Rockefeller's riches

The modern oil industry in the U.S. was born in the late 19th century, when, after investing in a Cleveland oil refinery during the Civil War, John D. Rockefeller founded Standard Oil in 1870. As of 1880, Standard refined 95 percent of all oil in the U.S. Branded an illegal monopoly in 1911, Standard was divided into 34 companies, including many still around today, like Mobil, Chevron, Shell, and Esso (later renamed Exxon).

As Americans took to the road, demand for oil gushed ever higher. In the 30s, the oil giants turned to Texas to seek their fortunes. Soon thereafter, Chevron, Texaco, Exxon and Mobil went overseas to expand their reserves, buying up rights to oil fields in Saudi Arabia (a bargain at $50,000).

Oil gets organized

In 1960, top oil-producing countries Iran, Iraq, Kuwait, Saudi Arabia and Venezuela met in Baghdad to form the intergovernmental organization OPEC, which stands for Organization of the Petroleum Exporting Countries. Today's list of 11 members, which collectively supply about 40 percent of the world's oil output and control more than three-fourths of total crude oil reserves in the world, are Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. The members meet twice a year to decide on their total output level of oil, considering actions to adjust it if necessary in response to oil market developments. Basically, it's all about supply and demand --if oil production rises faster than demand, prices fall, which OPEC claims hurts both producers and, eventually, consumers (in the form of inflation).

Membership in OPEC is open to any oil-exporting nation that shares the organization's ideals. OPEC countries seek to ensure that oil producers get a good rate of return on their investments and (according to OPEC) that consumers continue to be able to access steady supplies of oil.

Oil stateside

Oil is certainly a slippery subject in the U.S., where high prices at the gas pump and the environmental issues associated with extraction and production always garner plenty of attention. The issue of drilling in the Arctic National Wildlife Refuge, for instance, was a huge topic in the election of 2000, and promises to resurface in 2004. Many of these decisions rest on politics and power: While the Clinton administration had proposed selling some 6 million acres in the Gulf of Mexico, off the coast of Florida, this amount was gutted at the behest of Florida Gov. Jeb Bush in 2001. But at other times, true environmental concerns hold sway. For example, the last oil refinery built in the U.S. was completed in 1976; though a handful more could contribute to lower gas prices, the risks and controversy surrounding their construction (refineries need to be built near water, and disasters like the Exxon Valdez oil spill have contributed to what the industry sees as a NIMBY attitude among the public) have all but scuttled the possibility of any new refineries any time soon.

In the U.S., according to the National Petrochemicals and Refiners Association (NPRA), there are 149 refineries, owned by 57 companies, with aggregate crude oil processing capacity of 17 million barrels per day (a barrel is 42 gallons). Back in 1981, there were 325 refineries, capable of producing 18.6 million barrels per day. Total U.S. demand for oil in 2002 was 17.5 million barrels per day. OPEC puts the world demand for oil at 76 million barrels per day, predicted to rise to more than 90 million barrels per day by 2020. Meanwhile, at the end of 2001, the latest year for which OPEC figures are available, world proven crude oil reserves stood at 1.075 million barrels. Saudi Arabia dominates these holdings, with crude oil reserves of 262,697 million barrels. Iraq comes in a distant second at 112,500 million barrels; these countries are followed by Iran, the UAE and Kuwait.

For a variety of reasons, including price and the obvious fact that U.S. demand outstrips supply, the U.S. imports a portion of its oil from other nations. In fact, according to the NPRA, while 96 percent of refined petroleum product demand is produced domestically, the U.S. imports 60 percent of the crude oil it refines from other countries.

Troubled times

The 1970s saw two crises in oil pricing -- an Arab oil embargo in 1973 and the outbreak of the Iranian revolution in 1979. In both cases, oil prices rose sharply. After a peak in prices in the early part of the 80s, the market saw a sharp decline followed by a collapse in 1986. By the 90s, prices had recovered, though they never regained the high levels of the previous decade. Another collapse occurred in 1998 following economic instability in Asia -- prices sank to $10 a barrel. By 2000, they had climbed back up to over $30 a barrel.

Oil alliances

At the end of the 1990s, following the Asian crisis, the industry witnessed several mega-mergers among major international oil companies, including the well-known Exxon-Mobil and Chevron-Texaco marriages (British Petroleum also merged with Amoco and Arco to form BP, and Conoco joined with Phillips Petroleum to become ConocoPhillips). Many small independent companies weren't so lucky, and went into bankruptcy.

Though the industry has recovered recently as oil prices rose sky high during the Iraq war (hitting $40 a barrel in the first quarter of 2004), the industry began to see pressure as environmental concerns became more pronounced, leading producers to worry about an impending drop-off in demand. Supply may also become an issue as continued unrest in Iraq has prevented the exporting of crude oil from that country.

Russia rising

With oil resources naturally limited, the industry constantly has to search for new supplies. Since the collapse of the Soviet Union, Russia has been taking steps to modernize its oil infrastructure. With proven oil reserves of 60 billion barrels (mostly situated in Western Siberia), Russia also holds the world's largest natural gas reserves. International oil services companies like Halliburton and Baker Hughes have begun working with the major Russian oil companies in recent years, and the country's economy is becoming increasingly reliant on oil exports -- in 2002, energy accounted for nearly 20 percent of Russia's GDP. In February 2003, BP invested $6.75 billion in Russia, creating a new joint venture company with Russia's fourth-largest oil company, TNK. In August of that year, Russia approved a $13 billion merger between two of its oil superpowers, Yukos and Sibneft, creating one of the largest publicly traded oil companies in the world, but the deal was suspended a few months later due to "technical difficulties."

