The Grantville Gazette - Volume 4 Part 36

Storage Once you have productive oil wells, you have to deal with the problems of oil storage, transportation, and refining. Oil was initially stored in artificial lakes. Since the oil was rapidly lost by evaporation, and was also very vulnerable to destruction by fire, better storage means were adopted. By 1866, wooden tanks holding 10,000 barrels of oil were in use. The wooden tanks, in turn, were replaced by iron tanks, which were more fireproof than the wooden ones.

Overland Transportation

Shipping costs can be very significant. In the 1860s, Odessa bought Romanian oil, rather than the petroleum of Baku, because the "transport difficulties" were such that the cost of Baku oil rose one hundredfold en route. (HBS 5) (I am not sure why this was the case, since Baku oil could be shipped up the Volga, and then down the Don to the Black Sea. The Romanian oil came down the Danube and then

across the Black Sea.) During the American Civil War, Pennsylvania crude was placed in barrels, and the barrels were delivered to their destination by teamsters. Usually, the destination was just an exchange point where the barrels were loaded onto barges (see below) or rail cars.

Initially, the railroad carried oil by placing the barrels on flatbed cars. The first oil tank cars appeared in

1865.The first pipeline laid for the purpose of carrying oil was constructed in 1862. Pipelines can carry oil or gas more cheaply than can railroads, as the railroads learned to their dismay in the 1870s and 1880s. (The railroads of course still had plenty of business carrying supplies and workers to the oil fields.) So, can USE build pipelines? In 1633, Mike Stearns expressed the concern that Quentin Underwood wasn't sufficiently worried about transportation issues: "He's probably a.s.suming a pipeline will materialize out of nowhere. Made out of what, I wonder, and by who? A cast-iron industry that's just got up to cranking out potbellied stoves a few months ago?"

In 1632, the down-time engineers would have been familiar with the use of clay, wood or metal pipes to carry water. The Romans, of course, had made extensive use of lead pipe, and this had not been forgotten. In 1455, Dillenberg castle in Germany was supplied with water using a cast iron pipe.

By 1685, cast iron pipe sections, each one meter in length, were joined to form an 8,000 meter conduit carrying water from Picardy to Versailles. While this occurred after the Ring of Fire changed the course of history, I believe that this pipeline system was merely applying the earlier cast iron technology on a larger scale.

It is clear that if the iron can be spared and Sweden and Germany have plenty of iron ore, the USE can

build pipelines in northern Europe. (Once it becomes available, steel pipe is preferred.) It has been known since the 1860s that the joints of the pipe sections should be threaded and screwed together so that they don't leak as a result of the line pressure. (Welded joints ultimately replaced the screwed type.) I a.s.sume that we can either thread the pipes manually or build a machine to do this. If threading is not economical, then the alternative is some sort of f.l.a.n.g.e.

If the cast iron cannot be spared, wood pipes are worth considering. Sir Hugh Middleton constructed 400 miles of wooden water mains for London in 1609-13; these used hollow logs (Wilson, 17-18). Their disadvantage was that they had to be dug up and replaced every twenty years. By 1666 (the time of the Great Fire), some of the wood conduits had been replaced with lead pipe. However, London did not completely switch over to metal pipe until the next century.

Hollowed wooden logs (or bolted planks) were used even in the United States (in part because timber was readily available). The first water mains of Boston used bored logs. New Englanders cut the logs with mating "V" ends, and forced one section into the next with a mallet.

Ceramic pipeline is also a possibility. It was used by the ancient Babylonians around 4,000 BC, so we

are not talking about advanced technology here.

Oil can sometimes be moved by gravity feed, but it is more likely that it will need to be pumped. The early pumps were steam-powered, but later ones were driven by gas or oil-burning engines. Neither wood nor clay will withstand high pumping pressures, so the throughput of wood and clay conduits is limited relative to those made of copper, lead or iron.

Initially, the lines can be laid on the surface. However, the metal will expand in the summer and contract

in the winter, causing buckling. It therefore is desirable to bury the pipe under several feet of earth, but

digging the necessary trenches naturally increases the cost of construction.

In 1875, the 125 mile Big Benson line, crossing the Alleghenies, was built in nine months. The ten- and twenty-foot lengths of pipe were hauled 20 to 30 miles over primitive roads, screwed together, and buried. This makes me hopeful that USE will soon be able to build a pipeline to the refinery in Hannover, a distance of about 130 miles.

