It is practically impossible, at the present time, to glance through the daily newspapers without seeing headlines concerning oil. Oil in this case usually refers to crude petroleum and its products. For the purposes of this discussion “oil” will be used synonymously with petroleum unless otherwise specifically differentiated. In these newspaper accounts we are taken from the heights of optimism to the lowest depth of pessimism and despair. Why this wide spread of opinion? What is the basis of the opinions expressed?
Our optimistic friends point with pride, and properly so, to the performance of our oil industry in World War II. They further point out that the amount of our proven oil reserves is at the highest point in history, in spite of the great consumption during World War II and the years since 1945. They further cite that the production of crude petroleum in the United States is in excess of one million barrels per day greater than it was at its height during World War II. The search for new oil fields goes on apace with results beyond the average estimate of success. Oil is being found in areas where old methods failed but new techniques have succeeded. The percentage of oil recovered from existing fields has risen continuously due to new techniques which have been developed. Many better recovery methods are approaching the point of adoption on a large scale. New refining equipment has been designed and is in use; this equipment produces a wider range of fuels and lubricants of premium grade, and corresponding performance in bigger and better engines. A rosy outlook indeed!
The pessimists reply that all the statements above are true but—the increase in proven reserves has been at great cost. The proven reserve increase is about 80% because of revised estimates stemming from additional-drilling in known fields, and only 20% of the increase comes from newly discovered fields. The drilling costs in terms of time, steel, manpower, and money have steadily increased in spite of new methods and new tools. The difference between 200 feet of hole and 20,000 feet, through harder strata, cannot be disregarded. They further point out that demand has increased so rapidly that existing proven reserves represent less than fifteen years’ supply. In addition, in answer to the phenomenal increase in United States continental production, it is pointed out that gross imports of crude oil and products into the U.S. have recently been 800,000 barrels per day, and that it is possible that the whole western hemisphere may become a net importer of oil in less than five years.
On the refining side, we are reminded that the bigger and better engines require more fuel per engine, and thus add to the ever- increasing drain on our oil supply. We are showered with percentage statistics which show our refineries east of the Rocky Mountains operating above 95% of rated capacity; that the refineries west of the Rocky Mountains are running around 80% of capacity because of a shortage of crude oil—not a lack of demand. World War II rates of refinery runs are quoted to show that 90% of rated capacity was the best annual average and that 94% was the best short-term average. On the war supply side it is emphasized that sources outside the continental United States contributed well in excess of a million
Table I. U. S. Petroleum Demand and Supply Excluding all Abnormal Movements Resulting from the Iranian Crisis* After August, 1951 In thousands of barrels per day (B/D)
Demand |
1950 |
1951 |
% Change from 1950 |
1952 |
% Change from 1951 |
Total Demand |
|
|
|
|
|
Gasoline |
2,791 |
3,110 |
11.4 |
3,293 |
5.9 |
Kerosene |
329 |
346 |
5.2 |
366 |
5.8 |
Distillate |
1,114 |
1,268 |
13.8 |
1,372 |
8.2 |
Residual |
1,559 |
1,645 |
5.5 |
1,689 |
2.7 |
Other products |
860 |
954 |
10.9 |
988 |
3.6 |
Crude |
150 |
130 |
-13.3 |
105 |
-19.2 |
Total |
6,803 |
7,453 |
9.6 |
7,813 |
4.8 |
Exports |
|
|
|
|
|
Products |
209 |
257 |
23.0 |
185 ■ |
-28.0 |
Crude |
95 |
100 |
5.3 |
55 |
-45.0 |
Total |
304 |
357 |
17.4 |
240 |
-32.8 |
Domestic Demand |
6,499 |
7,096 |
9.2 |
7,573 |
~ 6.7 |
Supply |
|
|
|
|
|
Production |
5,402 |
6,097 |
12.9 |
6,300 |
3.3 |
Natural Gasoline Imports |
498 |
556 |
11.6 |
573 |
3.1 |
Crude |
487 |
536 |
10.1 |
535 |
-0.2 |
Residual |
327 |
339 |
3.7 |
367 |
8.3 |
Others |
33 |
28 |
-15.2 |
29 |
3.6 |
Total |
6,747 |
7,556 |
12.0 |
7,804 |
3.3 |
Closing Stocks |
|
|
|
|
|
(Millions bbls.) |
583 |
620 |
|
617 |
|
Crude Runs Required |
5,739 |
6,462 |
12.6 |
6,715 |
3.9 |
Refinery Yields (%) |
|
|
|
|
|
Gasoline |
43.1 |
42.8 |
|
43.4 |
|
Kerosene |
5.7 |
5.6 |
|
5.5 |
|
Distillate |
19.0 |
19.9 |
|
20.3 |
|
Residual |
20.3 |
20.2 |
|
19.5 |
|
Other and losses |
11.9 |
11.5 |
|
11.3 |
|
* “Not a realistic assumption”—from Program Division (Petroleum Administration for Defense) Report, dated September 7, 1951.
