EGEE 120
Oil: International Evolution

The Prize Chapter 27: Hydrocarbon Man


Consider the following questions:

  • How did oil contribute to the process of urbanization?
  • What were some of the results of the Interstate Highway Bill?

    The Post WWII Explosion in Oil Consumption

    The trend in the rapid increase in consumption of oil continued in a straight line after WWII. For example, both world and US energy consumption tripled between 1948/49 and 1972. In the case of the US, it went from 5.8 million barrels per day in 1948 to 26.4 million barrels per day in 1972. Over the same period, demand for oil in Western Europe increased 15 times from 970,000 to 14.1 million barrels per day. Consumption, in fact, increased 137 times in Japan from 32,000 to 4.4 million barrels per day. The post WWII oil use explosion was due to a number of factors including economic and income growth, increased standard of living, huge increases in automobiles, increased use of plastics, decreasing oil prices, and exporting countries demanding more and more production to increase their revenue. Thus, production, reserves, and consumption all pointed in one direction-UP and the saying “bigger is better” engulfed the consumer and oil industry.

    Top Petroleum Consuming Countries (2008), in order: U.S, China, Russia, India Described in text.
    Top Petroleum Consuming Countries, 1960-2008.
    Credit: Energy Information Administration

    “King” Coal Yields the Throne to Oil

    “King” coal had been the prevalent source of energy prior to WWII. But after that, oil quickly began to replace it. Oil was abundant, lower cost, and more environmentally attractive. Coal, on the other hand, had labor problems with John L. Lewis , the combative president of United Mine Workers, calling for frequent strikes leading a Venezuelan oil man to say, “We ought to take up a public subscription throughout Venezuela to erect a statue of John L. Lewis in Caracas − to honor him as one of the great benefactors and heroes to the Venezuelan oil industry.”

    Most of Europe began to move towards oil when there was a shortage of coal after WWII in 1947. Oil, which was better for the environment, played a prominent role in Europe. Coal had contributed to the polluting “Killer Fogs” of London. Some European countries, after the Suez incident, committed to even nuclear energy to reduce their dependence on oil. To get an appreciation of the extent of the switch from coal to oil, in 1955, coal accounted for 75% and oil 23 % of total Western Europe energy, but by 1972, the numbers were 22 % coal and 60% oil.

    Japan also made the switch but was slower in initiating the conversion. However, its rate of conversion was much faster after the initiation. In 1950, coal accounted for 50% and oil 7% of Japan’s total energy, but by the end of the 1960s, oil provided 70%. A major force behind this was Japan’s automobile revolution that led to the production of 4.1 million cars in 1968 compared to the 69,000 in 1955, with 85% of these cars being used domestically and only 15% exported. There is no doubt that the boom in the economic growth of most of the developed countries in the 1950s and 1960s was powered by cheap oil. Worldwide, coal had provided two-thirds of the world energy in 1949. However, by 1971, there had been a complete reversal, with oil and natural gas providing two-thirds of the total energy.

    A number of smaller companies became bigger with the oil demand and conversion. Among them was Continental Oil Company, Conoco, that had been formed in 1929 as a merger between Rocky Mountain marketing company and an Oklahoma crude producing and refining company. By 1960, Conoco had established its own downstream refining and distribution in Western Europe and Britain, and by 1964, it was producing more overseas than in the US.

    The Lifestyle Change of Consumers

    The American gasoline consumer was the clear victor in the 1950s and 1960s with the excess oil, competition, and low prices. In order to draw consumers, gas stations even offered tire and oil checks, washed car windows, and handed out free goodies such as drinking glasses. The major oil companies introduced supercharged engine performance additives with appealing names like Power-X, Shell’s Tricresyl Phosphate (TCP) additive, etc. Regular, premium, and high octane premium gas were introduced for more choices for the consumer.

    The abundance of oil led to the use of more automobiles which also led to sudden changes in lifestyle including suburbanization which had began in the 1920s but had been halted by the Depression & WWII. The first true suburb evolved in 1946 at Levittown with modestly priced houses between $7,990 and $9,500 outside New York City. It had 17,400 homes with a population of 82,000. William Levitt builders/developers is known to have said: “No man who owns his own house and lot can be a Communist. He has too much to do.” Between 1950 - 1976, suburb population grew by 85 million, while the central cities grew by only 10 million. Cars were certainly an absolute necessity for suburbanization. Other lifestyle changes that evolved included shopping centers, motels, drive-in restaurants, churches, movie theaters, etc. For example, the first all-enclosed climate controlled mall was built in 1956 near Minneapolis, and the first Holiday Inn to enable travelers to rest was in 1952 in Memphis. Although the first drive-in restaurant, “Royce Hailey’s Pig Stand,” was in Dallas in 1921, it was not until 1948 that two brothers McDonald opened a “walk-up burger” stand in San Bernardino, CA, and later teamed up in 1954 with Ray Kroc, milkshake salesman, to open up the first “McDonald’s,” a fast food restaurant outside Chicago. Drive-in movie theaters, restaurants, and churches were all very popular. Driving permits and licenses became the “major rites of passage for teenagers” and having one’s own “wheels” became a symbol of maturity and independence. Cars became central to dating and courtship, as indicated by a 1960s survey that showed 40% of all marriages being proposed in a car.

