utilization of petroleum

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UTILIZATION OF PETROLEUM AND PFTROLEUM

John M. Ryan

Standard

O i l

Company

N .

J .

General Economics Department

N ew York, New York

Petroleum has been utilized by man throughout most

An ancie nt Babylonian ta b l e t reports , f o r example , th a t

PRODUCTS

of h i s s t a y on t h i s p l an e t.

Noah calked h i s Ark with

bitumen.

h i s to ry (3 ) .

quite scarce and i t s consumption was l imi t ed .

This s to ry suggests th a t pe tro leum w a s used before the advent of recorded

Up u n t i l f a i r l y recent times, however, c rude o i l and i t s products were

In t h e

m i d - l 8 0 0 s ,

t h e o i l i n d us tr y as we now know i t emerged.

This develop-

ment w a s made possible when Colonel Drake improved th e technology then i n use f o r

d r i l l i n g

salt

wells and

d r i l l e d

i ns te ad f o r o i l i n

1859.

The Drake

w e l l ,

which

was

t he

f i r s t

w e l l d e l i b er a t e l y d r i l l e d f o r o i l ,

w a s suc ces sfu l and re sul ted i n produc-

t i o n of e i g h t t o t e n b a r r e l s of o i l

a

day.

widespread use, c rude o i l p roduct ion rose rap id ly and during the next year t o t a l

doraestic crude o i l production

w a s 500 000

barre ls . One

year l a t e r ove r two mi l li on

b a r r e l s were produced. The co st s of crude o i l decl ined sharply as production rose,

and petro leum ut i l iz a t io n increased rap i d ly .

s

Colonel Drake's approach came i n t o

The broad expansion of o i l markets th a t came about after 1859

w a s

made possible

by many f a c t o r s incl udin g:

1)

igh and r i s i ng pr ic es f o r animal and vegetable

o i l s , ( 2 ) a ra di ca ll y improved technique of ex pl or at io n and production, and 3 )

improved techniques of ut i l i za t i on . This experience

i l l u s t r a t e s t h e f a c t t h a t th e

u t i l i z a t io n of pet ro leum i s t he r e s u l t a n t of wide va ri e t y of for ces which

ul t im ate ly make themselves f e l t i n the market p lace .

however,

i s

qui te f ra g i le and changes i n the underlying force s lead t o continued

and sometimes rapid sh i f t s i n u t i l i z a t io n pa t t e r ns . Hence, i n d i scuss ing u t i l i z a -

t ion, i t

i s

n o t s u f f i c i e n t t o c o n si d er e x i s t i n g o r p o t e n t i a l te ch no lo gy

of

o i l con-

sumption a lone . I t i s a l so n ec es sa ry t o i n d i c a t e t h e e f fe c t s of p o te n t i a l changes

i n supply and of new competitive fo rc es .

t a i n , a t l e a s t imp lic i t ly , s m e assumptions about fu tu re supply and competing

technology as thes e fa c to r s can have importan t consequences today. Thus an an tic -

ipated shortage of a pa r t i cu la r form of energy some years i n the fu tu re lea ds con-

sumers t o begin searching f o r ways t o economize i n the use of the resource o r t o

convert to a l te rn a t e sources today . Producers begin t o look f o r new suppl ies o r

t o improve methods of prod ucin g known d ep os it s .

search f o r ways t o s ubs t i t u t e t h e i r p roduc t s fo r t he one i n sho r t supply.

ll

of

t h es e a c t i v i t i e s t en d

t o d e la y o r t o p re ve nt a n a c t u a l s c a r c i ty .

The equilibrium achieved,

Any pr oje ct i on of u t i l iz a t i o n must con-

Producers of competing f u e l s

This poin t i s wel l i l l u s t r a t ed i n t he case of pe trol eum.

The rap id r i se i n

I n

crude o i l p roduct ion after the Drake d i scovery l ed t o i nc reas ing fe a r s t h a t t he

in du st ry would be un able t o cont inu e meeting th e demands being made upon it,

1909, when the industry w a s a mature hal f c entury old, th e

U.

S.