barrels per day to the war effort, and even with this help we had to ration our civilian population. We are further informed in this connection that the continental United States potential crude production at the start of World War II was one million barrels per day in excess of actual production and demand—a cushion of 25%! At present it appears that our “shut-in” production is less than 10% of demand, and our refinery margin is hovering around 5%. Say the pessimists—a horrendous outlook!
The most recent estimates of the supply- demand balance for the years 1950, 1951, and 1952 are contained in reports prepared by the Program Division of the Petroleum Administration for Defense. Parts of these reports are quoted herein. Table I gives the position of the continental United States 1950-1952 inclusive. The data for 1950 are preliminary reported figures; 1951 figures are part preliminary reports and part estimated; 1952 figures are estimated. In the light of past history, the 1952 estimates can be considered conservative.
A few comparisons of these data with that for previous years will illustrate the astronomical growth in demand for petroleum products. The following data from American Petroleum Institute publication Petroleum Facts and Figures 1950 are indicative of the growth in demand.
|
1941 |
1945 |
1951 |
In Thousands B/D |
|
|
|
Total demand |
4,369 |
5,358 |
7,453 |
Total supply |
4,339 |
5,321 |
7,556 |
Included in Demand and |
|
|
|
Supply Totals: Exports (demand) |
298 |
500 |
357 |
Imports (supply) |
266 |
311 |
903 |
Net Imports |
- 32 |
-189 |
546 |
The deficit or surplus indicated by the total demand and supply figures will be reflected in stock changes for the year. Note that if imports are subtracted from supply and exports from demand, the 1951 balance for continental United States is—Supply 6,653,000 B/D—Demand 7,09600 B/D. The shut-in crude production could fill this deficit. The question of pipeline space to move the crude to the refineries and the availability of the refining capacity in the right locations is not so easily answered in the affirmative; the controlling factor is steel supply and time. From the military standpoint the steel supply is one of the major factors in many military programs.
To get back to the supply of petroleum products, let us investigate it from the standpoint of the user. For what purposes are these major products of crude petroleum used? It is estimated that the 1951 supply will be consumed to a large extent by the users listed below in approximately the amounts indicated.
The most striking increases in consumption of petroleum products have taken place in the middle distillate range of fuels, motor gasolines, and liquefied petroleum gases. The increase in the use of diesel fuel by the railroads is on the order of 2,000% since 1941. Considering the low level (7,500 barrels per day) of use in 1941, this percentage might be misleading, so it is well to note that the increase of 1951 over 1949 is 49.5%, a yearly increase of almost 25% as compared to the ten-year average of 20%. If this large increase in the use of diesel fuel were compensated for by a corresponding decrease in the use of residual fuel oil, the effect on petroleum demand might be less noticeable. However, the total use of both fuels by the railroads has risen from 228,000 B/D to 322,000 B/D over the ten-year period.
