Petroleum: An Energy Profile 1999
July 1, 1999
Petroleum has become so interwoven in the daily lives of Americans over the past century that it now comprises an industry which accounts for about 40 percent of all energy consumed in the United States. Americans use petroleum, directly or indirectly, in many applications including transportation fuel, light, heat, and for use in the manufacture of consumer products. Daily per capita consumption of petroleum products in the United States averages nearly 3 gallons—more than one-fourth of the petroleum consumed worldwide.
Petroleum is a complex mixture of liquid hydrocarbon—chemical compounds containing hydrogen and carbon—occurring naturally within the earth. Early use of petroleum dates back many years. Man first became aware of its existence when it was discovered oozing to the surface from natural "seeps."? Native Americans used crude oil skimmed from creeks and rivers as a medicinal ointment. In the 1840's and 1850's, an enterprising Pennsylvanian bottled and sold "Pennsylvania Rock Oil"? to treat ailments such as rheumatism, gout, and burns. By the time commercial production began in 1859, oil was demanded more for its ability to produce light, and kerosene for use in lamps was the principal product. At the turn of the century, the advent of the automobile shifted the emphasis to motor gasoline. In the 1930's and 1940's, a substantial market for heating oil developed.
Because petroleum in its raw state has limited uses, further processing of crude oil, via petroleum refining, is needed to unlock the full potential of this resource. In the mid-1800's, the earliest refineries used a distillation process to produce kerosene. Today's refineries employ many processes from simple distillation to the more complex "cracking"? and "reforming"? operations to convert crude oil into a wide array of desired products. With approximately 20 percent of the world's crude oil distillation capacity and about 30 percent of the more complex cracking and reforming capacity, the United States leads the world in the production of petroleum products. Moreover, motor gasoline alone accounts for about one-half of all U.S. refinery production.
Although petroleum provides many useful products, the most notable are motor gasoline and heating fuel. Petroleum's many uses in the transportation sector include fuel for automobiles, trucks, agricultural and industrial machinery, trains, ships, and aircraft. Petroleum is used to heat homes, offices, and factories and is used to grow, process, package, distribute, refrigerate, and cook food. Petroleum is also the source of synthetic fabric for cloths as well as detergents and dry cleaning solvent to clean them. Moreover, petroleum provides a chemical base for cosmetics and pharmaceutical products as well as for many plastic products from toys to building materials.
The United States consumes more energy from petroleum than from any other energy source. Petroleum provides nearly two-thirds more energy than natural gas, nearly three-fourths more energy than coal, and more than three times the energy from all other energy resources. Although the United States is one of the largest petroleum producers, it actually consumes more than it produces, requiring net imports of crude oil to meet demand.
Growing U.S. petroleum product demand and declining domestic crude oil production have combined to make the United States increasingly dependent on crude oil imports. From its peak of 9.6 million barrels per day in 1970, domestic crude oil production had declined by nearly one-third to 6.5 million barrels per day by 1997. During this same period, petroleum demand grew by one-fourth, from 14.7 million barrels per day in 1970, to over 18.6 million barrels per day by 1997. Consequently, net imports of crude oil and products rose from 3.2 million barrels per day in 1970, to 9.2 million barrels per day by 1997, causing U.S. dependence on petroleum net imports to grow from about one-fifth in 1970, to nearly half by 1997.
While crude oil production is declining in the United States, so are proved reserves of crude oil. The U.S. holds about a 2 percent share of the world's crude oil reserves. As world reserves are depleted, the roles of Saudi Arabia and other Middle East suppliers are increasingly important in international petroleum supply. This was dramatically illustrated by fears of worldwide supply disruption following Iraq's invasion of Kuwait in August 1990.
A vast transportation network of tankers, barges, pipelines, railways, and trucks moves crude oil from the field to refineries, where it is processed, and brings refined products to the consumer. This complex system also links foreign suppliers to domestic customers and provides access to foreign markets for products from U.S. refineries.
Storage facilities hold crude oil and refined products at various stages as they move through the system. Marine terminals receive crude oil as it is unloaded from tankers and hold it until it is transported by pipeline or other means to the refinery for processing. When it reaches the refinery, it is stored again until it can be processed. After processing, the refined products go to bulk terminals where they are stored until they are transferred to retail sales outlets and the final consumer. Above-ground tanks, underground caverns and tanks, and offshore storage are used to hold supplies of crude oil and petroleum products as they move through the distribution system. The largest underground storage facilities are part of the U.S. Strategic Petroleum Reserve, containing petroleum stocks maintained by the Federal Government for use during periods of major supply disruptions.
The petroleum industry can be divided into two main sectors that are largely functional in nature: the upstream sector that includes exploration and production and the downstream sector which includes refining, transportation, and marketing. The industry is highly integrated, with many firms involved in more than one sector. Large companies known as "majors"? are fully integrated and may own and operate establishments involved in all of these sectors. Smaller, nonintegrated companies often referred to as "independents"? generally specialize in one aspect, such as crude oil exploration and production or product marketing. The petroleum industry is international in scope, and it has a complex system of markets where exchanges, long- and short-term sales contracts, and spot market and futures contracts are used to transfer oil ownership as it passes from one sector to the next. The following chapters discuss the role of petroleum products in our society and describe the workings of the U.S. petroleum supply network—from the petroleum resource base through crude oil exploration and production, refining, transportation and storage, product marketing, and distribution.