The Early Th Century Oil Becomes The Primary Source Of Energy

The early 20th century is the period in which contemporary energy issues truly began to emerge; it is the era in which widespread production and consumption of oil really began. In 1901, oil was struck in Spindletop, the first large oil field in Texas, near the town of Beaumont. The Spindletop oil well opened with a "gusher," or a large burst of oil. The oil shot more than 150 feet into the air. After that the field began producing almost 100,000 barrels of oil a day, more than all the other oil fields in the United States combined. The Spindletop gusher set off a veritable race for oil, with oil exploration and drilling taking place all across Texas and other parts of the United States. Since then, according to some estimates, the world's demand for oil has grown by more than 80 million barrels per day, and close to one-half of all the recoverable oil on the planet has been used up.17 But limits on the supply of oil, which is, after all, a nonrenewable resource, did not—neither in 1859, nor in 1901, nor even within a few decades—pose a pressing concern for most people, who viewed oil as an ideal source of energy. Nor was the environmental impact of burning oil for energy much of a concern yet. In fact, even in the 1860s, long before the Spindletop discovery, there were so many oil producers in the United States that there were not enough businesses to refine the oil or transport it. In addition, because oil was being produced in such large quantities, it cost just 10 cents a barrel in 1862, whereas only three years earlier it had sold for 2 dollars a barrel.18 In 1863 U.S. petroleum producers even formed their first professional association, the Association of Petroleum Producers. And by 1870 oil had already become the United States' second largest export.19

The mass production of automobiles running on the internal combustion engine was another factor (perhaps the greatest) that contributed to the rise of oil. In 1890 the first automobiles utilizing an internal combustion engine were produced in large quantities in the United States, creating a greater demand for the gasoline that was needed to fuel them. In 1899 a machinist and engineer employed by the Edison Company, named Henry Ford, successfully designed his first car and launched the Detroit Automobile Company (which would later become the Ford Motor Company). In 1908 Ford produced his first Model T automobiles. Their popularity resulted in soaring sales of gasoline, and the number of motor vehicles in the United States rose from 8,000 in 1900 to about 1.3 million in 1913. In 1920 the Ford Motor Company began to produce Model Ts by the millions, manufacturing nearly 17 million cars before discontinuing the model in 1928.20

In addition, Rudolf Diesel, a German mechanical engineer, developed the first diesel engine in 1895. He originally designed this engine to run on a variety of fuels, including vegetable oil. Aside from being able to run on cheap fuels, his engine had 30 percent efficiency—a 15 percent greater efficiency than the standard combustible engine. After Diesel died in 1913, his engine was modified to run on petroleum—the cheapest fuel available—and oil companies labeled one of the by-products of gasoline distillation diesel fuel.

John D. Rockefeller and the Standard Oil Company

As America plunged full-force into oil production and consumption in the late 1800s and early 1900s, driving their gasoline-powered automobiles, the entrepreneur John D. Rockefeller began his domination of the American oil scene. Rockefeller had formed the Standard Oil Company of Ohio, an oil production company, in 1870. Since the production of crude oil was growing faster than the refinery and transport businesses at this time, Rockefeller saw an advantage and began to commandeer the oil refining and distributing operations of weaker or smaller businesses. After seizing control of the transport aspect of the industry—the pipelines—Rockefeller began charging other oil producers, his competitors, high rates for using his pipelines. He applied the same principle to his refining facilities. Soon he was able to eliminate most of his competition and develop a monopoly over U.S. oil production and distribution. In 1900 the Standard Oil Company had control of greater than half of the world's sales of oil, and in 1904 the Standard Oil Company processed more than 84 percent of all U.S. crude oil in its refineries.21 In 1892, however, the U.S. government dissolved Rockefeller's Standard Oil Trust, and in 1911 a U.S. Supreme Court ruling broke up the holding company to which Standard Oil had transferred its assets. Yet Rockefeller retained his enormous fortune, later making donations to many philanthropic causes.

Government and Industry Collaborate to Develop Global Oil Resources

Oil production and consumption were on the rise in parts of the world other than the United States. In 1890 oil was struck in southeast Asia, and a petroleum company from Britain, British Shell, set up operations there, along with another company called the Royal Dutch Company for the Exploitation of Oil Wells of the Dutch Indies. These two companies would later become part of a cartel of enormous, multinational oil companies that reigned over the oil industry. By the early 20th century the Middle East also became the locus of various competing oil companies, as well as governmental interests, with Germans, Russians, Britons, and Americans all seeking control of the Persian oil fields. It was Britain that seemed to gain the strongest foothold in oil production, taking advantage of its landholding rights in the Ottoman Empire to surpass any other countries that produced oil in that region.

In the early 20th century politics, business, and oil began to overlap: The U.S. federal government and the Standard Oil Company began to collaborate on a program for obtaining oil in the Middle East. Such cooperative efforts between governments and oil companies multiplied, setting the stage for an interdependence among governments, the economy, and the energy industry that still shapes world politics today.

The Struggle for Dominance in the Oil Market

Some contemporary energy issues began to emerge as countries became entangled in wars and conflicts. As early as World War I, there were troubling shortages in energy supply. By that time society's energy needs were entirely centered around oil, and one of the aftermaths of World War I was that access to some oil pipelines and distribution systems were destroyed, causing a blockage in the transport of oil. This resulted in a glut of oil in oil-producing regions, but a shortage of oil in those countries where oil was needed most, where oil was consumed most rapidly. At the same time increasing oil discoveries in countries outside the United States gradually began to create a U.S. dependency on foreign sources of oil. In 1925 the potential for oil production reached beyond the Middle East into Latin America, as oil wells were discovered in Venezuela and Mexico. Oil production in Venezuela started in 1921; by the outbreak of World War II in 1939 production in that region reached almost 30 million tons of oil per year. U.S. companies began to step up their investment in Venezuela's oil, setting the stage for an eventual U.S. dependency on oil imports from Venezuela.

Also at this time, large petroleum corporations formed and began to dominate the market. They competed with one another for lower prices and thus a greater share of the market. Yet even when one of these companies needed to increase prices, it was still able to maintain its profitability. Britain, for example, dominated the Middle Eastern oil scene in the early part of the 20th century and was the main supplier of oil to the European market. While Britain sought out cheaper supplies of oil, it kept its oil prices elevated, yet never lost its dominant position. In 1928 an agreement among the major oil corporations, known as the Achnacarry Accords, set production limits and standards for pricing and marketing among the major global oil corporations, keeping profits high.

Meanwhile, major corporations from Western European countries and North America reigned over the production of oil outside their own borders, causing other countries to become dependent on them and on their control of the existing fossil fuel energy infrastructure. Smaller, less industrialized countries' energy sectors relied heavily on oil and coal from other parts of the world.

While the abundance of energy propelled industrialized areas, such as North America and Western Europe, into greater economic and industrial development, developing countries grappled with scarcity and energy shortages because the more highly developed countries now owned all the energy surpluses. Thus, foreign oil dependence became an issue even as the international oil industry was just taking shape, and developing countries had the additional problem of lacking a developed energy infrastructure to support their energy needs.

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