Geological Survey

expressed the f e a r t h a t the na t ion ' s pe tro leum resources would soon prove inad-

e qu at e t o meet the needs

of

i ndus t ry and suggest ed fu r the r t ha t , i n t he fac e of

approaching sc ar ci ty , petroleum should be l i m i t e d t o us es where t he r e were no

reasonable su bs t i tu te s such as l ub r i c a t ion and i l l umina t ion ( 5 .

of geologica l techniques t o the o i l - f i ndi ng process around the t ur n of the century ,

however, eve ntu al l y usheEd i n

a

new e r a of o i l discovery which prevented the ant ic-

ipated scarci ty from developing.

"he introduct ion


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2 2 4

The rap id accepta nce and growth i n the

u s e of

the automobile l e d t o a n even

greater demand on resour ces and th e c r y of forthcoming shor tage was again heard

through th e land. lea din g prof ess or of engineering here i n Michigan typi fie d

t h i s view when he s t a ted i n 1920 t h a t th e ga soline powered veh ic le would have t o

be

abandoned by

1940

a t

t he

la tes t

because

of

a

sho rta ge of petro leum( 1). The

subsequent in tr odu cti on of geophysical techniques and t h e i r gradual improvement

ushered i n an

era

of d iscoveries so great however, t h a t wit hin a f a i r l y s ho rt

per iod overproduction, not s horta ge, became the major problem.

1

The fo r eca s t s of shor t age ju s t c i t e d w e r e not is ol at ed events. Competent

au th or i t ie s have for ecas t impending sc ar c i ty a lmost s ince the inc ept ion of th e o i l

indu str y. The important po in t i s t h a t t h e t h r e a t of scarc i ty SO st imulated research

tha t sho r t ages

w e r e

e f fe c t iv e l y fo r es t a l l ed . Fur thermore, re sea rch w a s continuing

simultaneously on

a

wide va r ie ty of sub st i tut es, which could conceivably have f i l l e d

the gap,

a t

no dramatic increas e i n cost , i f

o i l

resources

h a d

not k ept pace with

requirements.

Developments i n these

areas

have i n fl ue nc ed u t i l i z a t i o n a t l e a s t as

much as have t ec hn ic al improvements i n th e consumption of energy.

TECHNOLOGY OF PETROLEUM UTILIZATION

wi th

most

I n reviewing p resen t and po ten t i a l u t i l i z a t io n pa tt e rns , i t

i s

u s e fu l t o begin

t h e c u r r e n t s t a t e of consuming technology and the developments which appear

l i ke ly t o occur i n t he n ea r t erm fu tu re . Thi s t echnology enab les

u s

t o make

a

reasonable estimate of the demands which

w i l l

be made on resour ces ove r th e period

of a decade o r two. Using

our

present knowledge of the na t ion 's resources

w e

can

th en determine whether o r not t he demand pat te rn appears reasonable and, i f not, we

c a n a d j u s t

it as

necessary.

In t h e l o n g er term f u t u r e

our

a b i l i t y t o p r e di c t i s increasingly inaccurate,

and

w e

do not have

a

c l e a r p i c t u r e t od ay of the technology o r t h e resources which

w i l l be ava il ab le more than about twenty yea rs from now. The repe ated gro und les s

f e a r s of s h or ta ge i n t h e p a s t i n d i c a t e that it

i s

probably unwise t o determine

capi ta l

budgets, formulat e re sea rch po li cy, o r even e s t ab l i sh na t iona l po l i c i e s on

t h e ba s i s of developments which are a n t i c i p a t e d more than twenty years or

so

i n t h e

fut ure . Longer range fo re ca st s

serve

t o i nd ica t e p o te n t i a l t roub le spo t s which

should be watched, but they

do

not serve

as

a re l i ab l e guide f o r po l i cy today .

I n pro jec t ing fu tu re demand pat t e r ns

it

i s a l s o nece ssa ry t o make some

ex p l i c i t o r imp l i c i t a ssumpt ions about t he

r e l a t i v e p r i c e s of f u e l s . For t h e

p re s e n t

we

sh a l l assume tha t r e l a t iv e p r i c es w i l l be unchanged f o r the fores eeable

fu t u r e .

whether there

are

fa ct or s which would make petroleum incre asi ngly c ost ly re la t i ve

t o competing f u e l s and which would hence n ec es si ta te a modificat ion of the projec-

t i o n .

