Oil and Gas PDF

New systems for the mobilization of labor had been tested around the world— from coolie workers to sharecropping to wage labor—and while it was still uncertain if cotton production would return to antebellum levels, belief in the possibility of "free labor” cotton had become nearly universal. As for...

New systems for the mobilization of labor had been tested around the world— from coolie workers to sharecropping to wage labor—and while it was still uncertain if cotton production would return to antebellum levels, belief in the possibility of "free labor” cotton had become nearly universal. As former slaves throughout the United States celebrated their freedom, manufacturers and workers looked forward to factories running again at capacity, fueled by newly plentiful cotton supplies. If the Civil War was a moment of crisis for the empire of cotton, it was also a rehearsal for its reconstruction. Cotton capitalists were confident from their triumphs in recasting industrial production at home. As they surveyed the ashes of the South, they saw promising new levers that might move the mountain of free labor into cotton cultivation with new lands, new labor relations, and new connections between them. Thus the French observer was correct when he predicted in 1863, "The empire of cotton is ensured; King Cotton is not dethroned.” LECTURE 10. THE HISTORY OF OIL AND GAS INDUSTRY. Initially, gasoline was a byproduct of the refining of oil into kerosene. Prior to the internal combustion engine, it had limited use. In the U.S.A. in the 1800s it was routinely dumped, often into nearby rivers. Relatively recent invention, in the late 1800s it was still not an enormous component of Western Economies. In oil producing areas, for example Pennsylvania, Ohio and Western Ontario very young oil industries were pumping oil out. Until they introduced the refining process that allowed them to create kerosene, kerosene is a flammable liquid, frequently used in lamps and lightning, some general use with engines but not very much. There was a big demand for it in the days before electrical lightning, kerosene was very important. Internal combustion: In Germany, internal combustion cars and engines were developed in the 1870s in order to move carriages or cars and, by the mid 1880s Karl Benz had begun commercial production. The necessity to use gasoline created a new market for what had been discarded in the past. In order for Karl’s invention to gain the significance that it would, networks of places where people with internal combustion engines could add fuel to it were developed. So gasoline started to make its way. Bertha Benz journey Ways to consider gasoline’s impact: Gasoline is very political, the same with oil. One way to look at the influences is to consider individuals who benefitted from the increasing importance of gasoline. William Knox Darcy who developed the oil industry in Persia (now Iran) where he exploited their resources, and elsewhere in the middle East, founded what became British Petroleum. He wanted a monopoly in the extraction and sale of oil in the Middle East, and he got it. John D. Rockerfeller: The American example of William Knox Darcy. He founded a company called “Standard Oil”. By the 1890s, Standard Oil owned more than 90% of the refining capacity in the world. It massively dominated the oil industry in the United States, to the extent to which the American Government and the American public think it is too much. He used gasoline as a fuel to heat oil in the refining process. Internal combustion gave him a huge new market. Standard Oil becomes a virtual Monopoly. In the beginning of the 20th century, American courts and legislators forced Standard Oil to break itself up into smaller components rather than this one massive conglomerate. But it is still not wrested away from John D. Rockefeller and his successors from quite some time. The real competition waited until the 20th century, because Standard Oil was too powerful. Technology: The power of gasoline made internal combustion engines much superior to other types. Henry Ford’s model T made the car more widespread. It became the best selling car in the world by a significant measure. Ford introduced the idea of assembling cars where the role of workers was reduced to a very specific task. Meaning you could build a lot more cars more quickly, and therefore the price of cars declined, significantly and suddenly, waves of new customers were able to purchase cars. And that really created a different world in North America at first, but later in the rest of the world. This change also meant creating a lot of networks of gas stations to provide fuel for all these new cars that are on the highways. In agriculture, tractors replaced steam engines. Society: You also need more highways, roads and highways for cars. Cars allow more suburban spread. Rather than having to walk to work you can now move further away from where you work and drive to work in your car. Cars require the expansion of networks of gas stations. Changes in the oil business: Increased markets for gasoline mean increased exploration for sources. In Canada, this means exploration in Alberta. In the U.S.A. the shift to Texas and Oklahoma. Globally the Middle East becomes more important in global politics. War: Gasoline becomes an essential tool of war. Tanks, ships, planes and transport all need it. What that means is, if you were to successfully prosecute a war you needed lots and lots of gasoline. As a strategic resource it becomes a cause of conflict as well. You cannot