Oil Industry Overview

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OIL INDUSTRY OVERVIEW

Note: The source of the technical material in this volume is the Professional Engineering Development Program (PEDP) of Engineering Services. Warning: The material contained in this document was developed for Saudi Aramco and is intended for the exclusive use of Saudi Aramco’s employees. Any material contained in this document which is not already in the public domain may not be copied, reproduced, sold, given, or disclosed to third parties, or otherwise used in whole, or in part, without the written permission of the Vice President, Engineering Services, Saudi Aramco.

Chapter : General Engineering File Reference: AGE-106.01

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Engineering Encyclopedia

Introduction to Exploration, Drillling and Petroleum Engineering Oil Industry Overview

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INFORMATION ............................................................................................................... 2 THE HISTORY OF THE OIL INDUSTRY ........................................................................ 2 Early History ......................................................................................................... 2 The Modern Oil Industry ....................................................................................... 3 THE OIL INDUSTRY: STRUCTURE AND OPERATIONS .............................................. 5 GLOSSARY .................................................................................................................... 7

List of Figures

Figure 1. Organization of the Modern Oil Industry.......................................................... 5

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Engineering Encyclopedia

Introduction to Exploration, Drillling and Petroleum Engineering Oil Industry Overview

INFORMATION THE HISTORY OF THE OIL INDUSTRY Early History According to recorded history, the oil industry began at least 6,000 years ago around the Arabian Gulf, when the peoples of the region found oil flowing slowly to the surface through natural seeps. As a result of its availability, this resource found many uses: a mortar for construction, a sealant for vessels containing liquids, a medicine, and a lubricant for simple mechanisms. As the oil available at the surface was consumed, it was concluded that it must have been flowing from subsurface reservoirs. Consequently, shallow wells were dug with stone chimneys or walls for support as heavy hydrocarbon slowly flowed into them from the natural reservoirs. This primitive industry spread from the Middle East to China where the discovery of oil came while drilling wells to produce salt water for salt. The Chinese developed a primitive industry, using oil for illumination, medicine, and as a sealant for vessels and pipelines to transport fluids. They wrapped large bamboo rods with linen and sealed the linen with oil, so that these pipelines could transport water for irrigation, for community use, and for the transport of associated gas produced from oil to be used in home heating. With the discovery of petroleum distillation techniques by Arabs about 2,000 years ago, the use of oil was extended. Many of the products of petroleum distillation are flammable and/or explosive. Oil could now provide weapons of war. For example, the city of Alexandria in Egypt was burned during warfare by use of an oil product referred to as “Greek fire.” With the development of petroleum distillation, a primitive industry began in Europe approximately 1,000 years ago. This industry came into competition with the whale oil industry as a source of oil to be used for illumination.

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Engineering Encyclopedia

Introduction to Exploration, Drillling and Petroleum Engineering Oil Industry Overview

The Modern Oil Industry The modern oil industry did not begin until 1859 when, in the United States, a group of businessmen from New Haven, Connecticut contracted with Edwin Drake to drill for oil near Titusville, Pennsylvania. This was the first recorded agreement to purposely seek subsurface hydrocarbon in the United States. The drill site chosen was in a region of surface seeps, or oil springs, which American Indians had developed over previous centuries, so drillers concluded that this oil was flowing from subsurface reservoirs. In 1859, Drake drilled his well near Titusville and struck oil at a depth of 69-1/2 feet. Over time of production, the well produced approximately 8 barrels per day (STB/day). Historical production estimates ranged from 4 to 20 barrels per day. With Drake’s discovery, excitement and activity developed in the region, and hundreds of wells were drilled in northwestern Pennsylvania through the balance of the century. Many wells produced at rates as high as 3,000 STB/day. This oil was used primarily for illumination and sealant purposes, but was found to be extremely effective as a lubricant for use with rotating machinery. This provided a major new market for oil in industry. The term “barrel” was introduced, because oil was initially transported to refineries using horsedrawn wagons carrying the oil in 50-gallon wooden wine barrels. Individuals were able to obtain control over large portions of the oil industry, which ultimately led to anti-monopoly legislation in the US. An example was John D. Rockefeller who, with the Standard Oil Companies, maintained majority control of the world industry well into the twentieth century. A major event in the industry occurred in 1901 near Beaumont, Texas. Through the 1890s, Patillo Higgins promoted drilling at a site near Beaumont. He concluded that, because of surface land features, subsurface geology was ideal for oil presence. This conclusion was based on his observation of a region of land 15 feet higher than the surrounding land, which was essentially a circle one mile in diameter. He believed that this indicated subsurface geologic high elevations, ideal for the presence of oil. Higgins drilled extensively over this surface dome through the 1890s, but he did not drill to sufficient depths. In 1901 he sold significant shares in his operations to Captain Anthony Lucas.

