Oil

What is it

OIL

Life without oil would be very different. From crude oil we obtain petrol for our cars, dieselfuel for our ships and jet fuel for our planes. We use oil to generate electricity, to heatfactories, hospitals and offices and to lubricate machinery. The chemical industry uses oil-derived feedstocks to make plastics, synthetic fibres, detergents, rubbers and manyagrochemicals.

Oil has transformed the lives of individuals and the economies of nations. The discoveryof oil creates wealth: modern, industrial towns thrive where once there was only desert andnew jobs are brought to areas of high unemployment.

Oil has become a key issue in world politics, as the two oil crises of the 1970sdemonstrated. Questions of oil supply and demand, prices, alternatives to oil and energyefficiency are constantly debated. Taxes on crude oil production and the sale of oilproducts enable governments to finance their expenditure plans. Oil is rarely out of theheadlines.

This booklet describes where oil comes from, how it is produces and converted intothousands of useful products and how it is transported to millions of customers around theworld. It outlines some of the measures taken to ensure that the environment is notharmed by oil operations. And last but not least, it describes why oil has become socrucial to the world’s economy and discusses its prospects as a source of energy for thefuture.

The search for oil

Oil is a mixture of organic chemicals derived mainly from the remains of microscopic plantsand animals that lived in the seas millions of years ago. Special conditions and greatlengths of time were needed for these remains to undergo complex chemical changes toform oil and gas. These are sometimes concentrated in accumulations which man candetect and exploit.

Oil exploration began more that a hundred years ago, when drilling was carried out near oilseeps, which indicated that oil, lay below the surface. Today, much more sophisticatedtechniques are employed, such as seismic surveying and satellite imaging. Powerfulcomputers assist geologists in interpreting their findings. At the end of the day, however,only the drill can determine whether or not oil lies below the ground.

Millions of years ago, countless microscopic plants and animals known as phytoplanktonand zooplankton floated in the surface waters of ancient seas. After death, the remains ofthese minute organisms settled to the sea bed where, together with mud and sild, theyformed, over millions of years, organic-rich sedimentary layers. The continuedaccumulation of younger sediments buried the organic layers to depths of thousands ofmetres, compressing them into a rock that was to become the source for oil. As the depthof burial increased, the temperature rose. Under such conditions, and over long periodsof time, the original organic material changed, breaking down into simpler substancescalled hydrocarbons – compounds of hydrogen and carbon. The result was oil, a complexmixture of hydrocarbons.

Oil naturally tries to flow upwards, from high to low pressure conditions. Where possible, itmakes its way to the earth’s surface and escapes in seeps. Fortunately for the modernworld, some of it has been trapped along the way in reservoirs.

An oil reservoir, contrary to popular belief, is not an enormous underground lake. Veryoften, it is a seemingly solid rock, which on close inspection contains myriads of minutespaces or pores. By moving from on space to the next, and sometimes by flowing throughfractures, oil migrates slowly upwards. When the migrating oil comes up against animpermeable layer or seal, it backs up in the pores of the reservoir rock and an oilaccumulation forms.

Oil from seeps has been used in the form of pitch for many hundreds of years as a furl, tocaulk wooden ships and even for medicinal purposes. However, the first serious attemptsto drill for oil were not made until the mid nineteenth century. In 1859, Edwin Drake scoredthe first success when he struck oil in Pennsylvania in the United States at a depth of only21 meters. Others followed his example, first in the USA, then in South America, Russia,the Far East and the Middle East. Many companies were set up to produce, transport andmarket this new commodity. Oil has since been found in every continent exceptAntarctica.

In the early days, the search for oil was very haphazard. Apart from drilling in placeswhere oil seeped to the surface, many '‘wildcat'’ wells were sunk on the basis of a ‘hunch’,often with disappointing results. Nowadays, exploration for oil has become much morescientific, but even with modern technology and the know how of highly skilled geologistsand geophysicists, the search for oil remains fraught with uncertainties.

Oil exploration has to contend with an earth surface, which has had a complicated history.Geoscientists know that parts of the earth’s crust, involving whole continents and oceans,move relative to one another. When continents moved apart, areas which used to be landsubsided below the sea: such areas became sites of oil source rock deposition. Whencollisions occurred, immense forces built mountain chains, crumpling the rocks into foldsand thrusting them over each other to form complex structures. Some of these arefavourable to the collection of oil.

One of the commonest structures is the anticline, where rocks have the form of a dome orarch. Oil may be present in a reservoir below the anticline, sealed in by an impermeablelayer. If a well is drilled through this layer, down to the reservoir, the oil may be brought tothe surface.

Essentially, the task in oil exploration is to locate sites where there are geologicalstructures in which oil might have been trapped. The first step for the survey team is tostudy all the available geological and geographical information about the area underinvestigation and to prepare detailed maps. Aerial photographic surveys are oftenundertaken, especially in remote locations where little exploration and mapping haspreviously taken place. Today, increasing use is made of satellite images. Although theseare taken from several hundred kilometres up in space they are able to show features onlya few metres in size. Besides showing the structures on the earth’s surface, they alsorecord information, invisible to the human eye, which can be processed to reveal subtlevariations in soil type, moisture content, mineral and vegetation distribution, all of whichcan help the geologist to construct a picture of regional geology.