allow your rival or your opponent to control oil and gas, you need access to it, and we can see lots of 20th and 21th century wars that revolve around aspects like that. Politics: American and British roles in the August 1953 coup against Iran Premier Mohammad Mossadeq because they were paying ludicrously low royalties to the government of Iran. As they pumped this non-renewable resource and others as famous. Canadian premier of Alberta, Peter Lawhy said you only pump oil once, so that’s your chance. In the post World War II period a lot of countries but specially Iran began to resent this. In 1953 THE CIA and the U.K organized a coup in Iran to replace the popular government with one more amenable to the oil and gas industry. This is one example of the influence of industry in world events. The concern on the part of people in the CIA and MI6 or 5 British Intelligence was that Iran’s premier was too sympathetic to the soviets and the congress. This is the Cold War period, therefore they decided it was not safe to have him as the leader of Iran and organized a coup to use the Iranian military to overthrow him and institute a government that was more amenable to Western Policy in oil and gas. In the 1980s, American historians and political scientists were able to file Freedom of Information requests from what had happened in this time period. And they  could see in black and white that there was documentary evidence that the CIA did orchestrate the overthrow of this government. A classic example of how this industry influences world events. OPEC: The Organization of Petroleum Exporting Countries. It has its origins in a small group of countries, that like Iran, wanted more control over the extraction and sale of the resource and they formed a cartel in order to try and control the world price and world access to this product, with mixed success. Established in 1960, OPEC's primary goal is to coordinate and unify the petroleum policies of its member countries to ensure fair and stable prices for petroleum producers, a steady supply for consumers, and a fair return on capital for investors. The oil embargo, and the aftermath of the Yom Kippur War in the Middle East, they launched in 1973 caused a recession in the Western economies. They dramatically reduce production and dramatically increase the price of oil coming from OPEC members. It knocks Western Economies into a recession that lasts almost a decade. OPEC was very successful and created a cartel, a problem with a cartel is that you need discipline. OPEC still exists, it still has a role in trying to impose their idea of order on the international oil market. They are not in the power that they were in the 1970s, but they’re still very much in existence. Environment: Oil is not just used in cars. Production in refineries. Transportation of product, etc. Land issues with pipelines. Transportation of the products whether is in tankers or pipelines creates environmental risks, pipelines break, oil tankers, rail tankers crash and burn. That is potentially deadly. And their land issues both indigenous and generally speaking property right issues with the construction of pipelines, move the product from source in the ground to refinery and then onto the consumer so lots of stuff with that as well. Canada: Oil and gasoline are still critical to the Canadian economy. One way to look at this is to look at companies and individuals.  Imperial Oil, a branch of Rockefeller’s Standard Oil is the biggest player in the Canadian Oil and gas industry. Rockefeller bought out the Canadian oil industry towards the end of the 1800s and controlled it for quite a long time, similar to what he did in the United States. In the 1970's the recession, oil prices went up and a lot of Canadians wondered why. Canada has a lot of oil, it still has and we didn't understand the way the industry worked. The industry was almost universally owned by American, Dutch and British companies, largely American not Canadians. It required a change, and a Canadian company was created. PetroCanada: Started as a Crown Corporation during the economic crisis in the 1970s. Was to be a “window on the industry”. In the 1980s it became a question, does the government really need to own an oil business? Eventually privatized. PetroCanada and oil and gasoline are not cheaper than the American owned companies providing it, so what are we getting out of this? It was determined that it was not enough and they decided to privatize. Initially 50% of Petro-Canada was sold off by the Mulroney conservative government and eventually the liberal governments of Jean-Claire Chan and Paul Martin sold off the remainder. PetroCanada has leaned into being a Canadian company. ARTICLE 1 - WHAT IS PETROLEUM AND WHY IS IT IMPORTANT TO INVEST IN IT (INVESTOPEDIA). Petroleum, also called crude oil, is a naturally occurring liquid found beneath the earth’s surface that can be refined into fuel. A fossil fuel, petroleum is created by the decomposition of organic matter over time and used as fuel to power vehicles, heating units, and machines, and can be converted into plastics. Because the majority of the world relies on petroleum for many goods and services, the petroleum industry is a major influence on world politics and the global economy. The extraction and processing of petroleum and its availability is a driver of the world's economy and geopolitics. Many of the largest companies in the world are involved in the extraction and processing of petroleum or create petroleum-based products, including plastics, fertilizers, automobiles, and