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Engineering Encyclopedia

Introduction to Exploration, Drillling and Petroleum Engineering Oil Industry Overview

Lucas drilled the first discovery well at Spindletop in 1901. He struck oil at a depth just over 1,000 ft and the well blew out. This first Spindletop well (considered the largest gusher in the history of the oil industry) produced an average of 100,000 barrels per day over the next 10 days. The oil was being lost, however, since it was flowing under blowout conditions. In an attempt to save some of this oil, an earthen dam was constructed around the drilling rig. This lake of oil collected around 500,000 barrels. However, the lake caught on fire and was lost. This first well at Spindletop made oil a major industry in the twentieth century. Many traditions of today’s industry, and several major companies such as Texaco, Gulf, and Sun Oil, emerged as the direct results of this well. Oil began to replace coal as a fuel, particularly in the shipping industry, and further stimulated the search for oil, drilling, and production. Most of this activity was in the US and, in fact, the modern oil industry was primarily a United States industry until the middle of this century. As a result, much of today’s terminology, standards, and procedures carry over from the US industry. In Saudi Arabia, the drill sites in Dammam were also chosen based on the surface features of the land. Geologist Max Steineke helped discover the first commercial well in Saudi Arabia, Dammam #7, which was put in production in 1938. By the 1960s, with further developments in the Middle East, Southeast Asia, and the North Sea, the oil industry truly became a world industry. Production outside the United States far exceeded U.S. production, which had reached a maximum and began to decline. The Arabian Gulf region, particularly Saudi Arabia, has become the dominant influence on the industry. Technological as well as economic developments have been particularly impressive in the industry due to a large world dependency on oil and its associated gas resources.

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Engineering Encyclopedia

Introduction to Exploration, Drillling and Petroleum Engineering Oil Industry Overview

THE OIL INDUSTRY: STRUCTURE AND OPERATIONS From an operational standpoint, the oil industry may be defined as starting with the exploration for oil and ending with delivery of the final products to the consumer. This course will not include description of activities associated with tar sands or oil shales.

The Oil Industry

Transportation

Production

Refining

Marketing

Consumer

Exploration Research

Figure 1. Organization of the Modern Oil Industry As shown in Figure 1, the oil industry is an industry where a search is conducted for the resource. Once found, it is produced to the surface and transported for processing into useable materials that are then delivered to the consumer to be used for their intended purpose. This sequence may be represented by: •

Exploration

•

Production

•

Transportation

•

Refining

•

Marketing

•

Consumer

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Engineering Encyclopedia

Introduction to Exploration, Drillling and Petroleum Engineering Oil Industry Overview

Research is involved in all of these processes. In fact, in recent decades, no other industry has benefited more from research. Because of the organization of the industry, Exploration and Production (E&P) is often called the Petroleum Industry. This is reflected in terminology such as Petroleum Engineering. The production divisions in many world companies are credited with production of oil and gas at the point where it is metered into the transportation system. Oil and gas have then left E&P once metering occurs. This has led to the division of the industry into upstream operations and downstream operations. •

Upstream operations are considered to be Exploration and Production, or those operations to the point of metering the produced resource into the transportation system. These operations may include surface processing.

•

Downstream operations are considered to be those operations that occur beyond the point of metering the produced resource into the transportation system. Downstream includes Transportation, Refining, Marketing, and Delivery to the Consumer.

Saudi Arabia, and Saudi Aramco in particular, have become major world participants in all areas of the oil industry.

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Engineering Encyclopedia

Introduction to Exploration, Drillling and Petroleum Engineering Oil Industry Overview

GLOSSARY downstream

The portion of the industry from the point at which the produced hydrocarbon resource is metered into the transportation system to where it is delivered to the consumer. Downstream industry includes transportation, refining, and marketing with delivery to the consumer.

E&P

Exploration and Production.

hydrocarbon

Substance made up of molecules consisting of hydrogen and carbon atoms.

petroleum

“Rock oil” or “oil that comes from rock” (from Latin).

upstream

Operations within the industry to the point where the produced resource is metered into the transportation system. Upstream industry includes Exploration and Production.

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