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Figure 1 There is always some water and gas accompanying oil fields.
Figure 1 There is always some water and gas accompanying oil fields.

The term petroleum (nicknamed black gold) comes from the Latin roots petra, “rock,” and oleum, “oil”; it literally means rock oil and refers to gaseous, liquid, or solid hydrocarbons found beneath the earth’s surface in sedimentary rock formations. The two most common forms are natural gas and crude oil that, like coal, are formed from decaying animal and plant remains under very high pressures and temperatures underground. Unlike coal however, they can diff use in porous sedimentary rocks and escape through the earth’s surface. Large reservoirs are formed only if the migration is stopped and oil and gas are trapped by the impermeable cap rocks. Since there is always some water and salt present, the oil is usually found above a pool of brine. Natural gas accumulates above the oil (See Figure 7-3).

Petroleum is not only a convenient source of energy for generating electricity and powering our cars but also the main ingredient in much of the plastics, waxes, medicines, cosmetics, solvents, lubricants, feedstock, and a host of other petrochemical products used in our daily lives. In fact, because of its limited availability, many consider petroleum to be too valuable to be used in transportation, heating, and generating electricity.


History of Oil Exploration in the United States

Although oil has found its present place in the world for only the last century, it has been known to man as a useful product for a very long time. As early as 3000 B.C., oil was used by Mesopotamians (current Iraqis) as caulking to seal the cracks of buildings and joints in boats. Th e Egyptians used oil as a lubricant for their chariots, and the Romans used it to light their arrows before launching them at enemies. By 600 B.C., oil in Persia was routinely extracted from oil wells that were only a few meters deep and brought to the surface by buckets and pulleys to be used in heating, lighting, and other purposes.

Figure 2 “Colonel” Edwin Drake. The fi rst commercial oil well in Titusville, Pennsylvania.
Figure 2 “Colonel” Edwin Drake. The fi rst commercial oil well in Titusville, Pennsylvania.

In 1852, Abraham Gesner succeeded to distill kerosene from the crude which quickly replaced the whale oil which was more expensive, burned dirtier and was less luminous. Th e first commercial oil well in the United States was built by Edwin L. Drake in 1859 (Figure 7-4). It produced about 1000 gallons a day. Within one year, 2000 new oil wells were dug and a new industry was born. Th e oil boom in Pennsylvania did not last very long as wells dried up within a few years. Drake went bankrupt, dying a few years later.

In 1864, a young entrepreneur, John David Rockefeller, purchased his first oil refinery in Cleveland, Ohio. As the Civil War ended and the country was fast becoming industrialized, Rockefeller saw the opportunity and bought additional refineries. To assure control over market and protect himself from wide fluctuations in the oil market, he moved and eventually acquired control over every stage of oil production from extraction to retail; this included transport, research, marketing, and even the manufacturing of barrels. In 1870, he combined his smaller companies into the Standard Oil Company and offered shares to the public. Being the largest customer of the railway industry, he managed to negotiate a favorable rate for transporting his crude, manipulated the price of kerosene, forcing many competitors to close their shops, file for bankruptcy, or sell assets to Rockefeller’s Company. By 1879, Rockefeller controlled 90% of all refinery operation and a quarter of all petroleum in the US. At the time that the average American worker was making $500 a year, Rockefeller’s wealth was estimated at several hundred millions (1).

Threatened by his absolute control over the industry, several oil companies sued Rockefeller claiming the Federal Law prevents Rockefeller to operate any refineries other than in Ohio. Fearing loss of control, Rockefeller established the Standard Oil Trust.

On November 1, 1879, Thomas Edison was awarded a patent for his most famous invention the “electric lamp.” Th e switch to electricity could adversely impact oil demand and price of the crude. Th e concerns did not last very long, however, when Henry Ford introduced his automobile (the horseless carriage), which was running on gasoline, a by-product of distillation of crude. Between 1900-1910, nearly half a million automobiles were sold, and with it petroleum found its prominent place in the American economy, and in doing so solidified Rockefeller’s power to control the price of oil.

Figure 3 OPEC member countries.
Figure 3 OPEC member countries.
Figure 4World Petroleum Reserves, Production, and Consumption.
Figure 4 World Petroleum Reserves, Production, and Consumption.