Water Transportation In the 1630s, it was cheaper to ship goods down rivers by barge than by road on wagons. Barrel-carrying barges were used in the early days of the Pennsylvania oil rush. However, they were effectively superseded by pipeline and rail transport.

But what if the oil needed to be shipped overseas? The simplest approach would be to stow oil barrels in the hold of merchant ships. Later, ships can be equipped with oil tanks; the first such vessel, the Charles, began operating in 1869. The first bulk tanker (oil stored in the hull) was built in 1886.

Oil Economics Private parties will prospect for oil only if there is a reasonable chance of making a profit. That is a function of the costs (of prospecting, leasing, drilling, completion and shipment) of oil production, the probability of success, and the price that the petroleum will command on the open market. The history of the oil industry in our own time line provides only limited guidance, but it is still our logical starting point. Since the industry is in a nascent state, I believe that it is appropriate to use pre-1940 cost data.

Oil Prospectors Geologists did not play a major role in oil prospecting until the early twentieth century. Down-timers can certainly search (and ask villagers about) oil signs. Thus, the cost of this crude form of prospecting is low; it is the cost of transportation, provisions, and salary for a small party of down-timers who are sent to a locale of interest. They will no doubt need an expense account for gratuities to pay to landowners or tenants in the area so that they aren't run off (or worse) for trespa.s.sing.

If a USE business venture wants to find anticlines, then it will need to hire (or train) up-timers or down-timers in the basic techniques of geology: identifying the common types of rocks; measuring the dip and strike of rock strata; making topographic and geological maps, etc. This is the sort of thing you learn to do in an introductory college geology course. The preferred equipment (geologists' hammer, chisels, a Brunton compa.s.s, a magnifying gla.s.s, etc.) are well within USE manufacturing capabilities. (A Brunton compa.s.s could be replaced, if need be, with an ordinary compa.s.s and an inclinometer with an inclination gauge and a bubble level. Da Vinci designed a scaleless inclinometer for airplane use in 1483-6.) Individuals trained in geology and surveying will doubtless command higher salaries, but the costs of a.s.sembling a geologically oriented prospecting party should not be exorbitant.

Leasing Costs a.s.suming that a likely site is identified, you want to obtain drilling rights over a large block of land. Otherwise, if you are successful, others may drill wells nearby, competing with you for the oil in the local reservoir.

In the United States of our own timeline, oil on private land is owned by the owner of that land, not by the government. While it is possible to buy the land, ordinarily the oil company just leases drilling rights. In "rank wildcat" territory (no producing wells nearby), it might pay a signage fee one dollar an acre. That is because the oil company is a.s.suming the initial risk and expense of drilling. However, the company has to drill for oil on the lessor's land within one year of signing the lease. If not, it must either give up the lease, or pay a "delay payment." These delays can't continue indefinitely; the lease usually expires in five years unless oil or gas is being produced.

If oil or gas is found, the lease automatically continues for as long as oil is produced, and the landowner is ent.i.tled to the one-eighth of all of the oil or gas produced on the land (most just take the cash equivalent). This is called the "royalty interest."

You want your leases to cover a large acreage, without any gaps where a compet.i.tor could drill later (and siphon off your oil). Don't be shy about this; if an oil field is, say, three miles long and two miles wide, that's six square miles or almost 4,000 acres. By the same token, that's almost $4,000 in signage fees, and perhaps $4,000 a year in delay payments. So once you lease the block, don't dawdle.

Outside the USA, oil rights are usually publicly owned, and it is necessary to negotiate a concession from the government. Since the Ring of Fire has transported Grantville back to the age of monarchy, it is likely that if you are exploring in "civilized" areas, you will need to acquire rights from the local lord, and perhaps from the ultimate ruler. In the wilderness, you may still need to negotiate with native tribes so they don't hara.s.s you. In either case, there is the risk that if your operations are highly profitable, they will be taken away from you by force.

Drilling Costs Drilling costs depend on the depth that you are drilling to, the rock formations that need to be penetrated, the type of drilling rig employed, and whether you are buying the equipment yourself or engaging the services of a drilling contractor.

