The Oil Industry : the beginnings

4.1 The Oil Industry

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The beginnings

In 1855, Benjamin Sillian, chemistry professor at Yale, discovered that a mineral liquid (used so far by the Indians and the first settlers to make a bad, smoky and smelly light, and before that as a medicine), this same liquid could, after a simple distillation make lubricants and a wonderful, clean source of light, far cheaper that whale oil or natural gas. Following the spirit of the time, the professor started a company and began to dig for oil. In 1859 his well was producing more than 1000 gallons a day. The news of this stupendous discovery burst like a grenade and led immediately to a rush of a scale never seen since the crazy times of the gold rushes. In one year, more than 2000 new wells were dug, each spitting more than 1000 barrels a day. A new industry was born.

Structures of the oil industry

The oil industry differed from other industries like for example steel in that, at least in the beginning, it knew little barriers to entry. Crude oil producers and refiners could, with a minimum of capital, start a venture that was in direct competition with long established companies. Change in the method of refining around 1875 raised the minimum size of an efficient refinery and allowed economies of scale to benefit the big refiners. The capital needs (for derricks, pipelines, stills, tankers and scientific research) increased rapidly and soon shaped the industry as we know it : huge initial investments but once it works the marginal costs are very small.

A portrait of Sillian

Benjamin Sillian discovered the properties of oil and made them public in 1855

Working for a journalist who had heard of rock-oil in college, Sillian investigated the properties of this liquid. The professor published a report that spread quickly. Here is an excerpt :

«From the rock-oil might be made as good an illuminant as any the world new. It also yielded gas, paraffin, lubricating oil. In short, your company have in their possession a raw material from which, by simple and not expensive process, they may manufacture very valuable products. It is worthy of note that my experiments prove that nearly the whole of the raw product may be manufactured without waste, and this solely by a well-directed process which is in practice in one of the most simple of all chemical processes.» (distillation)