Another threat soon was realized, when in 1901, the new oil discovery in Texas, attracted thousands of wildcatters and entrepreneurs (2). Overnight, the US production of oil doubled and new powerful oil companies such as Gulf and Texaco were formed that challenged the Standard Oil monopolistic power that eventually led to a law suit by the government which accused Standard Oil of artificially manipulating prices. In 1911, the Supreme Court ordered the company to break into several smaller companies.

Soon thereafter, World War I was in full swing, concluding only when the Allies successfully blockaded Germany’s oil supply routes and caused much of the German industry, trains, and military machines to come to a halt. WWI ended in 1918 only to reemerge 20 years later as WWII; again, conflict over the control of major oil fields in Grozny and Baku played a large part in starting the war.

With the discovery of huge reservoirs of oil in the Middle East in the years following WWII, there was a surplus of oil in the world market, and prices started to drop. To stabilize the sharply declining oil prices, as well as coordinate and unify petroleum policies, five countries (Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela) established OPEC (3) in 1960. Since then, seven other nations (Algeria, Angola, Libya, Nigeria, Qatar, the United Arab Emirates, and recently Ecuador) have joined the group (Figure 7-5) (a). OPEC members collectively own 80% of the world’s proven oil reserves and produce 41% of the world’s oil, but consume only 8% of the oil (Figure 7-6) (3). In contrast, the United States – with a little more than 2% of the reserves – uses more than a quarter of all oil produced in the world (Table 7-2). At present, US imports roughly 60% of its oil needs; as US resources deplete, this percentage is expected to rise (Figure 7-7).

Figure 5 The US and the World petroleum. Note that US needs to import higher and higher percentage of its petroleum from foreign suppliers.
Figure 5 The US and the World petroleum. Note that US needs to import higher and higher percentage of its petroleum from foreign suppliers.

With increasing dependence on foreign oil, developed countries will likely continue attempts to impose their will upon OPEC countries. Many of the oil producing countries (such as Iran and Venezuela) are, however, undergoing rapid economic expansion, and much of their oil production must be used to meet their domestic needs. Th is makes less oil available to export, with the result that oil revenues reduce for the exporter, and more expensive for the importer. Th is will necessarily put economic pressure on western and other developed countries, a prescription for regional and international conflicts and wars.

The 1991 Gulf War and the 2003 US invasion of Iraq are just two examples of many future conflicts that are bound to occur over control of the vast Middle Eastern oil reserves (b) (See box “A Brief History of the Middle East: Oil and Blood”).

From Oil Well to the Gas Pump

Finding Oil

In the early days of oil exploration, few technologies could locate oil reservoirs precisely; they were mainly limited to random drilling of exploratory oil wells (wildcats). Today, advances in geological science and the availability of new sensors make this process considerably more accurate. Although no one technology can be used to accurately verify the presence of oil or pinpoint its exact location, combinations of various technologies improve the probability of success. Two technologies frequently used in geological mapping are the gravimetric and seismic methods. In addition to gravitational and seismic methods, other techniques have been used to measure the electrical resistance and other properties of the surrounding rocks and porous media.

The gravimetric method uses variations in the local earth’s density as an indication of the presence of local deposits of coal, petroleum, or other ores. If earth were a sphere of uniform density, the gravitational forces would be the same everywhere. The force of gravity is not uniform however, and changes somewhat with earth’s local density. On average, all objects are accelerated toward the center at the rate of g = 9.8 m/s2. Small variations of gravitational constant “g” can be accurately measured by a gravity meter and may indicate the presence of oil deposits. A gravity meter is essentially a mass-spring system in which the frequency of the oscillation is a measure of the gravitational constant.

The seismic method exploits changes in the velocity of sound as it travels from one medium to another. Waves can propagate through a uniform medium indefinitely until they encounter a boundary or discontinuity and are reflected back. In the seismic exploration technique, a shock wave initiated by a surface explosion propagates through the ground. When it detects a change in density (such as when it encounters an oil or a coal deposit), it refl ects back. Th e refl ected sound wave is measured by detectors (microphones) that are distributed at various locations around the detonation point. Th e time of arrival (velocity) and intensity (strength) of the refl ected shocks, along with other data, are used to construct the 3-D geological map of the region and give information about the rock formation and potential presence of oil and coal deposits. Recent innovations in underground imaging and directional drilling allows development of 4-D geological maps (time is the fourth dimension) which track the motion of the fl uid and increase oil discovery and recovery rates.


Figure 6 Enhanced Oil Recovery: (a) Secondary - water flooding, and (b) tertiary - steam injection.
Figure 6 Enhanced Oil Recovery: (a) Secondary - water flooding, and (b) tertiary - steam injection.

Once geologists pinpoint the location of a potential oil reserve, drilling begins. With luck, the well will reach the oil directly. If not, it may have to be capped and another one drilled nearby. The earlier oil wells were easy to find and only a few meters of drilling were needed. Today, we might have to dig many thousands of meters to find any oil at all.

Initially, oil is under sufficiently high pressure, which causes it to gush out naturally and no pumps are needed (flush production), but as more and more oil is extracted, a pumping facility can help maintain the fl ow of oil. The operation stops once the pressure has dropped below the settled production point. This is the conventional method of production and is called the primary recovery method. About 30% of the oil can be extracted using the primary method.

Beyond this point, additional oil can be recovered only by enhanced oil recovery techniques. Secondary recovery involves injecting water, natural gas, or carbon dioxide into dead wells to raise the pressure or push the oil that is otherwise unavailable into neighboring wells (Figure 7-8a). An additional 10-15% of the available oil can be recovered using the secondary technique. Unfortunately it raises the cost of oil production by 50 to 100 percent.

The tertiary recovery technique relies on reducing the oil viscosity. Viscosity is a measure of the ease with which a fl uid fl ows (for example, water has a very low viscosity, but honey’s is high). Viscosity can be reduced by raising the temperature, either by injecting superheated steam or by combustion. In the latt er, a small underground detonation results in a shock wave that propagates across the oil deposit. Th e shock wave heats the oil and breaks it into smaller molecules, making it fl ow more easily (Figure 7-8b). Another 10-15% of the oil can be recovered using the tertiary method. Th e combined primary, secondary, and tertiary methods can recover about 50-60% of the oil deposit. Once these techniques are exhausted, the well is no longer usable and must be capped.

Occasionally, oil wells are discovered below ocean surfaces and drilling must be carried out off shore. Th e process is similar to onshore drilling except that derricks must be mounted on platforms built away from shorelines. Platforms can be permanently built and fixed to the ocean floor or may fl oat – anchored with wire rope and chains to the sea floor.


When extracted from the ground, crude oil is not pure, but contains sand, water, and a number of salts. Sand settles to the bottom of storage tanks and is easiest to remove. Other contaminants are removed by electric or chemical means. Th e crude is then sent into a distillation column where, depending on their boiling points, they separate into heating oil, kerosene, gasoline, and various gaseous fuels such as butane, propane, and methane (See Table 7-3).

Natural Resources: How Long Would They Last?

One of the most intriguing questions of our time is the remaining quantity of our natural resources (fossils, minerals, precious metals, etc.) and the length of time they will last. Many have tried to answer this question, oft en with greatly diff erent outcomes. Depending on the extent to which reliable data are available and the assumptions made, the answer oft en varies by degrees of magnitude. Accurate data are rarely available and at best, are only good estimates. Even so, it is oft en manipulated to suit the geopolitical and economical interest of a particular country, politician, or corporation. For example, consider the proven reserves of petroleum. OPEC uses data on available reserves to set quotas on the volume of oil each member can sell. To increase income, member countries tend to overestimate their reserves. On the other hand, oil companies are taxed based on their known reserves; therefore, to pay lower taxes, these companies tend to underestimate their reserves.

Before delving further, we must distinguish between the reserves and resources that a certain region or country has. Resources are total quantities of a mineral in the crust of the earth -- the known and predicted deposits that may or may not eventually be sold for profit. Th e amount that has already been discovered or is believed to exist and can be exploited for profit (with today’s technology) is commonly known as the reserve. Resources continuously decline, whereas depending on its price and technology, reserves may or may not increase. Although we usually know the size of reserves to a good degree of certainty, we cannot accurately estimate what resources will be discovered in the future. Th e best we can do is to predict the probability of finding them. Th e uncertainty increases as we make our predictions farther into the future (c).

