The Fundamentals of Petroleum During a Pandemic
Is now a turning point in our dependence on oil?
The U.S. consumes 220 billion gallons of oil a year and with 70% of all oil consumed in the U.S. being used for transportation, oil is a colossal part of modern mobility. From passenger vehicles like cars, motorcycles, and trucks to heavier duty vehicles like busses, boats, planes and trains, to freight like semi trucks, barges, and cargo ships, oil is fundamental to how we move things on earth.
To have an understanding of oil is to have an understanding of the critical chemical that affects how we move. Let’s develop the basics, then look at how a world stopped in its tracks by the pandemic has affected our relationship with the thick liquid known as “Black Gold”.
How to talk oil
When we talk about “oil” we’re talking about petroleum. Petroleum literally means rock oil, and is a combination of the Latin “petram” and “oleum”.
Like common cooking oils, there is terminology around the “flavor” of this oil, but you should never ingest it to find out for yourself–you will suffer if you try. Oil is surrounded by minerals and substances deep in the earth, and sometimes these minerals can mix in with the oil. Sulfur is one for example. “Sweet” oil contains little sulfur and “sour” oil contains a lot of sulfur.
Now that we have our latin degree and terminology down, how do we get oil?
Carpeing that oleum from petra
Besides coming across it in a puddle in the wild (which is how it was originally discovered), you get petroleum from drilling down through the earth to pools of marinating dead corpses of organic things. Here’s a map of known corpse pools:
The quantity of petroleum is referred to as a barrel. A barrel of oil is 42 US Gallons roughly the front half of a grocery store refrigerator of milk.
The entire business of getting petroleum out of the ground is referred to as “upstream” exploration and production. Upstream is all about locating, drilling, constructing, and managing wells that pull corpse juice out of the pools.
Traditionally, you get oil out of the ground by drilling a borehole down and building a well around that hole. Wells can be a bit more complex than just a straight hole though. “J” and “S” shaped wells can branch out from an initial well, maximizing the output from the initial borehole.
Along the lines of maximizing oil extraction we’ve come up with some nifty techniques for getting more of it. Three key unconventional innovations:
Horizontal drilling: Go down then take a left to comb for more pools to the side of the original site.
Hydraulic fracturing (Fracking): Blast water, chemicals, and sand at ultra high pressures through a well to fracture the surrounding rock formations and release any smaller pockets of oil.
Subsea engineering: Deepwater (sub 9,500 ft or 30ish football fields down) oil extraction that involves hunting and drilling for pockets around the ocean. Africa, the Gulf of Mexico, and South America are notable spots for this method.
Let’s take a second for fracking. Fracking is a method popular in the U.S. but is political because it is A effective at getting more oil but B not entirely well understood and potentially dangerous for the long term. There are a number of waste elements that come from the fracking procedure and some of that waste is either injected back into the pit from where it came or is stored somewhere else. When it is stored anywhere it is at risk of leaking into local water supplies and contaminating them with toxic chemicals. You can imagine how something with lucrative returns but disruptive consequences can be tricky to debate.
Oil is not horrible
A lot of people think of the bad that comes with petroleum: global warming, oil spills, pollution. There are a lot of staple products that come from it though. Once the oil is heated in a distillation column, you can separate and manufacture it into a variety of applications. Most are mobility-focused, but many of them are household too:
This is the natural tension of oil in our lives: It has produced a ton of diverse materials and applications that have affordably enhanced the quality of life for so many people, but the production of these materials has long standing effects on the environment. When someone tells you oil is horrible, remind them to take a second to appreciate the innovation of oil processing.
Dollar dollar barrels
The cost of oil barrels is another factor to understand. The price of a barrel of oil depends on three things: supply, demand, and politics. Each of these sound a little self explanatory but there a slight nuances that are worth noting for each:
Supply: How much oil is out there, whether it is easy to extract or not, where is it located, how pure it is, etc.
Demand: Do a lot of people want oil or not, who’s buying and from whom, what are we using it for, etc.
Politics: 13 countries that control 40% of the world’s oil supply formed an organization called OPEC to moderate oil and gas prices by fixing production. These countries include Iran, Iraq, Saudi Arabia, the UAE, and Venezuela, and all come with their own global relationships. Any political movement from allies or enemies to one or many of these countries could mean a dramatic swing in prices, affecting industries downstream from production.
On the political note, while OPEC does control a good portion of supply, they’re slowly losing market share as the U.S., China, Canada, and Russia increase their own output. The geopolitical dynamics of oil are quite complex.
When the world stops moving
As mentioned before, mobility is a massive component of the demand for petroleum. Lockdowns and social distancing requirements during the pandemic have had a huge impact on the volume of movement, and therefore, an impact on oil consumed. From a 42 gallon barrel, 46% goes to gasoline alone, so you can imagine what happens when everyone suddenly stops driving.
The effects of the pandemic moved faster than the long term purchasing and planning of oil, so the world ended up with a surplus of oil, crashing the price of a barrel from a peak of $63 in late 2019 to sub $20. There was so much oil that suppliers were paying to have people take it off their hands because there was nowhere to store it. Oil companies would pay shipping companies extra to anchor their tankers full of oil outside of ports just because there was nowhere else to put it.
As lockdowns have slowly eased up since the crash, there has been a comeback in driving as a primary mode of transportation. It’s no surprise: private vehicles are a way to remain socially distant yet still get around when needed. Transit is also extremely low compared to pre-pandemic times, but that’s worth another analysis.
COVID and clean energy vs. crude
With such a drastic decline in mobility and an unbalanced amount of supply vs demand, our relationship with crude has come to a critical crossroads. While the oil situation was in flux and demand for energy declined overall, renewables quietly carried on in the background. The good thing about renewable energy is that it requires way less maintenance to operate–you don’t need people constantly monitoring and tweaking solar panels and wind turbines to maximize output as you would need with a well. Renewable devices largely just sit or spin, soaking up renewable goodness from the world, with zero variable costs.
Going into the decade the transition to clean energy was assumed to be arduous, long and painful, with unknown investment risk on both renewable and non-renewable sides. Yet policy implemented now during the pandemic can draw clear lanes towards sustainability that works better for everyone.
The longer that governments put off climate policy, the more likely an abrupt policy change occurs somewhere down the line. Such a “disorderly transition” increases the risk of stranded assets
COVID has definitely rocked the world but comes with a silver lining of an expedited future. If governments normalize policy and funding towards green energy now, our dependence on crude for mobility could dissipate faster, cutting the time it takes for us to electrify the way we move in half, and reducing our impact on the environment.
If you learned anything new with this post, please share it so others can become petroleum pros during the pandemic: