CHAPTER XIV

PETROLEUM IN THE FUTURE

In these chapters an effort has been made to place before the reader the story of the development of petroleum from a negligible and unappreciated product to its present basic and essential position in the world’s industrial and economic structure. Having attempted to portray the part it plays in the arts of war and peace, and its intimate relation to civilization as now organized, it is fitting that something should be said as to the future of petroleum.

To those who have read the preceding chapters--particularly those relating to shipping and all other classes of transportation--it will be clear that this constitutes an international as well as a national problem. The course of events in connection with the world industry may even be said to have a paradoxical aspect. American petroleum became an international institution when, shortly after the Pennsylvania discoveries, the eagerness of other nations to secure it was evinced. The increase of production was so rapid that for years the supply far exceeded the domestic demand, and made the creation of foreign markets necessary to the American oil interests. These foreign markets have contributed materially to American national wealth and are now an important factor in the country’s favourable trade balance; exports of petroleum products from the United States for the year 1919 representing a value of $343,776,385, and ranking fourth in order of importance of the country’s exports.

Our oil companies have been international traders for several decades, but their operations have been entirely based on private initiative and have rarely benefitted by official coöperation. The phenomenal growth of inventions and manufactures pivoting on the products of petroleum, which has transpired during the twentieth century, has, however, entirely reversed the situation that existed in the year 1900. Though the United States provides almost seventy per cent. of the world’s production from wells on her own soil, she is to-day actually an importer of crude oil to meet the needs of the domestic market, combined with those of the foreign market for the manufactured products of petroleum, which yield vast revenues to American wage-earners engaged in their creation.

To the American people, who use six times as much petroleum per capita as the citizens of any other country, and who own ninety per cent. of the motor vehicles in operation in the world to-day, the question of future supplies is vital. In the face of an ever-increasing demand for petroleum and its products--through the many channels that have been described in this book--the ratio of production to consumption has become so altered that it is apparent that the United States must in a steadily expanding degree look to other lands for its future requirements. Statisticians and scientists differ as to how long the stores of petroleum still lying untapped in our own soil may last, but are agreed that at the present rate of consumption the American fields will have been practically exhausted before the dawn of another century and that adequate foreign reserves to supplement them must be made available by American enterprise. Petroleum is therefore a problem about which the man on the street and not merely the oil merchant must perforce think internationally. The people of other countries are to-day wide awake to the necessity of securing petroleum reserves for themselves in regions of potential oil-bearing character; and in some instances they have shown themselves very active.

[Illustration: Steam stills at a modern refinery]

[Illustration: Storage tank at Cushing, Oklahoma, struck by lightning--not an infrequent occurrence. 55,000 barrels of crude oil being consumed]

In an exceedingly able paper presented by Mr. David White, Chief of the United States Geological Survey, to the Society of Automotive Engineers in February, 1919, that authority drew attention to “the widening angle between the flattening curve of production and the rising curve of consumption,” and announced that after a most exhaustive survey of American oil potentialities, in which many experts coöperated, the conclusions had been reached that the available oil in the ground at the end of 1918 approximated 6,740,000,000 barrels. The total production of crude from the United States wells from 1858 to the end of 1918 was approximately 4,598,000,000 barrels, more than two-thirds as much as the total remaining in the ground according to the estimates of the Mineral Resources Division of the Geological Survey. To understand fully the significance of these figures it must be realized that the rate of production has enormously increased during the past decade. Mr. White’s figures placed the oil produced from United States wells in 1918 at 345,500,000 barrels. Production, if continued on like scale annually, would exhaust the estimated supply in America in less than twenty years. Moreover, despite its vast extent, the curve of actual production in that year fell so far short of the requirements of domestic consumption that the amount of oil in storage was reduced to the extent of 27,000,000 barrels, and it was necessary to supplement the home supply with a net importation of 31,000,000 barrels, chiefly from Mexico. The year 1918 was a war year but in 1919, despite peace, production in the United States rose to 377,000,000 barrels. Thus an ever-increasing demand--especially for gasoline--is producing a pressure on crude supplies greater than in war time.

It does not follow that all the estimated available crude reserves in American territory can be reached in even the near future. American oil wells will undoubtedly be producing at least seventy-five years hence, for the very good reason that all the hidden pools cannot be discovered forthwith or immediately made productive, even when located. But the condition the American nation must face in connection with its own wells is the probability of a gradual decline after the peak of production has been reached, an event that may transpire this year or next, or may be delayed for a decade.