airplanes. Petroleum is recovered by oil drilling and then refined and separated into different types of fuels. Petroleum contains hydrocarbons of different molecular weights and the denser the petroleum the more difficult it is to process and the less valuable it is. Petroleum companies are divided into upstream, midstream, and downstream, depending on the oil and gas company's position in the supply chain. Upstream oil and gas companies identify, extract, or produce raw materials. Downstream oil companies engage in the post-production of crude oil and natural gas. Midstream oil and gas companies connect downstream and upstream companies by storing and transporting oil and other refined products. Pros Stable energy source Easily extracted Variety of uses High power ratio Easily transportable Cons Carbon emissions are toxic to the environment. Transportation can damage the environment. Extraction process is harmful to the environment. The Petroleum Industry Classification: Oil is classified into three categories including the geographic location where it was drilled, its sulfur content, and its API gravity, its density measure. Reservoirs: Geologists, chemists, and engineers research geographical structures that hold petroleum using “seismic reflection." A reservoir’s oil-in-place that can be extracted and refined is that reservoir’s oil reserves. Extracting: Drilling for oil includes developmental drilling, where oil reserves have already been found. Exploratory drilling is conducted to search for new reserves and directional drilling is drilling vertically to a known source of oil. The energy sector attracts investors who speculate on the demand for oil and fossil fuels and many oil and energy fund offerings consist of companies related to energy. Petroleum is a fossil fuel that was formed over millions of years through the transformation of dead organisms, such as algae, plants, and bacteria, that experienced high heat and pressure when trapped inside rock formations. Petroleum is not a renewable energy source. It is a fossil fuel with a finite amount of petroleum available. Alternatives include wind, solar, and biofuels. Wind power uses wind turbines to harness the power of the wind to create energy. Solar power uses the sun as an energy source, and biofuels use vegetable oils and animal fat as a power source. Unrefined petroleum classes include asphalt, bitumen, crude oil, and natural gas. Article 2 – Oil and petroleum products explained (EIA). Crude oil prices are driven by global supply and demand. Economic growth is one of the biggest factors affecting petroleum products—and therefore crude oil—demand. Growing economies mean a higher demand for energy, in general, especially for transporting goods from producers to consumers. The world’s transportation sector depends almost totally on petroleum products such as gasoline and diesel fuel. Many countries also rely primarily on petroleum fuels for heating, cooking, or generating electricity. Petroleum products made from crude oil and other hydrocarbon liquids account for about ⅓ of total world energy consumption. The Organization of the Petroleum Exporting Countries (OPEC) can significantly influence oil prices by setting production targets for its members. OPEC includes countries with some of the world's largest oil reserves. At the beginning of 2021, OPEC members controlled about 72% of total world proven crude oil reserves (plus lease condensate), and they accounted for 37% of total world crude oil production in 2021. OPEC attempts to manage its member countries' oil production by setting crude oil production targets, or quotas, for its members. OPEC member compliance with OPEC quotas is mixed because production decisions are ultimately in the hands of the individual members. In general, the main factors determining OPEC's ability to influence oil prices include: The extent to which OPEC members comply with production quotas The ability or willingness of consumers to reduce petroleum consumption in response to higher product prices The competitiveness of non-OPEC producers when oil prices change The efficiency of OPEC producers to supply oil compared with non-OPEC producers The difference between oil market demand and supply from non-OPEC sources is often referred to as the call on OPEC because OPEC members maintain the world's entire spare crude oil production capacity. Saudi Arabia, the largest OPEC oil producer and one of the world's largest oil exporters, historically has had the largest share of the world's spare oil production capacity. OPEC spare capacity is an indicator of the world oil market's ability to respond to real and potential disruptions in world oil supplies. The EIA defines spare capacity as the volume of oil production that can be brought online within 30 days and sustained for at least 90 days. Geopolitical events and severe weather that disrupt the flow of crude oil and petroleum products to market can affect crude oil and petroleum product prices. These events may create uncertainty about future supply or demand, which can lead to higher price volatility. Oil price volatility is tied to low responsiveness, or inelasticity, of supply and demand to price changes in the short term. Most of the crude oil reserves in the world are located in regions that have been prone to political upheaval or in regions that have had oil production disruptions because of political events. Several major oil price shocks have occurred at the same time that political events caused supply disruptions, most notably the: Arab Oil Embargo in 