Week 11 Oil and Gas History PDF

SPEAKER 0 So this week we're talking about oil and gas, uh, clearly critical components of any modern capitalist economy, and I want to spend a little bit of time and talk about how we got there, how we got to the point where this particular product became so critical in our day to day lives. Uh, y...

SPEAKER 0 So this week we're talking about oil and gas, uh, clearly critical components of any modern capitalist economy, and I want to spend a little bit of time and talk about how we got there, how we got to the point where this particular product became so critical in our day to day lives. Uh, your readings are gonna let you look at, uh, some of the nuances of, of the oil and gas industry, some of the ways in which organizations like OPEC, for example, uh, have influenced the way in which consumption and production, uh, work and continue to work, and we will, uh, dig in a little bit to some of the implications of that with the readings that you're gonna be doing. But I do want to linger a little bit on the history, uh, because gasoline is a relatively recent invention, uh, even by, you know, the latter years of the 1800s it was still not a particularly enormous component of, of Western economies, but that was about to change quite dramatically, um. Kerosene Uh, in oil producing areas in the United States, for example, in Pennsylvania and Ohio, uh, Southwestern Ontario, uh, very young oil industries were pumping oil out. There was, it was used for lubrication and, uh, really not very much more, uh, until they introduced the refining process that allowed them to create something called kerosene. And kerosene, uh, is a flammable liquid. It's used frequently in lamps and lighting, uh, some. General use with engines but not very much, uh, but there was a big demand for it, uh, in the days before electrical lighting kerosene lighting was was critically important. Uh, now gasoline is initially a byproduct of, of refining oil into kerosene and very much a byproduct, uh, they couldn't figure out what to use it for in part because it was not very stable, uh, it was very difficult to, uh, control a reaction when you ignited gasoline, uh, so they got rid of it. Uh, we know for example in Pennsylvania and Ohio that they frequently just dumped gasoline into fields or into nearby rivers just to get rid of it because it was useless, uh, at least to them that is gonna change with the internal combustion engine, but first they have to figure out how to stabilize gasoline in order to make it viable as a source of of fuel as a source of energy. As they do that, people began to experiment with the idea of using. Gasoline and an internal combustion engine in order to move carriages or cars as we would call them that's Karl Benz there with the impressive mustache, uh, Carl and his wife Bertha, uh driving a car. Now Carl initially built at the Benz factory which had built wagons and coaches and things like that, uh, he developed the first internal combustion engine vehicle that moved him around the plant. Didn't have much further application than that for a very good reason. It was because he needed gasoline. In order to make the car move in order to have the engine go. But the only source of gasoline was what he brought into their facility himself. In order for this invention to gain the significance that it obviously would. We had to then begin to develop a network of places where people with an internal combustion engine could add fuel to it. So that's one, you know, you can think about how gasoline starts to make its way and we'll talk more about uh. The impact of automobiles in particular on that, uh, but gasoline is also a very political thing. Oil is a very political thing, still is a very political substance. This guy here, William Knox Darcy. William Knox Darcy is a late Victorian, uh, businessman, early Edwardian businessman, uh, made a lot of money in Africa and the Middle East, uh, like a lot of English colonial business people had, and he's in Persia, which we know as Iran now, and he noticed that that region had a lot of this oil stuff. And it's just beginning to be the time where there's a lot of money, he thought to be made in uh exploiting this new oils uh product. So he wanted, uh, basically a monopoly on the extraction and sale of oil in the Middle East. And he got it He created a company called British Petroleum and British Petroleum was given that monopoly power. Interestingly, they're given that monopoly power by the British government, not by governments in the region, and this is gonna have some implications going forward, but as British Petroleum develops and becomes the major global player that it is, it's important to recognize where the company comes from, and it comes from this very colonial decision to allow a British company. Uh, complete control over the extraction of wealth in that region. Here's an American example of this. This is John D. Rockefeller. If you have been to Manhattan, and you should go to Manhattan's a lot of fun. You might have been to the Rockefeller Center. Uh, John D. Rockefeller, uh, founded a company called Standard Oil in the latter half of the 1800s in the United States. Uh, he had pioneered really using gasoline as a fuel in the refining process, trying to burn it off, uh, productively rather than just dumping it. Ah, but he had very, very. Big ideas for Standard Oil. Accentuated by the rise of uh internal combustion, but oil, uh, you know, oil was a very valuable commodity even before then, um. So Rockefeller creates Standard Oil, and he has a vision for Standard Oil, and he articulates