Black gold, Texas tea

North America’s crude oil reserves are vast and accessible

A bit of history

Centuries ago, civilizations around the globe were aware of petroleum (derived from the Medieval Latin words petr, or rock, and oleum, or oil) but did not immediately identify it as a source of energy. In the Western world, wood was the fuel of choice for heating and cooking for centuries. As forest reserves were depleted, coal was the next energy source to be tapped, along with whale oil, which was used primarily as a lubricant and fuel for lamps. The invention of the coal-fired steam engine in 1765 sparked the desire to build different, bigger and more powerful machines. This progress, along with plentiful coal resources, ultimately drove the industrial revolution and a move to urbanization.

Electricity entered the picture with Benjamin Franklin’s 1752 invention of the lightening rod, followed by the electric battery in 1800 and the first use of electricity in industrial motors in 1837. Progress in electricity was moving rapidly, but it was the invention in 1860 of the first internal combustion engine using coal gas, a mixture of gasses produced by distilling bituminous coal, that foreshadowed the beginning of great change. Just a few years later, in 1864, the invention of an engine that used gasoline as a fuel launched what quickly became an era of innovation and invention with an attendant demand for oil.

Petroleum became a major industry in the U.S. after oil was first discovered in Pennsylvania in 1859. Another important milestone in U.S. oil production was reached in 1901, when a well at Spindletop Hill, a salt dome oil field in Beaumont, Texas, struck oil, and the Texas Oil Boom was underway.

Spindletop Hill, circa 1901

Spindletop Hill, circa 1901

1908 advertisement of Model T

1908 advertisement of Model T

Demand for petroleum increased rapidly, and especially so after the 1908 introduction of the Ford Model T, also known as the “Tin Lizzie,” which was the first mass-produced automobile. Given its economic assembly, it became the first affordable automobile that made car ownership a reality for middle class Americans. During the 19 years the Model T was produced, more than 15 million of them rolled off the assembly line.1 And all of them needed gasoline to run.

The circle of life

Crude oil (petroleum), as well as natural gas and coal, are called fossil fuels because they are the byproducts of fossilized plant, animal and diatomic (made of two atoms) sea life that lived 300 to 400 millions of years. Most fossil fuels are thought to have originated in ancient oceans and other bodies of water. Scientists have theorized that when this plant and diatomic sea life died, it became part of the sediment at the bottom of the lakes and oceans. Over a period of 50 to 100 million years, these fossilized remains were buried by sediment and rock layers. The pressure and heat from this increasingly heavy burden formed the fossilized remains into a dark organic layer called kerogen. Much later, that kerogen ultimately turned into natural gas and crude oil underneath layers of salt, silt, rock and earth.

Petroleum & natural gas products

Petroleum & Natural Gas Products

A similar process occurred on land where fossilized plant and animal life formed peat (partially decayed vegetation) and eventually natural gas, crude oil, and coal within a type of rock called shale.

An important milestone in U.S. oil production was reached in 1901, when a well at Spindletop Hill, a salt dome oil field in Beaumont, Texas, struck oil, and the Texas Oil Boom was underway.

All about hydrocarbons

Crude oil is a liquid containing complex, naturally occurring hydrocarbons (a compound of hydrogen and carbon). The product of decomposed matter, hydrocarbons come in different lengths and constructs, from straight chains to chains with branches to complete rings. When broken down over time, hydrocarbons form crude oil or natural gas. Depending on the pressure and temperature in which they exist, hydrocarbons may be gaseous (consisting of one to four carbon atoms per molecule), liquid (containing five to 16 carbon atoms per molecule) semisolid or solid (containing 20 carbon atoms per molecule).

Crude oil is a mixture of a large number of different hydrocarbons; the most commonly found molecules are alkanes (paraffins), cycloalkanes (naphthenes) and aromatic hydrocarbons. Each type of crude oil has a unique mix of molecules, which dictates its color and viscosity. For example, crude oil is liquid, but it may also have gaseous or solid compounds. Light oils stay in a liquid state even at low temperatures. Crude oil varies in color, ranging from clear or yellow to green or black, and in viscosity, from watery to almost solid.