Subsequently w e s h a l l inqui re whether th i s assumption

i s

reasonable or

Transportat ion

In th e United Sta tes approximately 50 pe r cen t of

a l l

t h e o i l consumed i s used

/-

i n t h e t r a n sp o r t at i o n s e c t or . O i l has over 9 p e r cent of t h i s market. Abroad,

these percentages are probably. somewhat lower,

but they are n ot r a d i c a l l y d i f f e r e n t

f r o m t h e l e v e l s pr e v a il i n g i n t h e U S.

market share, i t s growth i n t h i s market i s e s s e n t i a l l y li m i t ed

to

the overall growth

Since o i l cannot increase apprec iably

i t s

i n t h e t r a n s p or t a t io n s e c t o r .

There

are

a

w i d e variety of technological developments which could have an

impact on the t rans por tat i on market. For per sona l t ra nspo rtat ion, however, the re

a pp ea rs t o be l i t t l e t h r r a t

t o

the hydrocarbon powered vehicle, a t l e a s t f o r t he


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5

next twenty years.

powered piston engine are hydrocarbon engin es them selv es. Among th ese

are

the gas

turbine; the l ight-weight , high-speed di es el engine; the s t r a t i f i e d charge engine;

t he

f

ree-piston engine; th e S ti r l in g engine; and the NSU rotary combustion eng ine.

B a s e d

on pre sen t information, none of the se engines pr es en ts

a

major t h r ea t t o t he

gasoline p is to n engine, al though highway d i e se l use

i s

growing.

th er e may be some s h i f t toward the st ra t if i e d charge and t he g as turb ine engine.

None of th es e changes, however, would se ri ou sl y af fe ct t he t o t a l demand f o r hydm-

carbons although they might necessitate

a

s h i f t away from gas oli ne toward middle

d i s t i l l a t e s i n t h e r e f i n i n g p ro ce ss .

Most

of

th e d evic es which might compete wit h t h e gaso line -

I n th e longer run,

I t i s

poss ib le

that

t he

ba t t e ry o r fu e l c e l l may rep lace

the gaso l ine p i s to n

engine i n a l im ite d number of sp ec ia l veh icl es prima ril y used fo r c i t y d ri v ing .

The pro ba bi l i t y of t h i s development appears qui te

s m a l l ,

however. Ei th er device

would require

a

tech nolo gica l breakthrough t o be economic and, even

i f

such a

breakthrough should occur, th es e devices probably would n ot c aptu re

a

large segment

of

the pr i vat e t ra nspor tat io n market i n the foreseeable futu re . Fur thermore,

a

workable f u e l c e l l has

a

reasonable pr ob ab il i t y of r eq ui rin g hydrocarbons a s a f u e l .

For these reasons, it

i s

n ot considered l i k e l y t h a t e i t h e r b a t t e r y o r f u e l c e l l

powered automobiles

w i l l

have a s ig nif ica nt impact

on

petroleum demand f o r th e next

twenty years al though they could a ff ec t demand i n th e l ong er run.

Railroads

are

ano ther segment of t he tr an sp or ta ti on market i n which oil

i s

dominant.

The r ap id i t y wi th which the rai l ro ads converted t o di es el s fol lowing

World

War

I1 shows that s ignif icant changes can

take

place in sho r t per iods of t ime.

The major t h r e a t t o o i l i n t h i s market

i s

e l e c t r i f i c a t i o n . This t h r e a t i s more

po te n t ia l than re a l f o r the foreseeable fu ture , however,

as

su bs ta nt ia l new elec -

t r i f i c a t i on p r o j e c t s p robabl y cannot be j u s t i f i e d i n t he U. S. unt i l such t ime as

r a i l r oad mergers and r e r ou t ing of l i n e s r e s u l t i n h i ghe r t r a f f i c dens it y .

tur bin es may ult im ate ly replace

d iese l s

i n some rai l ro ad ap pl ica t ions but, i n any

event,

most of t h i s market appears

t o

be secure f o r hydrocarbons f o r a t l eas t

twenty years and probably much longer.