this version or vision fairly often, and that vision is that Standard Oil will control the production of oil from the moment it leaves the ground until it enters the consumer's, you know, property until he someone buys it and he virtually achieves this. By the time we get into the 1890s, Standard Oil owns more than 90% of the refining capacity in the world. Uh, they massively dominate the oil industry in the United States to the extent to which, uh, the American government and the American public think it's too much. They want Standard Oil broken up. And eventually in the in the 20th century, the beginning of the 20th century, American courts and American legislators force Standard Oil to sort of break itself up into smaller components rather than this one massive conglomerate, but it's still not wrested away from John D. Rockefeller and from his successors for quite some time. Uh, real competition in the American oil and gas industry will wait into the 20th century, uh, simply because Standard Oil is so powerful. So technology, gasoline in particular really did change technology in the world. Uh, this is Henry Ford's Model T, maybe, maybe the most famous car ever. Uh, Ford develops the Model T in the first decade of the 20th century, uh, exploiting the success of the internal combustion engine, uh, and it becomes the Model T becomes the best selling car in the world by a significant measure. And Ford revolutionizes the way in which automobiles are gonna be produced. uh, Ford borrowing ideas, um, from scientific management theory, uh, introduces the assembly line to the production of cars in the old days before Ford cars were basically built by craftsmen who would assemble, you know. Uh, a car one at a time. Ford introduces the idea of a dedicated assembly line where the role of the worker is reduced to a very specific task. It means you can build cars a lot more quickly, uh, you can build a lot more cars and therefore the price of cars declined significantly and suddenly waves of new customers are uh able to purchase cars. And that really creates a a different world in North America at first, but then later in the rest of the world because suddenly you have automobiles much more a part of a society than they had been before and as I, I mentioned going back to Karl Benz, what that means is you suddenly need networks of gas stations to provide fuel for all of these new. Uh, cars that are on the highway, you also need more highways. You need roads and highways, um, uh, this is apparently the 401 in Toronto. It doesn't look very busy, so I don't know, uh, but you, you know, government now suddenly is building more and more roads for more and more cars, which means more and more roads are needed and more cars, uh, kind of a vicious circle, um, the introduction of cars also allow you to create suburbs. Ah, rather than having to walk to work, you can now move further away from where you work and drive to work in your car. And you have to create that network of of gas stations. Um, increased markets for gasoline means that people are looking for a lot more oil. It means in Canada that means that you're suddenly out in Alberta trying to find oil. In the United States it moves from Pennsylvania and Ohio to the much bigger and frankly easily more easily accessed fields in places like Texas and Oklahoma and thinking back to British Petroleum, suddenly the Middle East becomes much more important. In global politics. Because gasoline is essential tool of war. Tanks. This is a Canadian army tank in the First World War, with one of the inventions that uh. The war helped develop it, it ran on gasoline. Ships ran on on versions of gasoline, uh, planes, all sorts of transport, all sorts of stuff needed gasoline. And what that means is if you were to successfully prosecute a war, you needed lots and lots of gasoline, so it becomes a strategic resource. And it also becomes a cause of conflict. 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 21st century wars, uh, that revolve around aspects like that. I want to briefly talk about this cause I think it's it's Again, kind of indicative of the way in which politics and oil have mixed over over history, um, British Petroleum in what was now Iran, um. Some American oil companies had challenged that monopoly and were pumping oil out of there as well. What they had in common was that they were paying ludicrously low, uh, royalties to the government of Iran, uh, as they pumped this non-renewable resource, and others as famous Canadian premier of Alberta named Peter Lawhy said, you only pump oil once. Uh, so you know that's, that's your chance. So in the post World War II period, a lot of, uh, uh. Countries, but in our particular interest here Iran. Um Began to resent this, began to say, wait a minute, this is our oil, we need more money. And so, uh, uh, Premier Mohammad Mossadeq, um, He was elected a populist uh electoral victory in Iran based upon the premise that he was going to charge the big Western oil companies more premium uh to get the oil out of the ground, charge more royalties. He wasn't gonna nationalize them he wasn't gonna kick them out. He was gonna make them pay more. The concern on the part of people in the CIA and MI6 or 5 British intelligence, uh, was that he was too sympathetic to the Soviets, to the Congress. This is the Cold War period. And therefore they decided it was not safe to have him as the leader of Iran, and they organized a coup to use the Iranian military to overthrow him and institute a government that was more amenable to Western policy on oil and gas, uh, and eventually that saw uh