History of Lighting

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History of Oil

5 The Story of Big Oil

History of Lighting

Prior to 1800, only torches, lamps, and candles lit the darkness of night. Torches were oil-, pitch-, or resin-impregnated sticks and go back to the dawn of civilization. Lamps, first appearing during the Stone Age, were shallow rocks and seashells that burned grease, vegetable oils, animal fat, and rendered fat called tallow. In time man-made pottery with a natural fiber wick burned the same lamp fuels. Candles go back to 3000 BCE and were made of tallow until replaced by paraffin wax in the nineteenth century. To varying degrees, these modes of illumination produced more smoke than light.¹

In the early 1800s, the best lamp fuel was nearly smokeless whale oil, but it became increasingly expensive with wanton slaughter of whales inexorably leading to their extinction. Were whale oil to disappear, there were plenty of alternatives such as vegetable oils (castor, rapeseed, peanut), tallow, turpentine (from pine trees), and a variety of wood and grain alcohols. The most popular lamp fuel was a blend of alcohol and turpentine called camphene. Alcohol was obtained by distillation where vapors from a heated fermented mix of grain, vegetables, or fruits were separated, cooled, and condensed into a liquid. The distilling process for making alcohol for lamp fuel or whiskey was adopted by the early oil refiners to separate the constituent parts of crude oil.

A new source of lighting in the 1800s was coal gas. Gas emissions (hydrogen, carbon monoxide, carbon dioxide, and methane) produced by baking coal in a closed environment with insufficient air to support combustion were piped to street lamps in cities in Europe and America. Lamplighters lit the street lamps in the evening and extinguished them in the morning. Coal gas was also piped into factories, buildings, and residences for illumination, but the benefits of coal gas were restricted to urban centers where coal gas was manufactured. Pipeline distances between coal gas manufacturers and consumers were short as gas compressors had yet to be invented. Distance was limited by the pressure differential between coal gas holders, large tanks that stored coal gas and regulated its pressure, and consumers. Early experience in piping coal gas to streetlights and buildings would be put to good use when natural gas was discovered in association with oil during the latter part of the 1800s, but manufactured gas was still part of the lighting scene in the early 1900s with the last manufactured gas plant in the US closing in the 1950s. Despite these advances in lighting, most human activities outside of city centers ceased at sunset. With nothing to do from sunset to sunrise, “two-sleep” was common where people bedded down as darkness fell for the first half of two-sleep. Around midnight or so they would get up, dress, and have a bit of a social hour with family or neighbors by candlelight, of course, then back to bed for the second half of two-sleep. The electric light bulb would end this quaint custom.²

History of Oil

Asphalt, or tar, was found on the surface in land near the Caspian Sea, Middle East, Indonesia, Burma, California (La Brea tar pit in Los Angeles is a tourist attraction), western Pennsylvania, and elsewhere. Oil was a medicinal ingredient for curing all sorts of ailments for much of human history. Tar or pitch mixed with clay as masonry cement in ancient Babylonia is still visible today. Egyptians used tar as an adhesive in mummification. Romans burned oil as a fumigant to get rid of caterpillar infestations. Cracks between a sailing vessel’s wooden planks were sealed (caulked) with tar to prevent water from seeping through and sinking the vessel. Tar caulked Noah’s ark and the bulrush cradle bearing Moses. Oil-soaked soil was burned as a fuel in the tenth century in Baku region around the Caspian Sea, where Marco Polo also recorded oil seeping from the ground in the fourteenth century. Travelers in Baku in the seventeenth century recorded holes dug into the ground where oil was collected and then transported in wineskins on camels.³

Incendiary weapons go back to the fourth century BCE in the struggle between Athens and Sparta. Nearly a millennium later, Greek fire, propelled by air bellows, was sprayed on enemy ships from flamethrowers installed on prows of Byzantine warships. Similar to modern napalm, Greek fire adhered to whatever it struck and could not be extinguished with water. It was instrumental in turning back two invading Muslim fleets against Constantinople in 678 and 718 CE. The secret of Greek fire, thought to be a mixture of naphtha, resins, and sulfur, was passed down from one eastern Roman emperor to the next until lost perhaps during a less than orderly transfer of power. Chinese developed a similar weapon in the tenth century ignited by gunpowder and Arabs developed a form of Greek fire to fight Crusader ships during the eleventh to thirteenth centuries.⁴

In more recent times, Seneca Indians collected oil that seeped from the earth in western Pennsylvania for war paint and caulking canoes. Some of this natural seepage found its way into Oil Creek, giving it an oily sheen and its name long before discovery of oil. Immigrant settlers in the area dug holes that slowly filled with oil, which they called seep oil and also rock oil as it was thought that oil came from rocks, or in its Latinized form, petroleum. Seep or rock oil was sold as medicinal cures for just about everything, first as Seneca Oil, which, when properly pronounced with the accent on the second syllable, and with the subsequent omission of the third, became Snake Oil. Snake Oil was widely peddled by traveling tradesmen including Rockefeller’s father. From bottle labels of the time, snake oil, which at times was literally snake oil, was more often some concoction of crude oil, alcohol, cocaine, and heroin. Snake Oil might not have been an effective cure for anything, but surely was an effective pain killer.

