A common narrative about the origin of the petroleum industry, while quite compelling, is not supported by the historic record. The story goes that the near extinction of whales caused market forces to look for other sources of lighting and lubricant leading to petroleum as a replacement for whale oil. History tells a different story.
Let’s take a walk back in time to 1859 when Edwin Drake drilled the first successful petroleum well. While it was not the first well ever drilled, it was the first well that targeted what was called ‘rock oil’ at the time. Although “Drake’s Well” discovery certainly attracted interest in drilling and refining, petroleum was still expensive compared with the main alternatives that were used for lighting and lubrication. Camphene (a mixture of turpentine, alcohol, and camphor oil), lard oil and coal oil were the primary sources of fuel for the masses. Whale oil was much more expensive and considered a luxury for the wealthy since it burned with little soot or odor. Clearly interest in “rock oil” was quickly increasing during this period, yet a catalyst was needed to focus interest away from camphene and whale oil to petroleum. Government action during the Civil War catapulted petroleum from an expensive alternative to a primary fuel source.
The Civil War was a catalytic event for the petroleum industry. It took oil, from being a slightly more expensive alternative to camphene and coal oil, into the main source of lighting and lubrication in the industrializing world. Two factors during the Civil War supported the rise and the dominance of petroleum. One factor was the need to raise taxes to pay for the war; the other was turpentine was primarily manufactured in the southern states, which now were in rebellion.
The Civil War led to increased taxes at the federal and states levels. Many of the regiments in the Civil War were raised from state militias, so while the federal government paid most of the cost, many states still needed to raise taxes to cover some of the military expenses as well. This need for taxes made politicians quickly look for products that had high demand and had some negative connotations. That is why many states taxed both camphene and coal oil at levels which made petroleum cost competitive. Coal oil was taxed because it was already somewhat unpopular, since it was sooty and had a strong odor, making it an easy target for taxes. Alcohol, which was used in the manufacturing of camphene, was also taxed since even then it was considered a luxury with “sinful” connotations.
The other major impact of the Civil War was the blockade of turpentine (used in camphene and ship riggings) and camphor oil (used as an industrial lubricant) as they were mainly produced in the pine forests of the southern United States. The blockade not only impacted the US markets but overseas markets as well. With the Union blockade of Confederate commerce, major manufacturers and ship owners around the world had to quickly find a substitute for both turpentine and camphor oil. This created immediate demand for petroleum which was quickly filled by enterprising individuals who exploited known oil fields around the world. As one British newspaper at the time wrote, “instead of camphene and kindred articles, formerly used for illuminating purposes, made chiefly from spirit turpentine, the world, literally, is using petroleum…the whole matter seems like a providential provision to supply the country and the world with light and beauty, the ordinary sources of which had been cut off by the rebellion in the South.” Government action did not create the petroleum industry but it certainly hastened its ascent from nascent in 1859 to a global leader in lighting and lubrications by the end of the Civil War in 1865.
Today, parallels exist for creating a clean energy transition: demand for an alternative to an existing product, a new product that is becoming competitive vs. an existing product, a major crisis which is changing how people look at certain existing products, governments needing to raise revenues to cover the cost of the virus, and governments massively ramping up support for an alternative to an existing product. These are among the reasons why we believe the time to invest in the clean energy transition is now. History has shown when both private enterprise and governments simultaneously support an alternative that is cost-competitive change happens rapidly.