Certain areas are then chosen fro more detailed survey. Geologists study rock outcropsand analyse rock specimens and the fossils they may contain for clues to their origins andages. Geophysical surveys provide additional information, indicating how the rocks aredisposed below ground. Such surveys include measurements of the earth’s gravitationaland magnetic fields, because these are affected by the types and distribution of rocks inthe earth’s crust. Much more important these days, however, is the seismic survey.

In this type of survey, sound waves are sent into the earth where they become reflected bythe different rock layers present. The time taken for them to return to the surface ismeasured. This reveals how deep the reflecting layers are: the greater the time intervals,the greater the depth. Such surveys can also indicate what kinds of rock lie beneath thesurface, since different rocks transmit sound at different rates.

In remote areas, the sound waves may be produced by dynamite, detonated a few metersbelow the ground surface. In densely populated or environmentally sensitive areas, whereexplosions are not practical, vibrator trucks are used. Before any drilling, a seismic surveyis the only way to gather detailed information from areas lying below water. Dynamiteused to be the seismic source employed at sea, but nowadays air guns are used. Thesegenerate sound waves by releasing large bubbles of compressed air below the watersurface.

The most sophisticated seismic surveys are three-dimensional, in which the seismic linesare laid out in a very dense grid, precisely located by the latest navigational techniques.The recorded data are processed in advanced computers to give a very accurate, 3-Dpicture of the formations and structures below the survey area. The process is veryexpensive: an offshore 3-D seismic survey can cost $15 000 per square kilometre,depending upon the location and conditions. Drilling a well, on the other hand, can costmillions of pounds, so time and money spent on accurate surveys are good investments,since they help to locate the wells correctly and minimise the waste of dry holes.

Drilling and Production

Drilling for oil is a highly skilled operation often carried out in remote or difficult terrain. Ifthe find is promising and commercial conditions are right, a field will be developed andbrought into production.

During the production phase, good reservoir management ensures that the oil is producedas efficiently as possible. In recent years, increasing attention has been focused onfinding and producing oil offshore, where, thanks to engineering and technologicaladvances, it is possible to operate in deeper and more hostile waters than ever before.

Wells are drilled with rotary drilling tools, which work on the same principle as thecarpenter’s brace and bit. The cutting tool is the drilling bit which has tough metal orsometimes diamond teeth that can bore through the hardest rock. The bit is suspended ona drilling string consisting of lengths of pipe, which are added to as the bit goes deeper.The bit is turned either by a rotary table on the drill floor or, increasingly, by a downholemotor.

In time, the bit gets worn and has to be replaced. The whole drilling string, sometimesweighing over 100 tonnes, must then be hauled to the surface and dismantled section bysection as it emerges. The new bit is fitted and slowly lowered as the drill pipe sections

are reassembled. This operation, known as a ‘round trip’, can, in a deep well, take most ofa 12-hour shift. Until recently, the drilling string was mostly manhandled by the drillingcrew. In order to improve safety and reduce drilling costs, automated drilling rigs withmechanised pipe handling and computerised controls are being introduced.

One of the essential supplies for the drilling crew is ‘mud’, or drilling fluid. This is a specialmixture of clay, various chemicals and water, which is constantly pumped down throughthe drill pipe and comes out through nozzles in the drilling bit. The stream of mud returnsupwards through the space between the drilling string and the borehole, carrying with itrock fragments cut away by the bit. At the top, the returned mud is sieved and thenrecirculated through a pump. The cuttings left on the sieve indicate the kind of rock thekind of rock the drill is passing through and they may show traces of oil as the bit nears anoil-bearing formation. The drilling mud keeps the bit cool and prevents the escape of gasor oil when the bit enters an oil trap.

The drilling rig is a substantial piece of equipment and before drilling can start in remoteareas, roads may have to be built through jungle and across desert to provide access. Toreduce transport cost, initial exploration wells in remote areas may nowadays be drilled bymuch smaller, slimhole rigs.

The rate of drilling varies with the hardness of the rock. Sometimes the bit may cutthrough as much as 60 meters an hour, but in a very hard layer progress may be a little at30 centimetres an hour. Most oil wells are between 900 and 5000 meters deep but wellsas deep as seven or eight kilometres are sometimes drilled.

Wherever possible, wells are drilled vertically, but sometimes, especially offshore, wellshave to be drilled which deviate from the vertical in order to reach a wide spread of targetsfrom a single platform. This is known as ‘deviated drilling’. Recent developments havemade it possible to deviate as much as 90 degrees from the vertical. Known as ‘horizontaldrilling’, this technique can, in some instances, increase the productivity of a well.

Special care is needed during drilling as the bit nears a formation containing oil and gas.The high pressure in an oil tap may force oil and gas up to the surface in a violent surge asthe drill breaks through the impermeable rock. Such ‘blow outs’ or ‘gushers’ were commonin the early days of the oil industry, but drilling technicians are now trained to preventthem, as they pollute the environment, carry a high fire risk and waste hydrocarbons. Thedrilling supervisor in charge of drilling can anticipate the danger of a blowout occurringwhen rock chippings from the bottom of the well show traces of oil, or when instruments onthe derrick floor show rising pressures in the well. He can pump down heavier drilling mudto hold back the oil or close special valves, known as blowout preventers, fitted to the topof the well casing.