Table II
(Thousands barrels per day)
|
Motor Fuel |
Diesel |
Other dist. |
Residual |
Railroads |
|
148 |
6.9 |
164 |
Range Oil |
— |
— |
257.0 |
— |
Heating |
— |
— |
714.0 |
185 |
Public Utilities |
— |
15 |
15.0 |
244 |
Marine |
— |
36 |
2.0 |
260 |
Industrial |
71 |
39.5 |
53.5 |
546 |
Agriculture (non-highway) |
71 |
21.6 |
7.0 |
— |
Passenger cars |
1,757 |
— |
— |
— |
Trucks |
630 |
6.5 |
— |
— |
Busses |
39 |
15.0 |
— |
— |
Miscellaneous |
54 |
46.6 |
126.6 |
100 |
The use of middle distillates (kerosene, diesel, home heating oils) for home uses showed a 58% increase between 1941 and 1949. The increase continues, but the statistics available are not directly comparable for 1950 and 1951. It is also worthy of note that the use of kerosene increased 17% between 1946 and 1949. Over 60% of this kerosene is used as range oil, in households.
The use of residual fuel continues to rise. This use is spread over a number of types of equipment, ranging from ships to space heating of large buildings. An interesting corollary is that as the petroleum demand rises, the demand for tankers also rises, requiring more bunker fuel, and the residual use increases accordingly, particularly during the winter months, the customers thereby compounding their demands. The same reaction takes place when petroleum movement by tank car is required. Many other examples of the cumulative nature of petroleum demand could be cited. It would be worthwhile at this point to consider the relationship between this mounting demand and the effect of military competition with civilian demand for the same barrel of petroleum products.
What types of products do the military departments require? How closely related are civilian and military product types? Table III demonstrates diagrammatically the competition. Not too clearly indicated on Table III is the fact that, in addition to competing with civilian products, the military products compete among themselves. Jet fuel, diesel, and Navy Special fuel oil clash in the middle of the crude barrel as all three demand a sizeable slice of the middle distillate fraction of the barrel.
In addition to this competition, another competitive item, charge stock to cracking units operated primarily for production of motor fuel, must be considered. Note from Table III that this charge stock comes from the residual and middle distillate fractions of the crude barrel. The unparalleled increase in demand for motor gasolines and middle distillate fuels over the past few years has caused the oil industry to develop new refinery installations. The outstanding items of new refinery equipment are the thermal and catalytic cracking, catalytic reforming units, and the most modern of the latter type, the “platformer.” The older thermal units required high temperatures and high pressures with the concomitant large steel requirement. The catalytic unit, as its name implies, takes advantage of the use of a catalyst which tends to reduce the temperature and pressure requirements, and a corresponding reduction in steel needs. The heavy gas oils (middle distillate fractions or residual fractions) can be fed into certain types of cracking equipment and the output of this equipment can by further treatment be converted into components for blending aviation gasolines, motor gasolines, and diesel fuel. Here again the interrelationship of the various petroleum fractions sharpens the competition among the various users of liquid hydrocarbons.
In these days of accent on air power, the source of supply of fuels to power the aircraft takes on added importance. During World War II aviation fuels constituted in excess of 30% of the total military requirement for U. S. forces. Aviation gasolines varied from 73 to 100 octane, with the major requirement being 100 octane. The usual designation for 100 octane aviation gasoline is by so-called performance numbers (grade) 100/130:100 the lean mixture rating and 130 the rich mixture rating; in other words, the performance of the fuel in an engine at less than full power for cruising and at full power for take-off or combat operation. The refiner has to build into the fuel the characteristics which will bring about the required engine performance. At present the emphasis has shifted from grade 100/130 to grade 115/145 aviation gasoline, the grade required in newer and more powerful aircraft engines. The refiners’ problem is made more difficult by this shift of emphasis. Octane or performance numbers come high. For example, look at the growth of 100 octane aviation gasoline production during World War II. In 1940 the production of 100 octane aviation gasoline was 40,000 B/D. By 1944 the production had risen to 560,000 B/D, all of which was being used. We naturally assume that variations in refinery yields within limits can be achieved with comparative ease. The variation from 40,000 B/D—1% of the crude barrel—to 560,000 B/D—12% of the crude barrel—however, was not so easy. An expenditure of approximately one billion dollars, one million tons of steel, and thirty-odd months of time were required to change the yield of one product. An added complication arises from the change upward in octane or performance number of aviation gasoline. Why does this complicate matters?