G a s

In the area of marine tr ans por tat ion t he major thr ea t t o o i l comes from nuclear

energy.

hydrocarbon engines i n th e U. S. i n pr iva t e marine t r an spor ta t ion over the nex t

twenty years, i t

w i l l

be

of

growing importance

i n mil i ta ry appl i cat i ons . Abroad,

int ro duct i on of nuclear energy i n mar ine t rans por tat ion w i l l probably be inh ibi ted

by ca p i t a l l i m i t a t i ons .

Although

i t i s

unl ike ly t h a t nuclear energy can compete economically with

The a via tio n market a ppears qui te safe f o r hydrocarbons i n th e yea rs ahead.

The r api di t y wi th which th e gas turb ine replaced the p is to n engine i n t h i s market

argues str ong ly ag ai ns t o i l industry complacency, but th e tec hnological developments

i n the of f ing do not appear t o be of

a

nature t o chal lenge o i l ' s dominance of t h i s

market .

The fu tu re of o i l

i n

the impor tant t ranspor tat ion sector can be readi ly

summarized as follows:

1.

Because of o i l ' s overwhelming po si t i on i n the tr an sp or ta tio n market,

i t s

growth i n t h i s area w i l l be lar ge ly l imit ed by the growth of t he market, pa rt ic -

u l a r ly i n t h e

U. S.

The additional volumes which w i l l be consumed i n t h i s se ct or

i n t h e U. S. w i l l be qui te large, but the annual average growth rate here

w i l l

be

somewhat lower than the growth rates anticipated abroad.

2. There are no new techno logi cal developments i n si gh t which se rio us ly

threa t en hydrocarbon fu e l s i n the t r ansp or ta t i on marke t i n the foresee able fu ture .


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226

3 .

There may be s h i f t s i n demand away from gasoli ne toward middle di s t i l l a t e s

i n t he

U . S.,

but any such s h i f t s

are

expected t o be gradual and

are

not expected

t o a f f ec t th e ovc ra l l demand f o r pet ro leum s ign i f i can t l y .

Ind ust ry and Power Pla nt Use

General indu s t ry and power pl an t use c ons t i t ute a second market for o i l .

Most of the pet roleum f u e l suppl ied t o t h i s market

i s

i n t he

form of heavy fuel

o i l .

I n t h e U.

S

o i l

i s

not

a

major fa ct or i n t h i s segment.

It

accounts for

about

7

per ce n t of the

steam

e l ec t r i c power p la n t f u e l used by u t i l i t i e s and about

1 3 pe r

cen t

of

th e manufacturers' he at and power market.

I n a d d it i o n t o t h e se

uses, o i l w i l l be

of

increas ing impor tance i n spec ia l i zed ind us t r i a l uses.

example, a pound of o i l can displa ce

1.6

pounds of coke i n b l a s t f u r naces w i th

s ign i f i can t s av ings . O r e r educ t ion and f e r t i l i z e r manufacture a l s o r epresen t l a rge

po te n t ia l marke ts

f o r

o i l .

For

The future

of

o i l i n t h e i n d u s t r i a l ma rkets of t h e U.

S. i s

determined by

f a c t o r s o t h e r t ha n

technology

of

uti l ization, however.

heavy fue l o i l i s dec l in ing as r e f i ne r s con t i nua l l y improve t h e i r y i el d p a t t e r n s

and

it i s

now equal

t o

only about one ha lf

of

domesti c consumption. Imports of

heavy fuel

o i l ,

which make up t h e balance , are l i m i t e d by t he O i l Imports Admin-

i s t r a t i o n i n such

a

manner t h a t t he t o t a l domest ic supply of heavy fuel

o i l

has

been he l d f a i r l y cons tan t s i nce t he i ncep t i on of the program.

It is

of course,

imposs ible t o pro jec t w i th confidence th e

import

pol ic i es of the fu ture , bu t

i t

i s

clear

t h a t

i f

t he con t r o l s l i m i t the

supply to a f ixed l eve l , as they have i n the

pas t , they

will

serve t o

prevent

increased in du s t r i a l o i l consumption i n the U.

S.

as

a

result

of

e i t h e r

normal

growth o r of new techno logy. Furthermore, widespread

improvements i n tra nsp ort ing coal w i l l probabl y r e s u l t i n

some

f u r t h e r r e du ct io n i n

d e l i v e r e d coal pr ic es which

w i l l

make co al more c ompetitiv e.