During drilling operations, valuable information about the field at various depths iscollected by a procedure known as ‘logging’. Drill cuttings which are returned to thesurface are examined for traces of hydrocarbons and for their fossil content. Wireline logsexamine the electrical, acoustic and radioactive properties of the rock, which gives cluesas to the rock type, its porosity and how much fluid it contains.

Sometimes, pieces of rocks called ‘core samples’ are extracted for examination in alaboratory.

The first well to be drilled in an area is known as an ‘exploration well’. If oil is discovered,further wells are drilled to establish the limits of the field. These are “appraisal wells’. Ifthe field is developed, some of these appraisal wells may be used as production wells.However, there are many factors to consider before a field is taken into production. Howmuch oil does a reservoir contain and how much will it cost to extract? (Costs depend,among other things, on depth and how easily the oil flows to the surface). How close isthe field to potential markets? How many wells will be needed and where should they belocated? What treatment facilities will be required?

When development wells are drilled an assembly of pipes and valves, called a ‘Christmastree’ is installed on each wellhead to control the flow of oil from the well. Under certainconditions, the oil flows to the surface naturally by reservoir pressure, but sometimesbeam pumps – the well-known ‘nodding donkeys’ – or other methods to lift the fluidsartificially have to be installed. From the wellhead the oil flows through a pipeline to agathering station, where oil from several wells is collected. Equipment at the stationseparates gas from oil and drains off the water.

Once a field has been brought into production, good reservoir management is needed toensure that as much oil as possible is recovered. Sometimes, the simplest way ofincreasing production is to drill additional ‘infill’ wells. At other times, reservoir pressurehas to be maintained by injecting water or compressed gas into the reservoir throughspecial injector wells.

Oil production offshoreIt is estimated that nearly one third of the world’s oil comes from offshore fields, and inparticular from the North Sea, the Arabian Gulf and the Gulf of Mexico, where one of theworld’s first offshore platforms was built, in 1947, in just seven meters of water. Thanks togreat advances in engineering, it is now possible to build platforms taller than most of theworld’s skyscrapers and anchored to the seabed in more than 400 meters of water. Theseplatforms contain thousands of tons of equipment and can accommodate hundreds of menwho work in shifts to ensure that oil is produced, stored and pumped ashore around theclock.

In smaller fields, such huge fixed structures may not be economically justifiable.Engineers have developed ingenious alternatives, such as floating production systems.These are converted semi-submersible drilling vessels or tankers which are used to treatand store the oil which flows through risers linking the vessels to wells on the seabed.With subsea production systems, there is no dedicated platform. Instead, oil is pumped frowells and manifolds on the seabed to a platform in a nearby field. In the future, manysmaller fields in areas like the North Sea might be produced as ‘satellites’ using suchsystems.

Pipelines and Tankers

Crude oils is transported by pipeline or tanker to a refinery to be made into products which,in turn, are transported to distribution centres or end users.

Over land and short distances across the sea, crude can be transmitted by pipeline. Apipeline requires huge capital investment but, once constructed, labour and maintenancecosts are relatively low. The capital investment in a tanker, on the other hand, is less butoperating costs – labour, fuel and maintenance - are higher. For long distance transport

by sea, tankers are indispensable and today’s vessels are designed to operate flexibly andefficiently to the highest technical and safety standards.

Moving oil and oil products around the world is a huge undertaking. Oil accounts foralmost half of the world’s seaborne trade. The world tanker fleet totals more than 250 000million dwt, a third of which is owned by major oil companies. Pipeline networks criss-crossmost continents: in Europe alone there are 200 lines stretching for more than 17 000kilometres.

In the early days of the industry, crude oil was generally refined close to where it wasproduced. As demand for greater variety of products grew, however, it became morepractical to transport the crude oil to refineries in the consumer countries. At first, oil wastransported in wooden barrels on ordinary cargo ships (hence the term ‘barrel’ as a unit ofmeasurement where one barrel = 35 imperial gallons or 159 litres). Then Marcus Samuel,the founder of Shell Transport and Trading, adopted the idea of building ships, which werein effect floating tanks. This signalled the birth of the oil tanker.

The main design feature of an oil tanker is the division of the oil-carrying space intoseparate tanks, which segregate different types of oil or oil products and prevent excessivemovement of the cargo at sea. Engines, living quarters and the navigating bridge aregenerally in the after parts of the ship. This arrangement keeps the machinery andaccommodation away from the inflammable cargo.

Modern tankers are efficient and flexible, capable of carrying crude oils or products suchas fuel oil, gas oil, jet fuels or lubricating oils. Crude oils are often moved long distances inlarge tankers – the largest can carry 400 000 tonnes of oil. Products, on the other hand,are generally carried shorter distances on smaller tankers, about 30 000 dwt. Thesevessels have a large number of tanks and more complex pumping and pipingarrangements to keep the cargo types separate. Some carriers can carry both black andwhite products. These tend to be larger: for instance, 80 000 dwt tankers are used toexport products from the new refineries in the Middle East.

