under check 1 For a detailed. account of this interesting example of industrial administra- tion consult Pogue and Lubin, Prices of Petroleum and Its Products During the War, pp. 20-29. 240 PRICES OF PETROLEUM AND ITS PRODUCTS on the assumption that further advances would not serve as a suf- ficient additional stimulus to production to justify the cost to the pubhc. 7. The Post-war Reaction of 1919. — The closing year of the war, with its insistent demands for gasoline and fuel oil, strongly stimu- lated the production of crude petroleum and, following the armistice, 1919 opened with a bountiful output that faced a peace-time adjust- ment in requirements. The demand for gasoline, adjusting itself easily to the changed condition, went on unabated, but the demand for fuel on fell away, leaving an oversupply of this commodity. In consequence, the price of light crudes, productive of gasoline, suf- fered no recession, but the price of hea\'y crudes such as those of the Gulf Coast fell slightly, so that the composite curve shows a moder- ate sagging during the year. 8. The Boom Period of 1920. — In late 1919, partly because of the period of inflation upon which the business of the entire coun- try had entered and partly as a result of a demand for fuel oil which had been actively stimulated by the efforts of the oil industry' as well as by the circumstances of a disastrous coal strike, the crude oil market showed a gathering strength which culminated in a sharp and almost unprecedented rise during the first quarter of 1920. Oil-field activity speeded up to a white heat, the prices of refined products leaped forward as if released from restraint, and the entire field of oil became involved in a period of frenzied expansion on a scale never before so fully experienced. Then came deflation and liquidation in the industrial structure of the entire country. But oil persisted as if immune. The highest levels in crude-oil prices were not attained until July; the effect of these rising prices were cumulative. The domestic output of crude petroleima was pro- gressively stimulated, at the same time that shipments of crude petroleum from Mexico were coming to this count ly in unprecedented volume. An oversupply, on the one hand, an industrial depression on the other — still the price of crude petroleum held high. Not until the close of the year did crude oil prices weaken, and then only the heavy crudes most directly affected by the flood of oil from Mexico. The year closed with the price structure of crude petro- leum overripe for a tumble. 9. The Price Tumble of Early 1921. — During the first two months of 1921 the inevitable happened. Between the first week in Janu- s^rj and the last week in Februar}' the average price of crude cascaded from $3.50 to $1.98 a barrel, a drop of 43 per cent. In all parts of the country but California the declines were precipitous. In a few brief weeks, the levels of early 1918 were attained. The rise of PRICE COMPARED WITH COST OF DRILLING 241 1920 and more had been eliminated. Another price cycle had run its course. And just as the price rise of early 1920 overreached itseK and led to the subsequent break in the crude-oil market, so the price reaction of 1921 went to undue length, lajdng the basis for a sensational rise in price later on. Price' Compared with Cost of Drilling. — The price of crude petro- leum, in spite of many downward reactions, has been trending sharply upward at an average rate of 22 per cent annually during the eight- year period 1913-1920. (See Fig. 121, page 255.) This upward tendency is due mainly to (a) the increasing cost of drilling arising from the greater number of well-feet per barrel, (6) the increased cost of materials and labor, and (c) the mounting demand for oil products. It is difficult to disentangle and separately appraise these three fac- tors, but as time goes on (a) and (c) may be expected to contribute a further impetus upward, although (6) is tending downward. The items of cost in drilling a typical oil-well 2500 feet in depth in the Mid-Continent field, in percentages of the average figures for 1913, are presented in Table 110 for successive years from 1913 to 1920, which gives a measure of factor (6) noted above. Table 110. — Cost of Drilling and Equipping a Typical 2o00-foot Wkll in THE Mid-Continent Field by Years, 1913-1920 (Data from Bates and Lasky, after F. W. Swift) {In percentages of the figures in WIS) 1913 1914 1915 1916 1917 1918 1919 1920* Casing 100 100 100 100 97 166 108 106 96 180 111 106 130 216 119 121 184 246 145 154 205 277 172 185 258 382 232 225 258 382 278 223 Contract drilling Labor Miscellaneous Total 100 11.3 115 141 181 208 267 271 * Estimated by Bates and Lasky. The total cost of drilhng as presented in Table 110 in percentages of the 1913 cost, is plotted in Fig. 113 against the average price of Mid-Continent crude similarly expressed. This chart shows how the price movement in periods of oversupply, such as the year 1915, lags behind drilling costs, and in periods of strong demand such as 1920 rises above the cost of drilling level. The Price of Gasoline. — As representative of the wholesale price of gasoline, the tank-wagon prices at five populous cities in various 242 PRICES OF PETROLEUM AND ITS PRODUCTS parts of the country — New York, Baltimore, Chicago, Kansas City and San Francisco — were averaged and recalculated in percentages of the average price in 1913. The index numbers so obtained are given in Table 108, and plotted in comparison with the price trend of crude petroleum in Fig. 112. It cannot be emphasized too strongly that gasoline is a joint product with kerosene, fuel oil, and lubricants, and accordingly that the price of gasoline cannot be interpreted as a separate matter, but is intelligible only in terms of price fluc- tuations of crude pe- troleum on the one hand, and of kerosene, fuel oil, and lubricants on the other. The outstanding features in the course of gasoline prices are eight in number. 1. The Relative Sta- bility of 1913.— Gaso- line conmicnced 1913 with slight advances in price in keeping with the upAvard trend in the crude market, but after the first c}uarter of the year, 1914 1915 1916 1917 1918 1919 1920 gasoline prices fell „,,„,, . f ^u • • + (• away gently but Fig. 113. — Comparison of the increase m cost oi a • . . typical well with the increase in price of crude steadily m opjiosition petroleum in the Mid-Continent Field, 1913-1920; to the continued up- data from Bates and Lasky. (Figures for 1913 = 100.) ward trend of crude. The departure, how- ever, was slight and to be attributed to local variations, perhaps fortuitous, and certainly with little, if any broad significance. This period, on the whole, was uneventful and characterized by stability. 2. The dishing Depression. — The gasoline response to the Cushing overproduction was immediate and striking. With the serious impairment of the crude-oil market, the price of gasoline responded with an almost parallel slump. THE PRICE OF GASOLINE 243 3. The Recovery of 1915-1916. — Closely paralleling the recovery of the crude market following the culmination of the Gushing episode, and as a result of the same range of causes, gasoline advanced over 60 per cent between July, 1915, and May, 1916, attaining a price- level scarcely less than that prevailing at the end of 1918. The suddenness of the advance in respect to a product in universal use, following so closely upon the heels of an era of cheap gasoline, created country-wide interest and concern and led to an investigation on the part of the Federal Trade Commission, which reported " that a decreasing supply of light crudes, coupled with increasing foreign and domestic demands, explains a part of the advance in gasoline prices during 1915, but that part of the advance in certain sections at least, was unnecessary and to a certain extent due to artificial conditions. ..." But whatever the validity of these conclusions, which must be judged on their own merits, the situation, whether complicated by artificial conditions or not, was the response or, more properly, the over-response, to the lavishness of the Gushing out- pouring of crude. 4. The Relapse of 1916.— In the latter half of 1916, gasoline shared in the relapse of crude with a slump east of the Rockies. California serenely weathered this storm, whose effects did not reach the Pacific slope. 5. The Period of War Stress. — The relapse of 1916, as with crude, was short-lived; gasoline recovered its former price-level in early 1917, and to the end of 1918 held a remarkably level course, as com- pared with the other petroleum products, and particularly with commodities in general. The Chicago market during this time showed a series of advances, reflecting, together with the situation there for kerosene, local instal)ilities of a significant order. A uniform price-level for gasoline during a period when prac- tically all other commodities were soaring is remarkable and was only attained by virtue of the joint-product character of gasoline, which pcnniitted its potential advances to be covered b}^ k(!rosene, fuel oil, and lubricants. Increases that might have come about in the last half of 1918 were forestalled by the plan of voluntary stabili- zation already adverted to, which reflected an indirect influence over gasoline and the other main petroleum products. 6. The Stable Level of 1919. — Although petroleum production was stimulated by the war, the requirements for gasoline were so pre- dominantly domestic that the coming of peace did not create an over- supply of this fuel. The price of gasoline, in consequence, main- tained a nearly even level throughout 1919. The supply of gasoline was somewhat easier than in the previous year, but surplus failed 244 PRICES OF PETROLEUM AND ITS PRODUCTS to accumulate sufficiently to create a significant downward revision in prices. 7. The Sharp Rise of 1920. — In 1920, in common with crude, petroleum products, and commodities in general, gasoline enjoyed a marked rise in price, but a rise of relatively temperate character in comparison with nearly all other commodities. The advance was less precipitous than that for crude petroleum, and the 1920 high was attained later in the year. 8. The Price Decline of Early 1921. — During the last quarter of 1920, the highly stimulated character of oil-field operations both domestic and Mexican, and the continued activity of the oil-refining industry, in the face of the gathering storm of business depression, led to an easing off of gasoline prices which broke into a sharp decline in early 1921. As gasoline had risen to lesser heights than had its joint-products and its raw material, its decline was accordingly less drastic, although the spot price of gasoline at the small refineries in many instances fell below the cost of production. On the whole there is a notable coincidence between the price of crude and the price of gasoline. All the main features of the former are reflected in the latter, in modified form. Rarely, and only with local meaning, do the two courses run counter. Again there is a notable coincidence to be followed between gasoline prices in the various cities, the difference corresponding roughly to a transporta- tion differential in respect to the sources of raw material, compli- cated by the sectional character of the gasoline market. In view of the wide difference in production costs, the varying strengths of the demands for products turned out along with gasoline, and the geo- graphical disposition and structure of the industrial units concerned, the comparative uniformity in price is more striking than the minor divergences. But a product in universal use must normally attain a fairly uniform countr^^wide level, leaving its joint-products to level off the differences in production costs; and hence it is not surprising that gasoline shows greater price uniformity than other petroleum products. The Price of Kerosene. — Since nearly half of the kerosene pro- duced in the United States is exported, conditions abroad weigh heavily in influencing the domestic market. The average domestic price by years from 1913-1920 is compared graphically with the average export price in Fig. 1 14, which shows a fair correspondence between the two, with a tendency for the export price to lag slightly behind the domestic price. The average domestic price of kerosene, in percentages of the 1913 figures, is shown by months for the period 1913-1921 in Table 108 and THE PRICE OF FUEL OIL 245 CENTS PER GALLON 20 plotted against the price of crude petroleum in Fig. 115. The price trend for kerosene shows responses to all the major events involved in the price of crude petroleum, except the slight reaction of 1919 during which period kerosene steadily ad- vanced in price. Throughout 1917, 1918, 1919 and most of 1920, kerosene displayed a sharp and strikingly consistent up- ward tendency. This course was especially notable in view of the demoralization of the normal foreign demand during much of that period. i9h 1915 1916 1917 1918 1919 192a 1921 The explanation lies in part in war Fig. 114.— Comparison of the aver- requirements and related causes, age export price with the average and in part in the rise of automotive domestic price of kerosene by years, , 1 r 1 1913-1920. demands lor kerosene. The Price of Fuel Oil.— The fuel-oil market is complicated by extensive sales on contract, with the result that much of the output changes hands at prices more or less at variance with the spot quo- / / / / AVR. dAm. P ^•^ / 1 ^ ^^ y , ' — - ^..d^VR. ;xp. •RICE 1913 1914 1915 1916 1917 1918 1919 1920 1921 Fig. 115. — Relative prices of kerosene and crude petroleum by months, 1913-1921, in percentages of the average figures for 1913. (Average prices in 1913 = 100.) 24Q PRICES OF PETROLEUM AND ITS PRODUCTS tations. In consequence, the fuel-oil chart representing an average of spot quotations must be allowed a larger margin of error than is to be accorded the other price cui-ves in this chapter. Although the variations in the price of fuel oil are numerous and abrupt, there is a notable conformance, both in trend and in actual level, to the price of crude petroleum. (See Fig. 116.) This arises from the fact that crude petroleum is always open to purchase as a natural fuel oil, and hence fuel oil proper normally seeks, and can INDEX 500 400 300 250 200 150 100 90 80 70 60 50 •A 'i c-^^ ^'""'1 1 . /N^ - ^~\ «-FUEL C ML v I /' V/' / Y '\\y A 1 ^ '•\ / \ \J '\ -.**-< !RUDE PI TROLEU A 1913 1914 1915 1916 1917 191G 1919 1920 1921 Fig. 116. — Relative prices of fuel oil and crude petroleum by months, 1913-1921, in percentages of the average figures for 1913. (Average prices in 1913 = 100.) scarcely exceed, the level established by the price of crude. By virtue of this price affiliation the factors adduced to interpret the run of prices in regard to crude petroleum are likewise applicable to fuel oil. In addition to the influences affecting the price of fuel oil already reviewed under the heading of crude petroleum, there should be mentioned the seasonal variations in demand, which, involving a stronger demand in winter than in summer, create a tendency for prices to rise in the autumn and to fall in the spring. This inclination for much of the period covered in Fig. 116 was hidden by stronger forces, but it came definitely into play during the winter of 1917-1918; when an unusually severe season, a coal shortage, PRICE OF LUBRICATING OILS 247 and a transportation tie-up sent fuel-oil prices, in the northeastern states in particular, to unprecedented levels. In consequence of a general policy toward substituting fuel oil for coal in growing degree, the demand for fuel oil became so insistent that the gasoline demand, which for some time had set the pace, was forced into second place, and the call for fuel oil, with direct reference to munitions man- ufacture and naval operations, became the dominant note. It was by virtue of these conditions more than any others that gasoline was freed from the responsibility of supporting the advances in the price of crude petroleum during this period. Toward the summer of 1918, while industrial operations were still increasing apace, the demand for fuel oil became tempered by the seasonal factor, while in August the plan of stabilization of oil prices, under the joint auspices of the U. S. Fuel Administration and the Petroleum War Service Committee, came into play with due effect. Together these factors halted the advance, which turned into a decided decline when November announced the termination of European hostilities and threw the United States into a hesitant industrial mood. Thus the cycle was completed, and the motor-fuel demand reassumed the role of prime stimulator of the petroleum industry. During 1919 no adequate place was found for the war-stimulated output of fuel oil, and prices fell sharply and deeply. Gasoline requirements went on increasing, thus inducing a growing output of fuel oil even in the face of the falling market. Under these circum- stances, the petroleum industry projected a spectacular and effective campaign in favor of the general use of fuel oil for industrial and heating purposes. This effort began to show results toward fall and after the coal strike in the bituminous fields in November, the price of fuel oil in the single month of December recovered from its post- armistice depression, and by May, 1920, had reached a level fully 50 per cent above its 1918 attainments. Then came the break in commodity prices and the rumblings of the industrial depression that was on the way; fuel oil was among the first of the petroleum products to respond, mildly at first and then precipitously. In a few brief months the entire rise of 1919-1920 was wiped out, and by March, 1921, the low levels of 1919 had again been reached. The price rout was added to in no small degree by the flood of Mexican oil that poured into this country in ever-increasing quantities in late 1920 and early 1921. Price of Lubricating Oils. — Lubricating oils are highly fabricated commodities, with a wide range of grades as compared with gasoline, kerosene, and fuel oil. A characteristic price average for lubricants 248 PRICES OF PETROLEUM AND ITS PRODUCTS is difficult to calculate, as there is no centralized record correlating quantities of output with prices. A fairly satisfactory composite, however, may be made b}^ taking a weighted average of five com- mon grades on the New York jobbing market — paraffin 903, red paraffin, dark steam refined, spindle No. 200, and spindle No. 150. To free the view as far as possible from extraneous factors, such as the cost of containers, the prices quoted were selected to represent the basic oils from which the brands coming on the market are com- pounded. Sales of lubricating oils are to a considerable extent made INDEX 400 100 90 A L JBRICATII IG OILS—- j: ^ 1 1 1 r^-. I \ ;- fr^ '>~ y-' \ > 1 1 1 1 \ \ \ /'' \ , / ; V / ' v_ .4- CRUDE F ETROLEU M \ 1913 1914 1915 1916 1917 1918 1919 1920 1921 Fig. 117. — Relative prices of lubricating oils and crude petroleum by naonths, 1913-1921, in percentages of the average figures for 1913. (Average prices in 1913 = 100.) on contract, but the spot prices reflect the market with reasonable accuracy. The relative price course of lubricating oils for the period under view is shown in Table 108 and plotted against the price trend of crude petroleum in Fig. 117. Considering the fact that lubricating oils are manufactured from only a portion of the crude petroleum run to refineries in this country', a notably close coincidence in the price curves of the two is to be observed, although the price of lubricants tends to be somewhat more stable than the price of crude petroleum. Up till recent years, the supply of lubricants was derived almost RELATION OF OIL PRICES TO COMMODITY PRICES 249 exclusively from Eastern crudes, but a growing share is now being made from the Mid-Continent, Gulf Coast, and Cahfornia petroleum. Reference to Fig. 117 shows that the price of lubricating oils held a fairly even course from the beginning of 1913 to early 1916, in the face of strong price disturbances prevailing elsewhere in the petroleum industiy. In April, 1916, there came a sharp rise in price- level, following the initial recovery of the crude market from the Gushing depression and the growth of orders for future delivery. For the remainder of 1916 and practically all of 1917, lubricants 1913 1914 1915 1916 1917 1918 1919 1920 1921 Fig. 118. — Relative prices of crude petroleum, petroleum products, and all commodities by months, 1913-1921, in percentages of the average figures for 1913. (Average prices in 1913 = 100.) remained stable, showing few of the fluctuations elsewhere taking place. The beginning of 1918, however, saw an abrupt ascent to prices well above those of 1916-1917, with further advances in early 1918 to twice the pre-war level, to be explained by a combination of circumstances — increases in the cost of high-grade crude, general domestic conditions of stress and high costs, transportation con- gestion, shortages in special grades, and the ever-increasing growth of demand. From then on to late 1919 there was little change in level. 250 PRICES OF PETROLEUM AND ITS PRODUCTS VALUE RELATIONSHIPS OF THE PETROLEUM INDUSTRY 251 MILLIONS OF DOLLARS 1600 In early 1920, In sympathy with markets in general, the price of lubricants rose to unprecedented heights, surmounting the whole price structure of petroleum. But this increase was short-lived; lubricants proved to be closely sympathetic in price with commodities in general and followed the country's price- level downward during its entire descent to early 1921, thus anticipating by several months the fall in price of crude petroleum. This im- mediate reaction to the in- dustrial depression is readily understandable in view of the far-reaching emplojmient of lubricants in industry. Relation of Oil Prices to Commodity Prices. — In order to bring the trend of prices in the petroleum industry into a still more summarized view, the relative prices for (a) crude petroleum, and (b) petroleum products (weighted average of gasoline, kerosene, fuel oil, and lubricants), are plotted in Fig. 118 against the price-level of all commo- dities as determined bj^ the U. S. Bureau of Labor Statis- tics. An interesting confor- mance between the three curves is to be observed, petroleum products tending to take a position in sym- pathy with the trend of crude petroleum on the one hand, and with all commodities on the other. The reaction of both crude petroleum and petroleum products to the decline of commodity prices in 1920-1921 is worthy of special study, with particular regard to the sequence in the decline of the three items. It is an open question, however, whether petro- 1916 1917 1918 1919 1920 Fig. 120. — Value of the domestic production of crude petroleum and its principal prod- ucts by years, 1916-1920. 252 PRICES OF PETROLEUM AND ITS PRODUCTS leum prices will foUow commodity prices throughout the entire future course of the latter, since technical factors pecuUar to petroleum are shaping up which may ultimately create a price divergence. The elevation of various groups of prices in 1920 above the pre- war level of 1913 is illustrated in Fig. 119. The price-level of gaso- line is especially noteworthy in this connection. The Value Relationships of the Petroleum Industry. — The aver- age prices calculated for the present chapter, in conjunction with production statistics available from official sources, afford the means for evaluating the output of the American petroleum industry. The value of the crude petroleum and the principal petroleum products turned out in the United States by years from 1914-1920 is accordingly presented in Table 111. Table 111. — Estimated Value of the Output of the American Petroleum Industry by Years, 1914-1920 {In millio7is of dollars) Year Crude Petroleum Gasoline Kerosene Fuel Oil Lubricating Oils Total of Four Products 1914 214* 125 1 97t 84t 56 1 362 1 1915 179* ...4 ...4 ...4 ...4 ...4 1916 3.31* 389 115 116 114 734 1917 523* 587 147 243 147 1124 1918 704* 775 186 352 260 1573 1919 850 879 298 291 273 1741 1920 1520 1294 396 580 514 2784 * U. S. Geological Survey. t 1914 Census of Manufactures. t Omitted because of the lack of production statistics for 1915. The figures appearing in Table 111 are shown in graphical form in Fig. 120, in which a comparative view may be gained of the increase in value of crude petroleum and its principal products over a period during which the industiy enjoyed a mounting output coupled with a rising price-level. CHAPTER XVIII RELATION BETWEEN PRICE AND PRODUCTION OF CRUDE PETROLEUM The production of crude petroleum depends upon many related variables such as strength of demand, difhculty of exploitation, intensity of search, element of chance, and many others. The inter- play between production and the composite of these variable factors is reflected in price, and a comparison of price with production should yield results of value, although the problem of correlation is too complex to be fully solved with available data and methods of analysis. The present chapter attempts to measure the two key elements in the crude petroleum situation in the United States and to establish so far as possible the degree to which a relationship between the two exists. The basis of the investigation is quantitative data on production and price, and qualitative data on all the other factors commonly recognized as entering into the situation. The period investigated is from 1913 to 1920, inclusive. The production data are the figures on marketed production compiled by the U. S. Geological Survey; the price data represent a weighted average of the average monthly price of five grades of crude petroleum, the original quotations being the posted price at the wells as given by the National Petroleum News.^ The data on production and prices are presented in Table 112. The data on the price-level of all commodities are the index ninnbers calculated by the U. S. Bureau of Labor Statistics and published in the Monthly Labor Review. Trend of Production, Consumption, and Price by Years. — A broad ]iicture of the production, consumption, and average price of crude petroleum in the United States by years from 1913 to 1920 is • The five grades are Pennsylvania, Illinois, Kansas-Oklahoma, Gulf Coast (Humble) and California (14°-17.9°), and the weighted average is derived according to the formula, . A more elaborate method ot 6 weighting was tried, whereby the prices were combined in proportion to the production of the respective fields, but sufficient divergence from the simpler method was not found to warrant the more laborious calculations. 253 254 RELATION BETWEEN PRICE AND PRODUCTION Table 112. — Marketed Production and Average Price of Crude Petroleum IN the United States by Months, 1913-1920 {Production in millions of barrels. Price iii dollars per barrel) 1913 1914 1915 1916 Prod. Price Prod.* Price Prod.* Price Prod. Price January. . February . March. . . . April May June July August. . . September October. . . November December Year 19.5 18.2 20.4 20.6 21.3 20.9 21.5 21.1 20.5 21.3 20.8 21.7 248 0.99 1.08 1.14 1.13 1.14 1.14 1.15 1.18 1.19 1.19 1.19 1.21 1.14 21.9 20.1 23.7 22.9 24.2 23.8 23.7 20.6 20.1 22.4 21.1 21.0 266 1.22 1.23 1.21 1.14 .95 .88 .86 .85 .76 .71 .70 .70 .93 21.0 20.3 22.7 26.1 22.7 23.4 24.8 23.7 23.4 24.0 23.8 25.1 281 .71 .72 .66 .64 .63 .63 .63 .67 .83 .88 .92 1.05 .75 23 1 22.7 25.5 24.0 26.0 25.5 25.3 25.2 25.3 26.7 25.3 25.9 301 1.23 1.31 1.40 1.48 1.49 1.49 1.47 1.27 1.15 1.17 1.21 1.33 1.33 1917 1918 1919 1920 Prod. Price i Prod. Price Prod. Price Prod. Price January . . February . March. . . April May June July August. . . September October. . November December Year 26.3 23.7 28.0 27.1 27.6 27.4 29.1 29.7 29.6 30.4 28.7 27.6 335 1.49 1.67 1.68 1.68 1.70 1.72 1.74 1.74 1.74 1.94 1.94 1.94 1.77 27.3 25.9 29.7 29.0 30.4 29.9 31.8 30.6 30.4 31.3 29 9 29.8 356 1.98 2.01 2.10 2.20 2.24 2.24 2.24 2.25 2.33 2.33 2.33 2.33 2.22 30.2 26.9 30.2 29.4 30.0 31.6 33.9 33.9 33.7 33.3 32.1 32.5 378 2.30 2.24 2.22 2.19 2.19 2.19 2.19 2.19 2.24 2.25 2.31 2.49 2.25 33.8 32.7 35.8 35.6 36.5 36.9 38.2 39.1 37.5 39.6 38.7 39.0 443 2.86 2.96 3.42 3.51 3.55 3.55 3.57 3.57 3.57 3.57 3.56 3.50 3.44 * Monthly figures for 1914 anfl 1915 aie approximate. TREND OF PRODUCTION 255 MILLIONS OF BARRELS AND CENTS PER BBL. 600 presented in Fig. 121, in which the items named are plotted by years on semi-logarithmic paper, and straight lines fitted to the three curves to in- dicate the average trends. The data on which Fig. 121 is based, together with corresponding index numbers, ap- pear in Table 113. It will be observed that the average annual increase over the past eight years has been ap- proximately 9.5 per cent for production, 12 per cent for con- sumption, and 22 per cent for price. It will be noted, further, that in 1920, as compared with 1919, pro- duction increased 17 per cent; consumption, 27 per cent; and price, 53 per cent. Table 113. — Trend of Production, Consumption and Average Price op Crude Petroleum in the United States by Years, 1913-1920 lOO 90 ,.M COh SUNlPTipN^^'^<(^^|v) UCTION t ^ ^^ -^^^ "^" / PI S^ 1 1 /#" \ 1 y V 1 > f 1914 1915 1916 1917 1918 1919 1920 Fi(i. 121. — Trend of production, consumption, and price of crude petroleum, 1913-1920. Year Production, Millions of Barrels Con- sumption, Millions of Barrels Average Price, Dollars per Barrel Production, Index Nos. Con- sumption, Index Nos. Average Price, Index Nos. 1913 248 262 1 14 100 100 100 1914 266 261 .93 107 100 82 191.5 281 273 .7.5 113 104 66 191G 301 319 1..33 121 122 117 1917 33.5 378 1.77 1.3.5 144 1.5.5 19 IS .3.56 413 2.22 144 1.58 19.5 1919 378 418 2.2.5 1.52 160 197 1920 443 .531 3.44 179 202 302 256 RELATION BETWEEN PRICE AND PRODUCTION Relation of Production and Price by Months. — The relationships shown in Fig. 121 are analyzed in greater detail in Fig. 122, in which the data given in Table 112 are plotted on semi-logarithmic paper, with the trend lines as determined in Fig. 121 superimposed upon the curves. The trend lines show a reasonably satisfactory fit and indi- 4bU 400 1 ' J^ t—t — ibU .Pf^ ODUCTION (UN TS OF 100,000 3BLS.) :?£^ ^Z. -"i iUU 250 f H V^ - -U kfi Sb— /= -^ ^ ■^ v- -^ V ,-^ JN . ■ 9. 5* [Tm^re^s' ^ V ,- " '^ <'- — ' -^ 200 150 100 w PRICE (c 1 ENTS PER BA iRE :1 'jL ■^ ._ ^- — x^ : 1 i^ ^ jM; ^ Bt. ^ V ^' t d^"*^ t yu , ^ ,' au — ' ^ 1 60 50 -— ' ■' -^. >' 19 13 19 14 19 15 19 16 19 17 1918 1919 1920 Fig. 122. — Relation of price to production of crude petroleum by months, 1913-1920. cate that price, in general, has increased at double the rate character- izing the increase in production. If the trend lines are looked upon as representative of the normal progression of the items, the wave- like advance of the price curve will claim attention — the reaction to the Gushing overproduction, the rebound from the price recovery of 1915-1916, the 1919 reflection of the post-war adjustment and the CAV . PRICE FOR 1913 = 1001 INDEX 400 30O ^ -" ^ 250 y^ -- r \ 150 100 ^ /■ -J :- ^ its' — .- ~ AL - C )M^ lOD TIE ^ - ^ / A CR JOE PE r.RC LE IM , *— ' ^"'^l *— i "^ ^ y j~»-j ) ' / 70 60 50 — ,'' V __ / '—V- 19 13 IS 14 19 15 19 16 19 17 19 IS 19 19 19 20 1 Fig. 123. — Relation of price level of crude petroleum to average of all commodities by months, 1913-1920. flush production of North Texas, and the sharp rise of 1920 followed by a less marked increase in production. Comparison of Price of Petroleum with all Commodities. — The rise in price of crude petroleum over the period shown is due to a grow- ing demand, an increasing cost of exploitation, and a general advance in the country's price-level. The last-named factor may be measured SECULAR TREND OF PRODUCTION 257 by plotting index numbers calculated from the average price of crude petroleum against index numbers representing the average whole- sale price of all commodities as determined by the U. S. Bureau of Labor Statistics. These two items are shown in comparative form on a semi-logarithmic scale in Fig. 123. Two features are outstand- ing: The several price reactions which temporarily depressed the price of crude petroleum below the level of all commodities; and the sharp rise in the price of petroleum above all commodities in 1920. The trend of the price relationship between petroleum and all commodities may be more strikingly shown by plotting the average INDEX 80 70 60 50 40 30 20 10 10 1U 105 n / / \ / r 7 :^ fT. J -A 1 LE VEL OF A L t OM ilOt IITI ;s - - - 1 J ■V A/" \r / 1 / \ A. p PF : OF c TROLE lUD JM ■ , 1 \ ^ V , / \ V ^ \ ■^ V V J V V V 19 13 19 14 19 15 19 6 19 17 19 18 19 19 19 20 FiCj. 124. — The average price of crude petroleum plotted as ordiiiates of the price level of all commodities, by months, 1913-1920. price of petroleum against the price-level of all commodities taken as a horizontal line. This method of plotting accentuates the degree to which the price of crude petroleum departed from the countiy's price level in 1920 and serves to explain in part the recession in crude petroleum prices that came in early 1921. (See Fig. 124.) Secular Trend of Production. — There are two simple methods of interi)reting the trend of a series of items, such as production or price. The first methotl is that of plotting the series on semi-logarithmic paper and fitting a straight line to the curve. This method, of course, interprets the trend as a geometric progression (see Figs. 121 and 122). A second method is that of plotting the series on a natural scale and 258 RELATION BETWEEN PRICE AND PKODUCTION fitting a straight line to the curve; in this instance, however, the trend Hne represents an arithmetic progression in which the growth is by addition instead of by percentage increase. Fig. 125 shows the production of crude petroleum interpreted by the second method, in which the line of secular trend represents a monthly increment of 179 thousand barrels. Fig. 125 emphasizes to a greater degree than does Fig. 122 the 1920 rise of production above the hne of "normal" trend. Secular Trend of Price. — In Fig. 126 the price trend of crude petroleum is also interpreted in the manner described in the pre- ceding paragraph. Figs. 125 and 126 should be carefully compared. MILLIONS OF J ~ 1 r~ BARFIELS aM 39 38 A ' / ' is/ 35 "^ /^ k ^ / ^ 31 30 l\ ^^ . /s '\ fV J r \ J^ ^ 28 A 1 V '-'j f \ w^ \ / 1 A- \ k' Y / \M \, \ / ./^ fy 1 V \ V H 23 22 V \\ ■^ < \ /^ t\ M ^ -^ r '^ r \ X, V ^^ 19 3 19 14 19 15 19 16 19 17 19 18 19 19 19 20 Fig. 12.5. — Monthly production of crude petroleum in the United States, 1913- 1920, together -with, line of secular trend representing the "normal" rate of increase. as they illustrate the price-production relationship on the assumption that the increases in each item are arithmetic. Correction of Curves. — If the two lines of secular trend appearing respectively in Figs. 125 and 126 be regarded as the normal tendency of production and price during the period under study, the deviations from these lines in each instance will presumably reflect transient or new factors entering into the relationship. A comparison of the deviations from secular trend is therefore suggested. The data underlying the two curves are consequently recalculated so as to show only the deviations from secular trend, the data for production being still further corrected for seasonal variations, and the results plotted in Fig. 127. Roughly speaking, Fig. 127 eliminates the sys- EXPLANATION OF CURVE CORRECTION 259 tematic upward trend in production and price, and shows niereh- the fluctuations from normal. The plot of the corrected curves illustrated in Fig. 127 shows a wide divergence between production and price in 1915, following the flush production of the Gushing Pool; a resonably good coincidence in 1916, 1917, and 1918, especially in the latter two years; a comple- mentary spread in the latter half of 1919, resulting mainly from the flush production in North Texas; and an upwaj-d divergence in 1920, with price rising roughly to three times the level of production. The chart is thought to represent an accurate measure of the extent to 325 300 275 250 225 r I 1 ^ / ^ ^ _(^ L < ^ 1 J V /• ^ N y* 200 175 150 125 100 75 50 25 A :^ ^ / ^ -) V \ i / / "^ \ ^ ^ 1 ^ J \ >^ ^ f ^ ^ ^ \- -\ ^ J / ^ L 19 13 IS 14 19 15 19 16 19 17 19 18 19 19 19 20 Fig. 12G. — Monthlj' average price of crude petroleum in the United States, 1913-1920, together with the hne of secular trend representing the "normal" rate of increase. which the production of crude petroleum was overstimulated b}' the unduly sharp price rise in the first quarter of 1920, and to rather clearly forecast the conditions of oversupply that characterized the closing months of the year and led to the price cuts that started in December and became prominent early in 1921. Explanation of Method of Curve Correction. — The method fol- lowed in the preceding section was suggested by a number of inves- tigations conducted by the Harvard University Committee on Eco- nomic Research under the editorship of Warren M. Persons.