Analysts say the country has great potential, and could eventually produce 10 million barrels of oil per day by 2010 -- President Putin has made the energy sector the centerpiece of Russia's growth strategy in the coming decades. But this promise is dampened by an inefficient infrastructure, including government corruption and the legacy of the Soviet collapse. Russia poses a geographical challenge, as well -- exports are limited by the capacity of the pipeline system intersecting the vast region. New pipeline systems, such as the Baltic Pipeline System, have been developed in recent years, and negotiations are underway for others (as well as for "reversal projects" that re-route the direction of oil pipelines to maximize transport of oil out of Russia). Similar measures are underway involving natural gas. Two mega-projects, Sakhalin I and Sakhalin II, are taking place on Sakhalin Island, located off of the east coast, site of a former penal colony. The area is rich in oil and natural gas reserves, and oil giants including Exxon and Shell are backing the projects, with oil exports anticipated for 2005 and natural gas exports expected in 2007 and 2008.

Africa is another source of oil reserves. In February 2004, Exxon Mobil began a $3 billion development project off the coast of Angola, and in July 2003, crude oil production began for the first time in the nation of Chad, the result of the World Banks single largest investment in sub-Saharan Africa. But companies doing business in the continent are vulnerable to dramatic political unrest and violence in many countries. In March 2003, Chevron/Texaco, Royal Dutch/Shell, and TotalFinaElf shut down their operations in the Niger Delta region of Nigeria due to clashes between soldiers and militant groups in the area. Production began to resume a month later, but the region remains unstable.

Green concerns

So-called "greenhouse gases," produced through the burning of fossil fuels, are increasingly acknowledged to be a major factor behind a trend in global warming, a trend that threatens major environmental repercussions in coming decades. The Kyoto protocol, developed by a group of nations over the last decade to limit greenhouse gas emissions, was a hot topic as the Bush administration came into power in 2000. The administration decided not to sign on to the protocol, which would have required the U.S. to reduce its 1990 levels of greenhouse gas emissions by 7 percent by the years 2008-2012. The administration's own solutions to the global warming problem have raised the ire of many environmentalists, who see U.S. energy policy as too friendly to the interests of corporations.

Meanwhile, corporations have taken their own baby steps to ease the environmental impact of their products. In January 2003, 14 U.S. oil corporations and subsidiaries launched the Chicago Climate Exchange, a trading program allowing participating members to earn redeemable credits for exceeding emissions reduction goals.

Today, the U.S. oil industry spends a lot of time lobbying Congress for a "comprehensive energy policy." According to the NPRA, such a policy would include tax incentives for new and existing refinery capacity, reasonable environmental regulations that balance the need for cleaner fuel with market demand, and a clearer policy toward individual states adopting requirements for fuel formulations (California, Connecticut, and New York, for instance, have tougher restrictions on what can go into fuel in order to reduce potentially harmful emissions -- restrictions the industry says cost refineries millions).

But the bottom line is that oil is a non-renewable resource, and experts warn that there is an urgent need to develop a large-scale alternative energy infrastructure. In addition to alternatives already in use, such as solar, wind, and geothermal energy systems, new technologies are in development -- but it's a race against time. According to the Alternative Energy Institute, the world's supply of oil will reach its maximum of production, and the midpoint of its depletion, around 2010. Already, about 65 percent of known oil n the U.S. has been burned. Soon, the AEI warns, more than half of the world's petroleum reserves will be owned and controlled by countries in the Middle East, a fact that highlights the problems wrought by political instability in the area.

The other gas

As a power source, natural gas has become a contender in recent years. Today, a third of energy used in the U.S. is fueled by natural gas. As demand for electricity boomed in the 1990s, the market revved up, and with it came the entry of "energy merchants" like the infamous Enron, which set out to purchase natural gas cheaply, convert it into electricity, and reap profits from the "spark spread" -- the markup on the sale of power. These merchants eventually manufactured a "shortage" in electricity that sent prices soaring, which in turn affected the price per cubic foot of natural gas.

But the U.S. has limited domestic resources for natural gas production. As the supply is depleted, U.S. production falls by roughly 2 percent a year. Importing gas from other countries, including Russia, Qatar and Trinidad, and building pipelines in places like Alaska and Canada are touted as options, but they're expensive and unwieldy ones.

What does this mean for the oil industry? According to author Paul Roberts, a tight market for natural gas means less resources are available to devote toward new applications like synthetic gasoline, hydrogen for fuel cell-fired cars, or other energy alternatives. As a result, the oil economy doesn't have much to fear from the green-fueled car of the future for a while.

Employment prospects

The Bureau of Labor Statistics classifies jobs in the industry as "oil and gas extraction," including both oil and natural gas. This category offers something for everyone: There are management and administrative jobs for white-collar types (20 percent of the industry in 2002); hardier souls might choose to work as derrick and rotary drill operators or roustabouts (11 percent). There are also plenty of opportunities for the scientifically-minded, with jobs in geology and engineering (23 percent). According to the BLS, most establishments in the industry employ fewer than 10 workers, with about 77 percent of the U.S. workforce concentrated in California, Louisiana, Oklahoma, and Texas.

Though earnings are relatively high in the industry, BLS predicts a drop-off in overall employment in coming years, with an anticipated wage and salary decline of 28 percent by 2012 (as compared to an overall drop in all industries of 16 percent). The industry is known for its fluctuations  as prices skyrocket, companies invest in new technologies and expand their explorations, while lower prices have the opposite effect. Still, new technologies for exploration, including 3-D and 4-D seismic exploration methods, new drilling techniques, and technologies for exploring deep under the sea, will continue to produce a demand for skilled workers.