the installation of the Shah as the effective governor. Uh, of Iran Now for a long time people said this happened this happened. CIA did this British intelligence did this, but there really wasn't any proof except oh you gotta love history and you need to love Freedom of Information Acts because by the time we got into the 1980s. American historians and American 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 yes exactly, here's the documentary evidence we have that the CIA did orchestrate the overthrow of this government. Uh, again, a classic example of the way in which this industry, uh, influences world events. OPEC, uh, we're gonna look a little bit, uh, reading about OPEC, but, uh, the Organization of Petroleum Exporting Countries, uh, has their origins in a small group of countries, um. That again like Iran want more control over the extraction and sale of the resource uh and they form a cartel in order to try and control the world price and world access to this product, uh, with mixed success, although in 1973 and in the aftermath of the Yom Kippur War in the Middle East, uh, OPEC launches an oil embargo. They dramatically reduce production and they dramatically increase the price of oil coming from OPEC members, and it knocks Western economies into a recession that lasts almost a decade. Um Before, uh, before they begin to experience some economic recovery, uh, the problem is because OPEC is very, very successful at that point. As a cartel, a cartel controls access to the product. The problem with the cartel is that you need discipline. Because, and that's what happened with OPEC, uh, that one or two members might think, well, I realize I'm only supposed to sell oil at this price and in this quantity, but surely it's not a problem if I raise it a little bit. Well it is because then everybody starts to and the cartel breaks down. Uh, OPEC still exists, still has a role in trying to impose their idea of order on the international oil market. Uh, they are not the power that they were in the 1970s, but they're still very much in existence. And oil's got other problems. As significant environmental problems. Uh, it's not just cars. Uh, when I come here to, to Shoeli, I drive on the 401 and the 407, and I see the pollution just surrounds me constantly, uh, but it's also production, uh, oil refineries are dirty business, right? They create a lot of byproducts that are environmentally problematic, uh, transportation of the product, whether it's in tankers or pipelines. Uh, create environmental risks, uh, pipelines break, oil, oil tankers, uh, rail tankers. Crash and burn, uh, you know that it, it is, uh, Potentially deadly, uh, situation, uh, and their land issues, both indigenous land issues and just generally speaking property rights issues with the construction of pipelines, uh, to move the product from source in the ground to the refinery and then on into uh. The consumer, so lots of stuff with that as well, um. I could look in more detail uh at at the Canadian oil and gas industry. I don't want to linger with it too long, uh, but Imperial Oil, the biggest player in the Canadian oil industry for a long time, uh, in actually was a branch of Rockefeller Standard Oil. Uh, he bought out the Canadian oil industry towards the end of the 1800s and basically controlled it for for quite a long time, similar to what he did in the United States. But I wanna look at Petraana, I think, uh, as a kind of a wind down on this because it tells us a lot domestically, uh, about the way in which oil and gas is political. In the 1970s in that recession that I talked about oil prices went way up in in Canada, gas prices went way up, and a lot of Canadians wondered why that was. We had a lot of oil. Canada has a lot of oil, still has a lot of oil. Uh, and we didn't understand the way the industry worked, and the industry was almost universally owned by American, Dutch, British companies, largely American, not Canadians, and so we said we want change, we want to see what happens maybe we need a Canadian oil company, but the private sector wasn't going to accomplish that, so the, uh, Pierre Trudeau liberal government in the 1970s. Created Petro Canada as a crown corporation. Uh, it was going to be our window on the industry. Crown Corporation basically is a government owned entity, uh, and it was going to initially it was designed largely around, uh, extraction and refining, but they like everybody else, realized the real moneys and selling it to you and me, um. Now They never made money, which is interesting because any money that they made, any, any money that came into the into the company, they immediately spent expanding buying up other companies and the like, and in the 1980s it became kind of a question. Does the government really need to own an oil business? Like what are we getting this? Uh, you will have noticed this in your life if if you drive a car. Petro Canada oil and gasoline are not cheaper than the. American owned companies, uh, providing it are, so what are we getting out of this? And it was determined that not enough and they decided to privatize, uh, 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. Uh, is it still a Canadian company apparently it depends on the day of the week, uh, but, uh, PetroCana certainly has leaned into being a Canadian company, as you can see if I move my shoulder with their big maple leaf advertising structure. So that's it, oil and gas, um, you're gonna wanna dig into those readings because there's lots of interesting aspects of the way in which this critically, critically important, uh, global, uh, sector works.