The Seven Sisters
Italian Politician Enrico Mattie described the post WW-II dominant oil companies as the “The Seven Sisters”. Through acquisitions, mergers and competitive practices, they eventually became Exxon, Mobil, Chevron, Gulf, Texaco, Shell, and BP. For a number of decades, the “Seven Sisters” were able to dominate and control most “Third World” oil producers by using consumption based price controls. The oil producing states responded by forming a cartel known as the Organization of the Petroleum Exporting Countries, OPEC. The uneasy truce between consumer and producer lasted until the late 1960s.
After the 1967 Six Day War between Israel, Egypt, Jordan and Syria; the Arab members of OPEC formed the Organization of Arab Petroleum Exporting Countries. Their intention was to exert pressure on the United States and Western Europe to limit future assistance to Israel. The 1973 Yom Kippur War, which featured a surprise attack by Egypt and Syria, created tremendous tensions within the Arab world because the Western powers again provided emergency support to Israel. To show their displeasure, the Arab countries suspended oil shipments to the United States and Western Europe. The post war result was that the Arab-Israeli hostilities had transformed OPEC into a political organization with sufficient power to hold the world hostage to both limited oil supplies and a massive jump in the price of oil.
Joe remembered the gas rationing, and the long waits in line for fuel. Gas stations indicated their availability to pump using a flag system. Green was plenty. Yellow was some gas in the underground tanks but you take your chances if there is a line. Red was no gas. Not surprisingly, gas rationing led to accidents and even violence when people tried to cut into the line or beat someone to a particular pump.
Joe’s DMV provided license plate number was “7qxp4”. The “4” was key to getting gas on an even date. Joe scheduled weekly and sometimes every other day visits to the gas lines to make sure that his automobile was filled up at every opportunity. He topped off even when he had a nearly full tank because he could not be certain if rationing would get worse.
The gas crisis was a dominant feature of Joe’s life at the time because the recession triggered by the OPEC action had caused him to lose his job. The company that employed him at the time had a first hired, first fired policy – and he was both a new college graduate and a new hire.
The Drive for Energy
Like it or not, civilization depended on the availability of energy. Regardless of source, the world thirsted and competed for access to energy resources.
The various oil companies’ and their support base of specialty contractors focused on exploring, drilling, transporting, refining, distributing, wholesaling and retailing petroleum products. Each of them did this in a different way and often in different parts of the world, but their business survival depended on access to oil bearing properties.
Joe knew that peak oil had been a concern for a number of decades. Simply put, “the assumption” was that demand for oil was outpacing both the currently known and potentially discoverable oil-bearing properties. Joe was unsure of the reliability of peak oil forecasts because much oil-bearing property had been removed from the market to meet the concerns of the environmental movement. He knew that this drove the oil companies in two directions.
First, and most obviously, they began to diversify into many different forms of energy. For example, Transylvanian Oil was just a subsidiary of a much larger diversified Russian energy company. Second, because so much easily available oil-bearing property had been sequestered by environmental politics, oil companies had been driven to take greater production risks just to survive.
Transition to Oil
Throughout most of history, mankind had been stuck with wood as a source of heat, power, and energy. Coal was an advance when its widespread use was developed in England. However oil, with its ability to flow smoothly through pipes and to be refined to produce a wide variety of substances, changed the world.
US energy consumption , by source 1850-2000
Oil’s dominance as a fuel for use in America, and for that matter the world, exploded into prominence as a result of the build up to and combat in World War II. Hitler’s drive toward the mid-East oil fields and Japan’s decision to enter WW-II were based on a need for a reliable, nationally controlled oil supply. Fortunately, America was blessed with oil as a naturally abundant and easily protected resource.
Jeeps, tanks, trucks and airplanes used diesel or gasoline fuel and oil based lubricants. Warships could use coal, but oil had a number of clear and compelling advantages. Oil contained more energy per unit volume. Ships, therefore, could travel farther and faster. Oil could be stored easily in tanks built into ships and refueling at sea was possible. Oil produced less smoke thus reducing an enemy’s ability to find a ship or fleet. The difficulties associated with moving coal and manning ships were substantially reduced when oil was substituted.
Discoveries of oil in the mid-East turned desert sheikdoms into monumentally wealthy kingdoms. Technology advances allowed oil to be extracted from below the sea and ocean floors. Wells were drilled miles deep through water and earth. Wells, such as the one that exploded and fouled the Gulf of Mexico, began to appear everywhere just to meet the world’s insatiable and exponentially increasing demand for oil.
