CHAPTER ONE
The Nature of a Political Resource

"Oil" is a catch-all term that covers a diversity of liquid hydrocarbons. The starting point for most of these is "conventional" crude oil, a form of oil sufficiently liquid to be pumped directly out of the ground and rich enough in carbon-hydrogen atomic linkages to be directly refined. Conventional crude fueled the remarkable expansion of oil production and consumption during the twentieth century but growth in the last decade has stalled, and is increasingly giving way to "unconventional" sources. These are mostly hydrogen-enriched synthetic crude recovered from sand and rock containing bitumen, and liquids associated with natural gas production; together these account for 10 percent of global oil production and could rise to 30 percent by 2035. The origins of oil and the chemistry of crude formation might seem of little relevance for understanding the politics of oil. However, the conditions under which oil forms are key to understanding both the extraordinary utility that modern societies have found in oil and fundamental questions of control. They determine the character of crude, the uneven distribution of oil resources at the global scale, and the costs and risks of turning raw resources into valuable products. Oil forms via the decomposition of organic (carbon-based) matter under conditions of heat and pressure - a process akin to "slow cooking," more properly known as "diagenesis." Most of the oil being extracted today was formed between 200 million and 2.5 million years ago. The processes that break down organic matter and lead to the formation of oil typically occur at temperatures between 75°C and 150°C, and in most settings these conditions are found 2-3.5 kilometers below the surface. This creates an "oil window": above it, temperatures are too low for oil to form; below it, the longer hydrocarbons are broken down into shorter chains, producing natural gas instead of oil. A particular combination of physical conditions is needed if these hydrocarbons are to concentrate together rather than simply disperse. Oil forming in an organic-rich source rock needs a porous "reservoir" rock (typically sands, sandstone, or limestone) into which it can migrate and accumulate, and an impermeable seal or cap that prevents oil from moving further. Because the conditions for the formation of oil are not found everywhere, crude oil is variable in its physical and chemical properties and unevenly distributed in the earth.1

Crude oil is primarily carbon, atoms of which are locked together with hydrogen in different arrangements to form "hydrocarbon" molecules. As with other "fossil" fuels, the carbon atoms in crude oil are an underground stock accumulated over millions of years via the global carbon cycle. Pumping, refining, and burning crude oil returns these carbon atoms to the surface - ultimately in the form of carbon dioxide emissions to the atmosphere. In this way, the global oil industry acts as a carbon conveyer, moving carbon stocks from below ground into the atmosphere. And because the rate at which carbon flows to the surface is much greater than the return flow - via the decomposition of organic matter or the deliberate capture and storage of carbon dioxide - the oil industry is deeply involved in the atmospheric accumulation of carbon dioxide and climate change.

The way in which carbon and hydrogen are combined varies, so that crude oil is made up of many different types of hydrocarbon molecules. The larger the number of carbon atoms that make up a molecule, the heavier the hydrocarbon: from gaseous methane and ethane with one and two carbon atoms respectively, through liquid gasoline with 7-10 carbon atoms per molecule, to highly viscous bitumen with more than 35. Crude oil also contains other materials, including sulfur, nitrogen, metals, and salts. Because it is a natural material that reflects the conditions of its formation, the quality of oil in underground reserves is highly variable. Among the most significant forms of variability are: density (oil with more hydrogen is lighter and has a lower specific gravity); sulfur content (a higher content characterizing "sour" from "sweet" crudes); viscosity (how readily it flows); and acidity and the presence of metals. Oil is a liquid hydrocarbon. The rather obvious fact that oil flows is significant, because - unlike gas or coal - it can be moved over distance with comparatively few energy and labor inputs. It can be pumped across continents, into storage tanks, and into engines. Underground, oil is a liquid that is often under pressure, and under the right conditions it travels to the surface without lifting. On the other hand, this flow character lends oil an unruliness - a capacity to flow beyond control - that requires capital, equipment, and skill to contain.

For thousands of years, societies have found utility in these physical and chemical properties of crude, including waterproofing for boats, as a mechanical lubricant and as a medical ointment. Today, crude's value lies in its role as a chemical feedstock and fuel. The diversity of hydrocarbon molecules - and the relative ease with which they may be split, combined, and re-engineered - provides a rich storehouse of potential petrochemical combinations with which to manufacture new materials, including plastics, synthetic fibers, and a range of chemicals. One of every 15 barrels of crude oil (i.e. 6 percent) is used in this way as a feedstock for the production of petrochemicals.

It is as a fuel, however, that most crude oil is used. Combining hydrocarbon molecules with oxygen - as in combustion - releases large amounts of energy as heat and light. Oil packs a greater energy punch than coal or natural gas: nearly twice as much as coal by weight, and around 50 percent more than liquefied natural gas by volume. The practical effect of this greater "energy density" is that oil has unrivaled capacities as a transportation fuel. The amount of oil required to move a ton or travel a thousand kilometers is less than for other fuels, allowing expanded mobility and geographical flexibility. The replacement of coal (through steam) by oil (diesel, gasoline, kerosene, and marine fuels) in transportation, which occurred for the most part in the first half of the twentieth century, reflected the greater energy services that oil could provide. The higher energy density of oil changed the economies of scale required for crossing space, allowing the size of vehicle units to fall - from the train and tram to the automobile - and an increase in the power output for a given size or weight of engine. Oil's energy density enabled the evolution of the internal combustion engine (where oxidation/combustion on a small scale released a sufficient amount of energy to enable the direct movement of a piston), as opposed to the much larger, external combustion engines associated with steam power. Oil was not the first fossil fuel to have significantly shrunk distance: the introduction of coal-fired steamships in the second half of the nineteenth century drove down shipping costs and further facilitated long-distance trade in bulk commodities like wheat and wool. But oil consolidated this process and drove it further: from cars and airplanes, to diesel and bunker fuels for ocean shipping. In the US today, three-quarters of all petroleum is used as transportation fuel. As a fuel, oil is burned in a variety of forms. These include gasoline and jet fuel at the lighter end of the spectrum; heavier diesel fuels, heating oils, and bunker fuels for shipping; and, heaviest of all, petroleum coke which is used as a fuel in steel smelting and cement production.

Oil's high energy density and liquid properties mean the "gap" between the amount of energy expended in gathering a barrel of oil and the amount of energy that the barrel can release can be very large. Harnessing this "energy surplus" has enabled large gains in labor productivity over the last hundred years, as oil-based machines replaced human labor and facilitated growing economies of scale. The energy surplus available through oil has enabled industrial economies to overcome declining resource quality and the exhaustion of local stocks, expanding in turn the output of food and raw materials. The average energy surplus available through oil has been declining, from around 100:1 down to 30:1 over the course of the twentieth century, with some deepwater crude and unconventional oil sources now as low as 5:1. This declining ratio demonstrates the gradual deterioration of "energy returns" as investment has increasingly become geared toward accessing harder-to-reach conventional oil deposits or hard-to-upgrade unconventional sources.2

The condition of the resource: growing uncertainty, declining quality

Over the last 150 years around 1.5 trillion barrels of oil have been extracted from the earth, over half of it since around 1989 (see Figure 1.1). At the same time, global oil reserves have grown: world reserves grew by 51 percent between 1995 and 2015 and now stand at 1.7 trillion barrels. The clue to this apparent paradox is that reserves (unlike the total planetary resource) are not fixed, but are shaped by geological knowledge, technology, political factors, and the economics of production. As oil companies probe the earth, they produce not only oil at the top of the well but also new...