Abroad,

however,

t he r e i s qu i t e

a

d i f f e r e n t s t or y .

industry and,

for

t he

foreseeable

fu ture ,

rapid expansion i n the generat ion of

e l e c t r i c i t y

w i l l

inc rea se t he demand f o r o i l desp it e probable nuc lea r developments.

Coal costs w i l l con ti nue t o

r i se

in

Europe and there i s some hope f o r reducing the

puni t ive exc i se

taxes

le vi ed a ga in st heavy f ue l o i l i n much of Europe today.

s

a

r e s u l t , o i l should become in cr ea sin gl y competi t ive out sid e th e U. S.

The

domestic production

of

O i l w i l l be inc reas i ngly impor tant

t o

general

R e s i d e n t i d and Commercial Consumption

The residential and commercial sector

i s

another

major

petroleum market.

Gas

dominates th e space he at in g component, however, and e l e c t r i c i t y

i s

the major

factor i n t he

a i r

cooling segment.

--supplies about one t h ir d of t h e t o t a l energy consumed

i n t h i s market.

O i l- -l a rge ly i n t he form of mi dd l e d i s t i l l a t e s

Oil s share of the space heating market i s under a t t ac k by bo th na t ura l gas

and e l ec t r i c i t y , par t i c u la r ly i n mul ti -uni t dwel l ings. Natura l gas has accounted

. f o r most of th e growth

of

t h i s market i n r e c en t y ea rs b u t e l e c t r i c i t y i s a growing

t h r e a t

t o

bo t h

gas

and o i l .

l a s t year and more

wem

hea ted by e l e c t r i c i t y t han by o i l .

F u rt h e r t h r e a t s t o

o i l ' s

p o s i ti o n i n t h e r e s i d e n t i a l

and

commercial market

are

posed by research on the rmo ele ctr ic hea tin g and cooling and on gas-fired absorption

cycle combination heating-cooling units .

s t rengthened by research on

o i l - f i r e d

absor pt ion cycle u ni ts and hydrocarbon fu el

c e l l s which can

be

used

t o

s up pl y e l e c t r i c i t y t o i n d i v i d u d r e si de nc es

o r

t o groups

of consumers i n l imi t ed areas.

More new homes were heated by gas t ha n e l e c t r i c i t y

On th e ot he r hand, o i l ' s pos i t ion

i s

being

A significant technological. breakthrough would be required

before

any of these

p o t e n t i a l

new

uses would be a b l e

t o

a l t e r u t i l i z a t i on pa t t e r n s appr eci abl y and

it


5/8

227

i s not

a t all

cl ea r today what the n e t effect on petroleum demand

is

l i k e l y t o b e,

It i s al so worthwhile t o note t h a t gi ven the assumption of adequate r esou rces and

no s ign i f i c an t changes i n re l a t iv e p r i ces ,

there

i s

no overwhelming national

urgency f o r conducting such research a s f a r as

civi l ian uses are concerned.

Total Petroleum Demand

Most stud ent s of th e petroleum ind ust ry are i n agreement that i f t he re a re no

unforeseen technological. b reakthrou ghs by o i l o r by competing forms of energy and

if re la ti ve energy pr ic es remain es se nt ia ll y unchanged, petroleum demand w i l l grow

i n the United Sta te s a t 2 t o 3 per cen t a year over th e next decade o r two.

fore ign areas, where the growth potential i s gr ea te r and where supply i s l e s s

l i ke ly t o be d i m c t l y l imit ed by import c ontro ls, petroleum demand alre ady exceeds

th a t of the

U.

S and annual growth rates w i l l be about twice

as

grea t a s t hose

expected i n the U. S

I n

ADEQUACY OF

SUPPLY

The demand pr oj ec ti on s of t he prev ious se ct io n

are

predicated on the assump-

t i on of no change i n re la t i ve p rice s.

If

however, petrole um re so ur ce s should

prove in ad eq ua te t o meet expecte d demand and i f prices should rise, t h e fu t u r e

demand pa tt er ns would dive rge from the pro jec ted le ve ls .

for e, t o balance projec ted demand aga in st the

resources which can be made avai lab le

during the per iod in quest ion .