^ The 'See especially: An Index of General Busines.s Conditions, The Review of Economic Statistics, April, 1919; Indices of Business Conditions, Ibid., 260 RELATION BETWEEN PRICE AND PRODUCTION calculations involved are rather lengthy and, for want of space, are not given here. The seasonal variation in the production of crude petroleum determined by the method followed by the Harvard University Committee on Economic Research, is shown below, as this factor may be of general use in correcting monthly production figures. As is obvious, production fluctuates according to the number of INDEX 50 40 30 20 20 ^ f \ X -,^ ^ n 4 J \ /n/ \j ^ \ J y^ V •v J - - ... \ y \r 1 f\ ^ PR JOUOTI 1 5\ iy- ^ v.. ^ ^ / i] 'S^ ... V/ V Y f \ , L-i RIC \ V ^ .;' •/ \ s \ J 19 13 19 14 19 5 19 16 19 17 19 13 19 19 1920 Fig. 127. — Production and average price of crude petroleum in the United States by months, 1913-1920, corrected so as to show the deviations from the "normal" rate of increase. days in the months, and is relatively more vigorous in the warm months than in the winter. Calculations based on monthly data for the eight-year period, 1913-1920, yield the following index numbers representing the average variations of seasonal origin: Table 114. — Index Numbers Showing the Seasonal Variations in the Production of Crude Petroleum, Based on the Years, 1913-1920 January February March April 99.1 91.3 102.4 99.8 102.0 101.9 July 105.1 103.7 98.7 101.6 96.5 98.2 100 August September October November December Average. . . May June January, 1919; E. E. Day, An Index of the Physical Volume of Production, ibid., September, October, November and December, 1920. COMPARISON OF CORRECTED CURVES BY YEARS 261 Comparison of Corrected Curves by Years. — In order to concen- trate the results given above, with a view to eliminating all details, the yearly production, consumption, and price of crude petroleum for the period 1913-1920 were recalculated and the secular trend removed. The results were then plotted in Fig. 128, which shows the Fig. 128. — Production, consumption, and average price of crude petroleum in the United States by years, 1913-1920, corrected so as to show the deviations from the "normal" rate of increase. relative fluctuations of the three items from normal. While a math- ematical treatment of this land must be interpreted with caution, the chart would tend to indicate that in 1920 price advanced 30 per cent higher than was necessary and led to a production of some 35 milhon barrels of crude oil in excess of the quantity actually needed. CHAPTER XIX THE BEARING OF AUTOMOTIVE TRANSPORTATION UPON THE OIL INDUSTRY There is no industrial parallel to the growth in output of pas- senger cars, trucks and tractors in the United States during the past ten years. The expansion of automotive transportation is one of the remarkable features of the twentieth century. The number of cars, trucks and tractors produced annually in the United States from 1910 to 1920 is shown in Table 115. The approximate number of motor vehicles (passenger cars and trucks) registered during each year from 1912 to 1920 is shown in tabular and graphic form, according to states, in Fig. 129. Unfor- tunately the passenger cars and trucks are not separately registered in many of the states, nor is there any accurate inventor3' of the number of tractors in operation, but a rough apportionment of the automotive units into passenger cars, trucks, and tractors may be made on the basis of the production figures and such registration data as are available. The results of such a division are given in Fig. 130, together with the production figures, the chart therefore being an approximate measure of the remarkably rapid development of the automotive field. In rough terms, automotive transportation has grown at a rate of 40 per cent a year over the past decade. The sudden rise of such a factor has exercised a profoimd effect upon the petroleum industiy. Rapid Diversion of Oil Products into Automotive Channels. — Automotive transportation, of c(jurse, depends u])()n the oil inckistry for its supply of fuel and of lubricants. The growth in deinuinl for these products caused by the expansion of automotive transp(jrtation has rapidly encroached upon the supply of oil products until in 1920 approximately 25 per cent by volume and 49 per cent by value of the output of the American oil industry' was diverted into automotive channels. In the past ten years the quantity of fuel and luV)ricants annually consumed by automotive transportation in this countiy has increased from 3 million barrels to approximately 100 million barrels; while during the same period the value of the oil products consumed each year ])y automotive transportation has advanced 262 MAJOR FINANCIAL RETURNS 263 from 9 million dollars to approximately 1 billion dollars. To such an extent has the oil industry come to be the support of automotive transportation. Fig. 131 shows the rapid encroachment of automotive requirements upon the output of the oil industry. I Motor Vehicle Registration 1912 to 1920 1912 1913 1914 1915 1915 1917 1918 1919 1920 Alabama 3,385 5,-135 8,078 11,925 21,636 32,873 46,17V 68,898 74.637 Arizona 1,624 3.098 5,040 7,318 12,124 19.890 23.905 28,979 34.559 Arkansas 2.250 3,000 5.642 8,021 15.000 28,693 41.4S8 49.450 59.082 California 88,699 60,000 123.516 163.795 232.440 306,919 364.800 477.450 568,892 Colorado 8.950 13.135 17.756 27.568 43.296 66.850 83,630 104.865 128,951 Connecticut 24,101 27,189 33,009 43.985 61,855 85,724 92,605 109,651 119,134 Delaware 1,732 2,350 3,050 4.657 7,102 10,700 12.955 16.152 18,300 DIst. of Col 1,732 2.373 4,833 8,009 13,118 15.493 30,490 35,400 9,712 Florida 1,749 2,372 3,368 10,850 20,713 27.000 54,188 55,400 •73.914 Georgia 19,120 18.500 20.916 25,671 47.579 70,357 99.800 127,326 144,422 Idaho 2.500 2,173 3,346 7.071 12,999 24.731 32,239 42.220 60,87S llllnola 68.073 94.656 131.140 130,832 248.429 340,292 389,620 478.438 568.754 Indiana 64,334 47.000 66,400 96.915 139.317 192.192 227,160 277.255 332,707 Iowa 47.188 75.088 112.134 152.134 193.602 254,317 278,313 363,867 437.300 Kansas 22.000 34.366 49.374 72.520 112.122 159.343 189.163 227,752 265.396 Kentucky 5,147 7,210 11.746 19,500 31.700 47.416 65,870 90,841 112.(585 Louisiana 7,000 7,200 12.000 11.380 17.000 28,394 40.000 51,000 66.000 Maine 7,743 10.570 15.700 21,545 30,972 41.499 40.372 S3.425 62,907 Maryland 10,487 14,254 20.213 31.047 44,245 60.943 74,666 95.634 •116.341 Massachusetts .. 50.132 62.660 77,246 102.633 136.809 174,274 193,497 2*7.183 304.631 Michigan 39,579 54,366 76,389 114.845 160.052 247,006 262,125 325,813 412.71' Minnesota 29,000 37,800 67.862 93,269 46,000 54,009 204.458 259,743 65,517 Mississippi 2,895 3,000 5.964 9.669 25,000 36,600 48.400 45.030 63.484 Missouri 24.379 38.140 54.468 76,462 103.587 147,523 183.040 244,363 296.919 Montana 2,000 5,686 10,172 14.499 24,440 42,696 61.037 55.325 60,646 Nebraska 33,861 25,617 40.S29 59.140 100.534 148.101 175.409 192.000 223.000 Nevada 900 1.131 1.487 2.009 4.919 7.160 8.159 9.305 10,464 New Hampshiro 6,764 7,420 9,571 13.449 17.508 22,267 24.817 31,625 34.cfl0 New Jersey... 43.056 48,892 60,247 78,232 104.341 134,964 155.519 190,873 227,737 New Mexico 911 1,721 2.945 5.100 8,228 8.457 15.000 18.077 22.109 New York .,. 107.262 134.405 169.966 234.032 317,866 411.567 463,758 571,66? 669,290 North Carolina.. 6,178 10,000 14,677 21,000 33.904 55,950 72.313 109,017 140.360 North Dakota . . 8.997 13,075 15.701 24,908 40.446 62.993 71.627 82 885 90,840 Ohio ■... 63,066 86.054 122,504 181.332 252.431 346,772 412.775 511.031 615.397 Oklahoma .... 6.524 7,934 13,500 25.032 52,718 100.199 121,500 144,500 204,300 Oregon 10.165 13.957 16.447 23.585 33,917 48,632 63,324 83.332 103,790 Pennsylvania .. 59.357 76.178 112.854 160.137 230,578 325.153 394,189 482,117 570.164 Rhode Island 8.565 10.294 12.331 16.362 21,406 37.046 36.218 44.833 50,375 South Carolina 10,000 11 500 14 500 15 000 19 000 39,527 55.492 70,143 92,819 South Dakota, 14.481 14.578 20,929 28,784 44,271 67,158 90,521 104.628 120,396 Tennessee 35,187 54.362 19,769 7.618 30.000 48.000 63.000 80,422 101,852 Texas 35,187 54,362 64,732 90,000 197,687 213,334 251.118 331,310 427.693 Utah 2.576 4.021 2 253 9,177 13,507 24.076 32.273 35.236 42,578 Vermont . 4 283 5 913 8.256 11,499 15,671 20,369 22,655 26,807 31.625 Virginia 5.760 9,022 14.002 21.357 35.426 55,000 72 228 94.120 134 000 Washington ... 13.990 24.178 30,253 38,823 60.734 91.337 117.278 148.775 •173,920 W Virginia ... 5.349 5,088 6.159 13,279 20,571 31.300 38.750 50,203 78.862 Wisconsin 24.578 34,646 53.161 79.791 115.637 164.531 196,844 236.981 293.298 Wyoming 1,300 1,584 2.428 3,976 7,125 12,523 16,200 21,371 23. 92^ Totals 1,033.096 1.287,&5fl 1.768.720 2.479.742 3.584.567 4,992,152 6.105.974 7.596.503 8,932.458 •Estli ated. II iMl LEGEND WW CARS REGISTERED IN 1920 l^^^^-l CARS REGISTERED IN 1919 I I CARS REGISTERED IN 1918 tTTTi CARS REGISTERED IN 1917 m .liij: 600,000 500,000 400,000 300,000 200.000 100,000 50.000 id^li o a > < ^- z « ui 5 g 5 5 -: J ^; E kS ^ ^ a o SzOZO' Fig. 129.— Motor vehicles in the United States by years, 1912-1920; after .Vutoniotivo Indu.stries. Major Financial Returns from Automotive Requirements.^At the present time Mi)pi()xhuiitely one-hull" of the revenue of the average oil company is derivetl from the sales of products going into automo- tive transportation. This proportion, however, is increasing, since 264 THE BEARING OF AUTOMOTIVE TRANSPORTATION automotive requirements are expanding at a greater rate than counter-demands, with the result that a rapidly growing encroach- ment upon the remaining 50 per cent is coming into e\ddence. SCALE OF INCRBASe OR DECREASE + IOO58 + 80 + 60 + 40 J+ 20 10 20 J- 30 40 50 1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 1921 Fig. 130. — The growth of automotive transportation by years, 1910-192(3. Future Demands of Automotive Transportation. — The 1910-1920 rate of growth of automotive transportation which approximated 40 per cent per year represents a rapidity of growth that can not be expected to continue unabated; a careful inspection of Fig. 130, indeed, reveals the tendency of the trend lines to modify their slopes VALUE CONSUMED BY ALL OTHER REQUiREMENTS FUTURE DEMANDS OF AUTOMOTIVE TRANSPORTATION 265 toward the end of the decade represented. A careful analysis of the factors entering into the growth of automotive transportation, however, suggests that , ., ^. , , QUANTITY while the exuoerant expan- sion characteristic of the past decade will undoubt- edly become more temper- ate, a substantial and con- tinuous growth may be ex- pected, barring the inability of the petroleum industry to maintain a supply of motor-fuel and lubricants at a favorable price. Refer- ence to Fig. 130 will bring out the fact that as the rate of expansion of passenger cars begins to taper off, the growth of motor trucks comes forward as a sup- porting factor; and as the expansion in this field begins to moderate, the growth of tractors comes into prominence. CONSUMED BY AUTOMOTIVE TRANSPORTATION Fig. 131. — Quantity and value of petroleum products consumed by automotive transpor- tation compared with the consumption by all other requirements in 1920. Table 115. — Puoduction of Cars, Trucks and Tractors in the United States BY Years, 1910-1920 (/« thousands) Year Passenger Cars * Trucks * Tractors 1910 181 6 4.5 1911 199 11 7.4 1912 356 22 11.4 1913 462 24 7.4 1914 544 25 10.4 1915 819 74 22 1916 1494 90 28 1917 1741 128 63 1918 926 227 135 1919 1658 316 175 1920 1883 322 200 * Data from National Automobile Chamber of C'oiiiinercc. 266 THE BEARING OF AUTOMOTIVE TRANSPORTATION EFFECT UPON GASOLINE 267 The approach of passenger cars to a number representing the sat- uration point of the country does not therefore mean a hmitation to the whole field of automotive transportation. The growth of truck haulage has no such saturation point. With a bountiful and cheap supply of fuel the motor truck can expand to a further degree, finally enlarging its scope of activity from the field which character- izes it at the present to a point of coordination with railway trans- portation which will make it an integral part of that countrj^wide system. Tractors likewise occupy a field which is in its infancy. Mechan- ical tillage and mechanical work on the farm represent the only solution in sight for the growing food requirements of a large popu- lation and for the steady migration of labor from rural districts to industrial centers. The aeroplane also is a type of automotive transportation whose future would appear to be important should no limitation of fuel supply intervene. On the whole, the future demands of automotive transportation appear to be insatiable. The requirements of this field present to the oil industrj^ an opportunity and an obligation which cannot be exaggerated. Automotive demands will either make the oil industry greater than it is at present, or they will place a burden upon the oil industry which it cannot support. Effect of Automotive Requirements upon Oil Products. — Already the rapid growth of automotive requirements has had a far-reaching effect upon the character and volume of products turned out by the oil industry. Gasoline has been changed from a minor to a major product. Kerosene has been raised in price, and gas oil is in course of diversion from the open market. Fuel oil has been seriously cut into, and the supply of lubricating oils, especially those of heavier body, has been heavily burdened. These may be regarded as the initial elTects that automotive transportation may be expected to exert in growing degree upon the oil industry. It maj'^ be worth while to review these consequences in somewhat greater detail. Effect upon Gasoline. — Once a reject in connection with the manufacture of kerosene, gasoline in the aggregate is now the most profitable product turned out by the oil industiy. In the past ten years its output has grown from a quantity representing scarcely 6 per cent of the crude oil consumed in the United States to a present volume which represents 22 per cent. The mounting demand for gasoline has not only stimulated the output of crude petroleum, but has also dictated refineiy expansion and changes in refinery technique until now it not only involves practically all of the natural gasoline extracted from the crude petroleum, but draws upon outside sources 268 THE BEARING OF AUTOMOTIVE TRANSPORTATION EFFECT UPON KEROSENE 269 of gasoline such as that won from natural gas. In the past few years also, cracking processes of distillation have been developed and changes in the character of the gasoline supply to the inclu- sion of material once marketed as light kerosene have come into play. In addition blends of gasoline and naphtha with benzol and alcohol are coming on the market, thus indicating the opportunity for incre- ments to the gasoline supply from extraneous chemical sources. All of these factors are the direct resultant of the growth of automotive transportation. Without a rapidly increasing demand for gasoline, these changes would not have become necessary and would not have appeared. Efifect upon Kerosene. — Once the major product of the oil industry both in volume and value, kerosene has been subordinated to a secondaiy position. In spite of a growing consumption of crude petroleum the output of kerosene has remained nearly stationary, the potential increase going instead into the production of gasoline. The supply of kerosene also, once largely confined to hghting and heating, is now undergoing encroachment by the internal combustion engine. Considerable quantities of kerosene are used in stationary engines, boats and tractors. The domestic market for kerosene has thus come Hrgely to lose its former seasonal character. The peak of the kerosene demand has been lost in the leveling effect of auto- motive requirements. Efifect upon Gas and Fuel Oil. — The mounting requirements for gasoline have forced the expansion of cracking processes of distillation using gas oil to such an extent that the supply of this product, once catering dominantly to the manufacture of city gas, has become insuf- ficient for meeting the combined demand and a serious shortage of gas oil is under development. This latent stringency may be expected to increase until the gas industry is forced to adapt its practice either to get along without gas oil, or as a temporary expe- dient to make use of the heavier varieties of fuel oil. A continued growth of cracking is to be expected, and this expansion will not only quickly preempt the available gas oil but will gradually encroach upon the whole fuel oil supply to such an extent as to curtail many of the industrial and transportation demands now dependent upon this product. Effect upon Lubricants. — The requirements of automotive trans- portation have injected a new and rapidly growing demand into the countiy's output of lubricating oils. While crude petroleum is produced in excess of lubricating needs, expansion in the production of lubricating oils is predicated upon extensive changes in refineiy equipment. During the past few years, the addition of automotive 270 THE BEARING OF AUTOMOTIVE TRANSPORTATION requirements to the normal industrial demand has expanded the need for lubricants beyond the capacity of the types of crudes formerl}^ regarded as essential to the manufacture of the best products, with the result that growing emphasis is falling upon the asphaltic crudes which in the early days of refining were not regarded as suitable raw material for the fabrication of lubricants. During the early part of 1920, the rapid growth of the automotive demand resulted in a shortage of the heavier-bodied lubricating oils such as enter significantly into the make-up of motor-oils. These effects in the long run may l^e expected to continue and to have still further influence upon refinery technique and upon trade practice in respect to compounding the oils employed. Creation of a Motor-fuel Problem. — The growth of automotive requirements in excess of a corresponding rate of expansion on the part of the oil industry has created a maladjustment between the motor-fuel supply and the average automotive equipment for hand- ling the fuel. In an attempt to maintain sufficient gasoline, the character of the gasoline has been permitted to change until now it is somewhat less adapted to the engine than was once the case. This lack of balance between engine and fuel has created a problem which is receiving the active attention of the automotive industry and constitutes a field of growing importance. It is rapidly coming to be evident that increasing difficulty will be met in maintaining the supply of motor-fuel without a greater degree of correlation between the fuel and the engine than has yet been attained. The accomplish- ment of a parallel development of fuel and engine to the maximum easement of the fuel supply constitutes in simplest terms the motor- fuel problem. Creation of a Dilution Problem. — The rapid growth of automotive requirements in respect to gasoline, entailing a physical change in the character of the latter, has had a secondary effect upon the lubri- cating oil used in the internal combustion engine. The heavy ends of the gasoline, increasing in quantity as the volatility of the com- mercial supply of gasoline decreased, have tended more and more to pass through the automotive apparatus incompletely burned and to dilute the crank-case oil, with serious effects upon the efficiency and the life of the engine. This outcome has brought sharply to the fore the necessity of regarding motor-oil and motor-fuel as comple- mentary products, each to be adapted to the character of the other, and the two to be coordinated with the engine type. This matter offers an opportunity for constructive work of importance. Creation of a Peak-load Problem. — The growing demand for gasoline has been complicated by the seasonal character of the CREATION OF A PEAK-LOAD PROBLEM 271 re(jiiirc'nK>iils. As is well known, the quantity of gasoline needed for the months of July and August is roughly twiec the reciuirenient of a similar period during the winter. With the growth of the gaso- line demand from year to year the peak load has become more and more accentuated. A shortage in supply will make its first appear- ance as a stress at the peak season. Under such conditions, the free operation of the law of supply and demand will dictate price advances for the purpose of allocating the inadequate supply. And gasoline touches the interests of so many individuals that sharp price increases accompanying a shortage are likely to bring on popular disapproval and govermriental investigation, with the possibility of official restrictions and regulations. Hence counter-methods of cooperative allocation in the place of price allocation may come under consideration, in an attempt to avoid the results of governmental action. The Oil Industry Becoming a Transportation Industry. — The out- standing characteristic of the oil industry is its rapid and inevitable drift toward the, status of a transportation industry, with all the public service obligations and restrictions that this term implies. The problem faced by the oil industry in this respect is a difficult one. The industry has inherently assumed responsibility for maintaining the supply of motor-fuel. This supply in all probability, however, cannot be maintained in requisite degree, so insatiable are the demands of automotive transportation. As a result, a motor-fuel shortage and a consequent price reaction become an ultimate event- uality, with all the possibilities that may grow out of that circum- stance. CHAPTER XX THE ECONOMIC SIGNIFICANCE OF CRACKING , Nature of Cracking. — It has long been known that when sub- jected to high temperatures the heavier components of crude petro- leum break down or crack into lighter compounds. Thus, distilla- tion processes, early in the development of oil refining, were so adjusted that the hot vapors fell back into the still, whereupon some decomposition would ensue, leading to an enlarged output of kero- sene and gasoline. Such processes, however, increased the refineiy losses and were so destructive of the lubricating components that they were found inexpedient in refineries intent upon producing lubricating oils in maximum output and of superior quality. The desire to offset the lessened yield of gasoline and kerosene incidental to lubricating output was one of the incentives that led to the development of independent cracking processes which could be applied after the initial separation of the components had taken place. This is the type of cracking that has outstanding significance under present conditions. Cracking during the initial distillation, though still widespread in refinery practice, is due to pass as refiner}^ equipment is converted more and more to lubricating plants making a full extraction of values. At the same time cracldng as an inde- pendent process, applied to one or more of the distillates obtained from the initial process of distillation, is on the increase stimulated by the growing demands for gasoline. Cracking Processes. — A large number of cracking processes have been devised, but few have attained commercial success; and only one, the Burton process, controlled I)}' the Standard Oil Company of Indiana, has thus far made large contributions to the gasoline supply. The principles of the important processes are roughly the same — distillate fuel oil of a not too heayv' character (gas oil) is subjected to special treatment under the influence of heat and pressure by means of which it is broken down or cracked into gasoline and a residual fuel oil, with the incidental formation of some carbon. While high efficiency is often claimed for cracking processes, the current commercial practice yields gasoline on an average of only about 30 to 40 per cent of the original material subjected to the 272 RAW MATERIAL FOR CRACKING 273 process. Thus 100 gallons of gas oil ordinarily produce 30 to 40 gallons of gasoline, the remainder being left in the form of residuum available as fuel, and coke which must be removed periodically' from the apparatus at considerable expense. The cost of cracking is not publicly known, but the inference may be drawn from such information as is available that gas oil may be profitably cracked so long as its market price does not exceed roughly two-fifths to one-haK the price of gasohne. Thus, with gasohne selling at 30 cents, it would be profitable to crack gas oil if the latter does not bring over 12 to 15 cents for other purposes. For the city- gas industry to secure a supply of gas oil, for example, it must com- pete with the cost relation just noted and be prepared to pay more than the value of the oil as a raw material for cracking. But effective competition in this direction would curtail the output of gasohne and result in a rising price for the latter which again would place the price of gas oil on a higher level. The mere fact that motor-fuel represents an economic requu-ement of higher rank than the demand for gas oil for purposes of enriching city-gas, indicates that cracking will not be effectively retarded by the claims of the gas industry upon this raw material. Raw Material for Cracking. — Cracking is successfully conducted in practice by utilizing only the lighter varieties of distillate fuel oil (gas oil) as raw material. The reason for this preference is that as fuel oil increases in density, or weight, the ratio of carbon to hydrogen in its components also becomes greater, and larger losses and rela- tively smaller yields are obtained in proportion as the raw material is richer in carbon. Thus as cracking is applied to successively denser types of fuel oil a critical point is reached at which cracking becomes commercially impracticable, irrespective of the efficiency of the process; and beyond which the manufacture of gasoline from such raw material can be accomplished only by a process of hydro- genation, or hydrogen-adding. The position of such a point is hard to determine accurately, especially as it may be shifted slightly by technical and economic changes in the cracking situation ; but it is a fair assumption that it divides the country's supply of fuel oil into two portions, of which the larger includes the heav^' fuel oils unsuited for cracking. The heavier varieties of fuel oil (including residuum), which far outweigh in volume the lighter distillate fuel oils, have not therefore lent themselves to effective or profitable cracking. Some additions to the country's supply of light distillate fuel oil will come through changes in refinery practice, especially as skimming plants develop into complete-run refineries; but significant additions on this score 274 THE ECONOMIC SIGNIFICANCE OF CRACKING cannot arrive rapidh'. On the whole, the rigorous requirements of cracking processes in respect to raw material put a serious brake upon the rapidity with which the output of cracked gasoline can increase, and set an ultimate limit far short of the point at which the total fuel-oil supply of the country would be involved in the process. Under present practice, it will be scarcely possible, I'oughly speaking, for cracking to involve more than half of the fuel-oil supply and to yield cracked gasoline in excess of 25 per cent of the total quantity of fuel oil produced. It is apparent, then, that as the output of cracked gasoline increases, more and more of the lighter varieties of fuel oil will ])c diverted from their present uses until only the heavy fuel oils will be left to meet the normal commercial demands for this product. Residuum from Cracking. — A significant factor in the growth of cracking is found in the high proportion of the raw material which is not converted into gasoline and hence is thrown back into the fuel- oil supply as an uncrackable residuum. The volume of this residuum increases in direct proportion to the quantity of cracked gasoline produced, and hence as cracking eats into the fuel-oil supply on the one hand, a greater volume of residuum accumulates on the other; therefore the fuel-oil resen^e of the country is encroached upon by cracking at more than double the rate ordinaril}^ taken into account. Fig. 135 illustrates this point and indicates how' quickly, irrespective of the quantity of fuel oil available, the potentiality of cracking may be realized. Relation of Cracking to the Gasoline Supply. — The demand for gasoline is growing faster than the supply of crude petroleum, and since 1917 the quantity of gasoline produced in this country has exceeded by a widening margin the quantity of natural gasoline con- tained in the crude petroleum consumed. (See Fig. 134.) Although casing-head gasoline and a change in the average quality of com- mercial gasoline to include some of the lighter kerosene cuts have augmented the supply of gasoline, the main increment to the normal quantity is now the contribution from cracking stills. A rough view of the growth of the various components entering into the gasoline supply is shown in Fig. 52, page 116. Natural Gasoline. — The potential supply of natural gasoline has been calculated from the character and output of the crude petro- leum produced in the various states and imported, and the results are plotted in Fig. 134 against the actual production of gasoline. The chart shows clearly that up to 1917 more natural gasoline was present in the crude petroleum consumed than was necessary- to meet gasoline requirements, whereas after that year supplementaiy sources of NATURAL GASOLINE 275 gasoline were necessary to fill the demand. The chart also out the important part played by the high-gasoline crudes North Texas field in 1919-1920. Projecting forward the data especially in the light of the growing importance of low-g 1900 1905 1910 1915 1920 l)rings of the shown, asoline MILLIONS OF BARRELS B 10 5 O 120 Fk;. 134. — Chart showing the natural-gasoline content of the crude petroleum annually produced in the United States by fields and imported during the period, 1900-1920. crudes, it would appear that the available natural gasoline will show a slowing rate of increase in the face of an accelerating demand. This tendency will increase the burden falling upon cracking and create a gasoline shortage in the failure of cracking to expand with sufficient rapidity. Fig. 134 will repay careful consideration, as it dissects and measures the trend of the component parts of the largest contributor to the gasoline supply. 