Mr. White’s paper, which had the effect of enlightening many as to the changing phases of the oil industry, also emphasized the possibilities of the development of shale oil, a potential resource which might prove a suitable substitute. But since this product is still in the experimental stage, and since it has never been claimed for it that it could develop the manifold richness and varied utility of crude petroleum, it is not necessary to discuss its possibilities in a book devoted to the latter product. Whatever the future of shale oil, it cannot alter the plain circumstance that if it is to be maintained at its present level for any extended period, the American oil industry must look for reserves abroad.

A glance at the world’s production for the year 1917 proves that the United States has more at stake in this matter than all the other nations combined. The production was distributed as follows:

United States 66.2 per cent. Russia 13.6 ” ” Mexico 10.9 ” ” Dutch East Indies 2.6 ” ” Other countries 6.7 ” ”

Since then the proportion has been altered, Russia dropping to third place and Mexico rising to second, the relation of the United States to total production remaining probably unchanged.

The predominating importance of the petroleum industry to the American people was indicated in a speech delivered by Sir Auckland Geddes, British Ambassador to the United States, at New York in May of the present year (1920) when he said that this country controlled 82 per cent of the present visible world supply.

This estimate of course embraces not only domestic fields but foreign fields developed by American private enterprise. It demonstrated completely the claim of the United States to leadership in dealing with so vital an international question as the world’s petroleum supply--not only as the chief consumers but to all intents and purposes, the founders of the industry.

As has been set forth elsewhere in this book, the importance of petroleum to countries of maritime aspirations, either naval or commercial, is inestimable, and it is on that phase of the question that the minds of British statesmen have, within the past five years, become concentrated. So far as Great Britain is concerned, this is a new development, born of the great war. Sir John Cowans, G. C. B., Quartermaster General of the British Army throughout the decisive period of the conflict, has said “Great Britain was, when the war broke out, between twenty and thirty years behind the American and Dutch nations in its knowledge of oil.” He and other eminent Englishmen have emphasized the difficulty of making up that leeway, one obstacle being that at least eight or ten years was required for the education of an oil expert. In seeking a trained personnel to handle the problem, Great Britain, like most other countries, must for the time being at any rate look to the United States. But though the awakening of the British to the importance of petroleum was belated, it is real. Not only their Admiralty, but their Army authorities are insisting on the importance of adequate reserves. Controlling as they do the destinies of a vast maritime Empire, the growing dominance of oil-burning ships, and the necessity of providing for their fuelling, has become an ever-present thought in the minds of British public men at a time when the American Government, relying perhaps on a factitious belief in the inexhaustibility of our native oil resources, remained indifferent. There is no reason to doubt that the aim of Great Britain is her own national and Imperial security, rather than aggression. The British Ambassador, in the address referred to, gave the most absolute assurance on that point, but the fact is patent that, through governmental coöperation, British oil men have secured distinctive advantages in foreign fields, advantages which, with similar coöperation, might have been available to American oil interests--whose leaders may be accepted as equal to foreign business men in foresight, courage and enterprise.

The relation of the foreign petroleum situation to the re-born American ambition to possess a merchant marine that shall carry American wares in American ships must be clear to every reader. Just as Great Britain owes her far-famed sea power to her policy of maintaining coaling stations at the best available locations on the seven seas, she now aims to preserve that prestige by oil bunkering stations advantageously placed. The situation might conceivably arise whereby (despite our vast home production), the American merchant marine when at sea would find itself dependent on the bunkering stations of foreign powers. No one will question the right of Great Britain to protect and maintain her trade routes by reserves of the new maritime fuel, and her Government deserves praise rather than censure for backing British enterprise in measures directed to that end. The point to be borne in mind is that American oil men, the real creators of the industry, have accomplished what they have in the foreign field virtually _without_ governmental support or co-operation. It is hardly overstating the facts to add that they have been harassed and interfered with in their efforts to maintain the future security of their industry and of their nation in this matter of petroleum reserves. Thus, there has lately arisen a demand for constructive legislation which will permit governmental coöperation and diplomatic action that will place American oil interests on something like an equal footing with those of Britain and other countries in securing a necessary augmentation of the home supply. Disinterested public men who have made a study of the problem are of the opinion that in the national interest, and entirely without reference to the advantages that might or might not accrue to this or that individual, American petroleum companies should be encouraged by all the power and influence their Government can exert to acquire foreign sources of supply wherever available.