Whether there is an upper boundary to a natural resource or not, that is, whether or not a resource is truly exhaustible, depends on whom we ask this question (see box “Finite or not?”). Optimists (also called cornucopians) argue that no natural resource is truly exhaustible. They point out that, as the reserves become scarcer, technological innovation will lead to the discovery of more alternative resources. In addition, production will become more efficient, which will reduce the cost and improve the reserves. Pessimists (some call them Cassandras or conservationists) argue that there will be a point at which all resources are depleted and the production process will eventually halt. While new technologies have enabled the discovery of new resources, the additional energy required may not justify further exploration. For example, we have to dig deeper and deeper to access oil as more and more is being extracted. Th at means the energy used per gallon of oil increases. Eventually we would reach a point where the cost of drilling and the energy needed to recover the oil would outpace the economic benefits (the break-even point) and explorations would necessarily stop. As a case in point, since 1980, oil demand has continuously increased beyond any new amounts of oil discovered (5).

Figure 7 McKelvey’s Box.
Figure 7 McKelvey’s Box.
Figure 8 Oil discoveries by decade.
Figure 8 Oil discoveries by decade.

A model proposed by the US Geological Survey, called “McKelvey’s Box,” is oft en used to address the relationship between reserves and resources (Figure 7-9) (d). Th e size of this box represents the total amount of resources available. To the optimist, the box is not of a finite size, but varies with the cost of production and the probability that a resource can be found. If the resource is scarce, as the argument goes, its price continues to rise over time, the cost of production goes up, and there would be more effort in conservation and developing new technologies that can point to new discoveries and more efficient recovery methods.

The pessimists see the size of this box as finite, stressing that future discoveries and technological innovations cannot catch up with the demand, and that eventually the size of the reserves will shrink to zero. For example, data shows that US oil discoveries have decreased every decade since the 1950s (Figure 7-10) and that since 1962 (except in 1970 when Alaskan oil was discovered), the new oil reserves have never been enough to meet the rise in demand.

Example: What is the upper limit to the quantity of oil that earth could contain? What is the exponential expiration time assuming that global oil consumption was 98.9 million barrels a day in 2000?

Solution: Th e earth could not contain any more oil than the volume of the earth itself. Earth has an average diameter of 6,400 km, so its volume is Q = πd3/6 = 1.37x1011 km3 = 8.6x1020 barrels. If oil consumption continues to increase at a rate of 7% per year (T2 = 10 years), the time it takes the oil to be expired.

Substituting for r = 0.07, N0= 98.9x106x365 = 3.61x1010 barrels/year, we get:

Obviously the actual lifetime is much smaller than this as only a small fraction of the earth mass is composed of fossil fuels. Furthermore, this model assumes a constant rate of increase in oil consumption which is probably not a good assumption for many developing countries.

No matter which point of view is considered, as time passes technological innovation and better production techniques allow a larger portion of resources to become economically extractable. Furthermore, as resources are depleted and prices rise, recovery of additional resources makes more economic sense and line BB shift s to B’B’ to the right. At the same time, expected discovery of more resources adds to the reserves and line AA moves down to A’A’ (Figure 7-9 bottom). As the total reserves (Figure 7-9 top left box) expand, so does the amount consumed, and the diagonal line 1-1 moves to 2-2. Putting it all together, we can see that the quantity of the remaining reserves can change as a result of two factors:

1.It increases due to discovery of additional resources, higher prices,

newer technologies, and more effi cient extraction and processing techniques.

2. It decreases because of additional consumption.
Figure 9 Hubbert’s prediction of the US oil reserves.
Figure 9 Hubbert’s prediction of the US oil reserves.
Figure 10 Effect of total reserve on lifetime.
Figure 10 Effect of total reserve on lifetime.

The remaining reserve is the difference between the two. As long as this difference remains unchanged or increases in size, the resource is not depleting and is therefore sustainable. Unfortunately, for fossil fuels the trend is in the opposite direction, and the reserves continue to shrink.