276 THE ECONOMIC SIGNIFICANCE OF CRACKING Casing-head Gasoline. — A significant production of a highly volatile gasoline, called casing-head gasohne, is won from natural gas. This relatively' new source of supply has made important contribu- tions, approximating in 1920 about one-tenth of the total output of gasoline, and having an added importance as a blending agent facilitating the employment of light kerosene as motor-fuel. As to the future, a careful appraisal of the casing-head gasohne industry indicates that while in absolute terms the output of this product will probably increase, its ratio to the total production of gasoline of all types cannot be expected to become greater. Hence, casing-head gasohne has already exerted its maximum effect upon the gasoline situation, and may be accredited with no added importance in appraising the broad developments ahead. End-point of Gasoline. — Since 1915, especially, the volatility of gasoline the countiy over, while showing minor fluctuations, has steadily decreased. Expressed in terms of the boiling point of the heaviest fraction — technically called the end-point — this statement is equivalent to saying that the end-point of gasoline since 1915 has notably risen. This again is equal to stating that a considerable quantity of light kerosene according to 1915 standards now goes into the supply of gasohne, constituting the high boihng-point fractions, or " hea'vy ends," of the latter and causing the present high end- point. The average end-point of the countrv^'s supply of gasoline, according to recent motor-gasoline surveys conducted by the Bureau of Mines, was 417° F. in April, 1919; 427° F. in January-, 1920; 456° F. in July, 1920; and 429° F. in January^ 1921. The advance in end-point of gasoline is an indication that the demand for this product is exceeding the combined efforts of natural gasohne, casing-head gasoline, and cracked gasoline to meet require- ments. The only handicap to a continued advance in end-point is the inability of existing internal combustion engines to utilize effi- ciently the heavy portions of such products. A significant ten- dency toward engine adaptations in this direction, however, is coming intx) being; and the gasoline situation will be considerably influ- enced by the extent and rapidity with which automotive equipment becomes capable of handling heavier and less volatile motor- fuels. The course of ■ automotive developments, in consequence, will have a bearing upon cracking; and should automotive equipment come to a point of independence in respect to the volatility of the fuel which it consumes, cracking will no longer be necessary and will decline. The possibility of this eventuality must be borne in mind in appraising the future of cracking. APPRAISAL OF THE FUTURE 277 Appraisal of the Future. — An attempt to reduce to a quantitative basis the Hne of reasoning given above is shown in Fig. 135, which traces the factors involved through the past ten j^ears on the basis of actual statistics and ])roj('('ts the i^robable course of events to the end of 1925. Fig. 135 shows the consumption of crude petroleum in the United States during the period 1910-1925 (estimated of course for 1921- 1925) divided broadly into the fuel and non-fuel components, kero- 278 THE ECONOMIC SIGNIFICANCE OF CRACKING sene being left as intermediate or neutral ground which may swing either way. The ]^r()jec'ted course of crud(^ consumption is of course hypothetical, althougli leased on a careful analysis of the situation; but the point should be emphasized that the validity of the chart does not depend upon the accmiicy of the jirojected portion of the crude consumption curve. . Large variations in the latter may be seen to have a greatly minimized effect upon any component shown. The chart represents fuel oil as a motor-fuel reserve upon which cracking is rapidly encroaching. This invasion will probably remove gas oil from the open market before the end of 1923, while the supply of potential gas oil will probal^ly run out (being entirely consumed for cracking) by the end of 1925. If this reasoning is essentially correct — and it will merely be modified, not invalidated, by unfore- seen developments in supply — cracking would reach its maximum rate of expansion in five years, slowing down after 1925 to a rate of growth parallel with the increase or decrease in the quantity of crude petroleum made available for consumption. Such is essentially the outside attainment that may be expected from cracking in the next five years; as a matter of fact, the growth of cracking is likely to be less than the maximum indicated on the chart, perhaps approxi- mating the dotted fines passing through the area marked " cracked gasoline." The question therefore arises as to whether cracking can sustain the supply of motor-fuel in sufficient volume to support the mounting requirements of automotive transportation. The conclusion that seems indicated by the analysis given is that the supply maj^ be maintained over a few years, but shortly the Hmitations to cracking will come into effect, and cracking unaided by other expedients will l)egin to prove inadequate. In this event, the internal combus- tion engine will be gradually forced to fall back upon heavier, less volatile fuels than gasoline, which will set up a counter demand for the light fuel oils and other distillates for admixture directly with gasoline, and thus cut into the raw material for cracking at the same time that cracking is rendered progressively unnecessary'. CHAPTER XXI COMPOSITE MOTOR-FUELS In recent years considerable attention in the automotive field has been directed to the relation existing between the internal com- bustion engine and its fuel. The rapid rise of automotive transpor- tation has led to a country-wide change in the volatility of gasoline, which has attracted no end of interest and raised the problem of better fitting the fuel to the engine, or vice versa, or else striking a compromise adjustment between the two.^ As the matter is shaping u]:) now, there are three avenues through which this adjustment is tending to come about: (1) The production of a growing quantity of synthetic gasoline from the heavier oils, through the so-called cracking processes of distillation. (2) Adaptations on the part of the engine to acconnnodate the efficient utilization of less volatile gasolines and heavier oils. (3) The development of composite fuels or blends, which permit the enlargement and possibly the improvement of the fuel supply, through additions of material not suitable or sufficiently bountiful alone to be of conse- quence. The future of any one of these three expedients for furthering the advance of automotive transportation depends upon the coiu'se of development in respect to the other two, and the final outcome will be the resultant of factors which cannot be wholly appraised in advance. Not the least of these is the extent to which the whole matter is brought under scientific control Ijy far-sighted and con- structive efforts on the part of the fuel and automotive industries acting in common. Composite fuels are by no means a new element in the fuel situa- tion, even in the United States. Indeed, much of the gasoline mar- keted in this country to-day is composed of straight-refinery gasoline blended with gasoline made in pressure stills, or with casing-head gaso- • Pogue, Composite Fuels, Society of Automotive Engineers, January 7, 1920. 279 280 COMPOSITE MOTOR-FUELS line recovered from natural gas, together with petroleum distillates that were formerly sold as naphtha or kerosene; and even gasolines are being modified through the addition of benzol. Casing-head blends alone have succeeded in adding about 10 per cent to our total supply of engine fuel. Composite fuels, in which not only distillates of petroleum origin but benzol, coal-tar oils, alcohol and even other chemical products play a part, have of course been long in use in Europe, and some of these met with considerable expansion during the war, especially in Germany. In the past few years, fuel blends containing benzol or alcohol have also come into qualitative, if not quantitative, prominence in the United States, thus drawing atten- tion to the poRsiliilities of their future importance in this countr>\ Source of Composite Fuels. — The resources in sight from which the components of composite fuels may be drawn are mainly three in number : (1) Crude petroleum (ultimately including shale oil). (2) Bituminous coals, which are capable of yielding tar oils, benzol products and other hydrocarbons when subjected to by-product distillation. (3) Organic products rich in sugars, starches or cellulose, especially waste products of organic origin, from which oxygenated hydrocarbons such as alcohols and ethers can be manufactured, chiefly through the aid of bac- terial fermentation. As regards the quantity of raw material available, the United States is bountifully endowed in all three respects. Since, however, an extensive and highly organized industrial agency of fabrication and distribution must stand between these resources and the utiliza- tion of their fuel potentialities for automotive power, the develop- ment of composite fuels becomes dependent not only upon the con- ditions controlling the growth of the oil-refining industry, the coal- refining industiy, and a group of activities which may be termed the fermentation industiy, but also upon the interplay between these interrelated activities. The oil-refining industiy is the largest, most firmly established and highly developed of the three, and its capacity and industrial ability may briefly be dismissed as being sufficiently in mind. This industiy turns out four products of major importance, gasoline, kero- sene, fuel oil and lubricating oil, not to mention by-products; and its output of gasoline, in consequence, is intimately tied in with the manufacture of joint-products demanded by needs scarcely less pressing than automotive transportation. Thus, gasoline has COAL PRODUCTS 281 become a commodity which must be produced, if the market for other oil products is to be supplied ; while the oil industry in addition has established country-wide machinery for distribution. These economic facts have a direct bearing upon the manner in which com- posite fuels can be expected to develop; they make it probable that composite fuels, if found desirable, will ultimately be purveyed dominantly by the oil industry rather than by outside activities, under whatever auspices the initial developments take place and without any reference to matters of financial control. Coal Products. — The coal-refining industry has thus far been slow of development in the United States. To date it has succeeded in involving only about one-twelfth of the bituminous coal brought into use, approximately eleven-twelfths being still consumed in the raw state; the coke industry and the artificial-gas industry are responsible for the advance noted. The production of benzol and related hydrocarbons is mainly dependent upon the progress attained in coal refining. Up to the present, most of this progress has taken place in the coke industry, where by-product practice is gradually superseding the so-called beehive process, in which benzol and other by-products are not recovered; benzol is now being produced in connection with about half of the coke manufactured in this country. In 1920 the output of benzol from this source was 80 million gallons. With by-product practice throughout the coke industry, the output would have been but doubled, around 3 per cent of the quantity of gasoline produced. The coke industry, therefore, can at best be expected to furnish a quantity of liquid fuel wholly inadequate to have broad significance, except in so far as it may be used as a blend- ing agent to give desirable qualities to other liquid fuels obtainable in larger quantities. The artificial-gas industry was responsible in 1918 for the pro- duction of about 4 million gallons of benzol, recovered from gas plants operating with by-product recovery. The entire artificial- gas industry, however, consumes less than 2 per cent of the country's output of bituminous coal, and as long as this activity retains its present stationary position the quantity of engine fuel to be expected from this source is practically negligible. There is a possibility, however, that the future will see the upgrowth of municipal fuel plants and centralized power stations, operating with by-product recovery, which will give a new source of benzol of greater signifi- cance than the coke intlustry in its entirety. But such develop- ments must of necessity be slow; and should benzol eventually be extracted from the bulk of our bituminous coal, it is evident that, on a 282 COMPOSITE MOTOR-FUELS basis of 2 to 3 gallons per ton, the supply will even then fall far short of a dominant position as a source of automotive power. During the past few years, investigations by Kettering and Midgely in the laboratories of the General Motors Research Cor- poration on the chemical changes taking place during combustion, have opened up new and interesting possibilities in the direction of increasing the efficiency of the petroleum motor-fuels by the addition of small quantities of appropriate chemical substances. These investigations have indicated that the tendency of the engine to " knock " when run on fuels of low volatility arises from the forma- tion of secondary, detonatable compounds which decompose with explosive violence and cause an abnormal rise in pressure.^ This tendency stands in the way of further raising the end-point of gasoline without at the same time lowering the compression of the engine, which blocks the enlargement of our fuel supply not only by rendering deeper cuts into the crude ineffective, but also by preventing the added fuel economy that could be attained with engines of higher compression. It has been shown, however, that the addition to the fuel of small percentages of aniline — a nitrated l^enzol — leads to even combustion without detonation, and therefore not only improves the performance of present-day high-end-point fuels, but opens the pos- sibilities of still further raising the end-point and at the same time gaining additional efficiency by increasing the engine compression. This work is of the first importance, both by virtue of what it is actually accomplishing, and in respect to what it suggests as to the possibilities of fabricating directly into the fuel, during the process of refining, the properties which would lead to a more efficient utiliza- tion in present engines and eventually to the development of more efficient engine types. Alcohol. — The fermentation industry, notably the branch having to do with the manufacture of industrial alcohol, was strongly stim- ulated by the war, and industrial machineiy was developed for the production of considerable alcohol for fuel purposes. The arrival of prohibition also freed a large eciuipment from other duties, which might be turned in part to a similar purpose. There are serious handicaps of a sentimental nature, however, which tend to bind the manufacture of industrial alcohol with restrictions harmful to progress. Besides which, the industrial depression of 1920-1921 has retarded advance in this field. ^ C. F. Kettering, More EfFieient Utilization of Fuel, Jour. Soc. Aiit. Eng,, April, 1919; Consumption, The Automotive Industry, American Petroleum Institute, Bull. 132, Deeember 10, 1920. The Midgley Gas Engine Indicator, Dayton, 1920. ALCOHOL 283 Alcohol alone can be used to advantage only in engines especially adapted to this fuel, but various mixtures of alcohol, benzol, gasoline or other petroleum distillates, and other materials have given prom- ising results. It is of great significance from an economic standpoint that alcohol, benzol and the lighter petroleum distillates such as gaso- line and kerosene can readily be rendered miscible. It is probable that alcohol, like benzol, will not come into widespread use as a single fuel, but has a broad significance, for the present at least, only as a lilending agent in connection with liquid fuels obtainable in larger quantities. The quantity of alcohol which will be produced in this country in the immediate future is nmch more difficult to foresee than in the case of benzol. The United States in 1916, 1917, and 1918, turned out about 50 million gallons of denatured alcohol each year, having increased from an output of 14 millions in 1915 under the stimulus of munitions requirements. Much of the industrial alcohol under manufacture to-day is made from sugar molasses and waste sulphite liquor; while garbage, fruit wastes, ethylene from coal-distillation plants, and other materials may be counted as supplementary resources. Considerable interest has been aroused in some quarters by the possibility of installing individual manufactories on farms and in various centers, making use of plant wastes; but it is ques- tionable whether an extensive attainment of tliis kind is practicable and moreover the widespread production of alcohol would set up competition for products needed directly or indirectly for food. While the ultimate alcohol capacity of the country cannot be closely measured, the conclusion seems warranted that for some time to come the available supply will bear a close quantitative analogy to benzol, the two combined bulking small when compared with engine- fuel requirements which already approach 5 billion gallons per year. On the whole, therefore, it would appear that benzol and alcohol hold somewhat analogous positions in respect to the supply of motor- fuel. Neither can be produced in sufficient quantities in the near future to replace gasoline ; both have interesting possibilities in the direction of improving the character of the fuel supply. This whole field is undeveloped and stands in need of more research attention than has been accorded it. Conclusion. — If found to fulfil their initial promise of advantage, composite fuels can be developed Ijy the oil iiulustry, or in a more limited manner Ijy outside agencies; but tliey can more readity be produced on a large scale by the oil industiy because of its control of working channels of distriljution. The possibilities of improving the supply of gasoline by chemical means are of distinct promise, and 284 COMPOSITE MOTOR-FUELS consequently there may come into evidence a steady trend toward a fuel supply of petroleum origin carrying small quantities of other materials which will facilitate utilization in present types of engines and at the same time free the development of future engines from the present limitations of low compression. CHAPTER XXII THE MOTOR FUEL PROBLEM One of the most remarkable and significant developments of modern times is the sudden and spectacular rise of automotive trans- portation. In scarcely more than two decades, the whole color of existence has been changed by the automobile, the motor-truck, the tractor and the aircraft, which have come to be so numerous and commonplace as to be seen on eveiy hand. Almost overnight, transportation has been freed from limitations of relative inflexibiUty, and a mobile and speedy agency of carriage has appeared on the scene to open to transportation the second and third dimensions. So rapid has been the growth of the automotive industry and of the consequent demand for motor-fuel, that the ability of the fuel supply to keep pace has come in question. The supply of motor- fuel, indeed, is already showing the effects of the tremendous demand bearing down upon it; and there arises, in consequence, a motor- fuel problem which is commanding the serious attention of all the interests at stake. Since a fuel stringency, or undue advance in price, would prove a retarding factor in the progress of automotive transportation, the prospect is one of vital concern not only to the industrial activities involved, but to the general public as well. The factors involved in this problem are the demand for motor- fuel and the adaptability of the internal combustion engine, on the one hand; and the supply of crude petroleum, the motor-fuel pro- ducing capacity of this material, the supplemcntaiy fuel materials in sight, and the possibilities of advantageous chemical change in the fuel supply, on the other. Out of the interplay of these factors will come developments, focused in the price of motor-fuel, that will determine the future of automotive transportation.^ The Demand for Motor-fuel. — The demand for gasoline has y3een increasing of recent years at an imposing rate. The nature of this expansion has been described in Chapter XIX. (See also Fig. 57, p. 124.) The projection of this demand into the future leads to interesting conclusions. ^ See J. E. Pogue, An Interpretation of the Engine-fuel Problem, Society of Automotive Engineers, February, 1919. 285 286 THE MOTOR-FUEL PP.OBLEM The probable number of motor-vehicles which will be required by automotive transportation in the years immediately ahead, if the demand is not curtailed by an inadequate supply of fuel or an undue advance in its price, has been calculated on the basis of the trend of population increase and the assumption that the maximum ratio of vehicles to population as found to-day in the most prosperous sections will become characteristic of the entire country. Calculations for passenger cars and trucks, made on this basis, b}^ the Commercial Research Department of the Franklin Automobile Company are shown in graphic form in Fig. 136. This projection for cars and trucks, together with the prospective number of tractors on an assumed increase of 200,000 a year (the number produced in 1920), is converted into gasoline and crude petroleum in Table 116, on the basis of the present fuel consumption per unit and a conversion factor of 25 per cent representative of the proportion of gasoline obtained from crude petroleum under present conditions. Table 113. — Future Demand fou Gasoline in the United States in 1925, 1930, 1935 AND 1940, Based on Present Conditions of Fuel Supply AND Future Number of Motor-vehicles as Projected by P'ranklin Automobile Co. (In millions of harieU) Year Gasoline Required by — Gasoline, Total Requirements Equivalent in Crude Petroleum on Basis of 25 Per Cent Conversion Factor Passenger , Cars Trucks Tractors 1925 1930 1935 1940 • 80 96 112 120 120 216 312 360 16 28 40 52 216 340 464 532 864 1360 1856 2128 While the figures shown are admittedly excessive and to be considerably discounted, especially in regard to trucks, they never- theless point to a future motor-fuel demand of stupendous propor- tions. With an unmined reserve of crude petroleum appraised at 6 billion barrels, having an estimated gasoHne content of only 1 billion barrels, the gasoline demand as shown would exhaust the entire domestic reserve by 1926, and projected further would call for an annual share in the world's outijut of crude petroleum running upward of 1.300 million barrels by 1930 and exceeding 2 ))illion barrels by 1940. It is evident that if such a demand, even halved, is to be met by gasoline on the basis of present engine types and performance, the oil industry must expand to proportions vastly THE DEMAND FOR MOTOR-FUEL 287 00 10 ■* CM O 0) ffl 01 01 CM 01 CM - - *C\IO00(O'*OIO 0310 CM 0) OJ S310IH3A UOXOIAI dO SNOmiW I- 288 THE MOTOR-FUEL PROBLEM greater than its present dimensions and find new oil sources of suffi- cient magnitude and accessibility to support this expansion. The alternative, aside from a curtailment of the demand, is a change in fuel and engine in the direction of extracting a much greater motor- fuel service from a much smaller volume of raw material. Adaptability of the Internal Combustion Engine. — The automo- tive engine has developed and become standardized in its main features on the basis of cheap and volatile gasoline. Its improve- ment has for the most part followed the direction of convenience and performance, with secondaiy consideration to fuel economy. This trend has been sustained to the present time by the existence of a highly stimulated oil production, providing, until lately, gasoline capacity in excess of gasoline demand. So long as this condition obtained, there was no need apparent for the automotive industiy to concern itself with considerations of fuel supply, but now, with the gasoline capacity of the country' beginning to give indications of strain, while the motor-fuel demand is just fairly getting launched, the question arises whether the exigencies of the future will allow the engine tj'pe continued freedom of development in luxury' directions, or wiU force adaptations to meet the exactions of the fuel situation. Automotive .apparatus is mechanically responsive to changing requirements, but its adaptation to new conditions is retarded by the time required to perfect mechanical developments and the counter advantages to be gained from quantity production and standardiza- tion, with their resistance to change. So far-reaching and insistent, indeed, are the claims in favor of holding fast to established standards, that departures can be made only at great cost and in response to powerful reasons. Anticipatory action becomes peculiarly difficult in the face of these circumstances. Recognizing the strength of the factor opposing changes in engine type and seeking to force the fuel supply into channels fitting the established standards, we may examine the fuel supply with a view to determining if present engine practice can be advantageously maintained, and, if not, along what lines changes are likely to be made. The Supply of Motor-fuel. — The motor-fuel in dominant use in the United States is gasoline, a mixture of volatile hydrocarbons won from crude petroleum by processes of distillation. Kerosene, fuel oil, lubricating oils, and various by-products are produced at the same time, and bear an intimate relation to gasoline, in respect both to price and the relative quantities produced. The output of these products in 1920 is shown in Table 117. The countr\''s supply of gasoline depends upon the output of domestic petroleum and the gasoline-producing capacity of this THE SUPPLY OF MOTOR-FUEL 289 material, the quantity of foreign petroleum made available through importation, and the extent to which supplemental means for expand- ing the supply are developed. Table 117. — Production of Petroleum Products in the United States in 1920 (Data from U. S. Bureau of Mines) ~I Product Millions of Barrels Per Cent 116.2 24.5 55.2 11.7 211.3 44.6 24.9 5.3 47.7 10.0 18.7 3.9 Gasoline Kerosene Gas and fuel oil Lubricating oils All others Losses Total. . . 474.0 100.0 The Supply of Domestic Petroleum. — The supply of crude petro- leum available in this country depends upon the urmiined reserve and the rate at which it may be won. The petroleum resource in the United States has been inventoried by the U. S. Geological Survey in 1908, 1916, and 1918;^ each time in greater detail. The results obtained are highly significant, especially as regards the meagerness of the reserve, which approximates 6 billion barrels when adjusted for Jan. 1, 1921 (see Fig. 137), and in respect to the fact that between 1908 and 1918, in spite of an exceedingly aggressive cam- paign of exploration, the oil taken from the ground exceeded the additions made to the reserve through new discoveries. Those who count upon new discoveries to make up for the progressive depletion of the reserve overlook the fact that for over ten years new discoveries have been failing to do so. At the same time the production of crude petroleum has been steadily mounting to its present enormous figiu'e, 443 million barrels for the year 1920 as contrasted with 210 million barrels in 1910. The growth in output has been sustained, not primarily by the discovery of new oil-fields, but largely by the cumulative tapping of an increas- ing number of rich spots in inventoried territoty. There is obviously a limit to an output supported by such a train of circumstances; there are strong engineering and economic reasons for believing that the production of crude iictroleum in the United States has virtually * See pages 18-21. 290 THE MOTOR-FUEL PROBLEM reached its maximum annuax rate iii 192i, and that the country will thereafter pass into a period of a dechning and more costly production. ("See Fig. 4, page 20.) The Gasoline Factor. — The output of gasohne approximates ^ the production of crude petroleum multiplied by its commercial- gasoline factor, which in 1920 was 21.8 per cent.- This factor, like the supply of crude petroleum, is itself a variable figure depending upon the proportion of the crude supply subjected to refining, the natural gasoline content of this quantity, and the extent to which ORIGINAL SIZE OF PETROLEUM RESERVE U.3 BILLION BARRELS ■'.'■■ -- -.. 1 J VuSED (5.4 BILLION BBL3.) >UNUSED (5.9 BILLION BBLS.) 1865 1870 1875 1880 1885 1890 1895 1900 1905 1910 1915 1920 Fig. 137. — The waning reserve of petrcilcum in the United States. means are used for forcing the gasoline yield above the natural gasoline content. Obviously, as long as the natural gasohne is not fully extracted from the available crude, there is scant economic room for the development of roundabout, i.e., more intricate, more costl}' means for producing gasoline. This was the situation that ' Because of the subordinate item of the gasohne produced from natural gas, the relation is not an exact equality. - The commercial-gasoline factor is here used to designate the percentage of gasoline obtained from the crude consumed; the commercial-gasoline factor should be distinguished from the natural-gasoline factor, which represents the percentage of natural gasoline present in the crude. The former percentage has increased until it has e.xceeded the latter. The natural-gasoline content of the domestic production of crude petroleum in 1920 was approximately 21.6 per cent; of the imported crude, approximately 8 per cent. THE GASOLINE FACTOR 291 prevailed in the United States until recently; tliis is why natural-gas gasoline, cracked gasoline, and low-volatile gasoline are all recent commercial developments. The proportion of the crude supi^ly subjected to refining has. been steadily increasing until, in 1920, of a total consumption of 531 million barrels of crude petroleum in the United States, 434 barrels or 82 per cent was run to stills. While the statistics may not indicate the precise situation in this respect, the quantity not refined repre- sented in the main heavy, non-gasoline crudes used directly for fuel purposes. Thus practically the whole suppty of crude has now come to be requisitioned for gasoline production. This is to say that the readiest means for increasing the supply of gasoline, i.e., refining a progressively larger percentage of the crude produced, has been virtually forced to its limit; the " gasoline slack " within the crude production has been taken up. Thus the most potent circumstance that has. thus far enabled the demand for gasoline to increase without a concomitant increase in price is no longer in existence. Further expansion in gasoline output Avill he through more difficult avenues than that of merely increasing refineiy capacity. While dependent primarily upon the quantity of crude refined, the output of gasoline is at the same time a function of the average composition of the various crudes that go to make up the total supply. Since crude petroleum varies in its natural-gasoline content from about 1| per cent in the case of heavy, asphaltic oils to 30 per cent or more for light, paraffin oils, it is evident that the gasoline supply will be strongly influenced by the dominant type of oil. As the high-gasoline crudes were the first to be exploited in this country, the unmined supply of petroleum has been selectively reduced in gasoline capacity, so that the crude production of the future will show a lower natural-gasoline factor than the crude supply of the past. While this matter cannot be expressed quantitatively, in very rough terms it may be noted that the high-gasohne crudes are about half exhausted, while the low-gasoline crudes, originally of about equal magnitude, are only about a third used up. In other words, the country's gasoline capacity is being drawn upon more rapidly, and hence exhausted more quickly, than is indicated by the condition of the crude supply viewed alone. This tendency was of no immediate consequence so long as it could be compensated by merely refining a greater proportion of the output of crude; but now, since practically all of the domestic ciiide is used for gasoline extrac- tion, a decline in gasoline content can be offset only by shoving crude production to a higher figure than would otherwise be necessarj', or else through a still greater use of means for wresting an unnatural per- centage of gasoline from tlie crude obtainable. 292 THE MOTOR-FUEL PROBLEM The estimated supply of natural-gasoline present in the unmined reserve of crude petroleum is shown in Table 118. Table 118. — The Estimated Natural-gasoline Content of the Unmined Supply of Crude Petroleum in the United States on January 1, 1921 (In millioiia of barrels) Fields Unmined Supply of Crude Petroleum Estimated Natural- Gasoline Content Appalachian Lima-Indiana .... Illinois Ivansas-Oklahoma North Texas North Louisiana . . Gulf Coast Wyoming California Others Total 491 33 152 146.5 262 53 703 370 2043 3.50 147 7 30 366 87 15 11 110 204 5922 1065 In respect to imported crudes, the natural gasoline content has varied from virtualty zero up to a maximum of 12 per cent; and the bulk of tlie oil in sight in Mexico, Central America, and South Amer- ica corresponds more closely to the types already imported than to the high-gasoline crudes of the Appalachian and Mid-Continent fields which have been the bulwark of gasoline production in this count rJ^ Enlarging the Gasoline Factor.