Ten years ago, the average 250 000 dwt tanker consumed 190 tonnes of fuel per day atfull speed. Today’s new tankers consume less that a third of that and fuel consumptioncan be cut even further by reducing speeds. Since fuel accounts for one-third of operatingcosts, such savings are important. Manning costs are also kept under close scrutiny, withcrews averaging only 20 people, but without compromising high technical and safetystandards.

The most convenient way to move oil overland is to pump it through a pipeline. Crude oilpipelines are generally large in diameter (sometimes more than a meter) and pumpingstations built at regular intervals along the line ensure that the oil is kept moving at aroundfive kilometres an hour. Constructing a pipeline which may have to cross mountains,rivers or deserts is an immense engineering task, usually undertaken jointly by severalcompanies who share the burden of the huge capital investment required.

As offshore production grows, more underwater pipelines are being constructed. Theseare laid from special pipe-laying barges on which the lengths of steel pipe are weldedtogether before being laid on the seabed. With small diameter lines, the pipe may beunwound from a giant spool directly on to the seabed, thus avoiding the need for offshorewelding. Lines transporting heavy oil may need to be insulated to ensure that the oil flows

freely. Smaller pipelines are usually laid in a trench to protect them from damage byfishing gear.

Oil Refining

Oil is a mixture of liquids and dissolved gases, which is of little use in its crude state.

In a refinery, crude oil is converted by physical and chemical processes into a wide rangeof useful products. There are more than 900 refineries in operation around the world,more than a quarter of which are in the USA. Many have sophisticated conversionfacilities, which enable them to handle different types of crude and provide the range ofproducts each market needs.

The first process in oil refining is the distillation of crude oil to separate it into its differentconstituents. This happens in a tall steel tower known as a fractionating column, so calledbecause each constituent is known as a fraction. The column is kept very hot at thebottom, but the temperature gradually drops towards the top. The inside of the column isdivided at intervals by horizontal trays. These can be either perforated trays or valve trays.Valve trays can accommodate a wider range of loadings that perforated trays: as thevapour load in the column increases, so does the number of valves, which open on eachtray. Each tray is cooler than the one below it, thus providing a temperature gradient onwhich separate vapours can condense.

The crude oil is first heated by a furnace and then passed into the lower part of thecolumn. Since most of the fractions in the oil are already boiling, they vaporise and rise upthe column through the valve trays. As each fraction reaches the tray where thetemperature is just below its own boiling point, it condenses and changes back into liquid.As the fractions condense on their separate trays they are drawn off by pipes. Distillationis continuous, with hot crude oil flowing in near the base of the column and the separatefractions flowing out at each level.

The fractions that rise highest in the column are called light fractions and those thatcondense on the lower trays are called heavy fractions. The very lightest fraction isrefinery gas, which remains a vapour and is used as a fuel in the refinery. Other lightfractions are liquefied petroleum gases (LPG), gasoline (petrol) and naphtha, a majorfeedstock for the chemical industry. The heavier fractions include kerosine (jet fuel) andgas oil, which is used for heating and as a fuel for diesel engines. The heaviest fractionsare drawn off from the base of the column as fuel oils or residues.

Following distillation, many of the separated products are processed to purify them. Theheavy residues are redistilled under vacuum to provide the raw materials for lubricatingoils, bitumen and feedstock for further processing.

However distillation processes rarely yield products in the proportions required by themarket. Fuel oil generally accounts for between a third and a half of the yield fromdistillation, whereas demand from customers is predominantly for the lighter fractions.Modern refineries therefore use chemical conversion to enable the yield of products to bereshaped to match market demand,

Important among these are the various ‘cracking’ processes by which the large moleculesof heavy fractions are broken up into smaller, more valuable molecules. With thermal

cracking techniques such as visbreaking, the molecules are broken down under heat.Visbreaking reduces the viscosity of the residue feed, so that a saleable fuel oil can bemade which requires less blending with higher value product. In catalytic cracking (‘cat-cracking’) processes, the heavy processes are broken up in the presence of a catalyst, asubstance which causes a chemical change but is not itself changed in the process.

Conversion techniques can also be applied at the lighter end of the barrel. Naphtha canbe converted in the presence of a platinum-containing catalyst into high quality gasolinecomponents by a process known as ‘reforming’: the plant is known as a ‘platformer’. Thisalso produces hydrogen, which is useful in other refinery processes.

Recently, efforts have concentrated on converting refinery residues into useable products.In residue hydroconversion (Hycon), hydrogen, extracted from natural gas or produced asa by-product from platforming, is added to the residue. Residues may also be processedby removing carbon, which is the basis of many coking techniques, which yield coke forburning as a fuel.

The techniques used in a refinery depend on the types of crude to be processed and therequirements of the market. More than a hundred different crudes are internationallytraded and a modern refinery may have to process as many as 20 grades during thecourse of a year.

