The oil and gas industry is today a multi-billion dollar industry, but where, when and how did it begin? Valuechain special edition explores the history of oil and gas and delves into how the industry evolved in Nigeria.
Energy has been a key enabler of living standards even before the oil and gas was discovered centuries ago.
Humans burned wood for warmth and cooking to survive in the agrarian era. In addition to use as a building material, wood remained the chief global fuel for centuries.
The invention of the first modern steam engine, at the beginning of the 18th century, heralded the transformation from an agrarian to an industrial economy.
Steam engines could be powered by either wood or coal, but coal quickly became the preferred fuel and it enabled massive growth in the scale of industrialization.
A half-ton of coal produced four times as much energy as the same amount of wood and was cheaper to produce and, despite its bulk, easier to distribute.
Coal-fired steam locomotives dramatically reduced the time and cost of inland transportation, while steamships traversed oceans. Machines powered by coal enabled breakthroughs in productivity while reducing physical toil.
With the dawn of the 20th century, environmental concerns and new technologies led another energy source shift from coal to oil.
When Was Oil Discovered?
Oil was first found in pits and river banks in Greece and the surrounding areas over 4,000 years ago, according to early historians. However, the first documented oil wells in existence were developed in China, circa 347 AD and transported in pipelines made from bamboo.
However, Colonel Drake’s heralded discovery of oil in Pennsylvania in 1859 and the Spindletop discovery in Texas in 1901 set the stage for the new oil economy.
Edwin Drake is credited with drilling the first crude oil well in the U.S. in 1859 using cable tools.
Who were the first super-majors?
The late 18th century and the early 19th century marked the creation of major oil companies that still dominate the oil and gas industry today.
The biggest turning point in the history of oil was when John D. Rockefeller formed the Standard Oil Company in 1865. This would eventually cement his legacy as the industry’s first “baron.”
By 1879, Standard Oil controlled not only 90% of America’s refining capacity, but also its pipelines and gathering systems. By the end of the 19th century, Standard Oil’s dominance had grown to include exploration, production, and marketing.
Today ExxonMobil is the successor company to Standard Oil. If Standard Oil still operated as a single entity today it would quite effortlessly be the largest company in the world and be worth well in hi of US$1 trillion.
While Rockefeller was building his U.S. empire, the Nobel and Rothschild families were competing for control of production and refining of Russia’s oil riches. In search of a global transportation network to market their kerosene, the Rothschilds commissioned the first oil tankers from a British trader, Marcus Samuel. The first of these tankers was named the Murex, after a type of seashell, and became the flagship of Shell Transport and Trading, which Samuel formed in 1897.
Royal Dutch Petroleum got its start in the Dutch East Indies in the late 1800s, and by 1892 had integrated production, pipelining, and refining operations. In 1907, Royal Dutch and Shell Transport and Trading agreed to form the Royal Dutch Shell Group.
Also in 1907, the discovery of oil in Iran by a British former gold miner and a Middle Eastern shah led to the incorporation of the Anglo-Persian Oil Company. The British government purchased 51% of the company in 1914 to ensure sufficient oil for the Royal Navy in the years leading up to World War I. The company became British Petroleum BP in 1954.
Today, these three companies—ExxonMobil, Shell, and BP—are considered the original “super majors.”
The Seven Sisters
Beginning with World War I, oil became a strategic energy source and a tremendous geopolitical prize. In the 1930s, Gulf Oil, BP, Texaco, and Chevron were involved in concessions that made major discoveries in Kuwait, Saudi Arabia, and Libya.
Based on those discoveries, a cartel of seven companies was formed that controlled the world’s oil and gas business for much of the twentieth century. Known as the Seven Sisters, they included: Exxon (originally Standard Oil), Royal Dutch/Shell, BP, Mobil, Texaco, Gulf, and Chevron.
OPEC & Modern Era
In the late 20th century, changes in the oil market moved influence from generally oil-consuming areas such as the US and Europe to oil-producing countries.
In 1960 the US government led by President Eisenhower decided that the cheap oil entering the country from places such as the Middle East and Venezuela was not only hurting domestic producers, but also that dependence on foreign oil was a threat to national security.
To protect the country’s interests, Eisenhower placed an import tax on oil coming from Venezuela and the Middle East. The import tax resulted in the domestic price of US oil being artificially high and allowed US producers to make huge profits at the expense of Venezuela and the Middle East oil exporters.
In response to the import tax, the energy ministers from Saudi Arabia and Venezuela invited their counterparts from Iraq, Iran, Kuwait to a meeting held in Baghdad between September 10-14 to explore ways in which petroleum-producing nations could forge stronger links to protect their interests. It was at the Baghdad Conference that Organization of the Petroleum Exporting Countries (OPEC) was born. The governments of Venezuela, Saudi Arabia, Kuwait, Iraq, and Iran founded OPEC for the purpose of negotiating on matters of oil production, oil prices, and future concession rights.
OPEC had little impact during its first decade of existence. The tide turned in the early 1970s with the confluence of rising energy demand, and the fourth Arab-Israeli war.
Today, members of OPEC are: Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates, and Venezuela.