— The means for producing more gasoline than may Vje obtained by subjecting the total supply of crude to straight refining are: (1) increasing refineiy efficiency, (2) blending high-volatile natural-gas gasoline with low-volatile refinery gasoline, naphtha, and kerosene, (3) extending the use of cracking in refinery practice, and (4) lowering the volatility of gasoline. All four means are increasing in use. For the sake of brevity the first two may be passed over with the comment that, while important, they have quantitative limitations which prevent them from broadly affecting the situation. This is not true of the second two, the limitations of which are of a different order. Cracking is a process attachable to straight refining, by means of which low-priced distillates such as gas-oil are rerun under more rigorous conditions and partly converted into gasoline. So far cracking has operated commercially only upon distillate fuel oil itflNLARGING THE GASOLINE FACTOR 293 and has yielded gasoline to the extent of 30-40 per cent of the oil treated. These conditions would appear to limit the volume of gasoline ultimately attainable by cracking to around 25 per cent of the total supply of fuel oil. There is also the element of time to be reckoned with before cracking could expand to its limit, while counter demands affecting distillate fuel oil are arising which may restrict the quantity available for cracking. The process, moreover, can be profitably operated only so long as a favorable differential exists between the market price of distillate fuel oil and the selling price of gasoline, hence the growth of cracking to a point restricting counter demands may be expected to institute an economic cycle where further cracking may be realized only upon the basis of higher levels of pr^ce for gasoline. On the whole, therefore, it would appear that cracking, while of the utmost importance for the present, will prove incapable of augmenting the gasoline supply in adequate volume with sufficient economy and celerity to sustain the future demands of automotive transportation. The fourth means for enlarging the output of gasoline independ- ently of the production of crude is through lowering the volatility of the product. The less specialized the engine fuel in respect to volatility, the more can be produced from a given quantity of crude by the processes of refining in general use. By a change in character, the supply of " gasoline " can be enlarged, slowly or rapidly at will, without material refineiy changes, until it is two to three tunes the present figure, even with no increase in the supply of crude. Since the materials requisitioned in such a change are the basis of kerosene and fuel oil, which can be replaced almost entirely by coal and its products, the transition may be made without a basic disturbance of the countiy's economic fabric and without setting up counter forces tending to turn back the tide. The practical limit to this enlargement, however, is set by what the standardized automotive engine will accept in the way of fuel. The progress of gasoline in this direction has already gone as far as practicable under existing standards. A critical point has been reached in the end-point of gasoline, where a further upward change will increase consumption more than it would increase production and thus deplete rather than augment the total available fuel supply. ^ If further gain is to be made here, therefore, either the character of the fuel or the engine, or both, must change. If the fuel current finds an unbreakable dam at this point, the whole pressure of advance will be thrown back into the channels already reviewed. But since the past few years have seen the end-point of ' H. C. Dickinson and S. W. Sparrow, Possible Fuel Saving in Automotive Engines, American Petroleum Institute, November 17, 1920 294 THE MOTOR-FUEL PROBLEM gasoline steadih' risitiji, in spite of uU opi)ositk)n, while the engine equipment has already been forced to make su])erficial concessions to this tendency, it is ai)])arcnl that the cliannels of crude production, cracking, etc., have already demonstrated their incapacity unaided to accommodate the rising flood of gasoline demand. If these main- stays of automotive transportation are failing to meet the issue now, it is hazardous to count upon complete relief in that quarter when the pressure focusing there is rapidly increasing. Bearing of Foreign Deposits upon the Situation. — The limita- tion to the gasoline supply arising from the domestic production of crude petrolemn has been generally recognized, but deposits in Mexico and other foreign regions are counted upon in many quarters to fill in the gap. It has been showm elsewhere (see Chapter XXV), however, that the proven oil-pools of Mexico, the principal standby, are well-nigh exhausted, and an interv^al of years must elapse before the output of that countiy can be strongly reinforced by newly developed territor>\ Also the exploitation of other foreign deposits involves an element of considerable time, not to mention restrictions of a political and financial character. (See Chapter XXIV.) More- over, much of the prospective territory most convenient of access to the United States gives promise of yielding in the main low-gasoline crudes such as those that characterize the Gulf Coastal Plain of the United States and Mexico. On the whob, foreign deposits do not appear to be capable of compensating for the decline due in domestic output and of sup- porting the increments to demand as well, on the basis of the present disposition of products. Indeed, the richest known deposits of Mexico were exploited and exhausted before the output could be brought significantly into motor-fuel production; and the same outcome will probably characterize to some degree the development of rich deposits further afield. In short, the demands concentrating ui:)on crude petroleum the world over are such that the volume avail- able for consumption in the United States can scarcely be ex- pected to continue to increase at the rate characterizing the past decade. Significance of Supplementary Motor-fuels. — The petroleum industry is so firmh* established and produces such a range of products other than gasoline, that no motor-fuel of non-petroleum origin need be counted on as capable of displacing gasoline. Substitute fuels are to be regarded as supplementary resouices, capable of affecting the situation broadly only as petroleum reUnquishes the field through exhaustion. There are three supplementaiy motor-fuels in sight — benzol, FUEL AND ENGINE ALREADY CHANGING 295 alcohol, and shale-oil distillate.^ Benzol and alcohol, in the form of appropriate blends, are already coming on the market in small quan- tities; shale-oil distillate may be expected to contribute only on a higher level of price than at present obtains. As to resource capac- ity, benzol is a by-product of coal, and the quantity produced is dependent upon the coal subjected to by-product distillation; benzol will be manufactured in constantly increasing volume, but the total supply, under present technology, can never fill more than a small part of the motor-fuel requirements. Alcohol may likewise slowly increase in volume but after the utilization of a few readily obtainable waste products, its manufacture will come into competition with food demands and hence meet a critical limitation in its further expansion. Shale-oil distillate is derivable from a resource prac- tically unlimited in size, but a large output must wait upon the upgrowth of a new industry in which but the merest start has been made. On the whole, supplementary motor-fuels, while of the utmost eventual importance and deserving of the most vigorous development, can scarcely be counted on to make notable independent contribu- tions to the motor-fuel supply in the immediate future. Their chief significance for the present would appear to lie, not in their volumetric importance, but in their apparent ability to raise some of the inter- mediate petroleum distillates to motor-fuel rank and improve the operating efficiency of heavy gasolines when appropriately blended with these substances. Fuel and Engine Already Changing. — It is apparent from the foregoing review that the demand for motor-fuel has ahx^ady begun to outdistance the supply of gasoline, with the result that the char- acter of the fuel is changing and the appliance is beginning to adapt itself to this change. It is furthermore apparent that the demand in the years ahead will assume such tremendous proportions in the face of a resource whose ultimate size is limited and whose rate of production is restricted, that motor-fuel service can be sustained by sheer volumetric increases in supply in still less degree and additional changes may be expected in both the fuel and the appliance making for higher net efficiency. It is a fair assumption that the insistence of the demand will exhaust all possiljilities in both engine and fuel before a curtailment in automotive transportation would be accepted. Changes in the Appliance. — The automotive appliance, while a triumph of engineering as regards simplicity and reliability, leaves much to be desired in the wa}' of fuel economy. Changes in the appliance hold the possibility not only of increasing the mileage 1 See Chapter XXI for a fuller discussion of supplementary motor fuels. 296 THE MOTOR-FUEL PROBLEM obtained but also of permitting the physical suppty of fuel to be enlarged through the inclusion of non-volatile distillates not useful as motor-fuel in present engines. The possibilities of appliance change fall chiefly into four categories, some of which involve coordi- nate changes in the fuel itseK: (1) the distribution of the fuel to the cylinders may be improved; (2) the combustion of the fuel in the cyhnders may be made to yield higher efficiency; (3) the design of the appliance may be changed in the direction of smaller, lower- powered units, better adjustment of the load factor through an addi- tional gear-shift, and the like; and (4) the engine type may be changed in favor of the injection engine, the steam engine, or even some other U-pe yet to be perfected, such as the gas turbine. (1) The less volatile the fuel, the greater the difficulty in gaining proper vaporization, even distribution to the cylinders, and no con- densation in the cylinders with consequent dilution of the crank-case oil. With the rise in end-point already experienced with gasoline, the old methods of distributing the fuel as a cold mixture have proved inadequate, and various means have been commercially developed to apply heat to the charge in order to improve its distribution. There is considerable difference of opinion as to what constitutes the best means of preparing the fuel for the engine. The hot-spot man- ifold concentrating the heat where the liquid strikes the walls, the manifold completely jacketed by the exhaust so that the entire mix- ture is heated, the hot-air stove which heats only the air going to the carburetor, methods for preparing " superheated " gas, and many other variants are all coming into prominence. All resources have not yet been exhausted in tliis respect, and further improvements in the induction system and the extension of these improvements to all units may be looked for. Effective distribution, however, while leading to a more efficient utilization of the fuel, is only one, and perhaps a minor, part of the problem of improvement facing the automotive apphance. (2) A second possibility of improvement in the appliance is the matter of gaining greater efficiencj^ in combustion. The thermal efficiency of the carburetion engine is primarily dependent upon the compression ratio. As the gravit}^ of the fuel is lowered (or the end-point raised), the compression of the engine must be lowered to prevent the phenomenon of detonation called knocking. And as the motor builder lowers the compression of his engines, they operate less efficiently and requue a greater quantity of fuel per mile. The problem of raising the efficiency of combustion, therefore, is not entirely a mechanical one; tliLs matter involves the chemical character of the fuel quite as much as it does the mechanical nature of th^ CHANGES IN THE APPLIANCE 297 appliance. It can be solved only by coordinate attention to fuel and engine. The work of Kettering and Midgley has pointed the way to changes that may become effective in the direction of adding certain components to the fuel that will permit its efficient employment in engines of higher compression than prevalent to-day. The same means will also allow a larger proportion of the crude to be effectively employed in engines of present-day compressions pending the more fundamental change. (.3) Aside from the improvements in the distribution and com- bustion of the fuel, mechanical changes are possible in other respects that would greatly increase the mileage per gallon of fuel. In the first place, the employment of exceedingly high-powered cars could be curtailed; but this is a minor matter compared with the fact that all cars are adjusted to carry a peak load of performance far in excess of normal running requirements. And this extra ability, called into use only now and then, is paid for by an increased con- sumption of gasoline whenever the car is running. In other words, the average car runs at its maximum efficiency only at full load with open throttle; under these conditions the car may attain a thermal efficiency of 20-25 per cent. But under ordinary road con- ditions the car is running most of the time at part load, and the efficiency drops very rapidly as the load is reduced. The operating efficienc}^ of the typical car, therefore, is only around 5-10 per cent, from a quarter to a third of its maximum. By making smaller, lower-powered motors, some of the luxury qualities of the present automobile would be sacrificed, but a considerable gain in fuel economy would be attained. Even with cars as they are to-day, a fuel loss running upwards of 25 per cent results from improper carburetor adjustment leading to the employment of an over-rich mixture. Experiments on exhaust gases conducted by the U. S. Bureau of Mines,^ in connection with the ventilation of the Hudson River Vehicular Tunnel, have demon- strated that the combustible gas in the average automobile exhaust contains nearly 30 per cent of the total heat in the original gasoline. Careful carburetor adjustment should result in saving half of this quantity. The great majority of passenger cars and trucks are operated on rich mixtures suitable for maximum power but very wasteful from the standpoint of gasoline economy; the average carburetor is set for winter operation and is not changed in the summer. The public does not appreciate the saving in gasoUne that would result from the use of lean mixtures. 1 Fieldner, Straub, and Jones, Automobile Exhaust Gases and ^'ehi^ula^- tunnel Ventilation, Jour. Soc. Aut. Eng., April, 1921, pp. 295-305. 298 THE MOTOR-FUEL PROBLEM (4) In addition to the improvement in respect to fuel economy attainable with the present type of motor, the possibility of a radical revision in engine type should be borne in mind. The injection type of high-compression engine, which could burn all types of liquid fuels, is thought by some engineers to have been underestimated in this country. The steam engine also has its advocates, and there are other possibilities such as the gas turbine, which may not have been sounded. The future in these respects can scarcely be foreseen, although the development of automotive transportation to its present status on the basis of a carburetion engine places the power- ful force of standardization behind the existing type. Changes in the FueL — It has been seen that the supply of motor- fuel has been maintained thus far mainly by a volumetric increase in the output of crude petroleum, supplemented Ijy a physical con- version of the heavy molecules of distillate fuel oil by cracking into gasohne. Should the demand exceed the combined abihty of these first two expedients, as seems inevitable, mechanical changes in the appliance and chemical changes in the fuel, both already beginning to come into evidence, will be called into action in still further degree. It thus appears that there are four major factors involved ; volumetric increase in the supply' ; physical changes in the fuel; mechanical changes in the appliance; and chemical changes in the fuel. The possibilities of adding to petroleum distillates certain com- pounds, such as benzol, aniline, or alcohol, which will increase the operating efficiency of the fuel in existing appliances and even permit the appliance to change in directions making for greater efficiency, have already been touched upon. (See Chapter XXI.) Such pos- sibilities also raise the question of whether changes may not be attainable in petroleum refining which will enable certain properties to be directly fabricated into the fuel such as will adapt it to more efficient utilization. This field has been largely overlooked in the past and holds considerable promise. Coordination of Engine and Fuel. — The outstanding feature of the motor-fuel problem is the interdependence of the fuel and appli- ance, and the degree to which any change in one has an immediate bearing upon the other. The most difficult prol)lem ahead is not the matter of engineering and research, but the economic issue of adjusting the efforts in respect to both fuel and appliance to the end that the maxinmm service may be gained from automotive transpor- tation. The supply and price of fuel represent the limiting factors in automotive transportation and the best efforts of all concerned are needed to hold off lestrictions on this score. COORDINATION OF ENGINE AND FUEL 299 Volumetric increases in supply have apparently been shoved almost to their maximum; the physical process of cracking holds further possibilities of expansion, although already called into extensive use; mechanical changes in the appliance give promise of considerable extension ; and chemical changes in the fuel offer further possibilities. Upon the interplay of these factors, the future of automotive transportation rests. Much will de])cnd upon the degree to which this interplay is l^rought under control in a united, con- structive effort to solve the problem. CHAPTER XXIII THE CITY-GAS PROBLEM The manufacture of city-gas, widely used in American municipal- ities, is at present dependent upon one of the petroleum products, gas oil, for its principal raw material. The growing fuel require- ments of automotive transportation have recently set up a counter demand for gas oil for use in the manufacture of a supplementary supply of gasohne, and this competitive demand in 1920 critically restricted the supply of gas oil available for the manufacture of gas as well as sharply advanced its price to a level which the gas com- panies could meet only under a substantial increase in the rates charged for city-gas. Upon the further development of the petroleum situation, the supply of gas' oil may be expected to become still more restricted in volume and progressively higher in price, until finally it will be generally apparent that the manufacture of city-gas can no longer economically rely upon this source of supply, and attention will then turn toward making gas without the use of gas oil. Gas of this character can be readily and cheaply manufactured, but its wide- spread development will entail changes in the present installations and revision in the standards of concentration now imposed by the municipalities upon the pubhc utilities serving gas. Such changes, however, are inevitable and are already overdue. Types of City-gas. — There are four principal types of manufac- tured gas employed in American cities: carburetted water-gas, coal- gas, oil-gas, and coke-oven gas.^ The relative importance of these four types is shown in Fig. 138, where the dominance of carburetted water-gas is apparent. Carburetted water-gas is made by passing steam through incan- descent coke or anthracite coal, and enriching the resultant water-gas with gas oil. Average practice requires about 3.5 gallons of gas oil and 35 pounds of coke or anthracite to yield a thousand cubic feet of city-gas of present-day quality. 1 A good general description of the main types of city-gas appears in Stand- ards for Gas Service, U. S. Bureau of Standards, Cir. No. 22, 1920. 300 DEVELOPMENT OF CITY-GAS 301 322 CARBURETTED WATER-GAS Coal-gas is made by distilling a volatile, bituminous coal in closed retorts, leaving a residue of coke to be disposed of. In many instances, the coke is employed in turn as a raw material for the manufacture of carburetted water-gas which is then mixed with the coal-gas. By-product coke-oven gas is an incidental product to the manufacture of metallurgical coke, and is available for use in some cities located in the neighborhood of industrial coke-making establishments. Oil-gas is made entirely from oil, and is manufactured only in the Far West where gas-making coals are not readily available. Development of City-gas.^ — The earliest practical application of gas was made toward the close of the eighteenth century in England. In 1812 the City of London Gas Light Company was formed, and in 1816 gas-lighting was introduced into Balti- more in this country. Gas accordingly developed as an illuminant, and quite naturally its value was determined by its illuminat- ing capacity. In the early stages of the industiy, therefore, gas came to be measured in terms of its candle- power, the intensity of light produced when burned in an open-flame burner under specified conditions. Practically all of the gas manufactured in the early days of the industry was coal-gas. Around 1880 a method was de- veloped for rendering water-gas, which could be much more cheaply manufactured than coal-gas but lacked luminosity, available for illumination by enriching it with gas oil. Since that time, carburetted water-gas has enjoyed a rapid growth in the United States, far outdistancing the city-gas manu- factured by other methods. The expansion of the carburetted water- ' For a constructive discussion of the gas situation, see R. B. Harper, City-gas of the Future, Jour. Western Society Engineers, January, 1921, pp. 1-15. FIGURES ARE WIILLIONS OF M. CU. FT. Fig. 1.38. — Estimated production of artificial city gas in the United States in 1919; data from American Gas Association. 302 THE CITY-GAS PROBLEM gas process was made possible by the era through which the petro- leum supply was passing, with production crowding demand and yielding a cheap and abundant supply of gas oil to the gas manu- facturer. In the meantime a gradual l)ut almost comj^lete revolution in the utilization of gas has been taking jilacc, accompanied of late years ])y profound economic changes in the petroleum supply, but the processes of manufacturing gas remain to-day practically unchanged. For the first sixty or seventy years following its introduction in this countiy, city-gas was almost solely used for lighting houses and streets by means of open flames depending for their luminosity upon certain hydrocarbons dei'ived from volatile bituminous coals or gas oils, which emitted considerable light when the gas was burned without sufficient aii* to maintain complete combustion. In contrast to this practice, city-gas is now used almost exclusively for its heating effect gained from the so-called Bunsen, or non-luminous flame. This type of flame is designedly non-luminous, sufficient air being mixed with the gas before it reaches the zone of ignition to lead to complete combustion, leaving no unburned particles to become incandescent. This mode of combustion gives higher efficiency and flame intensity than the open-flame method which enjo,yed its luminosity at the expense of these qualities. The luminous flame is now practically obsolete, and the Bunsen flame is employed in almost all gas-burning apparatus, such as ranges, stoves, water-heaters, and mantle fights. The development of the incandescent mantle emancipated even gas-lighting from its dependence upon potentially luminous con- stituents in the gas. In spite of this revolution in the utilization of gas, many munici- palities still require the gas companies to continue to introduce into the gas these hydrocarbons, as if the product were going to be used in the old-fashioned open-flame burners; and in 1920 these same municipalities even granted substantial increases in rates in order that the gas companies might aftord to buy the costly hj^drocarbons requisite to cater to a need long since non-existent. Such was the situation in New York City, the largest gas-consuming center in the countiy. The change in the method of utilizing city-gas has resulted in a tendency on the part of the regulating authorities to impose upon the gas manufacturers heating-value standards in addition to the existing candle-i)ower requirements. In many localities, however, the public utility commissions have discarded the candle-power requirements, though still maintaining heating-value standards substantially the same as those characteristic of gas meeting the discarded candle- THE ROLE OF GAS OIL 303 power requirements. Thus, it has happened that heating-value standards have been determined for the most part on the basis of what happened to have been the heating vahie of tlie gas designed to be used in Imninous flames, and " not on the basis of processes which were designed to economically utilize the gas-making materials, as provided by Nature, in such a maimer as to pixjduce the greatest total heating value per unit." In short, the presence of costly hydrocarbons in the gas is still required to meet the heating standards imposed as an inheritance from the days of candle-power requirements. Accordingly, the manufacture of city-gas to-day is handicapped in many instances by obsolete lighting standards, and in all instances by heating standards involving but little dmiinution from the old candle-power requirements. Wherever the obsolete form has been discarded, the old sul^stance has been preserved. The Role of Gas Oil. — The function of gas oil is to add to the gas those hydrocarbons needed to enable the gas to meet the candle- power or heating-value standards imposed by law. Water-gas before the addition of gas oil, has a heating-value of only 300 B.t.u.^ per cubic foot, whereas the standards usually prevailing for city-gas run from 520-600 B.t.u. The additional B.t.u. are con- tributed by the gas oil. The resulting gas is more concentrated than the straight water-gas and meets the legal requirements, but has no advantage in utilization where the Bunsen flame is employed, since gas of whatever concentration must be diluted with air to a combus- tible mixture cariying only about 100 B.t.u. to the cubic foot before it can be efficiently Ijurned. The Growing Stringency of Gas Oil. — Of recent years, especially since 1915, the supply of gas oil has come more and more under requi- sition as a raw material for cracking into gasoline. In 1920 approxi- mately 12 to 15 million barrels of gasoline were made from gas oil, requiring some 30 to 40 million barrels of the latter. The growth of this new demand for gas oil has been ra]iid, and has introduced a new and perplexing factor into the city -gas i)roblem. The effect has already registered in three directions. In the first place, the quality of the gas oil has deteriorated, the gas oils highest in carburetting quality having been partly diverted into cracking stills and their place taken by heavier oils less susceptible to yielding gaseous hydrocar})ons. Cracking into gasoline in the oil refinery and cracking into oil-gas in the gas plant, indeed, are very similar processes. The trend in the average quality of gas oil is shown in Fig. 139. 'B.t.u. is tho ahhrcviiilion for Hrilisli Ihcnnal unit, Ihc (luaiility of heat recjuinHl to raiso 1 pound of water 1 dofin'o KalircMilicit . 304 THE CITY-GAS PROBLEM THOUSANDS OF B.T. U. 200 'J50 lOO 90 80 70 60 ' _B. T. u -£2i!rR,BUTEDBY^jv^ ^S- o. < In the second place, there has been a tendency to reduce the quantity of gas oil used, as a result of cutting as closely as possible to the minimum limits of the B.t.u. standard as well as slightly lower- ing this standard in some lo- calities. The tendency toward the use of a tapering quantity of gas oil per M cubic feet of gas is shown in Fig. 140. In the third place, a notable advance in the price of gas oil has taken place, which has considerably increased the cost 1915 1916 1917 1918 1919 1920 of mauuf acturing gas. In Fig. 139.— Deterioration in the quality of ^^^^, 1 cent's worth of gas oil gas oil, 1914-1920; data from R. B. Hari)er. COntri])Uted to the finished gas over twice the number of B.t.u. derived from 1 cent's worth of generator fuel (coke or anthracite). Since that time, the relative contribution made by gas oil has been decreasing more rapidly than the contribution made by generator fuel, until in 1920 the cost of heat units of gas- oil origin was higher than that of an equivalent number produced from generator fuel. The tend- ency for gas oil to impose a growing burden of expense upon the manufacturing process is shown in Fig. 141, which also suggests that the divergence is going to increase still further. The Impending Shortage of Crude Petroleum. — A tightening up in the sui^jily of gas oil has already taken place under the in- fluence of the gasoline require- ments of automotive transpor- tation, in spite of a rapidly mounting output of crude pe- troleum. In view of the relative smallness of the petroleum reserve, both in this country and Mexico, and the close approach to the maximum rate at which this reserve may be drawn upon, the supj^ly of crude petroleum will inevitably display a retardation in its growth which will restrict the volume of products available for consumption. (See Fig. 142.) GALLON 4.20 %. 3. BO 3.70 \ 1 \ 1915 1916 1917 1918 1919 1920 Fig. 140. — Trend in the use of gas oil per thousand cu. ft. of carburetted water-gas manufactured in the United States by years, 1915-1920; data from R. B. Harper. USE OF GAS OIL ALREADY UNECONOMIC 305 This outcome may be expected to impair still further the availability of gas oil and contribute an additional and continuing impetus to its upward move in price. Use of Gas Oil Already Uneconomic. — The relative increase in the price paid by a typical gas company for gas oil and generator fuel PER CENT 200 lOO 90 80 70 60 ^^ '^''"^ k ^ V \ ^ \ \ ^ .-/ V ^..^ijjGE NERATOR FUEL / / \ V \ \ / ^ \ > <. GAS OIL \\ \, , I I 1 1 X X N \ V 1 1 1 \ / \ \ OPERATING D COURSE A FIGURES HEAD ..«.««» PROJECTE 1 1914 1915 1916 1917 1918 1919 1920 1921 1922 Fig. 141. — Trend of the contributions to the heating value of carburetted water- gas made by one cent's worth of gas oil and generator fuel, in percentages of the contributions made in 1914; data for 1914-1920 from R. B. Harper; projection, 1921-1922, by author. for the period, 1914-1920, is shown in Fig. 143. The average cost of gas oil to a large number of gas companies is given in Table 119. It is apparent from the data given tliat the sharp upward trend in the price of gas oil, which arises in the main from fundamental changes in the petroleum situation, is rendering the use of gas oil increasingly costly. Fig. 144 shows plainly the weight of this factor in the cost of gas. A cul)ic foot of typical carburetted water-gas 306 THE CITY-GAS PROBLEiM containing 570 B.t.u. may be looked upon as composed of 300 B.t.u. contributed by generator fuel and 270 B.t.u. derived from gas oil. Several years ago the 270 B.t.u. cost about the same as the 300 B.t.u. In 1920 the 270 B.t.u. were much the more costly, and the tend- ency is toward a growing discrepancy between the two. In other words, so far as the cost of materials is concei-ned, the use of gas oil in manufacturing city gas has become fundamentally uneconomic, g 8,000 r O 7,000 CO z o ^ 6,000 i z ~ 5,000 3,000 2,000 1,000 • 1920 CRUDt OIL PRODUCED SKETCH ILLUSTRATING - ACTUAL AND ESTIMATED - RATE OF PRODUCTION OF TOTAL PETROLEUM PRODUCED Si PRODUCIBLE IN KNOWN FIELDS OF THE UNITED STATES m^:iMi mm:^^m^M OIL UNDERGROUND — 193 O- W^. Fig. 142. — The iinmined reserve of rrudo j)etrolemn in the United States; K. B. Harper, based on data from U. S. Geological Survey ifter in spite of a temporary reversal in 1921. Accordingly, the manu- facture of carburetted water-gas has passed through its period of usefulness and is now obsolescent because of the diversion of its principal raw material into a channel of higher economic rank. Increase in Gas Rates no Solution. — The growing cost of gas oil has borne hea^'ily upon tlie cost of manufacturing gas, as indicated in Fig. 144, and the gas companies met the situation by entering pleas for higher rates, which in most instances were granted. While increases in gas rates will support a rising price of gas oil INCREASE IN GAS RATES NO SOLUTION 307 and for a time enable the gas companies to continue to compete with automotive transportation for this raw material, such increases will not alter the fundamental situation; they represent, on the PER CENT 500 lOO 90 80 70 60 / GAS OIL // / ^ / / -^ / / \TOR-FUE 1915 1916 1917 1918 1919 1920 Fi(i. 143. — Rise in the average price of gas oil and generator fuel, 1914-1920, in percentages of the average prices in 1914; data from R. B. Harper. T.\HLK 119. AvEKAflK CoST OF GaS OiL TO A LaRGE NuMBER OF GaS COMPANIES BY Years, 1910-1920 (Data from American Gas Association) Year rV'iit.s per Cialloii In Per Cent of Price in 1013 Year Cents per Call on In Per Cent of Prioe in iin.j 1910 1911 1912 191.3 1914 1915 3.08 2. 90 3.40 4.35 4.35 3.57 71 68 78 100 100 82 1916 1917 1918 1919 1920 4.14 5.76 7.90 7.05 12.02 95 132 182 162 290 contrary, a temporizing measure but no final solution to the prob- lem. In fact, a succession of such increases in gas rates will insti- 308 THE CITY-GAS PROBLEM tute a cj'cle which will react upon the price of gasoline as well as upon the price of city-gas, playing the two against each other wdth neutral effect and leaving the basic issue still unsolved. Fundamental Changes in Gas Manufacture Necessary. — Suf- ficient evidence is now available to indicate that the manufacture 11. 