Different markets require different products. In the USA, almost a fifth of all householdsowns three or more vehicles: a refinery serving the US market therefore needs to producea high proportion of gasoline. Markets are constantly changing as people conserve energyor switch to other fuels. In recent years, many refineries have invested considerably inconversion facilities, installed computers to process refinery operations and introducedenergy management schemes, all measures designed to enhance their flexibility, enablingthem to meet market demands.

Products from Oil

Once the products are manufactured from oil, there remains the complex task ofdistributing them to the customers.

Freight rates, product quantities and distances between distribution points and customersall have to be taken into account in selecting the best ways to transport products. Themain uses for oil products are transportation, heating, lighting and power generation.However, oil is an extremely versatile commodity: lubricants, waxes, polishes, manypharmaceuticals and cosmetics require oil as a feedstock. The petrochemical industry,too, provides us with innumerable products of great value to industry and to our daily lives.

Oil products usually leave the refinery in bulk loads, though some are packed in cans ordrums ready for use by consumers. Large consumers, such as power stations or chemicalmanufacturers, may be supplied directly from the refinery by pipeline, road, rail or sea.Smaller customers are generally supplied via storage and distribution centres known asterminals or bulk plants. From these centres, products are transported to customers inproduct ships or barges, road tankers or rail tank wagons. It is a complex task for thedistribution organisation of an oil company to ensure that the right products are deliveredto the right place on time and in the quantities needed. Furthermore, much research and

effort is devoted to providing customers with quality products and technical advice andservices.

Seven or eight main product groups can be distinguished, although within each groupthere are many different grades, depending on the application. Products made from thelight fractions are used mainly for transportation, heating and lighting: naphtha is a majorfeedstock for the petrochemical industry.

LPG is generally supplied in cylinders or bottles and is widely used in homes, hotels,restaurants and other businesses for cooking and heating. In a few countries such asAlgeria and the Netherlands, it is used as an automotive fuel; and in Japan most taxis arerun on LPG.

However, the fuel most associated with the motorcar is of course gasoline. Today’smotorist expects a car to start on cold mornings and run smoothly. A modern gasolinetherefore contains a sophisticated blend of additives such as de-icing agents, antiknockadditives and detergents. Oil companies work in close contact with engine manufacturersto develop fuels appropriate to modern engine design.

In the early days, gasoline was just one product among many sold in hardware orprovision stores. As demand grew, special filling stations were established, some withrepair workshops. In the modern service station the emphasis is on speed andconvenience: some are open 24 hours a day with self-service pumps which operate on adirect debit credit card system. In addition to selling a range of car accessories, manyservice stations sell convenience foods, flowers or offer dry-cleaning services andcafeteria facilities.

Kerosine is used to fuel the world’s civil airlines. Since aircraft fly more than 1500 billionkilometres around the world on passenger routes every year, that represents a sizeablemarket. In many developing countries, kerosine is widely used for lighting and heating asan alternative to scarce natural resources such as firewood.

Gas oil is used in the diesel engines of lorries, buses, vans, trains and ships and also findan application in industry and in power generation. Fuel oil is used for heating, powergeneration and in ships driven by steam turbines. The heaviest residue, bitumen, is widelyused for road resurfacing and for waterproofing dams, tunnels and reservoirs.

Residues also provide the feedstocks for base oils used in the manufacture of lubricants.The base oils are transported in bulk to a lubricants blending plant where they are mixedwith certain chemicals according to a specific formulation. All machines, from a smalldomestic fridge to a huge car assembly plant, need lubrication. The market is thereforehuge but also very complex, requiring ‘tailor-made’ products for each application.

One group of products deserves a special mention: many chemicals are derived from oil.The petrochemical industry is closely allied to the oil industry – indeed many petrochemicalplants share facilities with oil refineries. Petrochemicals provide products which competewith products made from scarce natural resources: synthetic rubbers instead of naturalrubbers, detergents instead of soap. They also provide entirely new products which havetransformed our daily lives: plastic household products, packaging in supermarkets, ‘easy-care’ fabrics, dyes, adhesives and paints. The chemical industry depends on supplies ofoil as feedstocks for the manufacture of thousands of products which contribute to thecomfort and convenience of our modern lifestyle.

Protecting the Environment

Oil industry concern for its environment is not new. The oil business requires large-scaleoperations – huge rigs, tankers, refineries, thousands or miles of pipelines – all of whichaffect the environment.

For many years, oil companies have devoted considerable time and resources to findingways of reducing their impact on the environment. In the final analysis, however, it is aquestion of balance between the need for energy and the desire to have and undisturbedenvironment. Oil companies and governments cooperate on both, and on an internationalscale to ensure this balance is reached.

In the last few years, there has been widespread, debate about the effects of industrialprocesses on the environment. These may be short term eg, oil or product spills, but alsolonger term, eg, the ‘greenhouse effect’ (warming of the earth’s atmosphere) or damage tothe ozone layer which will affect the world that future generations will inherit.

Every industry, by the mere fact of its existence, has an impact on the environment andthe oil industry is no exception. Nevertheless, considerable effort is made in all oiloperations to ensure that this impact is minimised and that regulations are met.

During exploration, for instance, special measures may be taken to protect theenvironment such as acoustic screening. Before production facilities are constructed, andenvironmental impact assessment is normally conducted to decide, for example, the bestmethod of handling wastes and effluents. During production, regular tests are made tomonitor any pollution caused by operations. Recently attention has focused on how bestto dismantle offshore platforms, which are no longer, required.

