Wednesday, November 20, 2013

Haymaker: The Origin of Big Natural Gas

[Summary: Natural Gas 101]

Natural gas, so called as it is naturally occurring rather than being man-made, has been piped in small volumes over short distances in the US for street lighting since the 1820s.  Manufactured gas, produced by processing coal in gas works, was carried out a few years earlier.  Both natural and manufactured gas were used on small scale street lighting.

It took a massive discovery on November 3, 1878 in Murrysville, near Pittsburgh, Pennsylvania to bring natural gas to widespread industrial and home use.  The well was drilled by the Haymaker brothers.

Obediah ("Obe") Haymaker was murdered for the discovery. His brother, Michael, lived to tell the tale.  The well is now forgotten, almost.

(click photo to enlarge - The plaque placed on a boulder at the well site in 1961 incorrectly refers to Michael Haymaker as Matthew.  The name Michael is confirmed from multiple published sources, including the 1880s New York Times.)

Obe and Michael had been looking for oil.  They had seen a neighbor using gas emerging naturally from a creek (usually a good indicator of oil) as a fuel to boil down maple syrup.  To the Haymakers' disappointment they stumbled upon natural gas alone, which is more difficult to transport than oil and thus to this day trades at a discount.

Natural gas emerged uncontrolled from the Haymaker well for three years.  As the capital-starved brothers were trying to finance, and later sell the well, it caught fire and burned for a further year.

Visitors from all over the US, including President Grover Cleveland, came to see the fire.  Finally, after four years, the well was tamed. Pipes were constructed to bring natural gas the 18 miles to steel producing city, Pittsburgh, Pennsylvania.  Most steel plants at that time used coal. This was the first industrial scale use of natural gas in the US. Air quality in Pittsburgh improved dramatically.

Apart from a boulder covered by a tree (see the photos above and below I took on a recent visit) in the backyard of a house (the precise location is oddly incorrect on both Google and Bing maps - the correct location is here), there is little marking the place: the site of riots; the murder of one of the wells discoverers; and the fuel that to this day powers a large portion of US and global electricity generation as well as cooking stoves, home heating, and a large part of the future of transportation.

(click photo to enlarge)

Below the fold is a detailed recounting of the discovery, published in a 1936 edition of Sun Oil Company's 'Our Oil'.  Sun Oil Company later became Sunoco Inc.  The article below (after the "read more" link) was written by Michael Haymaker, then 90 years old in 1936.

Thursday, August 29, 2013

Do Wars Cause Higher Oil Prices? Not Generally

[Wars are fought over oil.  But do wars mean higher oil prices?]

Military intervention by the US in Syria is looking increasingly likely. Here is a quick cheat sheet.

Many are calling for a rally in oil prices from its current $107 per barrel to $150 or $200 on the initiation of action.  Others are calling for a price spike higher which will quickly reverse.

Syria is a relatively small oil producer, with trivial production globally.   It's  the potential disruption from spillover into larger regional oil producing nations, including Iraq and Iran, that concerns oil consumers.

Predicting the reaction of the oil market in such situations is not straightforward and it's always worth considering a range of scenarios. It is precisely this uncertainty that has caused an abundance of caution historically, and caused supply-side over-reaction, with lower prices after Western forces finally act.

Over the past 30 years, military interventions involving external, US or UN, forces against Arab nations or Iran have generally resulted in lower oil prices.  It is only regionally internal, Arab vs Arab or Arab vs Persian, warfares that resulted in higher prices (charts below, click to enlarge). 

Perhaps this is because by the time Western military operations begin the market has already priced in the event due to a more free press. Traders monitor Western political sentiment, military jet fuel purchase requisitions, and fleet movements, ahead of time.  Or maybe it is the actual, or threatened, impact of an IEA global release of strategic petroleum reserves, along with the willingness of US ally Saudi Arabia to increase production from its spare capacity during disruptions.


Tuesday, June 18, 2013

Coming Soon...

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