16 - 25 '.27 -■ .36 > GAS OIL .GENERATOR FUEL 1916 1917 1918 1919 1920 FIGURES IN RECTANGLES ARE THE COST IN CENTS OF THE MATERIALS ENTERING INTO THE MANUFACTURE OF lOOO CU. FT. OF CARBURETTED WATER-GAS Fig. 144. — Relative cost of the quantity of gas oil and generator fuel entering into the t>'pical manufacture of 1000 cu. ft. of carburetted water-gas, by years, 1916-1920. of carburetted water-gas must give way to other processes more suitable to the changed conditions of fuel supply. The outstanding fuel dependency of this country is bituminous coal, and the city- gas of the future must be derived from this source. The conditions requiring the use of a concentrated, luminous gas are no longer A TRANSITION PERIOD AHEAD 309 existent; and the means for preparing such a gas cheaply are no longer attainable. The situation has finally advanced to the point where there is no choice in the matter. The methods of manu- facturing city-gas are bound to undergo fundamental changes in the next decade, and economic pressure may dictate more rapid altera- tions than appear practicable at the present moment. The changes that appear inevitable lie in the direction of complete gasification of bituminous coal, with the preparation and distribution of a less concentrated gas than that now in general use in cities. B.t.u. Standards Will be Lowered. — At the present time the situ- ation is ciystallized and progress blocked by virtue of the legal B.t.u. standards in vogue which do not admit of processes yielding low-cost gas because such gas is invariably leaner than the standards require. There has already come into evidence a distinct downward trend in heating-value requirements; some municipalities now have a 520 B.t.u. minimum, whereas in Canada a 450 B.t.u. standard has been established. It is inevitable that the present high standard will be removed by degrees and the field thus opened to the emplo^mient of modern and efficient means for manufacturing gas. A Transition Period Ahead. — In addition to the obstacle of high heating-value requirements, which is an inheritance from the days when gas was burned in open-flames for purposes of illumination, progress toward gaining low-cost gas will be retarded by the past failure to prepare for the obsolescence of present installations and equipment — a failure which leaves a vast investment amortized to an insufficient degree as well as a wide range of equipment which can be adapted to the new conditions with difficulty. The situation is indeed perplexing and raises problems of the first magnitude — problems, too, made none the easier because they lie in the field where public oversight is exercised in a manner unfortunately lack- ing in technical proficiency. The transition to low-cost gas, however, can be made, and the gas industrv emancipated from its present dependence upon gas oil, if constructive and concerted attention be accorded the matter. A graded reduction in B.t.u. standard, accompanied by a decrease in the quantity of oil employed as well as by a change to heavier oils not so desirable for cracking into gasoline, will result in a period of transition during which present installations may Ije utilized w^hile the requisite new developments are gi-adually brought into action. City-gas of the Future. — With Amei-ican cities served at present by carburetted ^\atcr-gas, coal-gas, oil-gas, and coke-oven gas, not 310 THE CITY-GAS PROBLEM to mention a declining supply of natural gas, it appears inevitable that those processes dependent upon oil must inevitably give way in favor of other established methods or new processes. One of the cheapest and most efficient methods already estab- lished for manufacturing gas is the generation of straight water-gas from coke or anthracite coal. This 3'ields a relativel}' dilute gas of about 300 B.t.u., which consequently cannot be used under existing standards, without being enriched with gas made from gas oil. Coal- gas is manufactured in many cities, but while this type of gas is of requisite concentration to meet existing standards, its installation is costly and it yields a large output of coke which must be disposed of as fuel; gas-house coke has not proved to be a w-hoUy satisfactory fuel and its sale has not been altogether regular or profitable. In some municipalities the coke from the coal-gas retorts is used in turn as generator fuel in water-gas sets, the resulting water-gas being mixed with the coal-gas to yield a gas of about 350-450 B.t.u., which is then raised to the desired heating-value by the admixture of oil-gas. The production of this mixed gas is the most economical established procedure under the majority of conditions to-day. The process is also aided by the recoveiy of some of the by-product values in the coal-gas retorts. Considerable improvements are immediately possible in the man- ufacture of mixed gas, through the combination of the coal-gas and water-gas generation into practically a continuous process, which will yield much better heat economy and hence lower operating costs than now prevalent. At the same time, as B.t.u. standards are lowered, a decreasing quantity of oil may be employed in the enrich- ment, until the use of gas oil is done away with entirely, approxi- matety a 400 B.t.u. gas being the end-product then distributed. Such a gas is an ultimate, rather than an immediate, desideratum, since its use would entail modifications in existing appliances and methods of distriljution. The economic pressure alread}^ in evidence will inevitably force developments into this channel, which admits not only of the fuUest use of present installations and equipment but also is nearest in line with the stable source of fuel supply. The whole field of development in respect to gas has been rela- tively stagnant, but once the barrier of an outworn thermal standard is broken down and the inertia that has always characterized the gas situation is supplanted by a vigorous sense of the latent possibil- ities in gas, substantial progress may be expected. The field of city-gas enmeshes closel}^ with the undeveloped possibilities of gas in respect to industrial heating and even power application; and once the production of city-gas is placed upon a low-cost basis, soundly CITY-GAS OF THE FUTURE 311 grounded in the complete gasification of bituminous coal, and proper attention is accorded the efficiency of utilization, the full possibilities of this mobile form of energy- may begin to be realized, with incalcul- able benefit to all concerned. In all progressive municipahties gas must eventually largely supersede raw coal in the homes and factories; not until then may the city-gas problem be regarded as solved.^ 1 For a further discussion of the potentiahties of gas, see Gilbert and Pogue, America's Power Resources, New York, 1921, pp. 184-213. CHAPTER XXIV INTERNATIONAL ASPECTS OF PETROLEUM Until a few years ago the oil deposits of the United States were generally regarded as ample to supply her needs. The production of crude petroleum, indeed, increased so rapidly that organized effort was directed mainly toward enlarging the domestic demand and finding additional outlets abroad. Once fairly under wa}', however, the demands for the products of petroleum have expanded at a geometric rate until the problem of finding a sufficient volume of raw material to meet future requirements is of paramount impor- tance. Within a short space of time, there has been a reversal from a situation in which production was forcing new outlets to one in which an insistent demand is seeking assurance of an adequate supply. Two factors have accentuated this change. The war brought petroleum to the front as a necessity of the first rank; and a realiza- tion of a hmitation in supply has come into account. The inability of the domestic petroleum resource to meet fully the responsibility which it has engendered is directing attention in growing measure to foreign sources of supplemental supply. Thus the United States is projected into the international struggle for oil and is facing a new range of complications in this field. Political and Commercial Control of Oil Production. — The oil production of the world ^ may be classified according to the national- ities exercising political control of the productive areas or according to the commercial interests directing their exploitation. During the war the U. S. Bureau of Mines analyzed the mineral resources of the world in these two respects,^ and the results for petroleum are shown in Fig. 145 and Table 120. It is apparent from Fig. 145 and Table 120 that in 1917 the United States exercised political (or territorial) control over 67 per cent of the petroleum produced throughout the world, and commercial ^ See pp. 52-53 for statistics on the world's production. * The results of this investigation were published by J. E. Spurr, Political and Commercial Geology and the World's Mineral Resources, New York, 1920. Chapter I, on petroleum, is by John D. Northrop. 312 POLITICAL AND COMMERCIAL CONTROL 313 (financial) control over a slightly greater part, 72 per cent. Pro- portions of substantially the same oider of magnitude obtain for 1920. Table 120. -Political and Commercial Control of the World's Output of Petroleum in 1917 (After John D. Northrop) Country Pro- duction, Millions of Barrels Country Exercis- ing Political Control Nationality of Dominant Commercial Interest Approximate Extent of Control by Dominant Interests, Per Cent United States Russia Mexico Dutch East Indies . India Persia Galicia Japan and Formosa Rumania Peru Trinidad 335 69.0 55.3 12.9 8.08 6.86 5.97 2.90 2. 68 2.53 1.60 1.14 3.04 United States Russia Mexico Holland Great Britain Persia Poland (?) Japan Rumania Peru Great Britain Argentina Miscellaneous United States United States British-Dutch United States British-Dutch Great Britain Great Britain Germany Japan British-Dutch United States Great Britain Argentina Miscellaneous United States 96 40 65 100 100 100 100 100 36 70 80 100 Argentina Others Total 507 72 Political and Commercial Control of Oil Reserves. — The control of oil reserves is an entirely different matter from the control of oil production, although the two have not been clearly distinguished in all discussions of the matter. During the past few years, pro- found changes have been made in the political and commercial map of the world, and while many of these changes are still in doubt and hence to be spoken of with due reservation, there is an unmistakable correlation to be observed between the territorial adjustments and the unmined supplies of petroleum. (See Fig. 146.) While the petroleum reserves outside the United States are still unmeasured, except in a provisional manner, the available evidence tends to indicate that approximately seven-eighths of the petroleum remaining to be produced in the world lies outside the Ijoundaries of this country. In other word, though exercising territorial command of over two-thirds of the world's actual production of petroleum, this 314 INTERNATIONAL ASPECTS OP PETROLEUM POLITICAL CONTROL (TERRITORIAL) COMMERCIAL CONTROL (FINANCIAL) UNITED STATES /^ .675; .r!js_s,ia; UNITED states 7 2 ■ft countiy possesses political control over only something like one-eighth of the re- source. In the face of this circumstance, and in view of the fact that the United States consumes over half of the petroleum products turned out and supplies over three-quarters of the world's requirements in re- spect to these commodities, the American petroleum in- dustry is seeking to extend its commercial control in foreign fields. On page 24, Fig. 6, is a map of the world, com- piled by the U. S. Geological Survey, showing the loca- tion and estimated size of the petroleum reserves of the world, together with an indication of some of the broad features of polit- ical control obtaining at the tmic the map was pre- pared in 1919. The map brings out the concentra- tion of the oil reserves in five regions: the United States, the area bordering the Caril)bean Sea, the re- gion adjacent to the Caspian Sea, the Far East, and southern South America. The map affords an inter- esting key to many of the recent moves in the game of world politics. New Problems in Pe- FiG. 145— Political and commercial control of tioleum Exploitation. — In the world s production of crude petroleum extending commercial ac- in 1917; after Sinirr and Northrop. ■ .B R I.T^E M "pV2^?i:; ALL OTHERS NETHERLANDS g;erm.anx2'«' ALL OTHERS THE PROBLEM OF NATIONALIZATION 315 tivities into foreign territories, the American petroleum interests are encountering two problems of outstanding importance, new to the exploitation of petroleum in this country. These are: A tendency toward the nationalization of the petroleum resource, especially marked among the smaller independent countries, par- ticularly in the Caribbean area and in southern South America; and keen international rivahy in the Old World on the part of the industrial powers, with the situation already far advanced toward PRODUCTION 1920 RESERVES (ESTIMATED) OTHER COUNTRIES UNITED STATES Fig. 140. — Chart showing the ijroportions of the world's i)ro(kiction and reserves of crude jK-trokMini in the territory controlled politically by the United States. an exclusive undei-standing and a division into definite spheres of influence. Throughout both fields there rims as well the keen commercial rivalry connnon to business enterprise. The Problem of Nationalization. — The liatin-American countries, in which the ownership of the natiu'al resources in the colonial days was vested in the crown, are showing a growing tendency to retain and even reinstate the petroleum rights under the sovereignty of the nation. Of the Latin- American countries — the states coming under the sphere of the Monroe Doctrine — ownership of the oil in the 316 INTERNATIONAL ASPECTS OF PETROLEUM ground rests in the government in Bolivia, Costa Rica, and Venezuela, and in part in Argentina, Colombia, and Ecuador; while movements further to vest oil rights in the state are in progress in Colombia, the Dominican Republic, and Mexico.^ This policy in Mexico has naturally attracted the widest notice, because of the extensive petroleum developments in that countiy; the new constitution of 1917, with its famous Article 27 declaring " in the nation is vested direct ownership of all minerals, petroleum, and hydrocarbons," and arousing the fear of its retroactive application, has already become a point at issue between the foreign operators and the Mexican Government. The extent to which this movement toward nationalization of the petroleum reserves will go cannot be foreseen, but the consequences will undoubtedly be in the direction of Imiiting the degree to which outside commercial control may be gained and slowing down the rate at which the resources may be developed. National ownership of the oil in the ground is not confined, of course, to the Latin-American countries, being true in varying degree of France, the United Kingdom, the British Colonies, Slovakia, and Russia. The Problem of International Rivalry. — Oil has become so essen- tial to modern civilization that other industrial nations are aggres- sively seeking both commercial and political control over oil-bearing territories. Efforts toward enlarging political control have appar- ently been confined to the Eastern Hemisphere, though commercial activities have been extended over the entire world, especially by British, Dutch, and French interests. In some directions, the polit- ical and commercial efforts have joined hands. The Govermnent of Great Britain, for example, " has established a petroleum adminis- tration; owns a controlling partnership with veto powers on the board of directors in the Anglo-Persian Oil Company, which con- trols the oil resources of the greater part of Persia; gives financial assistance to its nationals engaged in oil development and is in every possible way promoting the acquisition by companies under British control or companies exclusively British, of oil reserves in all coun- tries, including our own." ^ Petroleum has also become involved in the administration of the mandate territories that grew out of the war. At San Remo in April, 1920, Great Britain and France negotiated an agreement " based on the principles of a cordial collaboration and reciprocity 1 See David White, The Petroleum Resources of the World, Annals of the American Academy, May, 1920. See also Congressional Record, May 17, 1920. 2 White, op. cit., p. 21. THE SIGNIFICANCE OF OCEAN SHIPPING 317 when the petroleum interests of the nations can be negotiated to advantage," which agreement " may be extended to other countries by mutual consent," whereby the two countries party to the agree- ment would enjoy certain advantages in developing the petroleum resources of Rumania, Asia Minor, territories of the former Russian Empire, Galicia, the French colonies, and the colonies of the British Crown.i This Project of Agreement resulted in the interchange of notes between Great Britain and the United States, Math special reference to Article 7 relating to Mesopotamia, the United States claiming equal oil privileges in mandate territory, with Great Britain maintaining that the San Remo agreement was based upon concessions granted to British nationals by the former Turkish govermnent. International rivalry for petroleum has led to restrictive legisla- tion on the part of some coimtries favoring exploitation by their own nationals, and in this wise a new phase of nationahzation has been projected into the problem. The Significance of Ocean Shipping. — The advantages of fuel oil for ocean transportation and naval operations have undoubtedly played an important part in determining the policy of Great Britain in acquiring foreign reserves of petroleum, while these factors have also influenced the activities of the United States. The suggestion has also been advanced that the growing social consciousness of the coal-miners in Great Britain has been an added incentive foi- an active develojmient of a petroleum supply. At any rate, the sig- nificance of oil in the maritime field is a sufficient explanation of the world-wide interest that has been taken in oil. The question, there- fore, arises as to whether the world's supply of petroleum is suffi- ciently great to sustain automotive transportation on land, lubri- cate the wheels of industry and commerce, and support the revolu- tion in ocean shipjiing to an oil-burning basis. It is by no means a foregone conclusion that the merchant marine of the world can count upon a supply of oil sufficiently cheap to sustain its operations for more than a relatively })rief period of years. There are approximately 55 million tons of steam shipping in the world, and roughly speaking its entire conversion to an oil-fired basis would re(}uire an annual consumption of over 500 million ])arrels of oil, or nearly the total quantity of petroleum ]iroduccd in the world to-day. The unit consumption, of course, can be reduced consider- ably by the universal adoption of Dies(4 engines; but at best the oil consumption would still be of outstanding size. The utilization of oil by ocean shii)iiing, however, is lunited more directly by the matter of price, and there are many reasons for 1 See M. L. Heqvia, The Petroleum Problem, 1920, pp. 35-36. 318 INTERNATIONAL ASPECTS OF PETROLEUM believinjj; that petroleum to date has been produced abnormally cheap, if not actuall}^ at a sub-economic level. Once the flush pro- duction of the richest deposits are exhausted and once the efficient utiUzation of the liigher-rank petroleum products is gained, even ocean shipping niaj^ be forced largely to abandon the use of this product. Such possibihties seem to have been generally lost sight of, under the competitive spur of the advantages offered by oil at the present price-level. But whatever the future of oil, the fact remains that it is now definiteh' involved in competitive shipping efforts, and a growing use in tliis direction will probably be seen for some time at least. Suggested Lines of Action. — It is thus apparent that petroleum has been projected into the international arena as an issue of the first magnitude. Eagerly sought as a source of national power and indus- trial advantage, the remaining supplies have come in for intense competition, complicated by nationalistic, socialistic, and imperialis- tic aspirations. As a result of these conchtions, the American petro- leum interests have met with restrictions in their efforts to extend commercial control into foreign fields. Various suggestions have })een offered with a view to enabling the commercial interests of the United States to participate more fully in the development of foreign oil-deposits. Among the lines of action advocated are: Direct goverrmient participation in the development work; govermnental support to private enterprise; vigorous diplomatic action to secure an open-door policy and equality of opportunity to all nations; the use of economic pressure and retaliatory measures to gain this end; and manj^ others. The sug- gestions have mainly been in the direction of invoking some degree of political support for the commercial enterprises concerned, with a view either to winning entire equality of opportunity or else, failing that, to bring to bear counter restrictions of an analogous character. The Trend of the Situation. — The course of action likely to be followed by the major powers and the smaller nationalities in respect to petroleum cannot be foreseen, as this matter is involved in consid- erations of foreign and domestic policy that nowhere seems to be settled, complicated as the situation is by contending factions, con- flicting interests, and divergent social theories. The forces at play would seem to fall mainly into two catagories : the rivalry^ between Great Britain and the United States in seeking control of future supphes; and the perceptible tendency of the smaller independent countries to recognize the value of petroleum and restrict the exploitation of their internal deposits. As regards this whole matter, the widest diversity of statement has been given THE TREND OF THE SITUATION 319 publicity in all parts of the world, while a far-reaching diplomatic and commereial game has been played behind the scenes. While the political outcome can only be guessed at, the economic result will undoubtedly be an intensive development of foreign fields, with the utilization of much of the output for some years to come mainly in the form of fuel oil. Barring international complications of a military nature, the oil production will presumably become available under the economic laws of commerce to all parts of the world where needed. The outstanding issue at present in the public eye seems to be the matter of political control, predicated in the last analysis upon commercial and military strategy; the greater need is for an efficient development and utilization of the remaining deposits in order that automotive transportation and industrial activity the world over may be sustained and developed. Whatever happens, the United States faces the physical fact that the supply of crude petroleum available for her use cannot continue to increase volumetrically at the rate enjoyed up till now. The output of crude petroleum in the United States has virtually reached its maximum; the proven fields of Mexico are well-nigh exhausted, and a marked falling off in imports from that source is to be antici- pated; even under the most favorable circumstances, deposits further afield can scarcely be developed into major producers under five to ten years. Cheap and bountiful supplies of crude petroleum will soon be a thing of the past. The answer to the domestic petro- leum problem does not lie exclusively abroad; efficiency in produc- tion and utilization and supplemental sources of supply at home must share with foreign contributions the responsibility of sustaining those activities exclusively dependent upon liquid fuel. CHAPTER XXV MEXICO AS A SOURCE OF PETROLEUM The unique occurrence of petrcjleuni in Mexico has resulted in a rapid and sensational depletion of the resource, and a widespread misconception as to the extent and future of its deposits. The con- centration of the proven oil in a restricted area and its ready suscep- tibility to extraction have stimulated an intensive campaign of devel- opment, which has succeeded in bringing the known supplies to the verge of exhaustion while at the same time lending a false sense of confidence in the magnitude of the proven reserve. The realiza- tion of the true situation is likely to come as a startling climax to a period of flush production, like the termination of the meteoric career of a single well. For, in the words of a recent speaker, " No pump has ever profaned the casing of any Mexican well. These wells are born into the full virility of their gigantic powers. They live like giants, straining at the chains that bind them, and they die as giants should, stricken as by a thunderbolt." Since oil was commercially developed in 1901, the production of Mexico has grown until that countiy has become second only to the United States in its contribution to the world's supply. First a substantial exporter of petroleum in 1911, Mexico in 1920 shipped 112 million barrels of petroleum to the United States, and 41 million barrels to other countries — 28 per cent of the world's entire output in that year. Already the United States is dependent upon Mexico for a fifth of her petroleum requirements. The position of Mexico is shown graphically in Fig. 147 and statistically in the follow- ing tal)le (Table 121). The Oil-fields of Mexico. — Commercially productive deposits of petroleum are found in a narrow strip of territory in the Gulf coastal plain a few miles inland from Tampico and Tuxpam. This highly restricted area is responsible for practically the entire output of Mexican petroleum to date, and is the region to which reference is generally had when Mexican petroleum is referred to. This pro- ductive area is divided into two fields: the Northern, or Panuco, field, producing a heavy, viscous petroleum of 10°-13° Baum^ gravity; and the Southern, or Light Oil, field, producing a lighter 320 THE OIL-FIELDS OF MEXICO 321 petroleum of 19°-22° Baume gravity, more suitable for refining than the heavy crude of the Northern field. The Northern field com- prises three pools: Ebano, Panuco, and Topila. The Southern field is a narrow, sickle-shaped area, about 40 miles long and half a mile broad, containing the following pools from north to south: Dos Bocas; Tepetate-Casiano-Chinampa; Amatlan-Naranjos-Zacamixtle; Toteco-Cerro Azul; Alazan-Potrero del Llano; Tierra Blanca; Alamo; and Molino. The approximate location of the various pools is shown in Fig. 148. Up to June 1, 1921, the Northern Field had produced 152 million barrels, and the Southern Field had produced 492 million; while the current daily production was 130,500 barrels and 395,500 barrels respect iveh'. Table 121. — Comparative Production of Petroleum in Mexico (In, miUinns of hari-el.'i) Year World's U. S. Mexican Mexican Exports to U. S. Total Mexican Production Production Production Exports 1901 167 69.4 0.01 1902 182 88.8 0.04 1903 195 100 0.08 1904 218 117 0.13 1905 215 135 0.25 1906 213 126 0.50 1907 264 166 1.01 1908 286 179 3.93 1909 299 183 2.71 1910 328 210 3.63 1911 344 220 12.6 0.89 1912 352 223 16.6 7.38 7.62 1913 384 248 25.7 17. S 20.9 1914 404 266 26.2 16.2 22.9 1915 428 281 32.9 17.5 24.3 1916 461 301 40.5 20.1 26.7 1917 507 335 55.3 29.9 42.5 1918 515 356 63.8 40.8 51.8 1919 558 378 92.4 57.6 77.7 1920 688 443 163 112 153 Outside of the territory described above, there are many areas which will doubtless })ecome commercially productive in time, but such fields nmst first be prospected and developed. A clear dis- 322 MEXICO AS A SOURCE OF PETROLEUM tinction should be drawn between the proven oil-jwols already approaching exhaustion, and the undiscovered and the undeveloped fields of the Republic, which have a significance that the future alone can disclose. Fig. 147. — Production of crude petroleum in Mexico compared with the United States and all other countries by years, 1901-1920. Occurrence of Petroleum in Mexico. — In the Tampico-Tuxpam region petroleum occurs under highly specialized geological conditions without parallel elsewhere. The oil exists in cavernous reservoirs " under such conditions of enormous pressure, unrestricted mobility, and easy availability, as to enable its entire withdrawal from any of the important pools within a few months under the intensive OCCURRENCE OF PETROLEUM IN MEXICO 323 development campaign which has raged ... in the Mexican field." The important pools are found to contam from 100 to 150 milKon barrels of oil each; from the Los Naranjos pool in 1920 was taken 95 milhon barrels, or two-thirds of its probable total content. The conditions of occurrence give rise to the largest producing weUs in the world's history, both as to the volume of dailv vield and Fig. 148.^Skotc"h map showing the location of the most important proven oil pools of INIexico. Many of the pools shown are extinct. (See text.) the total quantity produced. The Mexican wells have also displayed the peculiarity, unknown in the United States, of continuing to yield by their own pressure in undiminished vohune so long as the flow of oil lasts. As in the oil-fields of the United States, the end of pro- duction comes through the inflow of water. But whereas in the 324 MEXICO AS A SOURCE OF PETROLEUM United States the water nuw be edge water, bottom water, or top water; in Mexico, it is bottom water upon which the oil floats under hydrostatic pressure. The size of the Mexican wells has led to optimistic assumptions as to the size of the resource. " The gusher condition in ^lexico seems to indicate ease in exploiting, rather than such abnormally large pools as have been inferred from the great size of the gushers encoun- tered."! In the United States, oil is found in a large number of widely separated pools, occurring in porous reservoir rocks under such con- ditions of pressure, mobility, and availability as to preclude its with- drawal except over a period of years, ranging up to forty years, but averaging perhaps fifteen years. The output of an oil-pool in the United States will consequently display a gradual diminution in vol- ume. In Mexico, the crowding of the productive pools into an exceedingl}^ small area — all the important pools with the exception of the Panuco group occurring in one long narrow structure — and the concentration of the oil in each pool into an interconnecting series of cavernous openings under hydrostatic head, give rise to an imme- diate and sensational yield once the concentration is tapped. A production that in the United States would be gained through the agency of a thousand wells is achieved under Mexican conditions by a half dozen wells, or even a single well. This contrast is the key to the situation. It is clearly shown in the tabulation following: Table 122. — Comparison between the Production of Petroleum in Mexico AND THE United States at the End of 1920 (After Ralph Arnold) Country _ T, ' Production Proven Pro- , ^^^O. ducmg Area. ^^ ^^ Sq. Ml. 1 ._ Barrels Number Producing Wells, 1920 Average Daily Pro- duction per well, 1920, Barrels Proven Oil Reserve, Millions of Barrels Alexico 25 163 200 2600 4.9 300-400 6000* United States. . . . 4500 443 2.58,600 * From U. S Geological Survey. The Salt Water Encroachment. — A normal oil-field, such as those of the United States, enjoys a brief period of flush production, fol- lowed by a period of settled production as the area is being drilled up, in turn succeeded bj^ a long period of slow decline as the output of the individual wells gradually dwindles. The abnormal oil-field of the 1 E. De Golyer, Mexico as a Source of Petroleum and Its Products, Society of Automotive Engineers, Feb., 1919, p. 2. THE UNMINED RESERVE 325 300-400 ZACAMIXTLE ■■75':: CERRO AZUL Tampico-Tuxpam region in Mexico is displaying the wholly distinct ive characteristic of an accelerating output to the verge of exhaustion — its period of rapid, flush production will represent the major event in its history. Its decline is likely to be sudden and spectacular, like the end of the individ- ual well. The salt water, which underlies the oil and supphes the hydraulic pressure, is rapidl}^ drowning out both the North- ern and Southern fields of the Tampico- Tuxpam area. The Dos Bocas, Tepetate, Casiano,Chinampa,and Potrero del Llano pools in the Southern Field were extinct at the beginning of 1921. During the early months of 1921, the Los Naranjos, Panuco, and Alamo pools were rapidly going to salt water. In August, the Amatlan pool became seriously affected. According to Arnold, " Panuco and Ebano apparently will continue for many years producing enough oil and a valuable mix- ture of oil and water to have an impor- tant bearing on the productivity of Mex- ico. This leaves Zacamixtle, a practically virgin pool, and Cerro Azul, a partly exhausted pool, the latter controlled by a single company, to furnish, with Panuco, the bulk of the proven future supply." ^ Since Arnold's analysis was made, a small pool, the Tieri-a Blanca, with an estimated reserve of 50 million barrels, has been brought in near the southern extremity of the Southern Field.2 (See Fig. 148.) The Unmined Reserve. — The oil re- sources of Mexico, as previously noted, are represented by the proven area of the Tampico-Tuxpam region, and un- ' Ralph Arnold, The oil situation, Mining and Metallurgj' pp. 20-21. 2 See L. G. Huntley and Stirling Huntley, Mexican oil fiel< Metallurgy, Sept., 1921, pp. 27-32. LOS NARANJOS FIGUHES ARE MILLIONS OF BARRELS Fig. 149. — Estimated unmined supply of crude petroleum in the proven oil-pools of Mexico on .Jan. 1, 1921; data in part from Arnold. March, 1921, Mining and 326 MEXICO AS A SOURCE OF PETROLEUM developed territory in other parts of the country. The reserve available in the proven area at the beoinning of 1921 was estimated by Arnold to approximate 300 to 400 million barrels. The allot- ment of this reserve to the unexhausted pools is shown in Fig. 149. Estimates by other geologists differ in detail from Arnold's figures, but give the same order of magnitude for the oil definitely in sight. ^ Outside of the proven area, there is as yet no sub- stantial basis for estimating the probable underground . supply of petroleum; considerable prospective territory is known and development work will doubtless bring other pools and fields into action. The output of Mexican petroleum is probably due for a slowing down in the period immediately ahead. If the rate of production of eai'ly 1921 is sustained, 1922 may see the end of the proven big fields of Mexico. On the other hand, special conditions may lead to a reduced rate of output earlier and a consequent spread of the remaining supply over a period of years. In either event, new productive pools, either in the Tampico-Tuxpam area or elsewhere in Mexico, can scarcely be developed with sufficient celerity to maintain an unbroken increase in that country's produc- tion of petroleum. Character of Mexican Petroleum.- — Most of the light crude produced in the Southern field is topped, with the production of about 12 per cent gasoline, 5 per cent kerosene, 81 per cent fuel oil, and 2 per cent loss. Some of this oil, however, is completely refined, yielding 15 per cent gasoline, 7 per cent kerosene, 28 per cent gas oil, 25 per cent light lubricating distillate, 10 per cent heavj^ lubricating distillate, and 15 per cent gas and coke. The heavy crude of the Northern field contains so little gasoline that its flash point is low enough to permit its use as fuel oil without 1 Huntley and Huntley (Mining and Metallurgy, Sept., 1921, p. 30) give the following estimate of the known reserves : Barrels Amatlan-Zacamixtle 50,000,000 Cerro Azul-Toteco 150,000,000 Tierra Blanca 50,000,000 Panuco River pools (have not been limited and seem capable of considerable exten- sion) . ? Total 250,000,000 "These amounts disregard later recoveries from the same areas through stripping wells, as the factor used in the calculations was derived from the data in the Tepetate-Chinampa area, which excludes later recoveries." 