Wood and other Biomass
Mankind’s use of wood, grass, leaves and even dung go back to prehistoric times. When man discovered that fire was useful rather than just dangerous, the game was on to find whatever burned. Since wood was readily available in most parts of the prehistoric world, wood was burned to the point at which entire forests were destroyed. The Sahara desert was once a forest.
Joe had used wood to partially heat his house in winter. He quickly came to the conclusion that there was a lot of drudgery involved in tending a fire and keeping it going for a number of days. There was an art to picking a log to start a fire and there was equally an art to picking the right logs to burn through the night. A stove burned longer and hotter than an open fireplace. Some woods, like apple and cherry, emitted a pleasant smell. Wet wood, newly mowed grass and wet leaves did not start fires easily and the smell was anything but pleasant. The thought of burning dung as a fuel was about as unappetizing as possible.
The growing scarcity of wood and the rising needs of the industrial revolution led to the replacement of wood with coal, a fuel that contained more energy per unit volume.
Although scrap wood was still used as commercial or industrial fuel, wood logs were used for romantic fires in home fireplaces, for bonfires at sporting events, or for light and heat at an overnight campout.
Biomass and Biofuels in the Continental United States
Trash was also a useable fuel source. Electric power plants separated glass and metal from otherwise burnable paper or garbage. Many large cities and even small towns required people to separate their trash from their garbage. “Recycling” was a necessary and often profitable venture for businesses and local governments.
Coal was the dirtiest of fuels. Mining it involved working in difficult conditions. Coal mining was dangerous work, – and the occasional explosion and loss of life reminded everyone just how dangerous. Nevertheless, coal was an essential energy source and one that was economically irreplaceable.
Coal could be liquefied. NAZI Germany, a nation with substantial coal but no oil reserves, used coal based diesel fuel to power the “blitzkrieg” war machine.
Having grown up in Pennsylvania coal country, Joe had seen the ecological damage done by abandoned bituminous and anthracite coal mines. Lignite and anthracite predominated in the South and up near the Canadian border while subbituminous dominated the mid-West or West.
US Coal Regions in the late 20th Century
The colors represent different types of coal
Each type of coal burned differently, and it was important to know what coal was being bought. Improper usage could lead to a destructive fire or death by carbon monoxide intoxication.
Unlike wood and other biomass, coal could be cheaply and predictably used in electric power plants and large industrial facilities. Virtually all coal usage in the late 20th century was for electric power generation.
If coal was the dirtiest of hydrocarbon fuels, natural gas was the cleanest. When Burned, natural gas produced only carbon dioxide and water. Thus its exhaust did not contain the byproducts of coal or oil that led to acid rain or toxic fog. Natural gas, like oil, flowed through pipelines. Unfortunately, natural gas was not as dense as oil and had to be transported under pressure or in liquid form.
Natural gas might have been a real historical competitor for oil except for one significant historical event:
In 1944, an above ground liquefied natural gas storage tank failed and allowed natural gas vapors, some of which were heavier than air, to enter the Cleveland, Ohio sewer system. Eventually the gas ignited and explosions occurred, but were contained within the sewer system.
A few hours after the first tank failure, a second above ground tank exploded and destroyed the entire tank farm. Natural gas liquid and vapors poured into the sewer system once again. But this time of sufficient amount to flow into the unprotected sewer drains of homes within a square mile of the tank farm.
Individuals at home, thinking themselves still safe from the fire and explosion, suddenly found themselves in the middle of a conflagration. The death toll was well over 100 Cleveland citizens.
The impact of the disaster was that liquefied natural gas storage tanks, previously placed above ground, suddenly had to be eliminated and the gas stored underground. In addition, the public became skeptical of natural gas as a residential fuel. Potential customers appropriately reasoned that it was better to use slippery oil and dirty coal, than to be blown to bits at home.
Joe had worked on a natural gas explosion. An individual with an obviously poor sense of smell entered a long closed machine shop. He did this because someone else with a good sense of smell had reported a foul order of decomposition. Unfortunately, the odor was not “decomp” but the “rotten egg” odorant put in natural gas to make it more detectable.