It i s important , there-

I f th e domestic consumption of petroleum prod uct s should grow a t the indica ted

upper level of

3

per cent

a

year , t o t a l consumption would exceed 100 b i l l i o n b a r r e l s

during the next twenty years.

depend on th e ad min ist ra tio n of th e import co ntr ol program and th e amount of na tu ra l

gas l i qu id s produced, bu t i t s not unreasonable t o assume th at th e project ed demand

pat tern impl ies the product ion of 70 t o 8 b i l l i o n ba r r e l s of domest ic c rude o i l

dur ing th e next two decades . The domestic

ind ust ry had not produced qu ite t h i s much

o i l after t h e f i r s t c en tu ry of

i t s

exis tence . Is it l i k e l y t h a t i t can produce t h i s

huge qu ant i ty in the next twenty years o r are the pess imis ts, who

f e e l

t h i s

i s

an

impossible burden, co rr ec t?

volume, can

i t

be done a t compet i t ive pr ices?

import program, thes e ques tions must be answered in t he af fi rm at iv e i f the preceding

demand projection i s t o be accepted .

The resul t ing d r a f t on domestic resources would

Even

i f

i t i s phys ica lly poss ib l e t o p roduce t h i s

Given the assumption of an unchanged

-

One's answer t o these ques tion s depends on h i s estimat e of th e petroleum

conte nt of known petroleum r es er vo ir s and those t o be discov ered during the fo re ca st

period, on th e qua l i ty of these re se rv oi rs and on fut ure developments i n techniques

of production.

One highl y competent au th or it y has estimated t h a t th e domestic indus try can

develop at l e a s t 70 b i l l i o n b a r r e ls of re se rves i n t he nex t two decades from fields

which have a lr ea dy been found and from fi e l d s which w i l l be found on acr eag e which

i s al ready pa r t ia l l y explored and i s cur re n t ly under l ease ( )+) .

I see no reason

t o

chal lenge t h i s view.

productive sediments

are

f a r f rom explored .

l e s s t h n one f i f t h of t he

na t i on 's po te nt ia l l y productive sediments have been

explored with any degree of thoroughness(

6 .

I t must a l s o be k ept i n mind t ha t t he na t i on ' s po te n t i a l ly

Another au tho ri t y has es t imated th a t

I t would be most unwise t o w ri te off i n advance th es e unexplored sediments as

unproductive.

reconnaissance explor at ion . Furthermore, the se ns i t iv i t y of our ex is t i ng explor-

a t o r y t o o l s i s such that w e are f requent ly unable t o loca te va luable deposi t s by

s u r f a c e e f fo r t s alone.

Many po te nt ia ll y productive

areas

have been subj ec t t o

l i t t l e

i f any

I n p a r t i c u l a r , we are genera l ly unable t o l oca t e

strat-


6/8

A I

1

2 2 8

i g r aph i c t raps through such sur fa ce e f f o r t s and some of t he wo rld's l a r g e s t known

f i e l d s

have been found i n such tr ap s.

A s

we ex tend our e f fo r t s t o the l a rg e l y

unexplored areas,

as we ga ther addi t io na l in format ion through d r i l l in g i n

d 1

reas,

and as we co nt in ua ll y improve t h e accuracy of our g eophy sical equipment i t

i s

almost

inev i tab le t h a t we sh a l l d i scover addi t io ndl l a rg e volumes of o i l .

t h e r e i s e v e r y r ea so n t o b e li e v e t h a t w e

shall be ab le t o cont inue the lo ng evident

t r end of increas in g recovery of o i l in p lace .

Furthermore,

I

1

There i s thus n o convincing evidence that a phys ica l s ca rc i t y of r esources w i l l

in h i b i t pe troleum production i n the foreseeable fu t ure .

years of consumption. I n addition much more

o i l ,

whose existence can on l y be con-

jectured today,

w i l l

undoubtedly be found or made available through improved

recovery.

To

the e x ten t th a t such o i l becomes ava i l ab le , the period when physical

s c a r c i t y w i l l b eg in t o i n h i b i t consumption

w i l l

be deferred i n to the unascertainable

f u t u r e

O i l whose presence

i s

. alr ea dy known or whose ex ist en ce may be lo gi c a ll y infe rre d i s adequate f o r twenty

The

o i l

s ha le d e p o si t s i n t h e U.

