40 POWER PLANT ENGINEERING
Venezuela’s crude oil is high in sulfur and viscosity, and Middle East crude oil is usually low in sulfur.
Petroleum refining separates different components of petroleum. It changes the chemical composition
of petroleum component to produce desirable fuels and chemicals. Petroleum refining has 3 major proc-
esses. The first process is a physical process called distillation, which separates components according
to their boiling points. The second step is the cracking, which breaks down long chains to make more
gasoline, diesel, and jet fuel. This is a chemical process using a catalyst. The third process is the reform-
ing process, where it converts straight chains into branched chains for better performance in gasoline
engines. Petroleum is transported long distances by super tankers across oceans, and pipelines across
continents. For short distances, petroleum is transported by barges, trucks, and rail cars.
Petroleum products are used in internal combustion engines, where the fuel is put right into the
cylinder with the piston. A spark ignites the gasoline engines, and compression ignites diesel engines.
HISTORY OF OIL
Though oil has been known for thousands of years, the first modern commercial drilling and
production of oil is usually said to have begun in 1859 in the US, when Col. Edwin L. Drake sunk a well
in Pennsylvania near some natural oil seepage and within a few years it was in widespread use through-
out the US. The producers, weakened by overproduction, were gradually taken over by the refining and
distribution companies led by Rockefeller’s Standard Oil Trust. Standard Oil dominated the oil industry
in the US until, under anti-trust legislation, it was ordered in 1911 to divest itself of all its subsidiaries.
Of the 38 companies in the group, three companies, Exxon, Mobil and Socal took a major role in the
world oil market. Together with four other major companies Gulf, Texaco, Shell and BP, these seven
companies (the ‘Seven sisters’) dominated the world oil scene throughout the first half this century.
During the 1920s and 30s, there was a period of intense competition, with a threat of over pro-
duction aggravated by new discoveries in Mexico, Venezuela, Sumatra and Iran and a fall in demand
during the economic depression. The major international oil companies led by Exxon, Shell and BP
developed in 1928 a secret agreement to accept their current volumes of business, to decide jointly the
shares in future increases in production. The resulting cartel continued until it was terminated by anti-
trust in the 1940s in the US. Throughout this period the prices paid for crude oil were determined by
negotiation between oil companies and governments in producing countries. This procedure continued
into the 1960s, but by that time the continuing discovery and development of large low cost oil supplies
in the Middle East had led to a post war decline in the price paid to producing countries. In an attempt to
halt this decline, a group of producing countries, viz., Iran, Iraq, Kuwait, Saudi Arabia and Venezuela
whose GNP was substantially dependent on oil income, formed OPEC, the Organization of Oil Export-
ing Countries.
The foundation of OPEC in 1960 was seen as a defensive measure by the producers following a
unilateral reduction by Exxon of the posted price they would pay for the supplies of Middle East crude
oil, which was followed by other major oil companies. The five founder members of OPEC were at that
time responsible for 80 percent of internationally traded crude oil. Intervention by governments in the
activities of oil companies in their countries had begun dramatically in Mexico in 1938, when all oper-
ating companies in their countries were nationalised. Much earlier, in 1913, to ensure oil supplies for the
UK Navy, Churchill has taken control of BP (then Anglo Persian) but UK rarely involved in commercial
management. In 1938, under threat of nationalisation, Venezuela, then a major exporter, obliged the
major companies (Exxon, Shell, Gulf ) to increase their royalty payments, and ten years later in 1948, it
successfully implemented a law giving the Venezuelan government a 50% share in all profits. This
profit sharing arrangement was soon demanded elsewhere and in the 1950s and 1960s it was adopted in
most oil producing countries.