One flip of the light switch, and the machine shop exploded, – insuring that the individual with a bad sense of smell never had another worry. This left a clear lesson for all to observe. When going into a dark building that hasn’t been used for a while, use a flashlight that doesn’t act as a source of ignition. And by no means flip a switch or use a lighted candle.
Although the Cleveland disaster had been a major set back for the natural gas industry, the advance in natural gas management and the passage of a number of generations of people without a memory of the Cleveland disaster led to increased natural gas usage among residential and commercial customers.
Natural gas production in the World’s nations
cubic meters per year
As of the turn of the 21st century, natural gas usage was equally distributed among electrical power generation, industrial usage, and commercial and residential consumption. Its entry into the world of transport, however, was limited to school and transit bus fleets that returned to a central locations for servicing, or to areas in the country where a network of compressed natural gas stations could service taxi and delivery fleets.
Cheap and abundant natural gas was a power player in the overall energy market. It was clearly a challenger to oil.
Coal was the dirtiest of fuels. Natural gas the cleanest. But oil was the most flexible of fuels. As such, it was used as the energy source for virtually every sector of American society. And oil absolutely dominated all forms of transportation.
Oil was particularly important to the automobile industry. The American people loved their cars and could not live without them regardless of every type of political attempt to move them onto mass transit. Cars meant freedom to go places and do things. And cars moved almost exclusively on oil based asphalt highways and roads. A technological leap to something other than oil was going to take a long time and the environmental movement’s idea to return to a simpler less mobile life was simply not in the cards.
Although not heavily used in the generation of electrical power, oil matched natural gas as a fuel for industrial use. To Joe, this made a great deal of sense because production and construction depended on oil being just in time at the work site.
Hidden by the Gulf oil spill was the fact that the technology associated with oil had advanced tremendously. Blowout preventers had worked thousands of times to limit or prevent oil well disasters. Anti-pollution devices like catalytic converters had succeeded in wiping out car and bus based smog in cities. Pollution control scrubbers in stacks removed waste particles and gases from industrial exhausts.
Joe had worked on the design of a number of Japanese supertankers. Virtually everything was tied down by such redundancies as double hulls and automatic oil transfer shutdown valves. About the only thing left to chance was Mr. Fukui, the Japanese representative, who said “yes” to everything. Unfortunately, Mr. Fukui’s “yes” all too often meant “yes I understand, but no I disagree”. He was too culturally polite to voice disagreement until the design was about to be finalized. This led to delays and the eventual replacement of Mr. Fukui by Mr. Arishe, a Cambridge University graduate engineer from Tokyo who spoke perfect English and knew how to say “no” in a timely fashion.
The Future of Fuel – Green and Nuclear
For all intents, the future of “green” involved solar and wind energy even though, to be complete, geothermal and tidal energy were in the mix. However, when an environmentalist yelled “Go Green”, he or she was normally screaming about wind and solar as if there was no downside to them.
There was always a dispute about what “green” actually meant. To some like Kor, it meant renewable, non-polluting and environmentally friendly. Thus, biomass, “green” to some, was not “green” to the environmental purist.
Congresswoman Newman professed environmental purity, – but because of the agricultural nature of her district, she was given to promoting biomass experiments. It was politically expedient to be both “green” and farm friendly.
“Green” was seldom applied to the myriad of support technologies that improved the efficiency of wind, solar, and the other forms of power producing equipment. Superconducting transmission lines reduced the losses in the electric power grid. Advanced batteries led to the success of electric and hybrid electric cars. They were “green” just not the sexy “green” of a windmill or solar panel.
Global Renewable Energy Investment Growth
“Green” had a love and hate affair with nuclear. While nuclear fuel was the atomic stuff that powered the sun, nuclear materials were capable of remaining radioactive for centuries no matter where you put them.
Joe had worked on the first nuclear commercial ship ever constructed, the N.S. Savannah. Since he had dated a “Savannah” at the time, he had a ball with double entendres. “Broad in the Beam” could apply to the ship or to his girlfriend. As far as the ship was concerned, it cost more to build and operate than it ever returned in fees. It was essentially a show case for the use of nuclear power at sea.
Reginald Edward Depew Granger was born in Oxford, England to parents who were respected professors at Oxford University, the oldest university in the English-speaking world. Because his parents were well connected in the upper echelons of the English elite, Granger was destined not only for a fine education but superior positions in business or government.