1973–74 Iranian revolution Iran-Iraq war in the 1980s Persian Gulf War in 1990–91 In recent years, conflicts and political events in the Middle East, the Persian Gulf, Libya, and Venezuela have contributed to world oil supply disruptions that have resulted in higher oil prices. Weather also plays a significant role in crude oil supply. Hurricanes in the Gulf of Mexico can affect oil production and refinery operations in the Gulf region. As a result, U.S. petroleum product prices may increase sharply as supplies from the Gulf to other regions drop. Severe cold weather can also strain product markets as producers attempt to supply enough product, such as heating oil, to consumers in a short amount of time. This seasonal demand can also result in higher prices. Other events such as refinery outages or pipeline problems can also restrict the flow of crude oil and petroleum products to market. These events can lead to a temporary supply disruption that could increase prices. The effect of these factors on crude oil prices tends to be relatively short lived. Once the supply disruption subsides, the oil and product supply chains adjust, and prices usually return to their previous levels. Crude oil is traded in the futures markets. A futures contract is a standard contract to buy or sell a specific commodity of standardized quality at a certain date in the future. If oil producers want to sell oil in the future, they can lock in their desired price by selling a futures contract today. Alternatively, if consumers need to buy crude oil in the future, they can guarantee the price they will pay at a future date by buying a futures contract. Prices in spot markets send a clear signal about the balance of supply and demand. Rising prices indicate that additional supply is needed, and falling prices indicate there is too much supply for current demand. Futures markets also provide information about the physical supply and demand balance as well as the market's expectations. Article 3 – OPEC (brief history) – Energy Education: The Organization of Petroleum Exporting Countries or OPEC is an organization that was created at a conference in Baghdad, Iraq on September 10th-14th, 1960. The founding members which include Iran, Iraq, Kuwait, Saudi Arabia and Venezuela agreed to create an organization that could bring some degree of stability to the world oil market. In the 1950s, the Soviet Union had massively increased its output of crude oil to the market and as a result, members of The Seven Sisters had to drop their price to compete with the Soviet oil in several markets. The Seven Sisters were the largest oil companies of the time: Esso, Mobil, Standard, Gulf, Texaco, BP and CFP. In the 1960s OPEC established its place in the world oil market. Immediately OPEC had trouble cooperating and coordinating strategy, at the 1962 meeting of the members, a battle broke out over export limits. Each country wanted to export as much oil as they could but flooding the market with cheap oil would decrease the price of oil. Since keeping the price of oil at a certain level was the goal of OPEC, a drop in the price was not welcome. The new organization was fragile and suffered from the fact that it straddled the divide between the economic and political realm. During the Six-Day War in 1967 when Israel launched a preemptive military action against its Arab neighbors Syria, Egypt, Jordan, Lebanon and Iraq Many of the Arab members of OPEC wanted to boycott Israel. In 1968 OPEC released the Declaratory Statement of Petroleum Policy in Member Countries which sought to enshrine the right of every nation to have complete sovereignty over their natural resources for the purposes of national enrichment and development.These companies were powerful multinationals mostly owned by wealthy countries. Over this time the membership of OPEC expanded and by 1969 five additional member nations had joined OPEC: Qatar (1961)  Indonesia (1962) Libya (1962) United Arab Emirates (1967) Algeria (1969) The 1970s: By 1970 OPEC had steadily been expanding its share in the market, by 1973 OPEC was supplying 56% of the world’s oil, up from 47% in 1965. In October of 1973 Egypt and Syria (supported by a number of Arab nations) launched an attack against Israel which came to be known as the Yom-Kippur War. At the time the U.S had rising consumption, falling production and increasing imports of oil, mostly from OPEC countries. The embargo shocked the oil market and created a shortage in supply. The embargo nations were able to get oil companies to sell them oil from other countries, however the mass confusion resulting from the normal supply translated into a sharp rise in prices. The embargo was a shift in global political and economic power as now the OPEC countries (largely entered in the Middle-East) could influence powerful nations such as the UK and U.S by manipulating oil supplies. It is important to note that OPEC did and does not have a monopoly over the oil market, in 1973 they only had 56% of the oil market and while this led to a large amount of influence it does not allow OPEC to totally control the market. OPEC is an international cartel. The 1980s: Countries reliant on OPEC oil sought to mitigate the effects of rising prices and dependence by replacing oil with other fuel sources such as coal, nuclear power and natural gas. The switch to coal for electrical generation was a simple change, in addition more research was done and emphasis was placed on the use of nuclear power to encourage the switch from oil. The Iranian Revolution (1979) and the subsequent