S.

and the tar sands i n Canada provide f ur th er

assurance

that

resources w i l l no t be a l i m i t i n g f a c t o r o n p et ro le um u t i l i z a t i o n i n

the foreseeable futu re . Not onl y

are

these resources immense

i n

terms

of o i l i n

place,

but large volumes

of

o i l can probably be produced

from them profitably a t

pr ic es which

are

near ly compet i tive wi th c rude o i l .

Resources outside the U. S. are even more p le n t i fu l r e l at iv e t o demand than i n

t he

U.

S. Thus t he r e i s l e s s l ike l ihoo d of shor tage abroad than i n the

U. S.

Furthermore, th e disc ussi on of U. S. resource adequacy assumed continuation of

import

r egu l a t i ons

s imilar

t o t ho se

i n

e f f e c t t oday .

If

f o r

som

reason

oil

should

not be found i n ant ic ipa ted volumes i n t h i s nat ion, impor t control s could be relaxed.

T o t a l f r ee world resources are undoubtedly qui te adequate t o meet

a l

an t i c i pa t ed

demands over the foreseeable future.

Although resources i n t o t a l may not serve t o l i m i t u t i l i z a t i o n

it

i s poss ible

t h a t exp l o i t a t i on of i nc r eas i ng l y i n f e r i o r r e sou rces i n ce r t a i n areas such

as

the

U.

S.

cou ld l ead t o

rising

co st s which would, i n turn, i n h i b i t demand i n those areas.

I n t h e U. S., for example, th er e has been a c l e a r l y d i s ce r n i b l e pa t t e r n of

d r i l l i n g t o gr ea ter depth and moving toward

less

acc ess ib le depos i ts - -notably those

under the Gulf of Mexico and t h e West Coast offshore.

t h a t

i nc r ea s i ng cos t s

of

product ion

m i g h t

soon

l e a d

t o hig her p r ic e s which would

be a l i m i t i n g f a c t o r on u t i l i z a t i o n even i f ph ysi ca l presence of resourc es were not

an appl icab le cons t ra in t .

Thus, it might be presumed

Although the hypothesis of

i nc r eas i ng un i t cos t s r e s u l t i ng from dep l e t i on of

the more economical resources appears reasonable on the surface,

an important

rec ent stud y by Resources for th e Future ca s t s s e r ious doubt on i t s v a l i d i t y ( 2 ) .

Improved technology i n exp lor ati on and production have, according t o t h i s s tudy,

more than o f f s e t those fa c t o r s which otherwise would have l e d t o r i s i n g c o st s .

There i s no evidence of a r e v e r s a l i n t h i s t re nd

as

of to da y and

no

l og i ca l r ea son

t o po s i t one i n the foreseea ble fu tur e . According ly ,

i t

appears l i k e l y from what

we know today that petroleum pr i ce s w i l l n o t r i s e

r e l a t i v e t o all o th er p r i c e s i n

t h e

f o r eca s t pe ri od .

would probably come i n t o produc tion qu it e rap id ly

w e r e

crude o i l p r i c e s

t o

rise

appreciably.

Thus th e magnitude of our crude o i l resource b ase combined with

po te n t ia l competi tion from sh a le

o i l

and o th er fu e l s

w i l l

qu i t e p robab ly s er ve t o

keep c rude o i l p r i ce s f rom r i s i n g appr eci abl y i n t he U. S.

This conclus ion

i s

r ei nf or ce d by t he f a c t t h a t s ha le o i l

One po t en t i a l t h r ea t t o

oil

markets--and

a

f u r t he r s a f e t y f a c t o r f o r hydro-

carbon consumers--is th e pro duc tion of l i qu id fu e l s from coal. Research i s


7/8

. .