2 See G. A. Burrell, Oil & Gas Journal, January 30, 1920, p. 66. MEXICAN LAWS AFFECTING OIL DEVELOPMENT 327 refining. When topped, this crude yields 3.5 per cent gasoline, 4 per cent kerosene, 90.5 per cent fuel oil, and 2 per cent loss; the fuel oil fraction so obtained, however, is so viscous that only about 2.5-3 per cent gasoline is usually removed. Upon more complete refining, the heavy Mexican crude can be made to yield 3.5 per cent gasoline, 4.5 per cent kerosene, 17 per cent gas oil, 5 per cent lubricating oil, 65 per cent asphalt, and 5 per cent loss. Typical juclds from Mexican crude are shown in Fig. 150. TOPPING PLANT COMPLETE REFINERY TOPPING PLANT COMPLETE REFINERY LIGHT CRUDE LIGHT CRUDE HEAVY CRUDE GASOLINE -.KEBOSENE; ^81^> i/y^;i-i-// -LIGRTf-LU^BR., ^1? HE4VcYoL'UB.Fb o (DISTILLATE o oooqo^poo o o OOP o 6 oooo WAX 1.3r. GAS He' COKE |'i';ii:|||,13:7:'/f,!i|,;Hjii iiliiililllliliiliililllllillnllllli GASOLINE 3?,;; • 'kerosene' 4^; ^GASOLINE 3.5S .kerosene; 4; 55;; '~ >L Jp Rl ciri N 0"A I f-', ASFH 5 JpsSlp>); ii"ii""iiiiii"i Fig. 150. — Chart showing the average yields from Mexican petroleum; data from G. A. Burrell. Mexican Laws Affecting Oil Development.' — Wide publicity has been given the Mexican laws affecting oil development, and many conflicting statements are to be found on this subject. The mining laws of 1884, 1892 and 1909, based on the Constitution of 1857, " recognized the principle that the exclusive ownership of the petro- leum deposits was vested in the owner of the land,"^ and provided for the acquisition of petroleum rights by foreign companies. In 1917 a new constitution was promulgated, based on the old land laws, which made a radical change in the petroleum legislation ' See The Petroleum Industry in Mexico, Commerce Reports, September 13, 1920, p. 1224. 328 MEXICO AS A SOURCE OF PETROLEUM of the Republic. As Article 27 of this constitution has met with active objection on the part of some of the foreign interests, a portion of the famous article is accordingl^v given below, following the translation published by the Latin-American Division of the U. S. Bureau of Foreign and Domestic Commerce: Translation of a Part of Article 27 of the Mexican constitutiox The ownership of lands and waters within the limits of the national territory is vested originally in the nation, which has had and has the right to transmit title thereof to private persons, thereby constitut- ing private property. Private property shall not be expropriated except for cause of public utility and by means of indemnification. The nation shall have at all times the right to im]:)ose on private property such limitations as the public interest may demand, as well as the right to regulate the development of natural resources, which are susceptible of appropriation, in order to conserve them and equitably to distribute the public wealth. In the nation is vested direct ownership of all minerals, petroleum, and hydrocarbons — solid, liquid, or gaseous. Legal capacity to acquire ownership of lands and waters of the nation shall be governed by the following provisions: L Onlj^ Mexicans bj' })irth or naturalization and Mexican com- panies have the right to acquire ownership in lands, waters and their appurtenances, or to obtain concessions to develop mines, waters, or mineral fuels in the Republic of Mexico. The nation may grant the same right to foreigners, provided they agree before the depart- ment of foreign affairs to be considered Mexicans in respect to such property, and, accordingly, not to invoke the protection of their gov- ernments in respect to the same, under penalty in case of breach, of forfeiture to the nation of property so acquired. Within a zone of 100 kilometers (62.14 miles) from the frontiers and of 50 kilometers (31.07) miles from the seacoast no foreigner shall under any con- ditions acquire direct ownership of lands and waters. Article 14 of the new constitution states: " No law shall be given retroactive effect to the prejudice of any person whatsoever." It is the contention of the Mexican Government that this constitutional provision will fuUy protect the companies ah'eady legitimately inter- ested in the petroleum industry in Mexico.^ Many of the companies, however, have objected to the provision of the new constitution, and the matter has been brought under diplomatic consideration by the two countries. Taxation of Mexican Petroleum.- — Prior to May, 1917, the 1 Commerce Reports, September 1.3, 1920, p. 26. - For a scientific discussion of the taxation problem in respect to Mexican petroleum see V. R. Garfias, General Notes on the Production, Marine Trans- TAXATION OF MEXICAN PETROLEUM 329 exports of Mexican petroleum were taxed approximately 3.9 U. S. cents per barrel. From May, 1917, to July, 1921, a so-called stamp tax was levied upon outgoing oil by a decree established under President Carranza. The amount of this stamp tax was approxi- mately as follows: heavy crude, 5 cents per barrel; hght crude, 11 cents per barrel; fuel oil, 9 cents per barrel; and crude gasoline, 56 cents per barrel, or 1^ cents per gallon. In addition to the stamp tax which applied exclusively to petroleum there were minor taxes common to all exports, such as bar dues running from | to f of a cent per barrel, and the Infalsificable, or paper redemption tax. These minor taxes for petroleum were small, compared with the stamp tax as given above. On July 1, 1921, a special tax supplanted the stamp tax, which had been in force from May 1, 1917 to June 30, 1921. This special tax differed from the superseded stamp tax in two main particulars: the basis of valuation was changed from that of the values of Mexican oils in Mexican harbors to the basis of the average values of similar products in the United States, the Mexican Treasury establishing monthly basic figures; and the special tax was based upon volume rather than weight. On June 7, 1921, a presidential decree insti- tuted an additional tax, an export tax on petroleum and its products, also to take effect upon July 1, 1921. ^ This tax was not ad valorem, but was fixed in amount. The total taxes applicable to exports of Mexican petroleum in July, 1921, are summarized in the following table : Table 123. — Total Mexican Taxes on Petroleum and its Products i:; Force in July, 1921 Data from V. R. Garfias (l7i U. S. cents per hnrrel) Special Tax Infalsifi- cable Bar Dues Export Tax Total Taxes Light crude, 20° Be. Heavy crude, 12° Be. Fuel oil, 16° Be. Crude gasoline, 56° Be. 13.000 8.800 11.558 52.46 1.300 .880 1 . 1.50 5.246 .740 .782 .760 . 597 19.873 12 . 322 15.899 74.723 34.913 22.784 29. 372 i:«.026* * In U. S. cents per gallon — 3.167.3. portation and Taxation of Mexican Oils, Amer. Inst. Min. and Met. Eng., Pub. 1054, Feb., 1921. Also Additional Notes on the Ta.xtion of Mexican Petroleum. (Advance copy supplied author in Aug., 1921, by courtesy of V. R. Garfias.) The data following are based upon the papers of Garfias. 'The collection of the export tax was subsequently deferred until Dec. 1921. CHAPTER XXVI THE RELATION OF THE COAL INDUSTRY TO THE OIL INDUSTRY Coal and Oil Now Competitors. — Under present conditions coal, the dominant solid fuel, and fuel oil, the major component of crude petroleum, are competitors. This competition has attracted wide interest;^ and in many quarters the belief has been expressed that serious inroads will be made upon the coal industry by virtue of the superior convenience and efficiency of oil fuel. As a matter of fact, however, petroleum cannot be expected to radically displace coal in industry and transportation, since a crude petroleum pro- duction of about 3 billion barrels per year would be necessary to drive coal from its present ascendancy. Oil Becoming More Specialized. — Substitution of fuel oil for coal marks merely an era of crude overproduction in respect to balanced demands. For many years the oil-fields of the United States have supplied crude petroleum in excess of the higher requirements of the market, with the result that the surplus in the form of fuel oil was forced to find an outlet in competition with coal. For the future, however, fuel oil will represent a narrowing percentage of the crude petroleum mined, since the more specialized uses — automotive power, lubrication, chemical by-products — are coming into growing importance and are registering their claims ahead of the demand for industrial fuel. Not only has the rate of crude production in this country long been lagging behind the growth of these specialized demands, but the latter are due for further increases in the future, while the crude output has virtually reached its maximum. This cross-purpose relation between supply and demand, though latent in 1921, has created a problem which is now generally recognized. The current answer to this problem is reflected in the present activi- ties in the direction of developing foreign oil-fields. The complete answer, however, goes much deeper and involves foreign develop- ments linked with intensive research, both material and economic, for the creation of new technology. The latter aspect of the matter is yet uncultivated, and offers an outstanding opportunity for advance. Coal represents one of the most potent directions from which oil can gain rehef from the limitations of a waning resource. 330 A COAL REFINING INDUSTRY DEVELOPING 331 Coal Becoming More Generalized. — At the same time tliat oil is gradually becoming restricted to a highly specialized field of service, and is seeking new sources of raw material to cover even this latitude, coal is undergoing an evolution almost as rapid in an opposite direc- tion. With no comparable resource limitation, coal is being forced by economic restrictions of a different order to seek new directions of application, with the correlative freeing of potential by-products which must find new outlets. Oil is seeking new sources of supply; coal is seeking new types of demand. These two trends in conjunction bid fair to bear important fruit in the future. Changes in oil will require supporting resources. Changes in coal will requne new outlets. In view of this circumstance, it is important to analyze the coal situation in regard to its imminent changes, and to appraise the bearing that these changes are likely to have upon the oil situation. A Coal Refining Industry Developing.^ — Just as the production of crude petroleum gave rise to a petroleum refining industry which has come to treat most of the crude petroleum produced, so likewise coal is attaching to itself a refining activity which will eventually involve a significant proportion of the crude coal mined, thus dis- placing raw coal with coal products. Progress toward a refining industry on the part of coal is generally conceded; the speed and character of the evolution only is open to question. The advance of petroleum in this direction was rapid, thanks to the insistent charac- ter of the demands created by the phenomenal growth of automotive transportation. The progress of coal in this direction has been slow, due to the large supply of raw material available, the presence of anthracite coal in the East, and the general neglect that has been accorded this whole matter. Coal refining, however, has already involved half of the coke industry and a small fraction of the manu- factured-gas industry; or, in terms of bituminous coal produced, around 8 per cent is now refined before utilization. There is much evidence to indicate that many conditions are shaping up — even outside the range of oil — which will accelerate changes in coal and bring important developments into view. These changes may be expected to take place first in the various sub- industries using raw coal, such as the coke industry, the gas industry, and the ])ower-pro(lu('tion industry. The Coke Industry as a Source of Oil. — The refining of coal to date has taken place largely within the confines of the metallurgical coke industry. Roughly one-sixth of the bituminous coal produced 1 For further details, consult Gilbert and Pogue, America's Power Resources, New York, 1921, pp. 184-213. 332 RELATION OF COAL INDUSTRY TO OIL INDUSTRY in this country is converted into coke and of this quantity approxi- mately one-half is treated with by-product recovery, that is to say, refined. In connection with this by-product treatment which involves about 40 million tons of coal, around 13 million barrels of benzol, light oils, and tar are annually produced. The potential yield of the entire coke industry, therefore, once by-i:)roduct practice has trans- gressed the whole field, is around 25 million Ijarrels of oil products on the present basis of technology. But it must be remembered that such yields of oil products arise incidentally from a process in which the focus is upon the production of coke. There are probabilities of strikingly increased yields of oil when it becomes important to force this phase of the output and requisite new technology is developed to this end. The Gas Industry as a Source of Oil. — The gas industry, as now constituted, is an insignificant source of oil products, since this industry consumes only about 5 million tons of bituminous coal, slightly more than 1 per cent of the country's total consumption. There are potentialities of importance attached to the gas industry, however, in the possibility of its expansion to serve the fuel needs of communities, in the necessity of its growth to replace the waning supply of natural gas, and in connection with coal-mine generation of power which may develop in part along lines of by-product gasi- fication. Such changes, moreover, may be forced rather rapidly by the rising prices of coal, the increasing dirtiness of cities lacking smokeless fuel, not to mention the growing needs for the oil by- products which will thus be made available. It is advisable, there- fore, to take a rough measure of what these potentialities hold forth in the way of augmenting the supply of oil. Municipal Fuel Plants a Coming Development. — It is technically feasible for the gas industry, which now supplies a small part of the comnmnity's requirements, to expand to the point of. filling the total fuel needs of the community. Developments of this nature, in fact, are already afoot and are progressing more rapidly than is generally appreciated; the movement will be greatly facilitated upon a public and mimicipal awakening to the real possibilities of the matter. At present around 300 million tons of bituminous coal are used for domestic and industrial purposes. Assuming that one-third of this portion is utilized in populous centers, by-product gasification of this portion under present technology will yield around 25 million barrels of oil products. New technology holds the possibility of expanding this output to 50-100 million barrels. It is thus seen that a proper utilization of coal in our cities, which is bound to come, holds the possibility of contributing a highly CENTRALIZED POWER PLANTS 333 significant quantity of crude oils for the use of the oil-refining industry. Effects of Waning Natural Gas Supply. — The United States at present is consuming around 600 billion cubic feet of natural gas, largely in the populous region of Indiana, Ohio, West Virginia, Penn- sylvania, and Western New York. A tremendous investment in capital and equipment has been provided to meet this function. The supply of natural gas is conspicuously on the wane, and if the investment in the natural gas industiy is not to be lost, artificial gas must be developed to supplement the natural-gas supply. In point of fact, the replacement of natural gas by artificial gas is rapidly taking place. There is a conspicuous trend in the natural- gas industry for the upgrowth of coal gasification plants, and this tendency may be expected to increase in the future. This whole trend ties in with the possible upgrowth of municipal fuel plants, and in itself forms an miportant accelerating motive for the rapid development of bj'-product gasification of coal. It may be noted further that certain oil companies involved now in the pro- duction of natural gas will inevitably find themselves engaged more and more in the by-product utilization of coal, thus bridging the gap which now intervenes l^etween coal and oil. Centralized Power Plants. — The burden that coal imposes upon the railroads of the country (over one-third of our freight is coal) and the inability of our industries to expand rapidly, or beyond certain limits, under this burden, are two factors that are forcing a steady drift toward central power plants near the mine mouth for the extraction of energy from coal. The initial tendency in this direc- tion of course derives its pattern from the hydroelectric development, and coal-field generation of electricity is already a reality. There are serious economic obstacles, however, to the centralized conversion of coal into electric power through the medium of steam, involved in the loss of the exhaust heat (made use of in distributive plants) and the failure to recover the by-products. These two objec- tions, tempered somewhat by the course of balance between the efficiency of the steam turbine and the large gas-engine installation, will force more and more consideration to by-product gasification of the coal as the intermediate step in the energy extraction. As this gasification step gains ground in engineering and economic practice, aided by the growing technology stimulated by the needs of the municipal fuel plant, the ultimate procedure of gas transmission as an alternative to electric transmission will come into being. Already in fact, some engineers are inclined to see under some conditions greater ultimate economy in this direction than in connection with 334 RELATION OF COAL INDUSTRY TO OIL INDUSTRY the electric transmission of power. This whole matter links sig- nificantly with the needs of the natm'al gas situation, the two together forming a strong probability that eventually this country will see a more extensive network of gas transmission lines than is now char- acteristic of the territories served Ijy natural gas. Centralized power plants, which may develop rather quickly in response to the needs of transportation, if for no other reason, may come to involve as much as 100 million tons of coal, giving the pos- sibility of an additional oil supply of some 25 million barrels under present practice, with an eventuality of 50-100 million barrels under new technolog^^ While quantitative estimates of the kind noted above are sub- ject to many uncertainties it is apparent that there are three devel- opments under way within the coal situation, each of which holds some promise of contributing oil products to the maximum of 50-100 million barrels, or a total of 150-300 million barrels. With all due qualifications in mind, it is apparent that such potentialities are sufRcioiitly significant to be accorded serious attention. The Solution of the Peak-load Problem. — One of the most per- plexing problems in the way of cheap and efficient heat and power is the variable and seasonal character of demand, requiring excess equipment to care for the peak load. Such is notoriovisly the case in public utility plants and central power stations, and few subjects have received more attention from engineers than this matter. The possibilities of a technological process that will permit a variable proportion of oil and gas to be made from coal would be so great in the direction of solving the peak-loak problem as to give an acceler- ating impetus to the municipal fuel plant, the central power plant, and the whole matter of by-product gasification of coal. So great is the need for such an outcome that this develo]iment may be ulti- mately expected. A process othenvise economically sound, which has the added advantage of meeting the peak-load issue, would have value so outstandingly ob\dous as to require no additional emphasis. Oil from Coal Versus Oil from Shale. — An economic analysis of the coal industiy, with reference to the changes that are coming, leads to the conclusion that oils from coal may rank in importance with shale oil. In many respects, coal deposits hold greater imme- diate possibilities than do the bulk of the shale deposits. Oil-shale is oil-forming material diffused through clay. Coal is oil-forming material diffused through carbon. The richest oil-shales occur in the West. Coal, on the other hand, is found in the heart of our populous industrial section; in fact, our populous industrial SOLID FUEL ULTIMATELY OBSOLETE 335 section is such because of the presence of coal. Oil-shale has the possibility of yielding a barrel of oil and 20-30 pounds of ammoniuni sulphate per ton of shale, the residue being for the most part worthless. Coal has the possibility of yielding upwards of a barrel of oil and 20-30 pounds of ammonium sulphate per ton of raw material, the residue being fuel more valuable than the raw coal. Solid Fuel Ultimately Obsolete as a Dominant Form. — Fuel in liquid and gaseous form holds such advantages in the way of con- venience and efficiency that the use of solid fuel may be expected to be gradually relegated to second place. ^ The tendency will be to convert more and more of the raw coal produced into gas and oils along the lines laid down above. As the matter now stands, the utilization of raw coal is so ill-fitted to the needs of modern indus- triahsm that the changes outhned are bound to come in growing degree. The crude petroleum situation requires supplementary resources. Foreign supplies are unable fully to meet this need. Attention is consequently already focusing upon domestic supplements. Oil products from coal represent a raw material source of great future unportance. Developments coming in the coal industry hold the possibility of contributing highly significant quantities of oil products, and the coal resources of the country represent a source of oil that will >'ield a rich reward upon proper cultivation. 1 For a discussion of form value see: C. G. Gilbert and J. E. Pogue., Form Value of Energy in Relation to Its Production, Transportation, and Application, Jour. Am. Soc. Mech. Eng., January, 1921, pp. 26-28. CHAPTER XXVII OIL-SHALE Before pstroleum was discovered in the United States, a small quantity of oil was produced by the distillation of a volatile type of bituminous coal called cannel. From the crude oil so obtained, a product suitable for illumination was manufactured. Thus there was a coal-oil industiy in this countiy antedating the petroleum industry. When flowing w^ells of petroleum were developed, the coal-refining industry' found it impossible to compete with the natural product; and it was not long before the petroleum industry held undisputed sway in the production of liquid fuels. All that was left of the early commercial efforts to win oil from solid bituminous matter was the term coal-oil, which came to be erroneously applied to illuminating oils of petroleum origin, and is even so used to-day. The bount}- of nature supplanted the ingenuity of man; the lavish flow of petroleum from the earth cut short the growth of coal-refining for over a half century. Of late years, again, the production of oils from bituminous min- erals has come to the fore, but this time the chief interest is focused upon bituminous shales, products which are related to the cannel coals but leaner in volatile, oil-forming components. The revival of the " rock-oil " industry is coming from a new and unexpected quarter. Work conducted by the U. S. Geological Sm^ey in 1913 called attention to extensive shale-oil deposits in Colorado, Utah, and Wyoming, where hundreds of square miles were found to be underlain by beds of bituminous shale, much of it capable of yielding upon distillation upwards of 1 barrel of oil to the ton. Since that time, the growing inadequacy of domestic petroleum to support the demands it has created has been gradually turning commercial attention not only to the Rocky Moimtain deposits but to oil-yielding shales and coals in many other parts of the countiy, but the industrial efforts in respect to these leaner sources of oil supply are still feeling their way in an attempt to sound the possibilities in the new direc- tions. The w^hole movement has hkewise been seized upon by pro- 336 CHARACTER OF OIL-SHALES 337 moting and stock-selling undertakings and through these avenues the matter has been widely advertised to the general public. Character of Oil-shales. — Oil-shales are dark-colored, sedunentaiy strata, consisting of a dense matrix of clay more or less saturated with organic materials resulting from the decomposition of plant and animal remains. Oil-shales vary considerably in the quantity of organic matter present, and with increasing proportions of the latter they grade into the cannel coals. Both the oil-shales and the cannel coals are distinguished by the presence of considerable hydro- gen, which combines with the carbon upon the application of heat and hence enables these products to yield hydrocarbon oils reseml)ling petroleum when they are subjected to distillation. Nitrogen is also present in variable quantity, yielding a valuable commodity when extracted but interposing difficulties in its recovery. The cannel coals, in turn, through a diminution in hydrogen content, grade into the bituminous coals. Thus, in a general sense, oil-shales are related to the coal-series, and may be regarded as hydrogen-rich semi-coals so diluted with mineral matter as to be without usefulness in their raw state as fuel. Distribution of Oil-shales. — Lean bituminous shales are very common and widely distributed, but the richer varieties, hke the cannel coals, are much more restricted in occurrence. Enormous tonnages of rich shale, in relatively thick beds underljang hundreds of square miles, occur in the Green River formation of northwestern Colorado, northeastern Utah, and southwestern Wyoming. These deposits have attracted considerable attention, and the richer and more accessible portions in Colorado and Utah have already been the scene of much activity in the private acquisition of territory and the establishment of experimental plants for the extraction of the oil. At Grand Valley and Debeque in Colorado, the efforts have been particularly active. In many other parts of the West, but especially in Nevada, Mon- tana, and California, deposits of oil-shales have been studied and experimental work done. At Elko, Nevada, a small-scale commercial shale-oil plant has been placed in operation, with a daily output of 100 barrels of crude oil.^ In Montana oil-shales have been found m association with phosphate deposits. Further east are extensive deposits of leaner oil-shales, imde"lying considerable portions of the states of Texas, Wisconsin, Indiana, Kentucky, Pennsylvania, and New York. In many localities in the East, the shales, while apparently leaner in oil-potentiality than the ' V. C. Alderson, The Oil-shale Industry in 1920, Combustion, March, 1921, p. 31. 338 OIL-SHALE Western deposits, enjoy an intimate association with other mineral deposits, such as coal beds, phosphate deposits, cement materials, limestones, and others, thus affording possibilities of a coordinated extraction of values. Foreign Developments of Shale Oil. — The development of a domestic shale-oil industry has been stimulated by the commercial production of shale oil abroad, but the economic and technical peculiarities of the foreign activities have not apparently l:»cen fully apprehended in this country'. The commercial success attained in Scotland has been generally drawn upon as a criterion of what may be accomplished in the United States. The Scottish oil-shales differ from those in the United States by containing, roughly speaking, about half the oil and twice the recov- erable nitrogen. In Scotland, therefore, the industry has been developed on the basis of nitrogen recovery, the oil being virtually a by-product. The Scottish technology has been strongly colored by this relation. The shale under Scotch practice is treated in vertical retorts, in the upper part of which the product is heated gently with the expulsion of the oil and in the lower part raised to much higher temperatures and treated with steam for the extraction of the nitrogen. The shale now retorted in Scotland yields about 25 gallons of oil and 36 pounds of ammonium sulphate to the ton.^ The crude shale oil so obtained yields a somewhat similar range of products to those made from petroleum, but in different proportions and with a far higher percentage of loss. The percentage yield from one of the commercial plants in Scotland is shown in the table fol- lowing: Table 124. — ^Percentage Yields from Crude Shale Oil in a Commercial Plant in Scotland (Data from U. S. Bureau of Mines) Products Percentage Yield 9.9 24.7 24.4 6.6 9.5 24.9 Lubricating oil flow viscosity) Wax Loss (including still coke 2 per cent) Total 100.0 1 For a description of Scottish practice, see Gavin, Hill, and Perdew, Notes on the Oil-shale Industry, U. S. Bureau of Mines, 1919. AMERICAN DEVELOPMENT OF OIL SHALE 339 It will be observed that the gasoline recovery is low, the j^ield of lubricants is small and of the less desii'able type (non-viscous) , and the losses notably high. The shale-oil industry in Scotland has achieved commercial suc- cess as a whole, but in its development the majority of the individual efforts met with financial failure, and only a few large, well-organized companies sui-vived. At no time could the industry have been sup- ported by the oil-yield alone, nor under the conditions of oil-prices that prevailed in the United States. The Scottish experience, both technical and economic, may be applied to conditions in this countiy only with the utmost caution. Oil-shales are known in many other parts of the world, and some have received more or less commercial attention such as those in France and New Zealand, but nowhere outside of Scotland has a sustained industiy developed. American Development of Oil-shale. — During the past five years an oil-shale industry has been developing in the United States, but thus far the activity is still in its formative period, and no substantial output of oil has come upon the market. The difficulties, both technical and economic, in the way of such an upgrow^th, under the stimulus of dissociated and opportunistic efforts, are indeed imposing. Progress is gradually being made, largely as a result of trial and error, but the outcome as yet is by no means clear. The technology requisite to the retorting of the American shales is still in an experi- mental stage, with a large number of partly developed processes in the field; while the refining of the resulting crude shale oil is still largely an unknown quantity. Again, the whole matter of handling and marketing the products, in order to bring them into the channels of trade, remains to be worked out. On the other hand, the stimulus toward shale-oil production remains yet to be felt in its full intensity .^ As soon as the suppty of crude petroleum falls sufficiently short of requirements to bring a permanently higher price-level into the field, the economic oppor- tunities for the profitable production of oil from shales and coals will be considerafjly enlarged at the same time that commercial enterprise will be brought to a more rigorous development of the whole matter of supplemental oils. The Prospects Ahead. — From the point of view of those inter- ested, or becoming interested, in the commercial exploitation of oil- shales, there is no question but that deposits of this substance in the aggregate represent an untapped reserve of crude oil veiy many ' See Gilbert and Pogue, The Energy Resources of the United States, Bull. 102, Vol. I, Smithsonian Institution, 1919, pp. 77-81. 