As in electricity and many inventions such as the automobile and computer, not one, but many individuals made contributions whose aggregate impact was to launch a major industry. In the 1840s, Abraham Gesner, a medical doctor turned geologist, obtained a distilled liquid from coal, which he named kerosene from the Greek words for wax and oil. In 1850 he formed Kerosene Gaslight Company to light houses and streets in Halifax, Nova Scotia. Gesner was convinced that kerosene would one day overtake whale oil if it could be cheaply made.⁵ James Young, a Scotsman, patented a process in 1850 for distilling paraffin wax and oil from oil shale and bituminous coal. Paraffin wax was made into candles and paraffin oil burned for lighting and heating. By 1862 annual production of paraffin wax and oil consumed about 3 million tons of oil shale and bituminous coal and continued for over half a century until replaced by crude oil. Distilling oil from oil shale was revived in the UK during the Second World War to produce gasoline and diesel fuel for the war effort. It may resume again if crude prices are driven to a point that can economically justify processing vast deposits of oil shale found in various parts of the world or if a technological advancement in the process significantly lowers its cost.

Western Pennsylvania and Baku region were not the only areas where seep oil was “mined.” During the 1850s, seep oil scooped up from holes dug in the ground in Galicia and Romania was refined for its kerosene content to light lamps. Refining in the US was greatly influenced by the activities of Samuel Kier, a whiskey distiller in Pittsburgh, than by Young or Gesner or refining activities in Europe. In the 1850s, Samuel Kier modified a one barrel still for distilling seep oil in Pittsburgh, Pennsylvania. He later built a five barrel distilling unit and bought seep oil by the gallon. This humble beginning marked the birth of the American oil refining industry.

About this time a promoter, George Bissell, in search of something to promote, commissioned Benjamin Silliman, a chemistry professor at Yale College, to examine the commercial potential of oil as a lamp fuel. Silliman’s report noted superior properties of distilled oil to burn brighter and cleaner compared to other illuminating fuels. Bissell also had the intuitive insight to come up with an idea to drill rather than dig for oil. As with so much else, Chinese had beaten the West when in 347 CE they succeeded in drilling a 800’ deep oil well using a drill bit attached to bamboo poles.⁶ Bissell did not know about drilling for oil in China, nor did he know that a well was drilled, not dug, in 1846 in Baku, 13 years earlier, nor about an oil well drilled in Canada about the time when he thought of the idea.⁷ Based on Silliman’s report and his insight to drill rather than dig, Bissell put together a group of investors who bought newly minted shares in Pennsylvania Rock Oil Company.

The oil industry did not spring from nothing—it was an event waiting to happen. An accepted belief of the time was that anyone who discovered an abundant and cheap source of oil would “strike it rich” by producing kerosene for illumination. In 1859 it happened, but not before Pennsylvania Rock Oil investors backing “Colonel” Edwin Drake, a retired railroad conductor, and never a colonel, had given up hope, one by one, on Bissell’s idea to drill for oil. “Colonel” Drake was selected not only because he was an imposing-looking individual to head a fledging venture, but also, very importantly, had a free pass to ride railroads that reduced his travel expenses. Drake put Bissell’s insight into action and modified a derrick that drilled for fresh water or brine for salt manufacture to drill for oil. Drake was first to place a pipe within the drill hole to prevent surrounding ground from closing in and plugging the hole, forerunner of casing a well, still in practice today. He rigged up a hand operated water pump to extract oil from the casing within the well if any should appear. As strange as this may sound, his entire approach was ridiculed as Drake’s Folly. Anybody with half a brain knew that the only true and tried way for obtaining oil was by digging a hole and extracting tiny quantities that seeped into the bottom. It seems so strange from our perspective that people who dug for or, in essence, mined liquid oil and drilled for water and salt brine could not connect the dots to drill for oil. Stranger yet is the realization that those who drilled for water and salt brine never struck oil!⁸

Besides these technological innovations, Colonel Drake made three strategically important decisions. First, Drake employed William A. Smith (Uncle Billy), who rigged up Drake’s contraption so that it would actually work; second, he chose to drill in soil saturated with oil; and third, he ignored a letter from the last financial backer to cease and desist as no further funds were forthcoming. Though success had eluded him, Drake borrowed money to keep the operation going. When this money was gone and facing financial exhaustion, Drake doggedly stuck to his guns and kept on drilling, a story that would be repeated many times in the oil patch, creating fortunes for some and financial ruin for others. For Drake, it would be a bittersweet combination of both when the “crazy Yankee struck oil.” Everyone agrees that the well was 69 feet deep, but there is disagreement on the output of the well, ranging from 10 to 25 barrels per day, and on the price fetched in the market, ranging from $20 to $40 per barrel, which in today’s dollars, is a record price yet to be beaten (as of 2015). Regardless of the actual flow and market price, overnight a new industry was born—Drake’s claim to fame. For this singular achievement, Drake was to die a pauper, the first of a small, select group of individuals who would not profit from their renowned success in oil.