Fossil fuels, deconstructed

Fossil fuels, deconstructed

As the table above illustrates, the crude oil hydrocarbons heptane and hexane are used primarily to make solvents, while octane is used to make gasoline. Kerosene is a component in diesel and jet fuel and the heavier bitumen is used for making asphalt or refined products. Hydrocarbons found in natural gas also have many uses. Methane is the main component of natural gas, a fuel used for heating and in industry, while ethane, propane, butane and isobutene are natural gas liquids that are used to make plastics and many other products.

Crude oil is a mixture of a large number of different hydrocarbons; the most commonly found molecules are alkanes (paraffins), cycloalkanes (naphthenes) and aromatic hydrocarbons.

Oil’s myriad uses in our everyday lives

Today, oil is found in underground reservoirs around the world, often near coal deposits, and is the major fuel used on the planet. It fuels everything from our cars and airplanes to our farm and industrial machinery. Oil is used to make a wide variety of materials, such as the lubricant oils we use in our cars and other machinery, as well as tires, plastics and chemicals.

All crude oil, extracted in its raw state, has no direct commercial application or use until it is refined. Once refined, it is stored in barrels, which hold approximately 42 U.S. gallons, or about 159 liters. According to the Energy Information Administration (EIA), on the average day the U.S. uses about 19 million barrels of oil, or about 2 gallons of oil per day for every person in America. 2

Producing oil

In the U.S., crude oil is produced in more than 30 states and off the coasts of Alaska, California, and Louisiana; the top oil-producing states are Texas, North Dakota, California, Alaska and New Mexico.2 For many years we extracted oil primarily using conventional methods, which relied on traditional rigs and vertical drilling to access the reserves and on pump jacks to bring it to the surface for collection.

Over time, the conventional resources in the U.S. became depleted, but advances in drilling and extracting technologies now enable producers to tap into unconventionally produced resources. These resources, previously inaccessible, contain vast amounts of oil and natural gas that are trapped in a type of porous rock called shale. It is these unconventional resources that are driving the nascent North American oil and gas boom.

The map below identifies the major North American shales. Over the course of the last decade, oil-rich shale formations have been actively developed in Texas, including the Eagle Ford shale in South Texas and the Permian basin in West Texas and southeastern New Mexico, as well as the enormous Bakken shale in North Dakota and several others shown on the map below. During the decade, unconventional shale formations with vast oil and natural gas resources have been actively developed in Texas, including the Eagle Ford shale in South Texas, and a multitude of shales in the Permian basin in West Texas and southeastern New Mexico. Also of great significance are the Marcellus in the mid-Atlantic states, the enormous Bakken shale in North Dakota and Montana and expanding into Canada, and several others shown on the map below. The Bakken, Permian and Eagle Ford are primary oil plays, while the Marcellus is primarily a natural gas play.

North American Shale Map

Source: Tortoise Capital Advisors

Oil barrels hold approximately 42 U.S. gallons, or about 159 liters.

Crude, sweet and sour

There are many different types of crude oil, and they have different values. Crude oil is classified by sulfur content, density measurement and location of production.

Terminology overview
Type of oil Amount of sulfur Predominant North American production
Sweet Low < 0.5% Central U.S.
Sour Higher > 0.5% Canada

When it comes to type, crude oil is identified as sweet or sour. Sweet crude is crude with a less than 0.2% sulfur content, and is the predominant type of oil currently being produced in the central part of the U.S. Domestic production of sweet crude has increased as a result of the oil shale boom. Sour crude is crude oil with at least a 0.5 percent sulfur content (or more), and within North America, is found predominantly in Canada. It is attractive because it yields distillates (a liquid product condensed from a vapor) that are in high demand, although it is more expensive to refine.

Watch a video:
Unconventional Oil & Gas Production

(Produced July 2013)

API Gravity is a scale that expresses the density of crude oil in degrees. Heavy crude is thick and viscous, and is usually found close to the surface. It may be black or brown or even have a greenish tint, and has an API Gravity of less than 28°. The heavier the crude, the closer it is to being solid (and the more difficult it is to refine). It is also less expensive. It must be refined in specialized refineries that are equipped to break its large chemical molecules apart and heated to make fuel oil and gasoline. Light crude oil has API Gravity greater than 32° and a low viscosity. Light crude is a naturally thin and light, lower-density oil that is easier to refine. Intermediate crude oil has an average API Gravity of about 39.6°. For comparison, water has an API Gravity of 10°. You may remember observing experiments in elementary or middle school science class that demonstrated how oil floats on top of water, due to its lower density. There are other measures such as the specific gravity of oil also used to measure oil.