At one time, tankers discharged dirty ballast water into the sea. Improvements have sincebeen made in tanker design to ensure cleaner operations and discharge of oily water isnow illegal. Some tankers use the Load-on-top system, whereby oily water is treated onboard, and increasing numbers have Segregates Ballast Tanks – tanks used solely forballast and never for cargo, so that oil and water are kept apart. Others use crude oilrather than water for tank washing, thus avoiding the problem os contaminated water.

Where pipelines run under-ground, considerable excavation work has to be carried outwhen a new pipeline is laid. However, following construction, care is taken to ensure thatthe land is carefully reinstated: the landscape should look the same as before workstarted. A pipeline is checked regularly for corrosion or leaks using an ‘intelligent pig’.This is a device fitted with sensors or recorders, which picks up any signs of corrosion orother defects as it is passed through the pipeline.

Like any other large industrial complex, a refinery could pose a threat to the environmentthrough noise and pollution of the air, water and soil. Improved machinery design helps toreduce noise levels and where possible, refineries are sited at a suitable distance frominhabited areas. Waste water is treated before disposal and there are strict controls ongaseous emissions. Strenuous efforts are made to contain the crude oil and oil products,thus avoiding soil pollution.

Accident prevention is an important element in environmental conservation. Rigorousattention is paid to safety in plant design and operation, but the most common cause of

accidents is human error. Many jobs in the oil industry involve contact with potentiallydangerous equipment or products: safety guidance, training and, above all, a safetyconscious attitude among all employees are vital.

Lead has traditionally been added to gasoline to prevent engine ‘knock’. As a result of thepossible health hazards of lead in the atmosphere, gasolines with lower leat contents andunleaded gasoline have been introduced. In some countries, many service stations sellunleaded and some governments have offered tax incentives to enable it to be sold morecheaply than leaded gasoline.

Environmental protection is an issue at both national and international levels. There arevarious organisations through which industry cooperates with governments to producemeasures to safeguard the environment.

Oil Economics

Oil economics is more than just a question of the supply and demand of the world’s mainsource of primary energy.

The oil business is subject to many influences, in particular the government policies of oilproducing and consuming nations and fiscal regimes. Oil prices have generally beenextremely volatile, except for a brief period of stability in the 1950s and early 1960s. Atthat time, the world oil scene was dominated by large integrated oil companies but sincethen, the oil producers, especially OPEC countries, have exerted more control on oilproduction and pricing.

When Edwin Drake first sold oil from his well in Pennsylvania, it fetched $20 a barrel.Within a short time, the price had fallen to a few cents. The oil business has generallybeen volatile, characterised by sudden changes in demand and price.

Nevertheless, the 1950s and 1960s were a period of relative stability. Oil was inexpensiveand much in demand as a fuel for the increasing volumes of road, rail, air and sea trafficand as a feedstock for the burgeoning petrochemical industry. The international oil marketwas dominated by the major oil companies – Esso, Shell, BP, Gulf, Chevron, Texaco, andMobil - nicknamed the ‘seven sisters’. Their operations were integrated, ie, they managedall stages of oil supply from exploration and production through to final deliver to thecustomer. Oil was generally sold under long term contracts at posted prices.

Around the end of the 1960s, however, the producer countries became more dominant:many nationalised the oil companies’ concessions or negotiated agreements to control oilproduction. OPEC (the Organisation of Petroleum Exporting Countries) had been foundedin 1960 by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela to promote the interests ofmember countries regarding their oil production and the revenues they gained from it. Thedisruption to oil supplies and the huge price rises resulting from the Arab producers’policies during the Arab/Israeli war of 1973/74 and the Iranian revolution of 1978 indicatedjust how powerful OPEC, especially the Middle Eastern countries, had become.

By the early 1980s, economic recession and consumer reactions, which included thesubstitution of oil and energy conservation measures, had resulted in lower oilconsumption. The surplus of oil production capacity increased. OPEC, which nowincluded countries in the Far East and Africa, made several attempts to impose quotas

limiting production, with limited success. In addition, production from certain non-OPECcountries especially, the UK, Norway and Mexico, increased. Oil production in theCommunist countries is also significant: oil exports from the Soviet Union, the world’slargest oil producer, bring in valuable hard currency.

The world oil scene is still characterised by surplus production capacity and volatile prices.Oil pricing has become extremely complex. Most oil is now traded in relation to the spotprice of certain marker crudes, such as North Sea Brent, Dubai from the Middle East orAlaskan North Slope. The spot price is the price of an individual cargo of crude traded at aparticular location. Futures markets have been established in London and New Yorkwhere oil brokers trade in ‘paper barrels’, negotiation contracts to supply a cargo of oil atsome specific time in the future. No oil actually needs to change hands in such deals.

At times, OPEC producers have favoured ‘netback deals’ whereby the price of the crude isnegotiated on the basis of the expected value of the refined product made from it. In 1986,the price of major internationally traded oil fell below $10 a barrel as OPEC producerscompeted for market share. They subsequently reintroduced production quotas andofficial selling prices in an effort to raise prices and bring stability to the market.