In the early days of the 1632 oil industry, you are probably on your own. However, costs are likely to then be comparable to those of the late nineteenth century. In 1860, a spring pole well could be sunk to 200 feet at a cost of about $1,000. (Clark, Oil Century). In Appalachia, in 1886-88, a 2,000 foot well could be drilled and completed for a cost of about $3,000 using cable tools ($1.50 a foot)(Williamson vol. 1, 768). In Pennsylvania 95% of the wells of that period were shallower than 3000 feet.

As the industry matures, a petroleum entrepreneur will be able to engage the services of a drilling contractor (at least in northern Europe). The cost will then be heavily dependent on supply and demand. In the Burkburnett field (made famous by the Gable-Tracy movie Boomtown), a 2,000 barrel a day gusher was brought in on July 29, 1918, and three months later there were 200 completed wells on Burkburnett townsite. The cost of rotary drilling down to 1600-1900 feet went from $10,000-12,000 in 1918 to $30,000 in 1920, as drilling contractors and supplies became scarce. Nonetheless, the average non-boom cost in the early twentieth century was $3/foot drilled. (Olien 36).

Drilling costs do increase with depth (you need heavier pipe, heavier and taller rigs, etc.). Nonetheless, prior to 1940, it was safe to a.s.sume drilling costs averaging $10/foot down to 7000 feet. In fact, some drilling contractors just quoted this as a flat rate.

In proven or semi-proven areas, drilling costs can be reduced by taking advantage of the logs from the successful wells. As early as the 1860s, geologists identified the formations which "paid out" oil. In Pennsylvania, the most important formation was the "third sandstone," at 300-800 ft., and if this did not produce oil (you hit a "tight" spot), the well was abandoned.

Chance of Success Please note that if you are drilling in "rank wildcat territory" on the basis of detection of oil signs, your chance of striking oil is probably on the order of one in thirty. Even with knowledge of favorable geology (you are probing an anticline), your chance of a strike is only about 10%. (Anderson, 95-6).

It can be argued that if you are exploring a region on the basis of twentieth-century knowledge, that the chance of success is higher. And I would agree, if your twentieth-century sources specify the location of the "known" oil field with an accuracy of about one mile.

That isn't likely to be the case, so you need to budget with the expectation that some of your wells will be dry. If you are drilling in a known oil field, the chance of success is closer to 75% (you could still hit a region where the reservoir rock is impermeable).

Completion and Production Costs

Completing a productive well (putting in casing, constructing gathering lines and temporary storage,

dismantling the derrick and rig, setting up the pump, etc.) might add 50% to the cost of drilling it.

Once production begins, costs are minimal if you sell the oil "at the wellhead" (i.e., the customer pays for transportation). If the well has to be pumped, there will be lifting costs; figure five to twenty cents a barrel.

Your ability to recover your exploration and drilling costs is going to depend, in part, on the productivity of the well. The average well produces perhaps ten barrels a day. (Ball, 137).

Storage tanks give you the ability to wait out a temporary drop in crude oil prices.

The Price of Oil The impetus for the drilling of the 1859 Drake Oil Well in t.i.tusville, Pennsylvania was a report by Professor Benjamin Silliman, Jr., that "rock oil" could be refined, in place of whale oil, into kerosene for use as a lamp fuel. The Drake petroleum sold for about twenty dollars a barrel. A barrel, by the way, was later standardized as 42 gallons.

Thousands of miles away, Galician villagers hand-mined oil seepages, and sold their oil on the local market for a price of $140 a ton (likewise about twenty dollars a barrel) (HBS 3-4). Seepage oil was sold in Europe at least as early as 1480 (HBS 2), and I suspect that both supply and demand were constant until oil from drilled wells became readily available.

In America, as both demand and supply increased, the price stabilized to some degree. Overall, from 1880 to 1970, the average crude oil price was usually close to one dollar a barrel. (The "real" crude oil price, in 1991 dollars, was five to fifteen dollars a barrel during the same period.) It is difficult to predict what oil prices will be like in the 1632 universe. Unlike America in 1869, the USE has plenty of uses for petroleum. However, it is also able to exploit nearby natural gas and coal reserves, and petroleum will have to be priced compet.i.tively with these alternative fuel and organic chemical sources.

