A Brief History of Electricity Production, Oil Prices and Reserves

Ever since William Hart dug America’s first successful gas well in Fredonia, New York in 1821, and “Colonel” Edwin Drake drilled the first true oil well in the state of Pennsylvania in 1859, the ability of oil and natural gas to power electric generation plants, transportation, homes and industry has created both immense economic advances and significant controversy. It was decades before the nature of widespread oil reservoirs was understood. For example, in the 1880’s the U.S. Geological Survey confidently stated that there was “little or no chance of oil being discovered in Texas or California.”

In the early years, virtually all of the world’s crude oil production came from the American state of Pennsylvania. Initially, this crude oil had nothing to do with fuel for automobiles. Instead, it was distilled into kerosene, at a rapidly growing base of simple refineries, many of which were owned by John D. Rockefeller and his partners. The kerosene enabled consumers to have safer, more reliable lighting in homes and commercial buildings, eliminating the need for the burning of candles and whale-oil lamps. (At the same time, it reduced the likelihood of the devastating fires that often swept through cities.) America developed a massive kerosene export industry, sending cans of this fuel by the shipload to distributors in Europe, Asia and elsewhere.

A growing array of pipelines were constructed, making it more efficient to move oil to refineries and to market. Eventually, natural gas pipelines became widespread as well, and gas lightning began to compete fiercely with kerosene lamps.

The looming popularity of electricity for lighting might have doomed the crude oil-to-kerosene sector. However, by the early 1900s, automobiles were becoming popular, and soon enough the auto industry created soaring demand for an advanced fuel, gasoline, that could be made from crude oil in state-of-the art refineries. The demand for gasoline far outstripped the need for kerosene. The modern automobile industry would not exist in its present state without the oil industry. In return, the automobile industry ensured today’s massive scale of the oil industry. Rarely have two industries supported each other in such a vital fashion.

In 1880, Thomas Alva Edison patented the first modern light bulb. In 1882, he established the Pearl Street Station in New York City—the world’s first central electric power station. By the 1920s, electricity was in common use in American buildings and homes.

For decades, electric generation was powered largely by burning coal, and to a lesser extent by hydroelectric dams and the burning of oil. During the mid-20^th Century, nuclear power generation was added to the mix of electricity generation sources. On June 26, 1954, at Obninsk, Russia, the nuclear power plant APS-1 with a net electrical output of 5 MW was connected to the power grid, the world's first nuclear power plant that generated electricity for commercial use. The European region’s first commercial nuclear plant, Calder Hall 1 in the UK, with a net electrical output of 50 MW, was connected to the national grid on August 27, 1956. America’s first commercial nuclear plan didn’t go online until 1957. Called Shippingport Atomic Power Station, it was part of President Eisenhower’s Atoms for Peace program. This plant provided power to the Pittsburgh, Pennsylvania area until it was retired in 1982. Today, although most of the world’s nations have made an immense investment in electric supply infrastructure, hundreds of millions of people worldwide either have no access to, or cannot afford, a steady supply of electricity.

Eventually, oil production began to spread throughout much of the world. Outside of the U.S., Russian companies became among the first real competitors, easily producing massive amounts of crude at Baku, Azerbaijan. By the early 20^th Century, European firms were active in global production, and the Royal Dutch firm merged with Shell to form an enduring oil industry giant. Oil production in the Middle East finally became important, and a generous oil concession was granted to American firm SoCal in 1933 by the newly formed Kingdom of Saudi Arabia.

During the 1973 war between Israel and neighboring Middle East nations, OPEC imposed an embargo on oil exports to the United States. This was due to the flow of American military supplies to the Israelis. The embargo led to direct impacts on American consumers in many ways, including long lines at gasoline stations and gasoline rationing. This historic incident also sparked intense investment in research and development technologies that create fuel efficiencies and that harness renewable energy sources, including solar and wind power. In the U.S., massive amounts of federal and state support and financial incentives continue in this field today. At the same time, both state and federal regulations enforced greater fuel efficiency at all levels, from “Energy Star” appliances and consumer products that use less electricity, to vast improvements in the fuel efficiency of vehicles of all types. This trend continues to have significant effects on the energy industry at all levels, and on virtually all industrial sectors.

Many times, it has been assumed that the world would quickly run out of oil. In 1939, the U.S. Department of the Interior warned that America’s oil reserves totaled only enough to fuel the nation for about 13 years. Similar misjudgments were announced on a regular basis in the mid to late 1900s by the federal government and by a continuing stream of respected reports and books by various authors. In fact, rather than becoming scarcer over time, energy, including oil and gas, became much more plentiful. Energy prices can fluctuate wildly. Nonetheless, over much of history the trend has often been lower prices on an inflation-adjusted basis, when a combination of advancing technologies, determined entrepreneurs and alternative sources exponentially expanded the total amount of energy and reserves available for consumption. The breakthrough in shale oil gas in recent years is a perfect example, utilizing advanced technologies to dramatically boost production while keeping oil and gas prices relatively low.

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