340 OIL-SHALE times greater than the available supply of petroleum. There is no doubt, also, of the immediate desiiabilit}^ of supplementing the developed sources of petroleum supply with oils from new directions. Thus far there has been no economic room for commercially exploiting the leaner oil resources of the countr>% for oil requirements could be met by the flow of petroleum from domestic wells and such easily accessible foreign deposits as those of Mexico. The opportunity for such developments lying ahead would seem to be predicated upon the further course of miported petroleums, since domestic petroleum has already fallen short. If foreign petroleums are quickly and cheaply made available to the United States, the opportunity for leaner resources will be deferred for another period. But foreign oil deposits cannot apparently be quickly tapped nor so developed as to yield a sustained supply of crude petroleum to this country at anything approaching the price-level prevailing in the past. The development of supplemental oils would therefore seem to be an early necessity. As to the precise course this development will follow, the answer is not so clear. Attention so far in this country has been largely confined to the possibilities of exploiting the Western shale deposits for the production of oil alone. The potentialities of the Central and Eastern shales in respect to the coordinate extraction of a range of values in addition to oil have been accorded subordinate attention, in spite too of the greater accessibility to markets enjoyed by these deposits. Likewise, the relationship of oil-shale to the cannel and other high-volatUe coals (coals which have been termed gas-coals but which may come to be termed oil-coals), has not been adequatety emphasized; nor the correlation of this matter with the low-grade, high-volatile lignites. By-product Oils from Oil-shales and Oil-coals. — As the need for supplemental sources of oil becomes more insistent, industrial efforts will be redoubled and commercial results will be forthcoming. A growing output of crude oil will doubtless be realized from Western shale deposits, but by-product oils from Eastern shale-beds worked in conjunction with associated mineral values and from high-volatile coals and lignites subjected to refining may also be expected to come into growing, if not superior, prominence. In this event, the oil- shale industry as a whole wUl develop less along the lines of a dis- tinctive single-product activity such as the production of crude petroleum now is, and more in the direction of a complex chemical industry', on the one hand involving the extraction of coordinate values with oil as a joint-product or even a by-product, and on the other hand merging with the output of bj'-products from the refining BY-PRODUCT OILS FROM OIL-SHALES 341 of the oil-coals such as lignites, cannels, and the high- volatile bitumi- nous coals. At best, however, the attainment of substantial results involves an important consideration of time. The requisite efforts can scarcely be expected to be put forth until the exigencies of economic pressure force the issue. While such a time may not be far distant, new indus- tries based upon new technology and a revolution in economic prac- tice cannot grow with celerity to the magnitude required without the lapse of j^ears, if not decades. In the meanthne the oil-shales and the oil-coals as well will come increasingly under requisition, with the odds in favor of those activities proceeding with due regard to both the phj^sical and chemical aspects of the principle of multiple production. CHAPTER XXVIII FULL UTILIZATION OF PETROLEUM A VAST amount of discussion has been devoted to the prodigal manner in which the natural resources of the United States have been developed, and petroleum has come in for no small share of attention in this respect. The small proportion of the original oil in the ground that ultimatel}^ performs a useful sei-vice to society has fre- quently been pointed to as a measure of the wastefulness that char- acterized the exploitation of this resource. Just what constitutes waste, however, is an uncertain matter, depending veiy much upon what is assumed to be the criterion against which performance may be measured. American petroleum has been brought into service at a tremendous cost of the oil itself, but a rapid industrial growth and a low capital expenditure have been gained in return. We have paid in oil for the speed with which the present volume of production has been attained and for the relatively low level of prices we have enjoyed during that attainment. The magnitude of the expendi- ture may turn out to be a false economy-, and many are already inclined to designate it so, but American economic practice elected this pro- cedure and it is idle to speculate upon the desirability of results which cannot be changed. The tune has come, how^ever, when the methods of the past can no longer be followed; the oil remaining is not sufficiently bountiful to support its use for other pui-jooses than as a source of material energy and chemical products. The accumulating pressure in this du'ection is already indicated by the rapidly growing capital require- ments of the petroleum inclustiy. From now on, the tendency will be to use relatively less of the material itself, but to put greater effort in the service-value extracted from it. The limitations in resource size are accordingly beginning to dictate a fuller utHization of petroleum, while at the same time calling attention to the methods that are available for stretching the remain- ing volume of supply over a greater area of service. Under the new conditions, therefore, a criterion of efficiency is afforded and it becomes a matter of practical importance to measure the existing slack which may be taken up between supply and demand before a true shortage intervenes. The course of the oil supply depends upon the attainments in three 342 EFFICIENCY OF PRODUCTION 343 directions: the foreign output that ma}^ be developed or directed into the domestic market; the supplemental sources of suppty that may be brought into action; and the degree to which the overall efficiency of petroleum may be increased. Growing attention will of necessity be devoted to all three avenues, for the utmost that may be expected from the combined effort will scarcely prove too much in view of the requirements of the future. The outlook for foreign developments and supplemental sources of supply has been reviewed in previous chapters. The possibihties of improvement in respect to the production, transportation, refining, and utilization of petroleum may now be briefly appraised. Efficiency of Production. — In the search for oil-bearing territory in the United States, much of the work of exploration is done by the individual wildcatter, who frequently sinks his well with inadequate justification of finding oil. Lacking in organization and engineering practice, this method leads to a notable waste of labor and materials, besides opening up new territory with inadequate adjustment to transportation facilities or market demand. The science of geolog^'^ has multiplied bj' a large factor the chance of striking oil, but much of the work of exploration is still conducted without geological advice. It has been calculated b}' the president of one of the large Mid- Continent producing companies, from extensive records of the com- pany, that 85 per cent of the wells located on the basis of careful geological surveys turned out to be productive, whereas only 5 per cent of the wells located at random were successful. Engineering exploration, now used almost exclusively in the search for foreign oil-pools, has a growing field of application in this country. The development of the oil-bearing territory, following its loca- tion, is subject to conditions that usually lead to extensive under- ground losses. Most of the oil-field operations in the United States are conducted by large numbers of rival interests. The individual- istic and highly competitive type of production thus mduced is markedly diiTerent from that obtaining in most other mining opera- tions, and is responsible for a racing, unorganized extraction of the oil which leads to a tremendous sacrifice of values. This kind of activity is especially characteristic of new fields where boom conditions and checkerboard holdings are prevalent. Under such conditions, an excessive numl^er of wells arc drilled resulting in needless expenditures amounting to millions of dollars; more or less uncoordinated drilling prevails, leadmg to uncontrolled underground movements of asso- ciated gas and water, with the loss of untold quantities of oil and natural gas which are thus put for all time beyond the reach of extraction; and finally, when the field is abandoned, over one-half 34^ FULL UTILIZATION OF PETROLEUM of the oil is left underground, still clinging to the pores of the oil sands. For many years the U. S. Bureau of Mines has studied the vital problem of unrecovered oil, and has recently expressed the opinion that the best evidence seems to indicate that only from 10 to 20 per cent of the oil underground is now being recovered.^ It is the belief of the engineers of the Bureau of Mines, based upon what has been accomplished in some of the older fields by water-flooding and by the use of compressed air, that after a field has been brought to the point of abandonment, we should often be able by improved methods to recover half as much oil again as was originally produced. While the heaviest losses on the part of oil are sustained under- gi'ound as the inevitable result of the destructive effects of competitive drilling of the field, losses due to inadequate methods of handling the product when it reaches the surface are far more sensational because open to observation. Surface losses are greatest in new fields and arise generally from the fact that production is forced in advance of preparations for handling and storing the output. As a result, some of the oil escapes any capture whatsoever, sinking into the earth or flowing down streams; great quantities of the lighter and more valuable components of the oil pass into the atmosphere through evaporation; while fires are responsible for another heavy toll of these valuable products. Even with adequate storage facilities, losses from evaporation are usually notable, and in many fields large quantities of residues and oil-water emulsions are made no use of whatsoever. Enormous volumes of natural gas are usually pro- duced along with the oil, and in the absence of an adequate demand for this product, much of the output is allowed to escape into the atmosphere. The Bureau of Mines has recently called attention to the magni- tude of the losses resulting from the evaporation of gasoline from crude petroleum while in storage. Careful investigations have disclosed that in many cases 20 per cent of the gasoline content of the crude oil is being lost by evaporation before it reaches the refinery, and that probably one-half of this loss may be economically saved by more careful attention to conditions of storage and handling. On the whole a low recovery factor characterizes the production of petroleum under the conditions that have prevailed in this country. Technical means are available for notably increasing the efficiency of extraction, but the handicap of competitive conditions working at cross purposes with the occurrence of oil still obtains. A funda- ^ J. O. Lewis: Our Future Supplies of Petroleum Products; address before Independent Oil Men's Association Convention, Denver, September 29, 1920. EFFICIENCY IN TRANSPORTATION 345 mental improvement in oil production may call for far-reaching changes in economic practice. Efficiency in Transportation. — Crude petroleum is transported in the main through an extensive system of pipe-hnes supplemented by coastwise movements in tank-steamers. This distinctive mode of transportation is an outstanding feature of the petroleum industiy and represents a high attainment in respect to efficiency. Some losses of oil, however, take place thi'ough evaporation and leakage, approximating 1 per cent in the gathering lines and 1 per cent in the trunk lines, according to investigations made by the U. S. Bureau of Mines in the Mid-Continent Field. Lack of transportation facilities in newly developed territoiy is a potent cause of losses by necessitating the accumulation of oil in the field in excess of adequate storage facilities. Petroleum products are shipped in bulk in tank-cars, and con- siderable evaporation losses take place in respect to the lighter products. In the most carefully l)uilt but non-insulated tank-car with dome cover and safety valve fitting tight and accurately, gasoline may evaporate to the extent of 5-6 per cent in a six-day trip " in summer. An insulated tank-car has been de- veloped to take care of this condition; its wider use would lead to notable economies, for the small losses assume imposing proportions when multiplied by the billions of gallons of volatile products affected. Refinery Efficiency. — Petroleum refining, in general, falls short of the efficiency attained in many chemically controlled indus- tries. Much of the crude run to stills is merely skimmed of its lighter components, all else being left as a residual fuel oil. The failure to fully refine even the bulk of the crude petroleum brought into use entails a tremendous economic loss, which grows 'out of a lack of balance between the several major demands and the crude supply. On the physical side, the segregation of the products is not sharply defined, so that in many cases a portion of the more valual^le products ai'c marketed with the less valuable. Statistics gathered by the U. S. Bureau of Mines for several years indicate that about 4 per cent of the oil run to stills is unrecovered in the form of products. Part of this loss is inevitable, but a portion may be eliminated by more efficient installations. Much of the loss represents gasoline vapor, and it has been estimated by the Bureau of INIines that recovery in this respect to the extent of 2 per cent of the crude produced could be attained.^ ' E. W. Dean, Status of Refinery Practice with Reg;ard to Gasoline Pro- duction, Society of Automotive Engineers, February 6, 1919. 346 FULL UTILIZATION OF PETROLEUM Efficiency in the Utilization of Petroleum Products. — In the utilization of some of the products of petroleum there are losses arising from the inefficiency of the appliances involved which offer important fields for improvement. The most outstanding oppor- tunity for increased efficiency in utilization applies to gasoline, which must be more effectively employed to meet the mounting require- ments in this field. During the war the Bureau of Mines estimated that a])proximately 9 per cent of the gasoline consumed in the United States was wasted because of carelessness in its handling. A recent investigation of exhaust gases undertaken by the Bureau of Mines in connection with the Hudson River Vehicular Tunnel Vjrought forth the significant fact that the combustil^le gas in the average automo- bile exhaust contains nearly 30 per cent of the heat of the original gasoline.^ The great majority of passenger cars and trucks are operated on rich mLxtures suitable for maximum power but verj' wasteful from the standpoint of gasoline economy. Careful car- buretor adjustment alone would result in a saving in the country's annual gasoline consumption of upwards of 15 per cent, or 600 million gallons. To the loss arising from careless operation must 'be added the greater one resulting from the low fuel economy attained by the average automobile engine. In the words of a leading automotive engineer: " The ordinar}^ engine running around the streets of New York has a thermal efficiency of from 5 to 10 per cent. ... I think that in five or ten years from now it will be common practice to secure in the neighborhood of 35 or 40 per cent thermal efficiency." ^ This conclusion, which is concurred in by many automotive engineers, indicates that a mileage of from 30 to 50 miles a gallon should be the ideal toward which both the public and the engine designer should look. In addition to the added mileage, and, in consequence, the greater service that may be won from gasoline, it is also possible to adapt the automotive engine and equipment to the use of less volatile fuel, which will permit the enlargement of the motor fuel supply on the part of the refiner. The requirements of automotive transportation are growing so rapidly that a supply of motor-fuel can be assured for future years only by giving the utmost attention, not only to economy of operation, but also to the more difficult problem of mod- ifying the engine, the character of the fuel, or both, so as to permit ^ Fieldncr, Straub, and Jones, Automobile Exhaust Gases and Vehicular- tunnel Ventilation, Jour. Soc. Aut. Eng., April, 1921, pp. 29.5-30.5. - C. F. Kettering, More Efficient Utilization of Fuel, Society of Automotive Engineers, New York, February 6, 1919. EFFICIENCY IN UTILIZATION OF PETROLEUM 347 the maximum enlargement in the fuel supply. This issue was first brought to the concerted attention of the automotive industry and the oil industry by the Oil Division of the Fuel Administration in 1919, and since that time there has been progress toward cooperation between the producers of motor-fuel and the manufacturers of motors. The problem of coordinating engine and fuel is thought by manj^ engineers to represent one of the most important issues now occupying the field of automotive transportation. The automotive engine in current use to-day is out of adjustment with the fuel supply and while marked adaptations upon the part of the engine are coming into evidence, the need is for a closer parallelism between the development of engine and fuel than has yet been attained. Fuel oil is not only the cheapest of the main petroleum products, but it is also the one used in greatest bulk. Because of low cost and the rapid expansion in its consumption, it is for the most part very inefficiently utilized. The Bureau of Mines, in a Handbook by James M. Wadsworth entitled " Efficiency in the Use of Oil Fuel," issued in October, 1918, estimated that out of 160 million barrels of fuel oil burned in the United States in 1917, at least 40 million barrels or one-fourth of the total " might have been saved by more intelligent operation of plant and proper firing." There is little reason to be- lieve that the efficiency of utilization has increased materially since this appraisal was made, and if oil is to be employed for fuel purposes, it should be used efficiently within this range of ap- plication. In addition to the losses occurring in the actual use of fuel oil, there is an even greater economic loss involved in the fact that over two-thirds of the fuel oil consumed is burned under boilers for steam raising, a method of utilization which extracts a minimum of value from the product, but which is nevertheless profitable to the con- sumer so long as the price of fuel oil is low. This sort of utilization is not generally regarded as a loss, but the fact remains that a product capable of highly specialized applications is now devoted to the crudest of uses. With the development and widespread use of the Diesel and semi-Diesel type of internal combustion engine in the place of the oil-fired steam engine, the service gained from fuel oil may be doubled or trebled. The outstanding feature of the fuel-oil situation of late is the rapid manner in which the requirements of trans^iortation — automo- tive and marine — are encroaching ui)on the supjily and competing with the uses which have thus far exclusively occupied the field. The rapid conversion of tlic navies and merchant marines of the woild to an oil-fired basis, and the growth of gasoline requu-emcnts in 348 FULL UTILIZATION OF PETROLEUM excess of the production of natural gasoline, are forcing a diversion of fuel oil from its industrial role to the rank of marine and motor fuel. With such rapidity has this diversion come about that accus- tomed channels of flow have suffered reduction and certain industries, such as the gas industry, have met with difficulty in obtaining their accustomed quotas. The elevation of fuel oil, and its light variety, gas oil, to higher economic levels, however, is a matter to be encour- aged. Although commercially a single product at the present time, fuel oil is fundamentally a mixture of wax, asphalt, lubricating oil and motor-fuel. Just as it is now an economic perversion to })urn crude petroleum in its raw condition, so it will soon become uneconomic to utilize fuel oil in its present composite form. It is only a matter of time when fuel oil will be refined into its components and thus utilized, but that time should be hastened by appreciation of the true values contained in this product and concerted efforts toward winning these values therefrom. Of all the petroleum products, lubricants are fundamentally the inost essential, for they support modern industrialism and their use cannot be dispensed with. In addition to the fact that millions of barrels of potential lubricating oils are burned annually in the United States in the form of fuel oil, the application of lubricating oils is in many instances far from scientific. In many installations it has been estimated that the needless losses arising from imperfect or faulty lubrication run from 10 to 50 per cent of the power con- sumed. If we visualize for a moment the vast quantities of coal and hydroelectric energy brought into service in the United States, and bear in mind that a large part is devoted to the overcoming of friction, we gain an adequate idea of the importance of lubricants as conservers of energy. A lubricating problem of no small importance has developed of recent years as a result of the change in the character of motor-fuel induced by the mounting demands for this product. Because of the lessened volatility of fuel on the one hand, and the slow adap- tation of the engine to this circumstance on the other, the life of lubricants in the automotive engine has been lessened through crank-case dilution. This matter is an example of a faulty develop- ment which could have been prevented in advance more easily than it may be corrected in the present. The Natural-gas Analogy. — It is desirable to review the natural- gas situation in the United States since this product illustrates a resource closely associated with petroleum, which has been brought to the verge of exhaustion by rapid and hasty methods of exploitation and whose future would seem to be largely dependent upon the THE NATURAL GAS ANALOGY 349 extent to which constructive and enhghtened conservation measures are brought to bear upon the prolongation of its life. The production of natural gas reached its peak in 1917 with a marketed output of nearly 800 billion cubic feet, and since that time the production has been rapidly declining, with an estimated output in 1920 of less than 650 billion cubic feet. It is a serious matter when the production of an essential commodity serving directly over one-tenth of our population has entered upon a waning course. In 1917-1918 the Oil Division of the Fuel Administration was faced with the necessity of dealing with the critical natural-gas con- ditions that were already displaying serious results. On the basis of extensive engineering data it was estimated that the common methods of producing, transporting, and using natural gas have resulted in losing more gas than has ever been brought into useful service. A report made by S. S. Wyer to the Fuel Administration indicated that the loss of natural gas to-day is greater than the quan- tity of gas actually utilized. Man, with all his skill, has never been able to make a commercial gas equal in quality to the natural gas now so lavishly and carelessly used. Natural gas has previously been so abundant in this countiy, and so little value has been placed upon its use, that the product has been carelessly and shamefully misused. Wj'er, whose work on natural-gas conservation, both in the Fuel Administration and subsequently, turned so much light on what may be accomplished by effective conservation measures, has recently stated: " . . . the rate of decline of the (natural-gas) industry's field resources has been so rapid, and the provision for taking care of that depletion has been so inadequate, that, based on personal investigation of over one-half of the natural-gas industry in the United States, I am sure that at last three-fourths of the natural gas companies in the United States will be insolvent inside of three years if . . . the practice of selling natural gas at a figure so low as not to place any incentive on saving the gas, but actually putting a premium on waste, because the gas is cheaper than any efficient appliance that can be purchased or used to save it " is not corrected. It would carry the discussion too far into detail to describe fully the various losses that take place from the well to the consumer under present conditions. The over-drilling of gas pools, the losses in transmission due to leaks arising from electrolysis and other causes, the dominant application of this choice fuel to low industrial uses, the wastefulness of the majority of appliances used in burning natural gas, the use of this fuel in the manufacture of carbon black in unsuitable localities, are all well known. Apart from the under- 350 FULL UTILIZATION OF PETROLEUM ground losses and the needless employment of capital and labor in surplus drilling, the average losses for all natural-gas companies in the United States between the well and the consimier's meter are esti- mated, on good authorit}', to be from 30 to 35 per cent of the gas produced.^ Then, of the portion passing the consumer's meter, 80 per cent performs no useful service owing to inadequate appUances and improper application. The measures rapidly being adopted looking to fuller and more efficient utilization of our dwindling supplies of natural gas afford an interesting object lesson on the change that comes when the output of an essential commodity runs definitely short of requirements. The Situation in Perspective. — The losses taking place in the exploitation of petroleum have called down many critical statements as to their magnitude and the ultimate consequences. For the sake of the pei'spective afforded by the outside view these appraisals may not be without value. Sidney Brooks, an English Journalist, writing in " The Nineteenth Century-," reflects the consensus of opinion abroad when he remarks: America, as one would expect, has been the classic home of all that is hasty, negligent, and well-nigh ci-iminal in the misuse of oil as of every other form of natural wealth; and America in conse- quence finds herself to-day consuming more oil than she produces and faced with the prospect that her deposits may in thirty years be nearing exhaustion. Huge oil-tank and gasometer as she is, it is doubtful whether in the past sixty years America has not lost for all time more petroleum and more natural gas than she has won from the earth. The Director of the U. S. Bureau of Mines ^ has said: What effort have we made to conserve this supply and to utilize it to its greatest advantage? We have made little effort until very recently to do these things. We have been wasteful, careless, and recklessly ignorant. We have abandoned oil-fields while a large part of the oil was still in the groimd. We have allowed tremendous quantities of gas to waste in the air. Wc have let water into the oil sands, ruining areas that should have produced hundreds of thou- sands of barrels of oil. We lacked the knowledge to properly produce one needed product without overproducing products for which we have little need. We have used the most valuable parts of the oil for purposes to which the cheapest should have been devoted. For many years the gasoline fractions were practically a waste product during our quest for kerosene ; with the development of the internal- 1 Address of S. S. Wyer, Conference on Natural Gas Conserv'ation, ^\'a,shmg- ton, January 15, 1920. - Yearbook of the U. S. Bureau of Mines, 1916, Washington, 1917, p. 117. EFFICIENCY A NECESSITY 351 combustion engine the kerosene is now almost a waste product in our strenuous efforts to increase the yield of lighter distillates. The Smithsonian Institution ^ reports: Under present practice, from 90 to 30 per cent of the oil is left underground. Then, of the quantity produced, an appreciable percentage is lost by fire, and a significant portion dissipated by seepage and evaporation due to inadequate storage facilities. On the average, therefore, it is safe to say that less than 25 per cent of the petroleum underground reaches the pipe-line. If we subtract from this proportion the losses involved in improper and wasteful methods of utilization, the recovery factor becomes perhaps as low as 10 per cent. . . . In 1919 an English writer ^ attracted widespread attention with these startling words : America has recklessly and in sixty years run through a legacj^ that, properly conserved, should have lasted her for at least a cen- tury and a half. . . . Just when Americans have become accus- tomed to use twenty times as much oil per head as is used in Great Britain; just when invention has indefinitely expanded the need for oil in industry"; just when it has grown to be as common and as true a saying that "oil is King " as it was twenty years ago that steel was king; just when the point has been reached ^vhere oil controls money instead of money controlling oil — the United States finds her chief source of domestic supply beginning to dry up and a time approaching when instead of ruling the oil market of the world she will have to compete with other countries for her share of the crude product. . . . America is running through her stores of domestic oil and is obliged to look abroad for future reserves. . . . Efficiency a Necessity. — For the oil industrj^ there is a single cloud upon the horizon — raw material. A problem is coming to be recognized which, in the earlier days of the industiy, was too far removed to appeal to the practical man. It has been reiterated until everyone is tired of hearing it that the demand for oil is exceeding the supply. This countiy is growing with startling rapidity into dependence upon foreign sources of petroleum supply. What does that simple fact mean? It means that we must pay growing atten- tion to all methods, engineering and economic, that will conduce to the fuller utilization of the raw material that we have. How much we have, no one can say precisely; that the supply is unlimited, no one would now have the audacity to assert ; that the supply is inad- 1 Petroleum : A Resource Interpretation. 2 E. Mackaj' Edgar in Sperlin's Journal, September, 1919. 352 FULL UTILIZATION OF PETROLEUM equate to our needs is a fact requiring no further proof. We must extract a greater percentage from our underground reservoirs; we must more carefully guard the oil extracted from evaporation, contamination, and fire; we must refine that oil more carefully, turning more of it into products of high economic rank; we must have regard for the appliances utilizing the products of that oil, to the end that the full service may be drawn from the commodities that are turned over to consumption. More than this, we must more carefully adapt the rate at which we produce and refine to the highest requirements of the market; we must coordinate and integrate our activities that the raw material which lies at the foundation of the whole activity may be increased in productive capacity. We have passed the time when we can continue to grow through incre- ments of volume alone; we must now take advantage of the multi- plying power gained through the balanced employment of the creative agencies of production. We must make what we have go further and do more; we must become efficient, not by the measure of others less efficient, but by the measure of those in the lead. The oil industry has assumed an obligation for supplying the vital needs of modern civilization; its best efforts will be required to live up to that respon- sibility. CHAPTER XXIX THE FUNCTION OF STATISTICS IN THE PETROLEUM INDUSTRY! Standing of Statistics now Inadequate. — Mathematics has been defined as the science of rigorous thinking. Statistics may be defined as a branch of mathematics which faciHtates the appHca- tion of rigorous thinking to the problems of action. In the realm of business and industry, the science of statistics affords, or should afford, the means for measuring the use of energy, materials, and capital to the end that they may be most productively employed. As a practical tool, statistics has been inadequately utilized and the field stands in need of suitable recognition and proper rank amongst the agencies of production. The Threefold Character of Statistics. — The science of statistics, as thus far developed, is divisible into three fundamental, though somewhat overlapping, divisions, which may be termed (1) account- ing, or record statistics, (2) engineering, or operating statistics, and (3) planning, or economic statistics. Accounting statistics has been highly developed and may be regarded as in its maturity ; engineering statistics has been accorded moderate application and is in its youth ; economic statistics has only recently come into action and its prac- tical apphcation is still in its infancy. In business and industry, the utilization of statistics has suffered from an unbalanced growth, because of the comparative neglect of two important functions. Accounting Statistics. — Every business organization as a matter of course maintains accounts, or accounting statistics, which repre- sent a record of what has happened for purposes of meeting financial and legal requu'ements. Such a record constitutes a mathematical account of all transactions in goods and dollars, expressed in a form specified by the requirements of law and corporate finance. Account- ing statistics are highly developed and rigorously standardized in business practice. Their character is familiar to all. They cul- minate in the conventional balance sheet, and they form the basis of taxation, loans, credit extensions, and other financial operations of business enterprise. Accounting statistics arc universally employed ^ Adapted from an address by the author before the American Petroleum Institute. 