The petroleum industry includes the global processes of exploration, extraction, refining, transporting (often by oil tankers and pipelines), and marketing petroleum products. The largest volume products of the industry are fuel oil and gasoline (petrol). Petroleum is also the raw material for many chemical products, including pharmaceuticals, solvents, fertilizers, pesticides, and plastics. The industry is usually divided into three major components: upstream, midstream and downstream. Midstream operations are usually included in the downstream category.
Petroleum is vital to many industries, and is of importance to the maintenance of industrial civilization itself, and thus is a critical concern for many nations. Oil accounts for a large percentage of the world’s energy consumption, ranging from a low of 32% for Europe and Asia, up to a high of 53% for the Middle East.
Other geographic regions’ consumption patterns are as follows: South and Central America (44%), Africa (41%), and North America (40%). The world consumes 30 billion barrels (4.8 km³) of oil per year, with developed nations being the largest consumers. The United States consumed 25% of the oil produced in 2007. The production, distribution, refining, and retailing of petroleum taken as a whole represents the world’s largest industry in terms of dollar value.
Governments such as the United States government provides a large subsidy to oil companies, with major tax breaks at virtually every stage of oil exploration and extraction. Capital expenses, including the costs of oil field leases and drilling equipment, are taxed at an effective rate of nine percent, which is a much lower rate than the 25% rate for general business taxes and lower than the taxes of virtually any other industry, according to a 2005 study by the non-partisan Congressional Budget Office. For example, while the Deepwater Horizon oil rig was registered in the Marshall Islands, since registering off-shore lowered the U.S. tax liability, the U.S. government was giving the rig’s owner, British Petroleum (BP), a major tax break when BP leased the rig: 70% of the rent was written off in the form of a tax break used only by the oil industry, for a tax deduction of more than $225,000 per day from the day the lease began.
Petroleum is a naturally occurring liquid found in rock formations. It consists of a complex mixture of hydrocarbons of various molecular weights, plus other organic compounds. It is generally accepted that oil, formed mostly from the carbon rich remains of ancient plankton after exposure to heat and pressure in the Earth’s crust over hundreds of millions of years. Over time, the decayed residue was covered by layers of mud and silt, sinking further down into the Earth’s crust and preserved there between hot and pressured layers, gradually transforming into oil reservoirs.
Petroleum in an unrefined state has been utilized by humans for over 5000 years. Oil in general has been used since early human history to keep fires ablaze, and also for warfare. Ancient Persian language tablets indicate the medicinal and lighting uses of petroleum in the upper echelons of their society. Ancient China was also known to burn skimmed oil for light.
An early petroleum industry was established in the 8th century, when the streets of Baghdad were paved with tar, derived from petroleum through destructive distillation.] In the 9th century, oil fields were exploited in the area around modern Baku, Azerbaijan, to produce naphtha. These fields were described by al-Masudi in the 10th century, and by Marco Polo in the 13th century, who described the output of those oil wells as hundreds of shiploads. Petroleum was distilled by al-Razi in the 9th century, producing chemicals such as kerosene in the alembic, which he used to invent kerosene lamps for use in the oil lamp industry.
Its importance in the world economy evolved slowly, with whale oil used for lighting into the 19th century, and wood and coal used for heating and cooking well into the 20th Century. A petroleum industry emerged in North America in Canada and the United States. The Industrial Revolution generated an increasing need for energy which was fueled mainly by coal, with other sources including whale oil. However, it was discovered that kerosene could be extracted from crude oil and used as a light and heating fuel. Petroleum was in great demand, and by the twentieth century had become the most valuable commodity traded on the world market.
Imperial Russia produced 3,500 tons of oil in 1825 and doubled its output by mid-century. After oil drilling began in what is now Azerbaijan in 1848, two large pipelines were built in the Russian Empire: the 833 km long pipeline to transport oil from the Caspian to the Black Sea port of Batumi (Baku-Batumi pipeline), completed in 1906, and the 162 km long pipeline to carry oil from Chechnya to the Caspian.
At the turn of the 20th century, Imperial Russia’s output of oil, almost entirely from the Apsheron Peninsula, accounted for half of the world’s production and dominated international markets. Nearly 200 small refineries operated in the suburbs of Baku by 1884. As a side effect of these early developments, the Apsheron Peninsula emerged as the world’s “oldest legacy of oil pollution and environmental negligence.” In 1878, Ludvig Nobel and his Branobel company “revolutionized oil transport” by commissioning the first oil tanker and launching it on the Caspian Sea.
The first modern oil refineries were built by Ignacy Łukasiewicz near Jasło (then in the dependent Kingdom of Galicia and Lodomeria in Central European Galicia), Poland from 1854–56. These were initially small as demand for refined fuel was limited. The refined products were used in artificial asphalt, machine oil and lubricants, in addition to Łukasiewicz’s kerosene lamp. As kerosene lamps gained popularity, the refining industry grew in the area.
The first large oil refinery opened at Ploieşti, Romania in 1856. The first oil drilling in the United States began in 1859, when oil was successfully drilled in Titusville, Pennsylvania. In the first quarter of the 20th century, the United States overtook Russia as the world’s largest oil producer. By the 1920s, oil fields had been established in many countries including Canada, Poland, Sweden, the Ukraine, the United States, and Venezuela.
In the early 1930s the Texas Company developed the first mobile steel barges for drilling in the brackish coastal areas of the Persian Gulf. In 1937 Pure Oil Company (now part of Chevron Corporation) and its partner Superior Oil Company (now part of Exxon Mobil Corporation) used a fixed platform to develop a field in 14 feet of water, one mile offshore of Calcasieu Parish, Louisiana.
In early 1947 Superior Oil erected a drilling/production oil platform in 20 ft of water some 18 miles[vague] off Vermilion Parish, Louisiana. But it was Kerr-McGee Oil Industries (now Anadarko Petroleum Corporation), as operator for partners Phillips Petroleum (ConocoPhillips) and Stanolind Oil & Gas (BP), that completed its historic Ship Shoal Block 32 well in October 1947, months before Superior actually drilled a discovery from their Vermilion platform farther offshore. In any case, that made Kerr-McGee’s well the first oil discovery drilled out of sight of land.
After World War II ended, the countries of the Middle East took the lead in oil production from the United States.