World Energy Supply

I

Introduction

World Energy Supply, combined resources by which the nations of the world attempt to meet their energy needs. Energy is the basis of industrial civilization; without energy, modern life would cease to exist. During the 1970s the world began a painful adjustment to the vulnerability of energy supplies. In the long run, conserving energy resources may provide the time needed to develop new sources of energy, such as hydrogen fuel cells, or to further develop alternative energy sources, such as solar energy and wind energy. While this development occurs, however, the world will continue to be vulnerable to disruptions in the supply of oil, which, after World War II (1939-1945), became the most favored energy source.

II

Background of Today’s Situation

Wood was the first and, for most of human history, the major source of energy. It was readily available, because extensive forests grew in many parts of the world and the amount of wood needed for heating and cooking was relatively modest. Certain other energy sources, found only in localized areas, were also used in ancient times: asphalt, coal, and peat from surface deposits and oil from seepages of underground deposits.

This situation changed when wood began to be used during the Middle Ages to make charcoal. The charcoal was heated with metal ore to break up chemical compounds and free the metal. As forests were cut and wood supplies dwindled at the onset of the Industrial Revolution in the mid-18th century, charcoal was replaced by coke (produced from coal) in the reduction of ores. Coal, which also began to be used to drive steam engines, became the dominant energy source as the Industrial Revolution proceeded.

A

Growth of Petroleum Use

Although for centuries petroleum (also known as crude oil) had been used in small quantities for purposes as diverse as medicine and ship caulking, the modern petroleum era began when a commercial well was brought into production in Pennsylvania in 1859. The oil industry in the United States expanded rapidly as refineries sprang up to make oil products from crude oil. The oil companies soon began exporting their principal product, kerosene—used for lighting—to all areas of the world. The development of the internal-combustion engine and the automobile at the end of the 19th century created a vast new market for another major product, gasoline. A third major product, heavy oil, began to replace coal in some energy markets after World War II.

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The major oil companies, which are based principally in the United States, initially found large oil supplies in the United States. As a result, oil companies from other countries—especially Britain, the Netherlands, and France—began to search for oil in many parts of the world, especially the Middle East. The British brought the first field there (in Iran) into production just before World War I (1914-1918). During World War I, the U.S. oil industry produced two-thirds of the world’s oil supply from domestic sources and imported another one-sixth from Mexico. At the end of the war and before the discovery of the productive East Texas fields in 1930, however, the United States, with its reserves strained by the war, became a net oil importer for a few years.

During the next three decades, with occasional federal support, the U.S. oil companies were enormously successful in expanding in the rest of the world. By 1955 the five major U.S. oil companies produced two-thirds of the oil for the world oil market (not including North America and the Soviet bloc). Two British-based companies produced almost one-third of the world’s oil supply, and the French produced a mere one-fiftieth. The next 15 years were a period of serenity for energy supplies. The seven major U.S. and British oil companies provided the world with increasing quantities of cheap oil. The world price was about a dollar a barrel, and during this time the United States was largely self-sufficient, with its imports limited by a quota.

B

Formation of OPEC

Two series of events coincided to change this secure supply of cheap oil into an insecure supply of expensive oil. In 1960, enraged by unilateral cuts in oil prices by the seven big oil companies, the governments of the major oil-exporting countries formed the Organization of Petroleum Exporting Countries, or OPEC. OPEC’s goal was to try to prevent further cuts in the price that the member countries—Venezuela and four countries around the Persian Gulf—received for oil. They succeeded, but for a decade they were unable to raise prices. In the meantime, increasing oil consumption throughout the world, especially in Europe and Japan, where oil displaced coal as a primary source of energy, caused an enormous expansion in the demand for oil products.

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