229

cu rr en tl y underway t o develop economical technique s f o r producing such f u e l s from

coal. To t he ex t en t t ha t t h i s r e s ea rch

i s

success fu l i t

w i l l ,

of course, reduce

th e demand f o r crude o i l .

coa l l iqu efa ct i on but, never theless ,

a t

presen t there

i s

no convincing evidence

t h a t c o a l

w i l l

disp lace any s ign i f i can t volume of pe troleum i n the l iq u id fue l s

market. Thi s view

i s

apparently f a i r l y widespread since v ery few companies believe

such research

i s

suf f i c ien t ly a t t r a c t iv e t o warrant the use of t h e i r own funds and

the bulk of the work being done i n th i s

area i s

under Fede ral cont ract . Coal

l i que f ac t i on

i s

an int er es t i ng speculat ion but , given the informat ion avai l able

today, i t does not appear t o pose a

real

t h r e a t t o o i l i n t h e f o re se ea bl e f u t u re .

Furthermore,

i f

adequate suppl ies of

all

f u e l s

w i l l

be forthcoming a t no s ignif icant

change i n

real

pr ice s over the foreseeable fu ture , then there

i s

l i t t l e ,

i f

any,

economic ju s t i f ic at io n f o r federaJly sponsored research i n t h i s area.

There have been some in te r e st i n g re ce nt developments i n

CONCLUSIONS

The demand f o r petroleum produ cts i n the

U.

S.

w i l l

probably grow

a t

a

r a t e

of

2

o r

3

p e r c e n t

a

year. Abroad, t he ann ual growth

rate w i l l

be perhaps twice

as

gr ea t

as

t he

rate

i n th e U. S

t he U. S. o r the f r ee world and th ere should be no s ign i f i can t sh i f t in r e la t iv e

f u e l p r i c e s i n t h e f o re s e ea b l e f u t u re .

Resources

w i l l

not-be

a

l im it in g f a c t o r e i t h e r i n

It is unl ik ely th at o i l demand w i l l be increased appreciably i n the

U.

S.

.

t hr ough r es ear ch i n u t i l i z a t i on .

Research on improved exploratory and productive

techniques

w i l l

probably have

a

gr ea te r influ ence on domestic o i l demand than

w i l l

research on o i l ut i l iz at io n. Research on new uses

i s

l i ke l y t o have

a

much

s t ronger in fluence on fore ign u t i l i za t io n ,

however, than

i s

the

case

within the

U.

S.

growth rate of

o i l

demand i n t he U. S.

so

much as i t s composition.

The changes i n o i l ut i l iz a ti on which appear most probable

w i l l

not

a l t e r

the

Fina l ly ,

some

research

i s

being conducted today on the supposition

that

crude

o i l

i s

i n l imi ted supply and hence th a t ref ined product pr ic es are l i ke l y t o

rise

i n t he near fut ure re la t i ve t o pr ic es of competing fu el s . Those undertaking

research on these grounds are l ik el y t o be disappointed

j us t a s they have been in

t he pas t .

Such research may represent an int er es ti ng speculation, but t he re

i s n o

overwhelming na ti on al urgency o r prof it incen t ive t o deve lop sub s t i tu tes f o r crude

o i l and i t s products.


8/8

2 3

L I l E m

CITED

Ann Arbor (Mich.) News, May 1920.

Coal and O i l Reserve Figures,

I

Pa per pr ese nte d t o Michigan Academy of

Quoted by Kenneth K. Landes, "Fantastic

Science, Arts, and Le tt er s , March 23, 1962.

Barnett, Harold J. and Morse, Chandler,

"S ca rc it y and Growth," p.

192,

The

Johns Hopkins

Press,

Baltimore, 1963.

Clark,

James

A.,

"The

Chronological Histor y

of

the Petroleum and Natural

Gas Industries," p . v., Clark Book Co., Houston, 1963

Davis, Morgan

J.

"DOmestic Petroleum Exp lor ati on, " Paper pres ente d t o the

American Asso ciati on of Petroleum Geo logis ts, Dallas March

17

1959.

Day, D a v i d T., "Papers on the Conservation of Mineral Resources, pp

46-7

U.S.G.S. Bulletin

394,

Government P r in t in g Of fic e, \.lashington, 1909.

Zapp, A. D., "Future Petroleum Producing Capacity of th e United Sta tes ,"

Washington, 1962.

p. II-23, Geological Survey B ul le t in ll42-H, Government P ri nt in g Offi ce, I

_

utilization of petroleum

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