HISTORY

Upstream, Downstream, All Around the Stream - A brief history of petroleum

All of the oil world is divided into three: 1) The "upstream" comprises exploration and production; 2) The "midstream" are the tankers and pipelines that carry crude oil to refineries, and; 3) The "downstream" which includes refining, marketing, and distribution, right down to the corner gasoline station or convenient store. A company that includes together significant upstream and downstream activities is said to be "integrated".

By generally accepted theory, crude oil is the residue of organic waste--primarily microscopic plankton floating in seas, and also land plants--that accumulated at the bottom of oceans, lakes, and coastal areas. Over millions of years, this organic matter, rich in carbon and hydrogen atoms, was collected beneath successive levels of sediments. Pressure and underground heat "cooked" the plant matter, converting it into hydrocarbons--oil and natural gas. The tiny droplets of oil liquid migrated through small pores and fractures in the rocks until they were trapped in permeable rocks, sealed by shale rocks on top and heavier salt water at the bottom.

Typically, in such a reservoir, the lightest gas fills the pores of the reservoir rock as a "gas cap" above the oil. When a drill bit penetrates the reservoir, the lower pressure inside the bit allows the oil fluid to flow into the well bore and then to the surface as a flowing well. "Gushers" - "oil fountains" as they were called in Russia--resulted from failure (or, at the time, inability) to manage the pressure of the rising oil. As production continues over time, the underground pressure runs down, and the wells need help to keep going, either from surface pumps or from gas reinjected back into the well, known as "gas lift". What comes to the surface is hot crude oil, sometimes accompanied by natural gas.

But as it flows from a well, crude oil itself is a commodity with very few direct uses. Virtually all crude is processed in a refinery to turn it into useful products like gasoline, jet fuel, home heating oil, and industrial fuel oil.

In the early years of the industry, a refinery was little more than a still where the crude was boiled and then the different products were condensed out at various temperatures. The skills required were not all that different from making moonshine, which is why whiskey makers went into oil refining in the nineteenth century. Today, a refinery is often a large, complex, sophisticated, and expensive manufacturing facility.

Crude oil is a mixture of petroleum liquids and gases in various combinations. Each of these compounds has some value, but only as they are isolated in the refining process. So, the first step in refining is to separate the crude into constituent parts. This is accomplished by thermal distillation--heating. The various components vaporize at different temperatures and then can be condensed back into pure "streams".

Some streams can be sold as they are. Others are put through further processes to obtain higher-value products. In simple refineries, these processes are primarily from the removal of unwanted impurities and to make minor changes in chemical properties. In more complex refineries, major restructuring of the molecules is carried out through chemical processes that are known as "cracking" or "conversion". The result is an increase in the quantity of higher-quality products, such as gasoline, and a decrease in the output of such lower-value products as fuel oil and asphalt.

Crude oil and refined products alike are today moved by tankers, pipelines, barges, and trucks. In Europe, oil is often officially measured in metric tons; in Japan, in kiloliters. But in the United States and Canada, and colloquially throughout the world, the basic unit remains in "barrel", though there is hardly an oil man today who has seen an old-fashioned crude oil barrel, except in a museum.

When oil first started flowing out of the wells in western Pennsylvania in the 1860's, desperate oil men ransacked farmhouses, barns, cellars, stores, and trashyards for any kind of barrel--molasses, beer, whiskey, cider, turpentine, sale, fish, and whatever else was handy. But as coopers began to make barrels specially for the oil trade, one standard size emerged, and that size continues to be the norm to the present. It is 42 gallons.

The number was borrowed from England, where a statute in 1482 under King Edward IV established 42 gallons as the standard size barrel for herring in order to end skullduggery and "divers deceits" in the packing of fish. At the time, herring fishing was the biggest business in the North Sea. By 1866, seven years after Colonel Drake drilled his well, Pennsylvania producers confirmed the 42-gallon barrel as their standard, as opposed to , say, the 31 1/2 gallon wine barrel or the 32 gallon London ale barrel or the 36 gallon London beer barrel.

And that, in a roundabout way, brings us right back to the present day. For the 42 gallon barrel is still used as the standard measurement, even if not as a physical receptacle, in the biggest business in the North Sea--which today of course in not herring, but oil.

This article taken from "The Prize" by Daniel Yergin