    Highways played a tremendous part in the new way of life. The Los Angeles freeways were being built by 1947 with no environmental impact studies, and in 1949, construction on the New Jersey Turnpike likewise began. Once completed, Gov. Driscoll said, “Motorists can now see the beauty of the real New Jersey.” In 1956, President Dwight Eisenhower signed the Interstate Highway Bill providing for a highway system of 42,500 miles with the Feds paying 90% of the cost from gasoline taxes. Eisenhower advocated for the interstate highway system on the grounds on safety, congestion, waste and inefficiency, and civil defense. With the highway system, if “bigger was better” then so was “longer and wider.”

    Colored Picture of a U.S Highway
    Typical U.S. Highway.
    Credit: Wikimedia Commons

    In 1962, the number one TV show was the Beverly Hillbillies, with a theme song:

    Come and listen to a story ‘bout a man named Jed, A poor mountaineer, barely kept his family fed, Then one day he was shooting at some food, When up from the ground come a ‘bub-a-lin’ crude, − oil that is, black gold, Texas tea. (The Ballad of Jed Clampett)

    While there was celebration of oil, the question was, how secure was it?

    Crisis Again: The 6-day War (3rd Arab-Israeli War)

    Showing that the Gaza Strip was held by Israel afte the 6 day war. Described in text.
    Area held by Israel after the 6 Day War.
    Credit: Wikimedia Commons

    In May 1967, Nasser ordered all the UN observers in Egypt after the Suez incidence out of the country, and on June 4th 1967, Iraq, Jordan, and Egypt signed a military agreement. Egypt then moved its forces into the Sinai. On June 5th, Israel not taking any chances with the moves, responded and went on the offensive, caught the Arab forces off guard & destroyed their entire air force and conquered the Sinai, West Bank, Jerusalem, and Golan Heights by June 8.

    The Arabs (Saudi, Arabia, Kuwait, Iraq, Libya, and Algeria) unleashed the oil weapon by imposing an embargo banning oil shipments to all countries friendly to Israel (mainly US and Britain and, to a lesser extent, Germany). Strikes in Saudi and Kuwait also interrupted production. The embargo and strikes reduced Arab oil production by 60%, with Saudi Arabia and Libya virtually shut down. Also, the Suez Canal and the pipelines from Saudi and Iraq, as in 1956, were closed.

    The world oil situation became more threatening when civil war also broke out in Nigeria in June/July of 1967. However, with a little bit more work than during previous energy crises, the Organization for Economic Cooperation and Development (OECD) approved a relief plan that involved the deployment of supertankers. Under American and international coordination, petroleum from non-Arab countries were sent to embargoed countries, and Arab oil was sent to non-embargoed countries.

    Black and white photo of Ernst Friderick Schumacher
    Economist Ernst Friedrich Schumacher.
    Credit: Wikipedia

    The system of redistributing supplies by the international oil companies themselves where they were needed worked so well that the emergency joint operations weren’t even utilized. There was simply plenty of excess production capacity to overcome the oil weapon. Thus, it was clear by July that the embargo had failed, with the major losers being the Arab oil producing countries, and by September, the embargo on the US, Britain, and Germany had been lifted.

    The two lessons the US drew out of the embargo were the importance of diversifying sources of supply and of maintaining a flexible tanker fleet. The world wide surge after the six-day war, as expected, caused supplies to exceed, at least in the short term, demand, with no worry of availability.

    Now that the war had demonstrated the importance of security of supply, the hydrocarbon man took oil for granted again and embarked on his old lifestyle, knowing that oil was abundantly available and cheap. E.F. Schumacher, a German-born economist, coal advocate, and member of the British Coal Board, speaking out against the dangers of oil depletion and reliance on the politically unstable Middle East and not on the environmental effects of coal combustion declared that “the twilight of the fuel gods will be upon us in the not very distant future.” He was clearly the Cassandra of the Coal Board.