Heavy oil

Bitumen, also sometimes called asphalt because it is a major component of that product, is the heaviest, thickest form of petroleum. It can be found in natural deposits or may be a refined product. Although this type of oil is found all over the world, it’s most prevalent in the Canadian oil sands and in Venezuela. This naturally occurring bitumen is also called “crude bitumen.” It can be a thick, tarry liquid or a semi-solid material, and is often found in deposits that also contain sand, water, heavy metals and some other contaminants. Where bitumen exists in a state too thick or heavy to flow or be pumped out of the earth, it’s heated to bring it to a liquid state and then pumped out. In some regions, where the bitumen is close to the earth’s surface, open pit or strip mining methods, which take place at ground level, are used. Crude (unrefined) bitumen was the first oil product used by humans for its adhesive properties. Refined bitumen is made up of particles obtained from the fractional distillation of bitumen. Today, its primary use is to serves as the “glue” or adhesive that together with aggregate particles makes up asphalt concrete. It’s also used as a waterproofing material, particularly in roofing, and to make synthetic oil.

Domestic vs. foreign: the benchmarks

Location of production also influences the price of oil on the world market. West Texas Intermediate (or WTI) serves as basis of U.S. oil pricing. Cushing, Okla. is the delivery point for NY Mercantile WTI light, sweet crude futures. Brent crude (sourced from the North Sea), serves as the basis for pricing the majority of international oil supplies. Both are considered to be “light, sweet crude,” meaning they are high-quality, refineable oils, with the primary difference being that WTI contains slightly less sulfur and is somewhat less dense than Brent. For years, the price differential between the two was slight, although WTI historically traded a few dollars above Brent (higher quality, higher price). However, prices began to bifurcate in late 2008 due to the increasingly abundant North American production and the resulting bottleneck at Cushing. As additional infrastructure has come online over the last year and Cushing inventories have declined, the spread has narrowed. We have seen dynamics related to spreads by location continue to influence pricing.

Yet a third type of light sweet crude, Louisiana light sweet (LLS), is also worth understanding. LLS is a high-quality, low-viscosity, low-sulfur crude oil that is produced in the Gulf of Mexico. This grade of oil normally receives a premium to WTI and is more in line with Brent.

From field to pump

Regardless of where it winds up, all crude oil first has to be refined – a process that uses chemicals, catalysts, heat and pressure to free usable products from impurities. These products are used to make a wide range of products stretching far beyond gasoline, diesel and jet fuel. In fact, gasoline accounts for less than half of the products made from a barrel of crude oil in U.S. refineries, while a third ends up as jet and diesel fuel. The remaining crude may be refined without changing its molecular structure and used to make fuel oil and lubricating oil.

In the U.S., five areas are called Petroleum Administration for Defense Districts, or PADDs. They were created during World War II to help organize the allocation of petroleum products, including gasoline and diesel fuel. Still used today for data collection purposes, PADDs help the regulatory agencies monitor regional petroleum product supplies and track usage patterns and product movement throughout the country.

PADDS Map

Breaking down the barrel

We get more than fuel out of a barrel of oil, as indicated by the blue band in the illustration below. Other processes use chemicals that alter the molecular structure of oil (and natural gas liquids) to make petrochemicals, which become the feedstock (raw materials) used to make a host of other products, ranging from soap and fertilizer to epoxies and explosives, from synthetic fibers and adhesives to paints and even medicine.

Liquefied petroleum gas (more commonly known as propane or butane) is flammable gas used as a fuel in heating appliances and vehicles, and increasingly as an aerosol propellant and refrigerant. Ethylene and propylene are refined oil petrochemicals, which are used in making the plastics that are everywhere in our homes, cars, businesses, hospitals and industries. Aromatic fluids are another byproduct of crude oil that are used to make products ranging from dyes and synthetic detergents to the materials used in shoes, fabrics, furniture and beverage containers and even cell phones. It’s hard to imagine a world without the oil-derived products we use and enjoy every day.

Breaking down the barrel


Source: Energy Information Administration

Watch a video:
The Canadian Oil Sands

(Produced January 2013)

A visit to the Canadian Oil Sands

  1. “Henry Ford and the Model T” John Wiley & Sons, 1996
  2. Energy Information Administration, March 2017