A glimpse at the facts with regard to the oil bunkering situation shows how closely petroleum and national aspiration are allied. The estimated requirements for the U. S. Navy for the fiscal year of 1919–20 were about six million barrels. In the undesired event of war this estimate would be vastly increased. With regard to the American merchant marine, it is worth noting that about one half of the vessels constructed in 1919, representing approximately three million deadweight tons, were of oil-burning design. On the Pacific Ocean, where satisfactory grades of steam coal are not so generally available as on the Atlantic, oil has come into general use as fuel. American companies furnish most of the fuel oil which is supplied at ports outside the United States and the United Kingdom, the total number of such foreign bunker installations, owned by American companies, being 88 in a total of 114. But the possession of such foreign facilities for American shipping will prove of little value unless Americans have sufficient oil, from either home or foreign fields, to furnish adequate supplies at competitive prices. With an increasing shortage of oil for domestic consumption, bunker fuel oil supplies can only be maintained through the control of production in advantageously located foreign fields.

Among the rivals to American enterprise which have arisen, the most important is the Royal Dutch Shell combination, which, though of Holland registration, has been a partner with the British Government in petroleum enterprises, and is to-day the leading factor in the Far East and in Australia in this vital matter of bunker supply. It is acquiring potential petroleum fields in Mexico, South America and the United States itself. The British Ambassador’s statements tend to allay fears that there is any deliberate attempt to discriminate against the United States in any part of the world; yet it is a fact that this country is likely to be seriously handicapped in its efforts to obtain its share of the world’s carrying trade if its ships abroad are eventually compelled to rely on foreign companies for fuel.

In order that the reader may clearly visualize the situation with regard to the prospects of augmenting home supplies, it is necessary to speak once more of certain foreign fields mentioned in the geographical survey that constituted an earlier chapter. The nearest field and the one to which Americans must naturally look, because for an indefinite period it will continue to produce oil far in excess of the needs of its own people, is Mexico. Unbacked by governmental coöperation in any form, American private enterprise has done much in an endeavour to develop permanent supplies in that country, and has paid its way generously. Fortunately, the internecine warfare which has paralyzed the maintenance of law and order in many parts of that country has been less serious in the oil regions than in some other provinces, but precious lives have been lost, and considerable property destroyed without redress. Still more serious is the fact that in the face of the activities of foreign powers anxious to secure American holdings of great potential value the American Government has been inert in a field where, for geographical reasons alone, it has a claim to first consideration. The patriotism of an American citizen, Mr. E. L. Doheny, controlling owner of the Mexican Petroleum Company, has been more potent than that of the public authorities in safeguarding the future of our interests in that country. Mr. Doheny received a handsome offer from the Royal Dutch Shell Company for his interests; but he refused it on the ground that for the future welfare of the United States, his properties should remain under an American control. Undeniably the lot of the American capitalist in the Mexican oil fields has been rendered so difficult that any man might be tempted to sell to the first bidder. While a recent Mexican administration proposed to “nationalize” petroleum there have been many attacks in other forms upon the rights of American oil companies, but so far these companies have escaped absolute confiscation of their properties. Here is obviously a field in which American interests must have the same sort of diplomatic assistance which Great Britain extends to its nationals if the future is to be secure.

The next closest field to which Americans must naturally look is the Caribbean Region--the Central American and West Indian Republics, Colombia and Venezuela. Their importance lies almost wholly in their future possibilities, but they undoubtedly have oil potentialities of considerable value. Therefore, the control of concessions is of very grave importance in view of the need for acquiring extra territorial oil reserves. Fortunately, Americans are here first in the field, though enterprise has not gone very far beyond the securing of concessions. Such privileges obtained in Colombia, Panama, Nicaragua, Honduras, and Costa Rica are held by various American syndicates. A Venezuelan concession originally American-owned is at this writing in British hands, and British capital is also interested in Honduras oil development. It is obvious that the sympathetic coöperation of the authorities at Washington, is necessary in the Caribbean area if the United States is to render secure an ascendancy there.