The Pipeline Business

The first successfully completed oil pipeline, two inches in diameter, built in 1865, carried 1,900 barrels a day a distance of six miles, and charged customers one dollar a barrel. I estimate that the cost of the pipeline was about $15,000-25,000 (based on Giddens, 142 et seq.). A turn of the century Gulf Coast six inch pipeline, delivering 7,000 barrels a day to the refinery, cost $5,400 to 6,500 per mile. (Williamson II, 87-8).

The Refinery Business If the oil field is far away from the USE, you will probably want to build a refinery nearby. You then export the refined products rather than the crude oil; this is more cost-effective. The cost of building a refinery depends very much on its processing capacity and sophistication. At the low end, in 1860, a simple still, with a five barrel a day capacity, cost $200. This was probably good only for producing kerosene. If you want multiple fractions, then you are going to be spending more money for the same refining capacity.

Whether it is desirable to refine the crude yourself depends on the profit margin. In early 1863, for example, crude oil was selling for two dollars a barrel (less then five cents a gallon), while refined oil brought in forty cents per gallon. Five gallons of crude oil made three gallons of refined product, and the refining cost five cents a gallon. On the other hand, in 1869, the price of crude was seven dollars a barrel (sixteen cents a gallon), the price of refined was 34 cents a gallon, while the refining cost was three cents a gallon. (Abels 50).

USE Oil and Gas Law Oil is subject to the rule of capture, that is, it belongs to whoever extracts it from the ground, not to the owner of the land where it lay originally. If a field had mixed ownership, that encouraged rival oil companies to drill wells close together and pump the oil out as fast as they could.

In the 1930s and thereafter, legislation in the "old" United States curbed waste in oil (and gas) production, and, not incidentally, put a floor under oil prices. The conservation methods included requiring minimum s.p.a.cings between wells, limiting the amount of oil that an operator could produce each day from his well ("proration"), and in some fields providing that the field would be operated as a single unit with all owners sharing in the income ("unitization"). The USE might want to consider similar legislation.

Natural Gas

Until 1960, natural gas was considered a waste product, and it was disposed of in the easiest manner possible, usually by "flaring it" (that is, burning it without even attempting to derive any benefit from it). It is now considered an important fuel.

Natural gas is lower in density than oil, and hence more expensive to ship. It usually is moved by pipeline, rather than by tankers. In the 1960s, natural gas was liquified for more convenient handling. Unfortunately, the necessary cryogenic facilities and cold-resistant alloys put this strategy beyond the pale for USE, at least in the near future. Hence, USE will probably exploit only the natural gas fields that it can access by protectible pipelines.

Conclusion Even before the Ring of Fire, the Europeans were collecting and selling oil on a small scale. Even if Grantville residents knew no more about the intricacies of oil prospecting and extraction than they did, the down-timers could supply us with petroleum. Given the financial incentive to do so, they could go beyond mining asphalts or oil sands, and actually drill for oil; they had already developed rudimentary percussion and rotary drilling techniques for obtaining both water and salt. What Europeans lacked, before the Ring of Fire, were parties willing to invest in land and drilling equipment (HBS 3-4), and these were absent, in part, because there wasn't enough a.s.surance of profitability. The history of the spice industry gives us ample evidence of the length to which seventeenth-century merchants were willing to go if the rewards for success were great enough.

As the known sources of oil become exhausted, up-timer-trained geologists (and up-time atlases) will become more important in finding new fields, and up-time drilling techniques will allow the deeper sections of old fields to be exploited. But this doesn't need to happen all at once.

Likewise, we cannot ignore the problem of transporting the oil. But neither do we need to make an immediate jump to steel pipelines and supertankers. It is likely that the during the early years of the oil industry in the 163x universe, petroleum (and its refinery products) will be shipped by a combination of wagon trains, barges, barrel- or tank-carrying ships, and wood or iron pipelines.

I close with the words of Everette L. De Golyer: "In the finding of oil, it's good to be good, but it's better to be lucky."

Appendix: Works Listed as Owned by the Mannington (Grantville) Public Library: Cranfield and Buckman. Oil Whiteshot, The Oil-well Driller : a History of the World's Greatest Enterprise, the Oil Industry (Published in Mannington!) Sampson, The Seven Sisters : the Great Oil Companies and the World They Shaped Yergin, The Prize : the Epic Quest for Oil, Money, and Power Mallison, The Great Wildcatter

Canadian a.s.sociation of Oilwell Drilling Contractors, Introduction to Oilwell Drilling and Servicing Thomas, The Quest for Fuel