Iran-Iraq War (1980-1988) restricted the supply of oil from Iran, their production had collapsed. Production increases from other OPEC members plugged the hole left by Iranian production. Continued exploration in the Gulf of Mexico, the North Sea, Alaska, Siberia and other places ate away at OPECs grip on the market. In addition, many countries began to burn more coal as a way of avoiding expensive oil. Technological advances in the North Sea led to overall increases in production and by 1973, the USSR had become the top oil producer worldwide, further eating into OPECs share of the market. In response to rising oil supply, OPEC sought to force a rise in prices by placing a quota on its members. By restricting the level of output, OPEC hoped that the lower supply would cause the price to rise. The quota was a maximum of 17.5 million barrels per day. 1990 to Present: The end of the Iran-Iraq War in 1988 brought only a short period of political stability to OPEC. In 1989 the USSR collapsed and dissociated into a number of republics leading to a disruption in formerly dominant Soviet oil production dominancy. Before long, Iraq invaded another one of its neighbors, Kuwait (in 1990), also a member nation of OPEC. Leading up to the invasion, Iraq advocated for OPEC to revise the quotas that it had imposed. After the eclipse of the Iran-Iraq War, Iraq was struggling to rebuild and wanted to export more oil to increase revenues. Ecuador and Gabon both suspended their membership in OPEC for periods of time, 1992-2007 and 1995-2016 respectively, seeking a release from the terms of the cartel. Both sought to increase their production levels. Conflicts in OPEC countries such as the conflict in Libya (2011-present), Attacks on Nigerian oil infrastructure (present), the ongoing conflict in Iraq and Syria etc. caused periodic disruptions in supply and continue to do so. Article 4 – Not all oil is equal: Explaining Price Differences – Let’s talk Royalties: The price a producer receives for a barrel of oil depends on the type of oil, where it’s produced, and where it is purchased. Lighter oils generally receive higher prices than heavier oils, because they are easier (and cheaper) to process in refineries. Where the oil is produced geographically also matters, because it needs to be transported from its point of production to a refinery. This impacts the price received for the oil. As a starting point, let’s look at “Brent” oil — a global benchmark used by oil markets. Its name refers to oil fields in the European North Sea, where it originates. However, many oils produced in the Middle East, Africa and Europe, all trade in relation to Brent oil. Because it has easy access to coastal ports (e.g., extensive pipelines to the coast), Brent oil can move easily to customers around the world. (Brent oil is even imported by some refineries in the U.S. and Canada.) Because it is inexpensive to move oil in large tankers the price is fairly similar anywhere tankers can load or unload. As a light, sweet oil that can be widely transported, Brent oil currently receives some of the highest prices. “West Texas Intermediate” (WTI) oil is another benchmark used by oil markets, representing oil produced in the U.S. It is based on oil at a large tank and pipeline hub in Cushing, Oklahoma. Like Brent oil, WTI is priced as a light oil, but it doesn’t have the same global reach. One reason is that, with few exceptions, the U.S. prohibits the export of crude oil. Another reason is that WTI supplies are produced in landlocked areas, and nowadays need to be transported to the coast, where most refineries are located. An important benchmark price in Canada is known as Western Canada Select (WCS). WCS rep-resents a stream of conventional heavy (high viscosity) oil mixed with some blends of bitumen and diluents. To break down prices further, the theoretical price of bitumen is determined once you deduct the transportation costs. (This includes the diluent cost used to make the bitumen flow in the pipeline and the pipeline cost.) The resulting price is known as the “bitumen netback”. Producers’ revenues and royalties are based on the “bitumen netback” price. The amount of value depends on the price we receive for our resources, and what it costs to produce and transport them. The lower the prices we receive for our resources, the less value there is. And the prices we actually receive for our oil products are lower than the “Brent” and “WTI” prices typically quoted in business reports. The oil Alberta produces is simply of a lower quality than Brent or WTI, and is located further away from customers. The easier it is to move our oil to refineries around the world, the less the price discounts will be. LECTURE 11. THE SERVICE INDUSTRY. The service economy is many things, ranging from fast food, to heart surgery to consulting, there are different definitions, but it includes things like education, health care, tourism and finance. Services are intangible. Advice to experience, to attention. Currently, the service sector is 50% of all employment, and 67% of global GDP (gross domestic product). In Canada, half of the population worked in agriculture in 1867, down to only 4% in 1987. In 1911, two thirds of workers produced goods and one third worked in the service sector, by 1987 that had reversed. It is easier to boost productivity by making things more efficient than it is to make services more productive. It might also be easier to trade those goods and products. Many believed that services were not important for developing countries to focus on, but