353 354 FUNCTION OF STATISTICS IN PETROLEUM INDUSTRY because of theii' obvious necessity. The preparation of accounting statistics, however, is a static function. This activity is prunarily concerned with the measurement of tangible assets, but pays httle attention to how those assets are being used. Engineering Statistics. — Because of the necessary estabUshment of accounting as an integral part of business organization, only secondary consideration is customarily given to the provision of data in a form adapted to improving the operating efficiency of the undertaking. For purposes of management, accounting data are, in consequence, usually used, although such material is designed for a different purpose and is not suited to this end. The widespread employment of accounting statistics for managerial purposes is a source of weakness in many organizations, leading to loss and inef- ficiency, and sometimes to failure. Accounting statistics, therefore, need to be supplemented by engineering, or operating, statistics which will afford a measure of actual performance and suggest means for improving that perform- ance; in short, for increasing the productivity of the enterprise. The function of engineering statistics is to provide a picture of what is happening in such a form that: (a) The unproductive portion of the equipment may be rec- ognized. (6) The efficiency of the productive portion of the equipment may be measured. (c) The causes of unproductivity and inefficiency may be made apparent to the end that they may be corrected. Engineering statistics, moreover, in addition to providing a guide for management should be made to furnish superintendents, foremen, and workmen records of theii' own individual operations in order to arouse their creative and emulative instincts and increase their productivity. It has been amply demonstrated by a number of industrial engineers that by keeping individual records of produc- tion and systematically attempting to remove obstacles which pre- vent complete accomplishment, a notable degree of cooperation is attained and unsuspected possibilities developed in the working staff. Fig. 1, on page 2, shows the economic structure of the oil industry and suggests the headings which engineering statistics should cover. H. L. Gantt has strikingly described the difference between engi- neering statistics and accounting statistics as comparable to the dif- erence between a moving picture and a photograph. ECONOMIC STATISTICS 355 Economic Statistics. — In the early growth of business and indus- trial activities, with bountiful resources and expanding markets, economic statistics have systematically been used even in less degree than engineering statistics, although they have always been taken into account in a qualitative and imperfect manner. Economic statistics are needed for planning accurately and effectively, for keeping efforts on the right track, and as a support to engineering statistics in operating. Success in management depends in large degree upon the extent to which accumulated experience can be rendered available for use, and upon the exactitude with which conditions ahead can be appraised. The primary function of economic statistics is to gather the experience of the organization, of the industiy of which the organization is a part, and of business and industry in general, and to render this composite experience available for use in the problems of manage- ment and planning. A further purpose of economic statistics is to provide a comparison of actual performance with outside standards of accomplishment, as well as to measure the results of any given course of action with a view to determining its efficacy and justifying its continuance or termination. For the sources of economic sta- tistics, the whole business and industrial field must be scanned — Government activities, technical and trade associations, trade publi- cations, research bureaus, and the vast range of financial and economic literature. Under the complex conditions of modern industrial activity, efficiency in management is predicated more and more upon a coordinated and balanced development of accounting, engineering and economic statistics; and the development and furtherance of both engineering and economic statistics are matters of urgent impor- tance, involving investigation, research, and engineering practice of a rigorous and exacting character. The field of engineering and economic statistics is underdeveloped, and much able effort should go toward perfecting and extending its applicability and insuring its adequate integration with the more accustomed means of mana- gerial control. Fig. 151 is a chart of the economic structure of business and indus- trial activity, and suggests the topics to be covered by economic statistics in the field of general business and industrial conditions. Statistical Technique. — The techni(|ue whereby statistics, in theu' broad meaning, may be brought to adequacy as a working tool is by no means perfected, and if statistics are to meet the responsibility placed upon them by modern industrial requirements, considerable attention must be accorded the means for gathering, analyzing, inter- 356 FUNCTION OF STATISTICS IN PETROLEUM INDUSTRY preting and presenting the facts upon which the success of any enter- prise is coming more and more to depend. There is need for mutual understanding and constructive cooperation between the various agencies concerned with this activit}^, to the end that there may be a FOREIGN TRADE BUYING POWER SPECULATION TRANSPORTATION MANUFACTURE "RANSPOBTATION RAW MATERIAL LABOR- MANAGEMENT MONEY- CREDIT Fig. 151. — Chart of the industrial structure showing the sub-divisions of the field for economic statistics. free interchange of ideas and methods, and that an effective tech- nique may be built up and established. Gathering of Statistics. — Accounting and engineering statistics are inherently a responsiVjility of the industrial unit itself, but eco- nomic statistics must be drawn not only from the operating organiza- tion, but quite extensivety from external sources, especially Govern- ment activities, industrial and trade associations, the trade press ANALYZING STATISTICS 357 and a wide range of financial and economic sources. In respect to economic statistics, the oil industry has available a more complete and accurate record of the flow of its raw materials and manufactured products than most other industries enjoy. The economic statistics of crude petroleum furnished monthly by the U. S. Geological Sur- vey and the economic statistics of refined products supplied each month by the U. S. Bureau of Mines are valuable material. A draw- back to these figures, however, is the delay intervening before they are made available to the industry, and every effort should be bent toward decreasing this interval in order that their usefulness may be enhanced. The American Petroleum Institute is making creditable efforts in this direction. In the gathering of statistics, the trade press has somewhat confined its efforts to well data, field production and price quotations. In all three respects there is some room for im- provement in accuracy and continuity. Analyzing Statistics. — In the analysis of statistics no standardized technique is available. A great gain in convenience and effectiveness may be made by devising and using appropriate analysis schedules which will automatically make the primary analysis. The use of index numbers has been largely neglected and this convenient device may be effectively employed in many directions in the oil industiy. Various other mathematical devices and expedients for weighting, averaging, combining, etc., may be employed to advantage in specific instances. The technique in these various directions suggested by the interesting work now being conducted by the Harvard University Committee on Economic Research and published in the Monthly Review of Economic Statistics is of value in this connection. For purposes of statistical analysis, graphic methods are of out- standing importance. Natural-scale graphs are suitable for size comparisons, whereas the use of semi-logarithmic charts gives remark- able results where trend comparisons are important. The use of graphic methods for purposes of analysis offers a fertile field for further research and development. Interpretation of Statistics. — After statistics are gathered and analyzed, the most difficult task still remains — their interpretation. The proper interpretation of statistical results, it goes without saying, requnes the highest type of ability. To draw therefrom full sig- nificance and accurate meaning demands not only acquaintanceship with statistical technique, but a knowledge of engineering, economics, and technology in the field to which the figures pertain. Accurate interpretations, moreover, demand the research point of view, together with piactical contact with the problems dealt with. Effective work in the gathering and analysis of figures is of no avail 358 FUNCTION OF STATISTICS IN PETROLEUM INDUSTRY if they are not correctly interpreted and if their full meaning is not deduced. Presentation of Statistics. — The final step in statistical work is the presentation of the results. Nothing of practical value has been accomplished until the results are brought into action. There has been failure in much statistical work to pay proper attention to this phase of the activity. The presentation of statistics is not merely a science — it is an art as well. In the exposition of statistical results, it is notable that rather simple and olndous expedients for gaining clarity and effectiveness are usually overlooked. For example, statistical tables gain in simplic- ity and in the readiness with which they may be grasped, if the figures are expressed in large units and fractions thereof instead of in smaller units of the barrel and gallon. For the presentation of sta- tistics, the use of graphical devices is highly advantageous and great advances are here possible over the common practices in this respect. Graphics serve not only to impress the facts upon the mind, but to show their interrelationships, thus affording ready comprehension. Numerical statistics are like the description of a picture; graphically expressed statistics are the picture itself. Graphics afford not only ease of comprehension, but in addition provide that most important essential — perspective. Space prevents extended discussion of the technique of graphic presentation, but much can be gained from " Graphic Methods for Presenting Facts," by Brinton and " How to Make and Use Graphic Charts," by Haskell, while the pages of the present book may prove suggestive. Effective results may fre- quently be attained by combining tabular and graphic presen- tations. Graphic charts are applicable not only to purposes of manage- ment, but ai-e also especially valuable for the operating staff and the individual workman. The employee should also be the beneficiary of visual methods. To visualize data and information is to add to human intelligence and effectiveness. Research. — Statistical research, or, using the preferable term, economic research is growing in importance as a method for inves- tigating operating and economic conditions for purposes of con- tributing to productivity and accuracy of planning. Research — the making of careful measurements and the drawing of appropriate deductions therefrom — is the vital part of statistical work, and without the scientific point of view the handling of statistics becomes a mechanical and routine matter, and the results are inadequate and likely to be misleading. The importance of statistical, or economic, research was recog- RESEARCH IN THE PETROLEUM INDUSTRY 359 nized earlier in finance than in industry, as evidenced by strong sta- tistical and research bureaus in banking and investment estabhsh- ments. It goes without saying that the whole field of insurance is grounded upon the results of research in vital statistics — to such a degree, indeed, that this business has itself the distinction of being virtually an exact science. It is to be noted that statistical research has been extensively developed by advertising agencies and trade publications. Now the up-to-date advertiser makes extensive and close use of research methods in appraising the markets which the advertising is designed to reach. During the war, statistical (economic) research became exten- sively necessary as the basis for the coordination of the country's production and the allocation of its products. At the present time, economic research is developing rapidly in the larger and more complicated industries, especially the packing industry, the steel industry, the rubber industry, the automotive industry and the oil industry, where this activity is found under various names such as " statistical research," " commercial research," " trade promotion and research," " market control," " engineering statistics," " eco- nomic research," and the like. Research in the Petroleum Industry. — The opportunity for sta- tistical, or economic, research in the oil industry is especially out- standing by virtue of the rapid changes that are taking place in this activity and the miportant and extensive range of service rendered by the products of petroleum. Because of the rapidity with which the raw material base is changing in geographical position, chemical char- acter, and volume, and because of the acceleration of demand over supply as working through a multiple production type of fabrication, the economic balance between the various petroleum products is altering with notable rapidity. The detection and measurement of these conditions, and the coordination of the tendencies with market requirements on the one hand, and operating conditions on the other, afford wide scope for careful inquiry and effective results. Among the subjects that may be covered in such work are price studies, appraisals of supply and demand, measurement of marketing territory and requirements, analyses of consuming activities such as the automotive industiy, statistical measurements of the effects of changing technology, and so on, not to mention more specific analyses making use of both accounting and engineering statistics in connec- tion with operating conditions. Conclusion. — In short, adequate statistics represent the means for attaining engineering control of operations, to the gain of increased productivity and more effective planning. The development and 360 FUNCTION OF STATISTICS IN PETR(JLEUM INDUSTRY balanced employment of accounting, engineering and economic statistics, directed from the research point of view, are essential to this end. As a concrete example of operating and planning on the basis of the findings of statistics, there may be mentioned the instance of the railroad executive who appreciating that earnings are made by the ton mile and expenses incurred by the train mile, determined every action by the extent to which it contributed to the increase of ton miles and to the decrease of train miles. INDEX Accounting statistics, 353-354 Acreage, controlled by natural-gas producers, 197 oil-bearing, 34, 35, 36 Alcohol, 282-283, 295, 298 See blended motor-fuels, composite motor-fuels, -motor-fuel problem Alderson, V. C, 337 American Gas Association, 142, 160, 301, 307 American Institute of Mining and Metallurgical Engineers, 12, 20, 71, 164, 329 American Mining Congress, 32 American Petroleum Institute, 7, 27, 52, 65, 73, 126, 158, 282, 293, 353, 357 American Society of Mechanical Engineers, 335 America's Power Resources, 18, 311, 331 Aniline, 298 Annals of the American Academy, 23 Appalachian field, 15, 21, 22 Appliances, changes in, 295-298 relation to fuel, 296-299 Arnold, Ralph, 18, 29, 34, 46, 47, 325 Asphalt, 187, 188 Asphalt-base crudes, 12-13, 77-78, 164-165, 169, 291 Assets of American oil industry, 7 Automotive Fuel Club, 112, 113 Automotive Industries, 126, 263, 287 Automotive transportation, effect upon petroleum industry, 262-271 future demands of, 264-265, 267, 286-287 gasoline consumption of, 119-129, 286 growth of, 49, 50, 262-267, 287 motor-fuel problem, 270, 279-282, 285-289 peak-load problem in, 270-271 relation to fuel oil, 159, 163, 269 relation to gasoline, 112-117, 127-129, 267-269, 286-287 relation to kerosene, 132-135, 140-141, 269 relation to lubricating oils, 175-182, 269-270 Ball, Max W., 32 Barrel-day method of valuation, 5 Bates and Lasky, 20, 28, 30, 40, 41, 42, 237, 241, 242 Beal, Carl, 33, 47 Benzol, 280-282, 294-295, 298 Blended motor-fuels, 279-284 Bituminous coal, as a source of oils, 280-282, 330-335 361 362 INDEX Brinton, W. C, 358 Brooks, Sidney, 350 Bunker oil, 157 Bureau of Corporations, 178 Bureau of Oil Conservation, see U. S. Fuel Administration Bureau of Railway Economics, 178 Burrell, 0. A., 326, 327 By-products of petroleum, 183-194 asphalt, 187-188 chart of, 194 future of, 194 greases, 192-193 medicinal oils, 193 miscellaneous, 193-194 petrolatum, 191-192 wax, 184-187 California, fuel oil in, 152-154 California field, 17, 21, 22 production cost in, 30-31 refining costs in, 87 relative importance of, 58, 59 California State Council of Defence, 153, 154 Capital stock of oU industry, 8 Capitalization of oil industry, 7-9 Carbon black, 206-207 Carburetted water-gas, 300-301, 304, 305, 308, 310 Casinghead gasoline. 111, 207-211, 276 Centralized power plants, 333-334 Chemical character of oil, 12 City-gas, 300-311, 332-333 changes in manufacture of, 308-311 cost of, 307, 308 development of, 301-303 future of, 309-311, 332-333 problem of, 300-311 relation to gas oil, 303-311 types of, 300-301 City-gas industry, productive of oil, 332-333 Coal, equivalent of fuel oil, 162 relative efficiencj'^ of, 152 Coal gas, 301 Coal industry, relation to petroleum industry, 330-335 Coal oil, 130, 280, 331-335, 336, 340 Coal refining, 331, 333, 336 Coal products, 281-282, 331, 333 Coke industry, 331-332 Coke-oven gas, 301 Coke, petroleum, 187, 189-191 Combustion, 337 Commerce Reports, 327, 328 INDEX 363 Commercial control of oil deposits, 312-319 Common carriers, 67 Composite motor-fuels, 279-284, 294-295 Conservation, 205-206, 342-352 Consumption factor, for gasoline, 121, 123 for motor-oil, 180 Consumption of fuel oil, 149-163 of gasoline, 117-129, 285-288 of kerosene, 135-141 of lubricating oils, 171-182 of natural gas, 196-198 of petroleum, 58, 61, 255, 261 Coordination of engine and fuel, 298-299, 346-348 Cost, of cracking, 273 of drilling, 28, 241, 242 of labor, 89 of producing oil, 29-31 of refining, 85, 87, 88 of transporting oil, 67-68, 72 Cracking, cost of, 273 development of, 146 economic significance of, 272-278 future of, 277-278, 293 nature of, 272, 292-293 raw material used for, 273-274 relation to fuel oil, 146, 163, 273-274 relation to gas oil, 273-274, 303-304 relation to gasoline, 274-278, 293 relation to kerosene, 139-141 typical yield from, 83, 273 Crank-case dilution, 146, 181, 270, 348 Crude petroleum, exports of, 230 field development of, 27-47 in foreign countries, 22-26, 294, 312-319, 320-329 occurrence of, 12-26 price of, 234-242, 245, 246, 248-250, 253-261 production of, 48-63 refining of, 75-89 reserves of, 18-20, 325-326 run to stills, 100, 101 transportation of, 64-74 Cunningham, R. W., 79 Cushing Pool, 33, 238-239, 242 Darnell, J. L., 46, 47 Day, David T., 18 Day, E. E., 50, 260 Dean, E. W., 110, 113, 345 Decline curves, 20, 45-47 De Golyer, E., 324 Demand, for fuel oil, 149-163 364 INDEX Demand, for gasoline, 119-129, 285-288 for kerosene, 135-141 for lubricating oils, 171-182 for natural gas, 195-198 Depletion of oil properties, 45-47 Dickinson, H. C, 293 Diesel engines, 155, 159-160, 317, 347 Dilution of motor-oil, 146, 181, 270, 348 Dividends of oil industry, 9-11 Doherty, H. L., 7, 10 Drilling, cost of, 28, 241, 242 methods of, 28 Dry holes, 40 Economic Geology, 29 Economic organization of oil industry, 1-3 Economic research, 358-359 Economic statistics, 355, 356 Edgar, E. Mackay, 351 Efficiency, growing need for, 351-352 of oil production, 343-345 of oil refining, 345 of oil transportation, 345 of oil utilization, 346-348 Ehlen, M. C, 101 End-point of gasoline, 112-116, 276, 293 Engineering statistics, 354 Epstein, Max, 73 Exports, 222-232 distribution of, 228-229, 232 economic function of, 223-224 future of, 232 growth of, 224-225, 230, 231 of crude petroleum, 230 of fuel oil, 223-231 of gasoline, 223-231 of kerosene, 223-231 of lubricating oils, 223-231 price of, 227-228, 245 ratio to domestic production, 222-223 trend of, 224-225, 230, 231, 232 value of, 225-227 Federal Trade Connnission, 3, 4, 6, 10, 30, 31, 64, 68, 69, 70, 88, 216, 243 Field, J. A., 40 Fielder, R. E., 115 Fieldner, Straub, and Jones, 297, 346 Financial policy of oil industry, 9, 11 Floyd, F. H,, 113 Fisher, Irving, 40 Foreign countries, oil in, 22-26, 294, 312-319, 320-329 INDEX 365 Foreign oil deposits, bearing upon gasoline supply, 294 Form value, 137, 335 Franklin Automobile Co., 286-287 Fuel oil, 75-89, 142-163 automotive transportation use of, 159-160, 163 California consumption of, 152-154 composite charac ter of, 348 consumption of, 152-163 demand for, 152-163 domestic use of, 162 effect of cracking upon, 273-274, 277-278 efficiency of, as fuel, 152 exports of, 148, 149, 223-231 industrial use of, 154-155, 161-163 marine use of, 153-157, 317, 347 marketing of, 146 price of, 148, 149, 227 production of, 84-87, 143, 144, 147-152 public utility use of, 158-159 railroad consumption of, 155, 157-158 relation to coal, 162 relation to refinery practice, 76-82, 145 relative importance of, 147 sources of, 143, 145 stocks of, 148-151 trend of supply and demand, 148-149 types of, 75, 142-143, 145 value of, 107, 226-227 waste of, 347-348 Full utilization, 342-352 Future production, estimating, 47 Gantt, H. L., 102, 354 Garfias, V. R., 71, 72, 73, 328, 329 Gas oil, 146 consumption of, 160-161 price of, 307 relation to city gas, 303-311 relation to cracking, 272-274, 277-278, 303 Gas rates, 306-308 Gasoline, 75-89, 110-129 automotive consumption of, 119-129, 286 components of sujjply, 116, 290-294 consumption by states, 126 consumption factor for, 123-124 cracked. 111, 272-274 demand for, 119-129 efficiency of utilization of, 346 end-point of, 112-116, 276, 293 enlarging the supi)ly of, 290-299 exports of, 120, 124, 125, 223-231 366 INDEX Gasoline, from natural gas, 111, 207-211, 276 losses in refining, 345 natural, 110, 274-275, 290-292 price of, 104-106, 120, 210, 227 production of, 84-87, 117-122 relation of kerosene to, 114-115 relation to refinery practice, 75-83 seasonal requirements for, 126-129 stocks of, 121-122, 128-129 trend of situation, 117-119 value of, 107-109, 226-227 Gathering lines, map of, 69 Geology, application of, 34 Geological Society of America, 34 Gifford, George B., 78 Gilbert C. G., 12, 18, 183, 311, 331, 335, 339 Gillen, M. J., 123 Greases, 192-193 Gulf Coast field, 16, 21 Harper, R. B., 301, 304, 305, 306, 307 Harvard University Committee on Economic Research, 50, 259-260, 357 Haskell, A. C, 358 Healdton oil-pool, 69 Heating standards for gas, 302-303, 309, 310 Heavy-oil engines, 159-160 Hill, H. H, 77, 110, 113 Hudson River Vehicular Tunnel, 297, 346 Huntley, L. G, 325, 326 Huntley, Stirling, 325, 326 Hydrocarbon compounds, 12, 164-165 Hydrogenation, 273 Idle refinery capacity, 100 cost of, 102 Illinois field, 16, 21, 22 Illumination, development of, 130-131 Illuminating oil, see kerosene Independent Oil Men's Association, 344 Independents, 3, 213, 215 Industrial structure, 356 Initial production, 29, 41, 44 Injection engine, 296 Inspection laws, 220 Integration, 3-5, 69-70 Internal combustion engine, 288, 295-298 International aspects of petroleum, 22-26, 312-319 commercial control of, 312-314 exports of petroleum, 222-232 Mexico, 320-329 oil in foreign countries, 22-26, 320-329 INDEX 367 International aspects of petroleum, political control of, 312-314 problem of nationalization, 315-316 relative to ocean sliipping, 317-318 rivalry between great powers, 316-317 suggested policy of United States, 318 trend of situation, 318-319 Interstate Commerce Commission, 67, 74 Investment in oil, 5-7 Jobbing, 212-221 Joint-production, 75-76 Journal of Political Economy, 40 Kerosene, 75-89, 130-141 changing character of, 139-140 consumption of, 135-137, 139-140 demand for, 135, 140 exports of, 130, 130-137, 223-231 form value of, 137 future of, 140-141 price of, 136-137, 227 production of, 84-87, 131, 132, 136-139 relative importance of, 131 relation to gasoline, 112-115, 132-135 seasonal variation in production of, 133-135 sources of supply of, 85-88, 132, 133 stocks of, 136-139 trend of supply and demand, 134-137 value of, 131, 226, 227 waning status of, 131 Kettering, C. F., 282, 297, 346 Labor costs, in drilling, 28, 241 in production, 30 in refining, 88-89 Latin-American countries, oil in, 315-316, 320-329 Lewis, J. O., 344 Lifting cost, 30 Lighting standards for gas, 301-303 Lima-Indiana field, 15-16, 21, 22 Little, Arthur D., Inc., 13 Lloyd's Registry of Shipping, 70, 71, 156 Losses, in oil production, 343 in refining, 345 in transportation, 345 in utilization, 346-348 Lubin,, Isador, 20, 233, 239 Lubricating oils, 75-89, 164-182 automotive consmnption of, 176, 177, 179 blended lubricants, 168 chemical composition of, 164-165 368 INDEX Lubricating oils, cylinder stock, 81, 1G7, 173 demand for, 171-182 dilution of, 146, 181, 270, 348 exports of, 171, 172, 176-177, 179, 223-231 from asphalt-base petroleums, 77, 78, 169 greases, 192-193 industrial consumption of, 17(j-179 motor-oU, 179-182, 348 non-viscous neutrals, 167-168 paraffin oils, 168, 173 price of, 171, 172, 173, 227 production of, 84-87, 170-173 railroad consumption of, 176, 177-178, 179 relation to crude petroleum, 77, 164—165 relation to refinerj^ practice, 76-82, 165-166 seasonal character of automotive demand, 181-182 stocks of, 171, 172, 174, 175 types of, 75, 166-167, 173 value of, 107, 226-227 viscous neutrals, 168 wastes of, 348 McGuire, A, G., 213, 218 Mabery, C. F., 12, 164 Magnitude of oil industry, 4 Manufactured gas, see ci{y-ga.s Marine transportation, use of fuel oil in, 153-157, 163, 317 Market analysis, 221 Marketing, 212-221 analysis of markets, 221 investment in, 5-6 of fuel oil, 219 of gasoline, 21.5-219 of kerosene, 219 of lubricating oils, 219-220 value of equipment, 5 Mason, H. F., 95 Master Car Builders' Association, 74 Medicinal oils, 193 Mexico, 23-25, 52-53, 320-329 article 27 of Constitution of, 328 bearing upon gasoline supply, 275, 294 character of oil in, 326-327 estimated oil reserve of, 23, 25, 325-^326 exports of oil from, 321 laws affecting oil in, 327-329 map of oil-pools in, 323 nationalization of oil in, 316, 327-328 occurrence of oil in, 322-324 oil-fields of, 320-323, 32.5-326 production of oil in, 52, 53, 321-323 INDEX 369 Mexico, refinery jdelds from oil from, 327 relative increase in production of, 51-53, 321, 322 salt water encroachment in, 324-325 taxation in, 328-329 unmined supply in, 23-25, 325-326 Midgley Gas Engine Indicator, 282 Midgley, Thomas, Jr., 282, 297 Mid-Continent field, 17, 21, 22 cost of drilling in, 28, 241, 242 dry holes in, 40 production cost in, 30 production in, 42-43 refinery types in, 78-79, 92, 96-97 relative importance of, 58, 59 trend of drilling in, 44-45 wells in, 41 Mining and Metallurgy, 325, 326 Mixed gas, 301, 310 Mixed-base crudes, 13, 77-78, 164-165 Monthly Labor Review, 233, 237, 253 Motor-fuel, see motor-fuel problem, gasoline, kerosene alcohol as, 282-283 benzol as, 280-282 blends, 279-284 demand for, 285-288 problem of, 270, 280-282, 285-299 supply of, 288-289 Motor-fuel problem, 270, 280-282, 285-299, 346-347 Motor-gasoline, 112-117 Motor-oil, 179-182, 348 consumption of, 180 dilution of, 181 seasonal demand for, 181-182 See lubricating oils Motor locomotives, 158 Motor ships, 155-156 Motor vehicles, production of, 264, 265 registration of, 263, 264, 266, 268, 286, 287 Meyer, \V. I., 199, 201 Multiple production, 1, 183, 341 Municipal fuel plants, 281, 332-333 National Gas Association of America, 199, 201, 204 National Petroleum News, 7, 42, 233, 253 National Petroleum War Service Committee, 239, 247 Natural Gasoline Manufacturers, 111 Natural gas, 195-211 acreage, 197 appliances, 205 association with oil, 13 carbon black from. 206-207 370 INDEX Natural gas, compressors, 201-202 conservation of, 205-206 consumption of, 196-198 gasoline from. 111, 207-211 peak load in use of, 202-203 price of, 202-204 production of, 198-200 relation to city gas, 195 rock pressure, 199-200, 201 transmission of, 200 utilization of, 202 value of, 197 waning supply of, 196-197, 333 wastes of, 203-205, 344, 348-350 well data, 199 Natural gasoline, 275, 277, 290-292, see natural-gas gasoline Natural-gas gasoline, 207-211 Naval Annual, 156 Naval use of fuel oil, 157, 317 Neutral oils, 75, 166-167 New England, fuel problem in, 162 Northrop, John D., 312, 313 Occurrence of petroleum, 13, 323-324 Office of Farm Management, 266, 268 Oil, see crude petroleum Oil and Gas Journal, 38, 39, 40, 41, 326 Oil gas, 301 Oil, Paint, and Drug Reporter, 233 Oil Weekly, 91, 93, 94, 102 Oil-coal, 340-341 Oil-field development, 27-47 competition in, 31-34, 343 efficiency of, 342-345 Oil-fields of United States, 13-18, 21 comparative importance of, 57-58 production of, 54-57 Oil-pools, list of important, 13 Oil-reserves, estimates of, in foreign countries, 22-25 in Mexico, 23, 325-326 in United States, 18-21 OU-shale, 336-341 character of, 337 distribution of, 337-338 domestic development of, 339 foreign development of, 338-339 future of, 339-341 products yielded by, 338-339 relation to coal, 334-335, 337, 340-341 Scottish, 338-339 Oil-tankers, comparison with merchant tonnage, 70 INDEX 371 Oil-tankers, data on, 70-73 growth in number of, 71 investment in, 6 time of voyage of, 72 tonnage of, 71, 73 Oil-wells, completions by years, 38 39, 42, 43 cost of drilling, 241, 242 distribution of, 37 ill Mid-Continent field, 41 in United States, by states, 35, 36, 38 non-productive, 40 relation to production, 42—43 Old production, decline in, 27-29, 42-43 Paraffin-base crudes, 12-13, 77-78, 81, 164-165, 291 Paraffin oils, 75, 166-167 Paraffin wax, see wax Peak-load problem, for gasoline, 126-129 for heat and power,334 Persons, Warren M., 259 Petrolatum, 191-192 Petroleum industry, assets of, 7 becoming a transportation industry, 271 capital absorbed by, 9 capitalization of, 7-9 chart of, 2 economic organization oi, 1-4 profits of, 10-11 relation to coal industry, 330-335 value of output of, 107-109 Petroleum products, methods of refining, 75-83 production of, 85, 86 rank of, 89 varieties of, 75 Philadelphia Company, 199-200 Pig iron, relative production of, 49 Pipe-lines, 1, 64-70 efficiency of, 345 estimated value of, 4, 5, 04 gathering lines, 69 magnitude of, 64-70 map of, 66 tariffs, 68 Plan of oil-price stabilization, 239, 247 Pogue, J. E., 12, 18, 20, 183, 233, 239, 279, 285, 311, 331, 335, 339 Polakov, W. N., 102 Political control of oil deposits, 312-319 Population, relative growth in, 49 Premiums for crude petroleum, 237 Prices, 104-109, 233-252, 253-261 effect of Cushmg pool upon, 238-239, 242-243 372 INDEX Prices, effect of war upon, 239, 243-244, 247 explanation of price calculations, 233 index numbers of, 234-237 of crude petroleum, 234-242, 245, 246, 248, 249, 250, 253-261 of exported oils, 227-228, 245 of fuel oil, 227, 234-2 7, 245-247 of gasoline, 227, 234-237, 238, 241-244 of kerosene, 227, 234-237, 244-245 of lubricating oils, 227, 234-237, 247-251 relative to consumption, 253-255 relative to cost of drilling, 241, 242 relative to production, 253-261 secular trend of, 257-261 trend of, 104-105 types of, 10.5-106 Production, of petroleum products, 84-88 See fiiel oil, gasoline, kerosene, lubricating oils, petroleum Production of crude petroleum, 1, 4, 5, 48-63 by fields, 51, 55, 56, 57, 59 competition in, 31-34, 343 decline in, 45-47 investment in, 5-7 relative to consumption, 58, 60, 61-62 relative to country's growth, 49 relative to drilling, 44-45 relative to price, 253-261 seasonal variation in, 260 trend of, 48-63 Profits of oil industry, 10-11 Ratio chart, advantages of, 40 Refineries, by states, 91-92 capacity of, 90-103 complete, 79-82, 95 cracking plants, 82, 83 growth of, 92, 99-100 intermediate, 79 investment in, 6 location of, 90-91, 96-97 sizes of, 90-93 skimming plants, 77-78 topping plants, 82 trend of types, 83 types of, 77, 78, 93-97 yields from, 78 Refinery capacity, 90-103 classified by types, 94, 95, 96-97 growth of, 99-100 location of, 90-91 proportion utilized, 100-101 relation to storage, 94-95, 98-99 INDEX 373 Refinery practice, on Mexican oil, 327 outline of, 80-81 trend of, 75-89 Refining, efficiency of, 345 methods of, 76-83 outlook for, 104-109 Registrations of motor vehicles, 263, 264, 266 Requa, M. L., 31, 32, 317 Reserves of oil, abroad, 22-26, 325-326 control of, 313-314 in Mexico, 325-326 in United States, 18-21, 290, 306 Review of Economic Statistics, 259, 260, 357 Richardson, G. B., 153 Rittman, Jacobs, and Dean, 113 Rocky Mountain field, 16-17, 21, 22 Ross, Victor, 5-6 Russia, oil-production of, 52, 53 Salt-water, encroachment of, in ^Mexico, 324-325 relation to oil, 13 Seasonal variation, in gasoline consumption, 126-128 in motor-oil consumption, 181-182 Shale-oil, 334-335 See oil-ahale Shale-oil distillate, 295 See oil-shale Sievers, E. G., 206, 207, 211 Size, of oil companies, 3-4 I of petroleum industrj', 4-5 Skimming plants, 77-79, 95-97, 145, 166 Smith, George Otis, 20 Smith, N. A. C, 113 Smithsonian InstitutioJi, 195, 201. 339, 351 Society of Automotive Engineers, 19, 76, 115, 279, 282, 285, 297, 324, 345, 346 Solid fuel obsolescent, 335 Sparrow, S. W., 293 Sperlin's Journal, 351 Spurr, J. E., 312 Standard companies, 3, 70, 215, 217, 218 Standard Oil Company, 3-4, 213-215 of New Jersey, 3, 194, 215 Statistical methods, 353-359 Statistics, accounting, 353-354 economic, 355 engineering, 354 function of, 353-360 Stebinger, Eugene, 23, 24, 25, 26 Stewart, Walter W., 49, 50 Stocks, of asphalt, 188-189 of coke, 190-191 374 INDEX Stocks, of crude petroleum, 60-62 of fuel oil, 148-151 of gasoline, 119-122, 128-129 of kerosene, 136-139 of lubricating oils, 171-175, 17t/ of wax, 185-186 Stratford, C. W., 66, 76 Supplementary motor-fuels, 279-284, 294-295, 298 See coal refining, oil-shale Swift, F. W., 28 Tank cars, 1, 73-74 number of, 74 Tank farms, 67 Tankers, see oil-tankers Technology' of oil production, 28-29 The Nineteenth Century, 350 Thermal efficiency, 296-297, 346 Tide Water Oil Company, 80, 81, 152 Topping plants, 82, 9-5-97, 145 Towl, Forrest M., 65 Tractors, distribution of, 268 production of, 265 Transportation, 1, 4, 5 efficiency of, 345 investment in, 6 of crude petroleum, 64-74 of natural gas, 198, 200-202 Trends, of refinery output, 83, 84 of refinery tj'pes, 83 Trucks, distribution of farm-o'wned, 266 production of, 264, 265 projected curve of, 287 Types of petroleum, 12-13 Uumined supply of oil, in foreign countries, 22-25 in United States, 18-21, 290, 306 U. S. Bureau of Foreign and Domestic Commerce, 157, 228, 231, 328 U. S. Bureau of Labor Statistics, 233, 234, 235, 236, 237, 251, 253 U. S. Bureau of Mines, 47, 77, 91, 92, 93, 94, 95, 96, 100, 101, 102, 112, 113, 115, 122, 131, 138, 142, 166, 174, 184, 186, 188, 189, 190, 192, 194, 205, 220, 289, 297, 312, 338, 344, 345, 346, 347, 350, 357 U. S. Bureau of Standards, 300 U. S. Census of Manufactures, 131, 142, 173, 184, 189, 192, 193, 252 U. S. Department of Agriculture, 266, 268 U. S. Fuel Administration, 87, 89, 204, 213, 214, 218, 220, 223, 239 247, 249, U. S. Geological Survey, 18, 19, 21, 22, 23, 24, 25, 32, 33, 34, 35, 36, 37, 38, 42, 43, 52, 54, 56, 61, 66, 153, 158, 159, 187, 196, 197, 201, 206, 207, 208, 209, 210, 211, 252, 289, 306, 336, 357 U. S. National Museum, 12, 183, 195, 204, 206 U. S. Shipping Board, 156-157 INDEX 375 U. S. Treasury, 47 Value, of crude petroleum, 251, 252 of fuel oil, 107, 109, 251, 252 of gasoline, 107, 109, 251, 252 of kerosene, 107, 109, 251, 252 of lubricating oils, 107, 109, 251, 252 of mineral oUs, 107, 109, 251-252 Van Hise, C. R., 203 Wadsworth, 3.M., 347 War Industries Board, 123, 233 Wastes, 342-352 Wax, 184-187 Wealth of country, 5 Western Society of Engineers, 301 WTiite, David, 19, 23, 26, 316 Wild-catting, 27, 343 World, oil production of, by countries, 52, 53 oil resources of, 22-26 Wyer, S. S., 195, 199, 200, 201, 202, 203, 204, 205, 206, 349, 350 UNIVERSITY OF CALIFORNIA LIBRARY Los Angeles This book is DUE on the last date stamped below. MAY 2 8 1954 jun 1 6 195A Torm L9-5Um-ll,'5U (2554)444 THE LIBRARY UNIVERSITY OF CALIFORNIA LOS ANGELES C SOlJ'HERN REGIONAL L'EflARi FACJUTi' A 000 582 766 2 HD 9564 P75 Qeology