The most famous model pertaining to finite natural resources is that of geologist King Hubbert who, in 1965, predicted that US oil production would peak at about 1970 and decline thereafter (Figures 7-11). He also estimated that the world’s oil production would peak at around the year 2000. Furthermore, Hubbert predicted that 80% of the reserves would be depleted in about 60 years, and that even finding an additional 50% in new petroleum resources would not extend the petroleum life more than a few years. Although the predictions were made some 40 years ago, they seem remarkably accurate. For example, Hubbert’s predictions about US oil reserves, as well as those of the former Soviet Union and non-OPEC countries, have proven correct with only minor deviations. According to the latest worldwide estimates – even aft er including later discoveries of Alaskan, Siberian, Middle Eastern, and North Sea oils – the global production peak is expected to occur sometime around now (2007) (6). Note that even if the future discoveries extend the proven reserves to twice the current estimates, the peak in oil production will only shift by a few years (Figure 7-12). Major OPEC countries have not reached their peak productions (mid-points) and cannot yet be tested against Hubbert’s hypothesis.

Question: Hubbert based his model on the assumption that resources have a finite life and that production follows a bell-shaped curve symmetric about the peak, where half of all resources have been depleted (7). What was the basis of these assumptions?

Answer: Hubbert made the assertion that oil discovery, like shooting a target, is a statistical event (e). There is a certain chance that a sharp shooter will hit the bull’s eye, but there is also a chance he misses and lands some distance away. Th e probability drops as the shooter aims less and less accurately. Oil discovery is similar in the sense that the chance of drilling success is highly problematic. At the early stages, when a natural resource is discovered, the exploitation is slow and the chance of success in finding oil is small. Production is likely to rise exponentially as the most easily found reserves are exploited, technology becomes more mature, and additional uses for the resource are found. As reserves are used up and resources become scarcer, the probability of finding new resources declines; oil companies must dig deeper and production costs increase. Eventually, a point is reached where the rate of discovery reverses its course and starts to slow down. The rate continues to decrease until all resources are found and depleted.

Figure 11 Production Midpoints (adjusted) for Major Oil Producing Countries from 2005.
Figure 11 Production Midpoints (adjusted) for Major Oil Producing Countries from 2005.

In Figure 7-13, the midpoints, when peak production occurs, are shown for various countries taking 2005 as a reference. As the data show, the United States, China, the former Soviet Union, and most other countries have already passed their midpoints. Only Saudi Arabia, Iraq, Kuwait, and the United Arab Emirates will be reaching their peak productions sometime within the next two decades.

Example: Assuming Hubbert’s predictions continue to hold true for the foreseeable future and that all the remaining reserves in the world are uniformly distributed between every man, woman and child, what is the length of time until all petroleum is consumed? Redo the problem assuming US reserves are divided equally among its citizens.

Solution: According to the data in Table 7-4, the estimated total petroleum remaining (as of end of 2006) are 1371 and 30 billion barrels (Gbo) for the world and the US, respectively. During the same period, the world and the US’s annual consumptions are estimated at 83.7 and 20.6 million barrels a day. Th e population of the world was estimated at 6.5 billion and that of the US at 300 million (8).


There are, however, several flaws in this analysis. Among various important factors we can name:

1. The total estimate of reserves is probably based on faulty data, inflated by the oil exporting countries. For example, during 1988-1989, to increase their quota of oil imports (set by OPEC based on the total reserves of each member country), many Middle Eastern countries suddenly

increased their estimated reserves by 246 billion barrels to a total of 660 billion barrels.

2. The rate of consumption is not going to remain constant and will most

likely increase with time. Th e world consumption of energy is expected to continue to increase in the foreseeable future. Th is is a result of many factors; the population is expected to increase well into middle of the century, exports by OPEC countries will shrink, and as more migrants move to developed countries in search of better life and higher standard of living, they adopt the more energy intensive life styles (9).

3. Not all the oil in the reserves will be pumped as quickly as the oil extracted today (f). Today, most easy-to-reach reserves have already been

depleted; it is required to dig deeper into the ground, under ocean floors, and remote areas to access the remaining petroleum resources.