In South America the rivals of the United States interests are also active but have not outstripped them, and with a progressive policy on the part of their government Americans may hopefully look for reserve supplies from that vast continent, though their development, owing to the mechanical and speculative conditions of modern oil production, cannot be rapid. Argentina, which already has two producing fields, operates them as state enterprises and has as yet granted no foreign concessions. Peru is already a large producer of crude petroleum and has opened her gates to American oil interests, but here, as elsewhere, the need of diplomatic backing is present. Generally speaking, though the real potentialities of South America are unknown, it is a territory in which the United States, if it is to safeguard its future interests, cannot afford to remain indifferent.

The world-wide British Empire includes many countries containing oil potentialities, though the total production is inconsiderable in comparison with that of a single American state like California or Texas. According to the statistics put forth by Sir Auckland Geddes, production under the British flag in 1919 represented but five per cent. of the world’s petroleum output. But there is no certainty as to what the future may bring forth and the general policy in all parts of the Empire seems to be to keep oil development in the hands of British nationals and to restrict operations by foreign capital. In the important oil territory at Burma these restrictions are absolute; though in self-governing Dominions, like Canada, they do not obtain. In all Crown colonies the British Government retains the right of pre-emption at need. Quite as severe are the laws covering oil deposits or potential oil deposits in French colonial possessions. The Dutch East Indies, a comparatively promising field, are closed to all but subjects of Holland, or to companies which have a majority of Dutch subjects on their directorate; under the latter provision British capital dominates the oil production of Borneo.

Outside the Western hemisphere the only fields where the United States may look for reserves, (which, as has been explained, are of especial importance in connection with bunkering stations,) lie in what are respectively known as the Near East and the Far East. China has undoubtedly oil potentialities, though data on the subject is vague, and it is presumed that the Chinese government, which holds a monopoly of them, will one day admit foreigners into partnership in the working of them under some sort of special contract. Japan already has a somewhat similar arrangement. In demonstrated possibilities the Near East is of much more promise. The importance of the Roumanian field has been spoken of elsewhere and prior to the war American interests were established there. Later in its reconstruction policies Roumania is contemplating changes in its petroleum program not formulated at this writing. It is reported that French and British interests, supported by their respective governments, are making every effort to secure important holdings in the Galician oil fields, formerly situated in Austria, but now coming within the boundaries of the new Republic of Poland. The future administration of the Russian fields is still problematical. At the moment they are occupied by the Bolsheviki. The Persian field, by an arrangement dating back to 1901, is operated by British interests. The potential fields of Mesopotamia and Palestine are under control of Britain by mandate of the League of Nations; but that country expressly disclaims any special authority to exclude other nations from participation in petroleum development in these territories. It must be plain to the most inexperienced reader that in the case of Asiatic and East-European fields, however, American oil interests are powerless to achieve influence and obtain due recognition without the diplomatic assistance and coöperation of their home government. It is necessary, if they are to secure equal rights under international law that will serve not merely as a check upon any possible unfair discrimination, but enable them to secure workable international arrangements. These should redound to the interest of all countries for the United States is the motherland of the science of oil production. The prestige of this country is such that in many cases a mere diplomatic protest would be sufficient to rectify many disabilities under which the American oil company seeking foreign reserves at present labours, without creating serious disputes or international entanglements. In the words of Thomas A. O’Donnell, President of the American Petroleum Institute, with which most of the leading petroleum producing and manufacturing companies of the country are associated:

The American oil industry asks only the support of the nation in giving it an equal status, putting it upon an equal footing with the nationals of other countries in the development of the world’s petroleum resources--and it asks this in the interest of the nation.

With the Government at their back to secure for them fair play, American oil interests could face the future with confidence, if not with certainty; lacking such coöperation, the future is fraught with hazard to an industry that stands as a monument to American organizing genius.

THE END

THE COUNTRY LIFE PRESS, GARDEN CITY, NEW YORK

Transcriber’s Note

Some inconsistencies in spelling, hyphenation, and punctuation have been retained.

This file uses _underscores_ to indicate italic text. Small capitals changed to all capitals.

p. xv: changed “Rumania” to “Roumania” (Moreni Field, Roumania)

p. 50: changed “Egpyt” to “Egypt” (Egypt has also a future)

p. 69: changed “fish-tale” to “fish-tail” (the delicate fish-tail bit)

p. 74: changed “rythmical” to “rhythmical” (the rhythmical “chug-chug”)

p. 83: changed “Samual” to “Samuel” (Samuel Van Syckel of Titusville)

On pp. 35, 37, and 57 appears “Edwin Laurencine Drake.” Modern sources differ in spelling (Laurentine). This name was left as originally printed.