A stable oil market is of general benefit. Sudden price rises mean higher energy costs toindustrial and domestic customers, while a sudden fall in prices leads to a loss of taxrevenue to governments and difficulties for producing countries, whose economies oftendepended on revenues from oil. Price fluctuations are also a problem for oil companieswhose projects require huge investments over several years. In the North Sea, forinstance, Shell, in partnership with Esso, has invested over £15 billion since 1969 in oiland gas exploration and production. The larger fields have probably all been discoveredand efforts are now concentrated on the smaller, more marginal fields. Here the oil pricecan be crucial to the decision to develop a field – a sudden fall in price can mean a projectis no longer economically viable.

In short, therefore, the economics of oil are complex and subject to many diverseinfluences – decisions by OPEC, the behaviour of non-OPEC producing countries,changes in fiscal regimes, investment decisions by oil and power companies, to name buta few. Under such conditions, uncertainty is inevitable and it is a factor which participantsin the world oil scene are gradually accepting, albeit reluctantly.

The Future

Oil is the world’s largest source of energy, supplying nearly half of the total primary energydemand. Three quarters of world oil reserves are in OPEC countries and of these, twothirds are in just four countries: Iran, Iraq, Saudi Arabia and Kuwait. It might be expectedthat priority would be given to producing Middle East oil, given its abundance and the factthat it is relatively cheap to produce. However, as a result of economic, political andstrategic considerations, the search for oil has extended into remote parts of the earth,both onshore and, increasingly, offshore.

Exploring for and producing oil offshore is both difficult and expensive. Oil companies willcontinue to seek technical innovations needed to make such activities cost-effective.Improved geological and seismic data have led to more accurate estimates of oil reserves.In some cases, reservoirs have been re-assessed and reserves upgraded in the light ofprevailing economics. On the production side, improved drilling techniques and the use of

lighter materials on platforms have cut costs considerably, sometimes by as much as athird.

Oil supply can be augmented by unconventional sources such as oil shale and tar sands.There are major oil shale deposits in the Western United States, Australia and Morocco,and tar sands occur in Canada, Venezuela and Madagascar. Such sources are moreexpensive to produce than conventional oil and therefore tend to be uneconomic todevelop in times of low oil prices.

So much for oil supply. But what about oil demand in the future? Demand in developedcountries is likely to show little growth, due to energy conservation measures and movestowards greater energy efficiency and alternative energy sources. Well-insulated homesrequire less heating, modern car engines use gasoline more efficiently. Demand in thedeveloping countries, on the other hand, is likely to increase, owing to greaterindustrialisation and population growth, especially in urban areas. As people becomemore affluent, there are more cars on the road and demand for oil – still the main transportfuel – therefore increases.

In the early 1970s, there were concerns that the world’s oil might be running out. Thisview has now changed and it is believed that with today’s technology there is enough oil tolast well into the next century. Public debate is now focused on the environment and theterm ‘sustainable growth’ has become increasingly familiar. People want a higherstandard of living, but not at the expense of permanent damage to the environment. Theuse of all fossil fuels, including oil, will depend not only on technical, political and economicdecisions but, increasingly, on environmental considerations.

Glossary

Acreage Area covered by a lease granted for oil explorationAdditive Special chemical added to a product to improve its characteristicsAgrochemicals Chemicals used in agriculture (excluding fertilisers) generally for crop

protection – eg, insecticides, herbicides, and fungicidesAPI gravity Scale adopted by the American Petroleum Institute to express the

specific gravity of oils:API gravity = 141.5 - 131.5

Specific gravity15°C/15°C

Appraisal well A well drilled as part of a drilling program conducted to determine theextent, reserves and likely yield of an oil field

Arabian Light The world’s most prolific grade of crude oil formerly used as a markerto fix the prices of other crudes.

Avgas Aviation gasoline used in piston type aeroenginesBarrel Unit of measurement used for oil and oil production (1 barrel = 35

Imperial gallons, 159 litres)Base chemicals Raw materials (aromatics and olefins) produced from crude oil and

processed into other chemicals eg, polymersBiomass A general term for any plant, vegetation or tree used either directly or

indirectly to provide energyBitumen Heavy oil residue used for roads and roofingBlack products Diesel oils and fuel oilsBlow-out Escape of gas, oil or water from a reservoir as a result of a release of

pressure not properly container (see: Christmas Tree)Bottled gas Generally Liquefied Petroleum Gas (LPG) stored in a pressure

containerBrent crude A crude oil from the Brent field used as a marker for other North Sea

crudesBulk cargo A liquid or solid cargo loaded on to a vessel without packaging (eg,

oil, grain)Bunker Supplies of fuels and lubricants to ships and aircraftCalorific value A measure of energy released in the form of heat when a fuel is

burnedCarbon black A carbon product obtained from liquid hydrocarbonCatalyst A substance which promotes a chemical reaction without forming part

of the final product and which remains unchanged at the end of thereaction

Cetane number A scale used to specify the ignition quality of diesel fuels (see: octanenumber)