On the other hand, there are undiscovered and inferred reserves that are not included in this analysis which could potentially extend the life of petroleum reserves for few additional years (See Table 7-5). Th e prospect is rather limited, however.


(1) Laughlin, R., John D. Rockefeller: Oil Baron and Philanthropist, Morgan Reynolds Publishing, Greensboro, North Carolina, 2004.

(2) Oilen, R., and Hinton, D., Wilcatt ers: Texas Independent Oilmen, Texas A&M University Press, 2007.

(3) Organization of Petroleum Exporting Countries (htt p://

(4) Transportation Energy Data Book, Edition 23, 2003. Table 1.5.

(5) Laherrere, J., “Forecast of Oil and Gas Supply to 2050.” Petrotech 2003, New Delhi, 2003. Online at: htt p://

(6) World Oil Production Estimates, Jean Laherrère at IIASA International Energy Workshop in Luxemburg, June 2001.

(7) Deffeyes, K. S., “Th e Hubbert’s Peak: Th e Impending World Oil Shortage,” Princeton University Press, 2001.

(8) US Census Bureau (htt p://

(9) Diamonds, J., Collapse: How Societies Choose to Fail or Succeed, Viking Penguin, 2005.

(10) Toossi Reza, "Energy and the Environment:Sources, technologies, and impacts", Verve Publishers, 2009

Additional Comments

(a) In May 2008, Indonesia announced that it has become a net importer of petroleum and therefore is pulling out of the OPEC. Ecuador rejoined the organization in 2007.

(b) According to Hall, D. “Oil and National Security,” Energy Policy, Vol 20, No 11, 1992), Iraq was a threat to US interests in two ways: First it could use its vast oil revenue to develop weapons of mass destruction WMD), and second, the combined reserves and production capacity of Iraq and Kuwait equaled those of Saudi Arabia which gave Saddam the ability to influence the internal policies of the United States.

(c) Th e values reported for oil reserves can vary widely from different sources. Companies and countries are deliberately vague about the likelihood of reserves they report. The values reported can vary from a low P-10 (10% probability) to a high P-90 (90% probability) chance of finding the resource. Exaggerated estimates by oil companies will raise the value of their stocks, but may also increase their share of taxes. OPEC countries may have an additional incentive to inflate their estimates in order to boost their quotas for oil exports and obtain loans from international financial institutions. Th e median estimate P-50, known as proven reserves, is probably the best estimate as errors and biases tend to cancel each other out.

(d) It must be noted again that this model applies equally well to other “nonrenewable” natural resources, although for the sake of clarity, we are using oil as an example.

(e) It is worth noting that the Hubbert model does not apply only to oil, but to other nonrenewable resources such as coal, natural gas, uranium, and minerals as well.

(f) A similar argument is proposed by C. J. Campbell in “Th e End of Cheap Oil,” Scientific American, March 1998. Th e reserves at the time were 1020 Gbo, and the annual production was 23.6, giving the world 43 years of supply.

Further Reading

Berkowitz, N., Fossil Hydrocarbons: Chemistry and Technology, Elsevier Academic Press, 1997.

Deff eyes, K. S., Hubbert’s Peak: Th e Impending World Oil Shortage, Princeton University Press, Princeton, N. J., 2001.

Campbell, C. J., Th e Coming Oil Crisis, Multi-Science Publishing Company, 2004.

Tariq Ali, Th e Clash of Fundamentalisms: Crusades, Jihads and Modernity, Verso, 2002.

Pelletiere, S., Iraq and the International Oil System: Why America Went to War in the Gulf, Praeger Publishing, 2001.

Oil and Gas Journal, Technology, news, statistics, special reports, and analysis (

Journal of Petroleum Technology, The official journal of Society of Petroleum Engineers, Dallas.

The Petroleum Engineer, Petroleum Engineer Pub. Co.

Journal of Petroleum Science and Engineering, Elsevier, covers the fields of petroleum (and natural gas) exploration, production and flow.

External Links

National Energy Technology Laboratory: Th e Strategic Center for Coal (

National Petroleum Technology Office (

US Geological Survey (

Organization of Petroleum Exporting Countries (OPEC) (

Society of Petroleum Engineers (