Granger was a natural engineer as well as superior intellect. He selected petroleum engineering as his field of study and graduated with the highest honors. His extracurricular activity, when he had time from his studies, was sailing. At the age of 20, he started his career in the North Sea oil fields.
In his late twenties, R.E.D. met a musically talented Russian maiden with gorgeous grey eyes. They were soon married. Children quickly followed in the traditional sense of marriage before children. R.E.D. was, if nothing else, the traditional Englishman.
His wife brought with her a very interesting connection. She was the oldest and most beloved daughter of a Russian oil billionaire. Essentially, she was a Russian mafia chieftain’s prized child. Whenever help was needed to advance R.E.D.’s career, a phone call would move mountains. Nobody in Transylvanian Oil got in the way of Granger. By his mid thirties, he was the CEO of the Company.
Granger, although stationed in England, was a world traveler. He cycled regularly between England, Russia, the mid-East and the United States. His swift and decisive decision-making style fit quite well in the fast moving circles of American finance. His New York City associates, using a play-on-words, nicknamed him Red Grange after the great football player.
Joe, a rabid fan of American football, immediately understood the Red Grange analogy. In 1924, Grange produced one of the great miracles on the playing field. He scored 4 touchdowns in 12 minutes in a Nebraska rout of Michigan. The media, looking for a way to describe the man, called him “ The Galloping Ghost”. This English version of Red Grange was equally adept at producing miracles – only in the boardroom not on the football field.
When the Transylvanian Oil well exploded and the spill began, Red was on the hot seat from day one. Somebody had to be the spokesman and eventual “sacrificial lamb” for the company. The job fell to the Chief Executive Officer.
After being thoroughly savaged by the American press and Congress, Red was re-assigned to handle Russian oil relations. His replacement was as non-descript as possible.
Oil Companies as Energy Companies
Constant attacks on oil production by politicians, attorneys, and environmental groups increased business risks. The oil companies had responded by diversifying, and it was natural that they diversified into other forms of energy or energy use.
Most large oil companies either purchased or internally developed subsidiaries that explored the use of natural gas. Virtually every oil company had a stake in wind and solar farms as well as geothermal and tidal areas. Frankly, oil companies were among the few businesses capable of undertaking massive industrial projects and changing the face of the world’s energy structure.
Significantly, the petroleum needs of a wide variety of customer continued to provide the economic floor from which alternatives for the future could be researched and developed. Frankly, there was no substitute for oil on the planet.
The differences between the most civilized of nations and the horrifically underdeveloped world was not just government and customs, but the type and amount of energy used.
In America and Western Europe, the most advanced forms of energy had been developed and employed. In the poorer nations of Africa, Asia, and South America, biomass was still the predominant energy source. Stymied by a lack of technological and economic advances and all too often limited by dictatorial or tribal cultures, the underdeveloped nations were stuck in an earlier less prosperous time in history.
The critical issue for the entire world was how to solve the problems of underdevelopment without damaging the most developed nations. Those who believed in the inventive genius of individuals wanted to free that genius by reducing the impact of government in every day life. Countering this freedom agenda was politicians who believed in the need for government to control the world and its growing population.
Joe knew that the energy companies were caught in the middle. International socialists desired to shape world events through the use of a massive framework of laws and regulations. This meant that energy companies, dependent throughout their history on rugged self-motivated individuals, were in danger of becoming large, government controlled utilities.
The Spill and the Energy Companies
In spite of extensive regulations and a basic recognition that a massive spill would be bad not only for one company but the entirety of the Seven Sisters, safety standards and practices had slipped. Joe recognized that the curse of engineering arrogance had reared its ugly head one again. There was a failure to properly account for risk in the pursuit of cost control and timely delivery of product.
Sloppiness had set in simply because day-to-day operations were consistently without incident and the overwhelming majority of oil spills, when they occurred, were small and easily cleaned up. Unfortunately, when the rare substantial spill occurred, the energy company involved ended up fighting the “clean up” problem with limited and often unsatisfactory tools.
In addition, the offending energy company invariably spent huge amounts of money not only on the clean-up but also on individual claims and litigation. While such defensive activities sapped the strength of the company, bankruptcy was usually avoided by finding and exploiting the world’s remaining oil reserves.
Joe figured that the transition from oil to diversified energy production was a logical hedge for any oil company. There would come a time when new oil was not only difficult to find but far too risky. The question was when would that point be reached.