The principal ingredient in aviation gasoline is a hydrocarbon called “alkylate.” Certain gases, principally butanes, which are obtained from cracking units are subjected to a special process which changes the gas into a liquid known as alkylate. Present methods of blending require approximately 65% alkylate in grade 100/130 aviation gasoline, while grade 115/145 requires approximately 85% alkylate. Theoretically, the same equipment which could produce eight barrels of 100/130 can only make five barrels of 115/145, but over-all the relationship is about two barrels of 100/130 to one barrel of 115/145. This means that currently available equipment cannot approach the production of aviation gasoline at the World War II level. Also it means that increased production of high octane aviation gasoline reaches down through the cracking units to compete with other civilian and military products.
In addition to the rising octane requirement, two additional customers have arrived on the scene. These customers are not so much interested in octane ratings as the conventional World War II type, but their appetite is volumetrically prodigious. They are the jet and turbo-prop engine. Their appetite is satisfied by a rather wide range of fuels, but as they grow up, they become more selective in their taste.
At present, jet fuel is a mixture of gasoline, kerosene, and diesel oil. The gasoline part of the jet fuel comes from the lower grades of motor gasoline. The kerosene contribution must be of excellent quality and so must the diesel. Both of these middle distillate fractions must have as low a freezing point as practicable. The approximate content of this jet fuel is 74% gasoline, 13% kerosene, and 13% diesel oil. The impact of the production of one million barrels of jet fuel on other civilian and military users is rather obvious when you break it down into its components —740,000 barrels motor gasoline, 130,000 barrels kerosene and 130,000 barrels diesel. These customers take their toll from the family car, the kerosene stoves and heating units, the trucks, the tanks, the submarines, the railroads, and many others.
Navy Special fuel oil is one of the largest volume requirements, ranking next to aviation fuels. A major combatant ship at battle speeds can use as much as 10,000 B/D of this fuel. Navy Special is a mixture of residual fuel oil and a “cutter stock” coming from the middle distillate fraction of the crude barrel. A glance at Tables II and III will show that this fuel cuts across a wide range of home and industrial uses as well as the “charge stock” for the cracking units.
Combat grade motor gasoline is 86 octane. The increase in requirement for this item strikes directly at the passenger car gasoline. In addition to this direct effect, the other products are indirectly affected by the demand for additional charge stocks for cracking units in order to make more gasoline. Fortunately for the military user of motor gasoline, our refining industry is geared to a gasoline economy. A reference to Table I “Refinery Yields” shows that average gasoline production is equal to that of any other two products taken together. It would appear that the amount of gasoline which could be obtained from rationing of civilian passenger cars would be tremendous.
We must remember the aviation gasoline demand moving in on the high octane fractions at the top of the gasoline range and the jet fuel moving up from the bottom. In this type of maneuver, with all the competitors converging on our barrel of crude, someone bids fair to be caught in the middle. Whether the victim will be the diesel, the jet, or the gasoline engine will depend to a great extent on our designers and planners who set the equipment programs.
There is only one crude barrel from which both civilian and military refined products must come. Neither side of the family can forget the other. The military must always remember that a military force without the support of a powerful industrial plant and a strong civilian economy will be a complete failure. The civilian must remember that for the foreseeable future military combat equipment is committed to liquid fuels. Both must make every effort to insure that shore installations make all practicable use of fuels other than liquid products. Installations capable of using more than one fuel should be kept in a condition which would expedite the change-over and speed the release of liquid fuels for combat use. This responsibility is just as much a military one as it is civilian.
The delicate balance which currently exists between supply and demand would seem to be an indication that military planners should not be nonchalant about future petroleum supplies. The Petroleum Administration for Defense is making strenuous efforts to increase supply by expansion of refining capacity, intensified drilling, and many other related programs. At the present time these programs are only as effective as the steel supply permits. The steel allocations to the industry have been inadequate and probably will continue so for a considerable period of time. For the immediate future it appears that the military must remain in the pessimistic camp. This is required primarily because any military planner who does not assume, in his initial estimate, the worst conditions he may face, is taking unnecessary and dangerous chances.