Immediately the region around Titusville became a gold rush town typical of the Wild West. Watching Drake’s every move and copying his mode of operation, water and brine drillers switched en masse to drilling for oil. A dollar invested in a producing well could yield thousands of dollars in profits, far, far beyond the profits of finding fresh water or salt brine. Profits attracted a whole new breed of drillers where the most despicable and disreputable jostled with the honest and upright to build oil derricks almost on top of one another. The law of capture prevailed: he who got the oil kept it. Thus drilling right next to a producing well made good sense to avoid the cost of a dry well. The winner of this bonanza would be the individual who had the most wells pumping oil as fast and furious as possible. Since nothing could be done about price, the secret for untold wealth was to maximize production before price fell or the oil field went dry.

Pandemonium reigned. The landscape was disfigured with fallen trees and uprooted vegetation, littered with derricks drilling for or pumping oil, construction gear and equipment tossed hither and yon, disused and busted equipment dumped on the sidelines with trees, plants, soil, derricks, equipment, and drillers covered in oil. Oil was first stored in pits dug in the ground, soon replaced by wooden, and later, metal tanks. Barrels originally intended for storing and transporting whiskey were expropriated to move oil from pits or tanks to a refinery. Whiskey turned oil barrels ranged between 30 and 50 gallons. A barrel of oil was standardized at 42 gallons in the early 1870s when Rockefeller was “standardizing” the industry.

As one might expect, there were insufficient barrels to carry oil to market. A barrel boom ensued as cooperage firms employing joiners tried to keep up with demand as well as a boom for those who built wooden tanks. Teamsters also shared in the newly found prosperity by moving barrels of oil on horse-drawn wagons from oil fields around Titusville to the Allegheny River for loading on barges. From there, barges tethered to horses on tow paths were floated downstream to Pittsburgh, the world’s first refining center, thanks to Samuel Kier, and then pulled upstream with empty barrels for another load of oil-filled barrels.⁹

Like a gold mining boom, those who made more money than most miners supplied miners with what they needed in the form of equipment, tools, clothing, shelter, food, liquor, and women.¹⁰ Miners either made fortunes or died trying. Same with the first oil boom. Joiners and teamsters and equipment providers and merchants prospered while drillers either made fortunes or went broke trying. Wells drilled with wild abandon pumping full out soon flooded the market with unwanted oil. Maximizing revenue by maximizing volume worked well when supply was less than demand. It was a different story when supply exceeded demand, which is still true today. Oil prices plunged from 10 dollars to 10 cents per barrel in less than a year, making a barrel more valuable than oil contained therein. Pumping oil continued unabatedly as prices spiraled downward because individual drillers could still maximize revenue by maximizing production as long as crude oil prices exceeded extraction costs. One driller showing restraint and slowing his rate of production only meant lower revenue for him as others pumped with all their might. Drillers collectively were unable to sense the repercussions of what maximizing production today meant for profits tomorrow; if they did, there was nothing they could do about it. The oil industry would have to wait for Rockefeller to teach a valuable lesson that practicing restraint today could maximize profits tomorrow.

As boom turned bust, overnight fortunes evaporated since generated cash was entirely reinvested in more drilling rigs, which lost all their value. Bankers called loans on oil wells serving as collateral forcing drillers into bankruptcy. Collapsing oil prices were not the only cause of anxiety for oil producers; too many wells literally on top of one another operating full out were sucking oil fields dry in no time. Consider the town with the quaint name of Pit Hole, about 15 miles away from Drake’s well in western Pennsylvania. Oil was discovered in what was a sleepy farming “community” of two buildings in January 1865. By September, nine months later, its population had exploded to between 12,000 and 16,000, with a host of hotels and boarding houses up and running to provide food and shelter and entertainment for patrons. Those involved with honest work rubbed elbows with speculators, unscrupulous stock-jobbers, reckless adventurers, and dishonest tricksters.¹¹ Near-valueless tracts of land a few months previous were selling for over $1 million and participating interests in producing wells for hundreds of thousands of dollars. Considering the value of a dollar in 1865, these were lofty sums indeed. Pit Hole post office became third busiest in the state after Philadelphia and Pittsburgh. With so many oil wells built with such wild abandon pumping with all their might, the oil field soon went dry. Some drillers were bankrupt before their equipment arrived. Plagued by two major fires, the town was mostly abandoned in a little over a year. Lumber from remaining buildings was scavenged for construction elsewhere. Today a roadside sign and vestiges of foundations fit for an archeological dig mark the site of Pit Hole, world’s first oil boom town.

Gesner was proven right. While oil is now under attack by environmentalists, it was oil or, more exactly, kerosene that saved whales from extinction. In 1846, the whaling fleet numbered 735 vessels and was making a rather healthy rate of return, especially when whale oil prices peaked in 1856 at $1.77 per gallon. By 1865 plentiful supplies of kerosene selling for 59 cents a gallon sharply undercut the price of whale oil. The whaling fleet shrunk to 39 vessels by 1876. Kerosene prices kept sliding to a little over 7 cents a gallon by 1895 when whale oil was selling for 40 cents per gallon. The whaling industry went extinct, not whales!¹²

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