CHP Combined heat and power. A method of using a proportion of fuelinput energy, which would otherwise be discarded. In district heatingschemes, hot water from power stations is used for domestic orcommercial heating purposes

Christmas tree Equipment at a wellhead which controls the flow of oil and gas toprevent blow-outs (see: blow-out)

Combined carrier Vessel which can carry either oil or dry bulk cargoesContinental shelf The shallow submerged platform (max. depth 200 metres) bordering

the land of a continentDaisy chain The situation whereby a cargo of oil or oil products is sold many

times before final delivery to the consumerDemise-hire A method by which the owner of a vessel hires it for a specified

period to a ship operating company which is responsible for operatingcosts and obtaining the crew

Derrick A steel structure used to support the drill pipe and other equipmentwhich has to be raised or lowered during well drilling operations

Derv fuel Diesel Engine Road Vehicle fuel – a medium/light fuel derived fromgas oil

Deviation well A well drilled at an angle to the vertical to cover the maximum area ofan offshore field that can be produced from a single platform

Dope Slang term for additiveDownstream Activities relating to oil product trading, transport, refining, distribution

and marketingDry Hole A well which shows no signs of oil or gasDwt Dead weight tonnage. The weight of cargo, stores, bunkers and

water which a vessel carries when fully loadedEOR Enhanced Oil Recovery. A process to recover oil by adding

chemicals, steam etc. when neither primary nor secondary recoveryis appropriate

Equity crude The proportion of crude oil production to which a producing companyis entitled through its financial contribution

Essential oils Hydrocarbons and oxygenated compounds extracted from crude oilor plants. Also known as volatile oils

Flaring Burning off gas produced in association with oil which, for technical orcommercial reasons, cannot be utilised

Futures-oil The sale and purchase of oil at a price agreed upon in advance for

delivery at a future dateGeothermalenergy

Energy obtained from the heat below the earth’s surface

IEA International Energy Agency. Established in 1974 to monitor theworld energy situation, promote good relations between producer andconsumer countries and develop a strategy for energy supplies intimes of emergency

Jet A-1 The standard aviation kerosine fuelJoule The recommended unit for measuring energy and heatKerogen The organic matter in source rocks from which oil and gas are

derived. Also the main organic compound of shaleKnocking A metallic sound in an engine caused by a mismatch between the

fuel and the engine’s compression ratio (often known as ‘pinking’)Load-on-top System of cleaning tanks in an oil tanker by collecting washings in

one '‘slop'’ tank, allowing the water to separate from the oil, thendischarging the water overboard, leaving the oil residues in the tank

Majors The collective name used for the world’s largest oil companied(Exxon, Shell, Socal, Texaco, Mobil and BP)

Mercaptans Strong-smelling compound of carbon, hydrogen and sulphur found inoil and gas. Sometimes used as odorants in natural gas

Naphtha Straight-run gasoline fractions boiling below kerosine. Used as afeedstock for refinery conversion and as a chemical feedstock

Natural Gas A mixture of methane and ethane found in the earth’s crust, often inassociation with oil

Octane number A method of specifying the anti-knock qualities of motor spiritsPetrodollar A dollar belonging to a resident of an oil exporting country. Term

coined after the first oil price shock in 1974Pig A device used for cleaning a pipeline or for separating two liquids

passed down the same line. An ‘intelligent pig’ is fitted with sensorsor recorders to check for corrosion or similar defects

Pour point The temperature below which an oil solidifies and does not flow freelyPrimary recovery Production of oil under natural drive mechanisms ie, oil displaced by

fluids naturally present in the reservoirProvedresources

The quantity of oil and gas estimated to be recoverable from knownfields under existing economic and operating conditions

Pyrolysisgasoline

Gasoline obtained as a by-product from a steam or ethylene cracker

Renewableenergy

Energy resources which are continually replenished ie, solar energy,wind power, wave power, biomass, hydroelectric, geothermal energy

Reservoir rock The rock in which oil and gas occurs – commonly sandstone,limestone, dolomite

Secondaryrecovery

Displacement of oil from the reservoir by injection of water or gasthrough special injection wells

Shale oil A compact sedimentary rock containing kerogen which yields oilwhen heated

Sour oils Oils containing high concentrations of hydrogen sulphide gas ormercaptans. Treatment of such oils to convert them into marketableproducts is known as ‘sweetening’

Spot market A market in which oil or oil products are traded for immediate deliveryand at the current price (ie, ‘spot price’)

Straight run A term applied to a product of crude oil made by distillation withoutchemical conversion

Swingproduction

Oil production of an area, which acts as a balancing region. SaudiArabia has often been a swing producer for OPEC

Tar sands Mixture of sand, water and bitumen: an additional (but expensive toproduce) source of oil

Tertiary recovery Injection of an enhanced recovery fluid through special injection wellsto extract oil left behind by primary or secondary recovery methods

Time charter A charter for a tanker for a fixed period of timeUllage The space in a tank not occupied by its contents. Used as a

measure of whether a tank can hold additional (oil) stocksUpstream Activities relating to crude oil exploration, production and delivery to

export terminalViscosity index A method of indicating the viscosity/temperature of an oilWhite products Gasolines, naphthas, kerosines and gasoils (see: black products)