Ludwell DennyCHAPTER TWELVE
FROM fear of petroleum shortage comes search for substitutes, and the Anglo-American struggle to control such substitutes as rapidly as they are developed commercially. This fight centres in Germany.
For 20 years Germany has tried to free herself from the hold of foreign corporations, chiefly Standard. The Kaisers military machine was inadequate because it lacked oil. This explains in part the German Drang nach Osten and Berlin-Bagdad policy which led up to the Great War. Germany planned to get, in addition to her small domestic reserves, the petroleum resources of Roumania, Anatolia, Mosul, north Persia, and the Caucasus. The Deutsche Bank in 1913 acquired minority interest with the British in the Turkish Petroleum Company, whose Mosul concession claim was based on the earlier German Bagdad railway concession.228 Throughout the war the Kaisers staff directed operations in eastern Europe and the Near East in conformity with the general foreign policy and immediate military necessity of acquiring foreign resources. Military defeat not only shattered this dream of oil empire but robbed the Fatherland of some of its small domestic fields.
Germany then sought to solve her problem in a manner unique, or rather characteristic of the Teutonic genius. Oil shortage during the war, an important factor in her ultimate military defeat, had mothered the invention of substitutes. The great German chemical industry and its scientists developed several processes for manufacturing synthetic gasoline. Since the war Germany has led in the further development of such substitutes.
The most valuable is the Bergius process for the commercial liquefaction of coal. Since Dr. Friedrich Bergius filed his first patents in 1913, he has been under the watchful eyes of the British Government and Mr. Deterding. Bergius, originally a man of wealth, was so impoverished by the post-war deflation that he was induced to accept British capital in forming the International Bergin Company. Headquarters were established at The Hague, Sir Henris old home. Later British capital obtained a footing in the German Bergin Company, which took over the inventors experimental plant at Rheinau. Control of the patents was finally obtained by the German dye trust and a Ruhr coal combine. Dutch-Shell apparently was more interested in keeping Standard away from these valuable patents, than in developing them for itself.
In some manner not altogether clear Standard in 1927 made a deal with I.G. Farbenindustrie, the German dye trust, which resulted in reducing British holdings and giving the Rockefeller company certain interests in processes for synthetic production and for refining crude oi1.229 This agreement and its significance is described by Dr. Wilhelm Mautner of Amsterdam as follows:
Relations had been entered into with this company for over a year, namely, the 25 per cent participation of Standard Oil in the German Gasoline A.G., the sales organization selected for marketing the synthetic oil of the I.G. Besides, there were persistent rumours and reports of participation by Standard in processes of the I.G. for making synthetic motor oils, either by the Bergin method acquired by the I.G. or by that companys own process based on its experience with the Bergin. It was learned that the negotiations between the I.G. and Standard were progressing favourably and that Mr. Teagle [president of Standard of New Jersey] on his European trip [in 1927] was to put the finishing touches to this agreement. An understanding between the I.G. and Standard was really reached; however, the communiqué announcing this event, in spite of its intentional brevity and vagueness, left no doubt that the negotiations, insofar as they had resulted in an agreement, concerned something else besides the synthetic oil; namely, the working of the patents, especially as regards crude oil (we may even say, in the field of crude oil refining.) The communiqué reads as follows:
`The negotiations in progress for some time between the Standard Oil Company of New Jersey and the I.G. Farbenindustrie A. G. have now ended with the agreement contemplated for co-operation in the United States in the mutual utilization of patents, namely, those concerning crude oil. At the same time, thorough discussions were carried on regarding co-operation in the other fields of common interest.
This means in any case that the utilization of crude oil patents is restricted to the United States only, and that the I.G. is therefore free to conduct negotiations with other interested concerns. But it also means that there exists not merely one, but many other fields of common interest. ...
As regards processes for improved preparation of petroleum (by which is meant the preparation of heavy oils not well adapted for the usual refining method and hitherto handled by the cracking process), the public formerly knew nothing. It is claimed these processes have passed the laboratory stage and are now ready for large-scale experiments. These tests are to be made at Oppau. As we lack detailed information, we can at best make only conjectures as to the nature of these methods, and perhaps recall that for a long time Dr. Bergius, in addition to his oil-from-coal process, also busied himself with petroleum refining, and that there also resulted some points of contact between his experiments and those of the I.G. So far as we know, besides certain processes worked out by German scientists for refining and cracking oils, there was also a so-called Melamid method, which Stinnes acquired, and still another owned by the Dea and called very valuable by Dr. Bluemner. ...
Surprise was expressed that Dutch-Shell was not named in all these negotiations, not even in those concerning refined oil production, although this concern possessed a 50 per cent interest in the Internationalen Bergin Compagnie voor Olie en Kolenchimie (I.B.C.), the company organized to utilize the Bergin patents in foreign countries, and a 25 per cent interest in the German Gasoline A.G. The fact that in the case of the coal liquefaction process of the I.G., the Bergin method itself was not concerned, might be a good reason for this 'freeze-out. But as the American announcements, which referred to an acquisition of the Bergin patents by Standard, were obviously made only because they confused the crude oil refining process with the synthetic oil process, and in the case of the latter did not distinguish between the process of the I.G, and the Bergin method, we cannot but believe the conjectures stirred up of an enmity between the I.G. and Dutch-Shell. ...
But in this connexion we must call attention to other things. It will be recalled that in the summer of 1926, there were changes in the board of directors of the I.B.C., the Maatschapij voor Kolen en Olie Technik (Makot) and the Deutsche Bergin A.G. für Kohle und Erdoelchemie (Deberg), when the I.G. assumed control of the Bergin concerns and an English group acquired an interest. Whereas Dutch-Shell previously had four to eight votes in the board of directors of the I.B.C., it now has only three to ten. And as the capital of the I.B.C. was also changed . ... we are inclined to believe the recent report in a Dutch newspaper that there was a change of relations and a decrease in financial participation by Dutch-Shell in the I.B.C. ...
As regards refined oil, sales agreements probably exist only in Germany, for there Dutch-Shell, Standard and I.G. are interested in the Deutsche Gasoline at the ratio of 25:25:50. ...
From these new agreements, we must expect the same as from present understandings with Standard: no matter how great their material importance for the participants may be, this significance is not so great as the actual fact that such a far-reaching agreement is possible between the leading enterprise in Americas largest industrial branch and the most important concern of the German chemical industry.230
I.G. Farbenindustrie in 1928 announced Bergius improvements increasing from 490 to 700 kilograms the amount of crude oil extracted from 1,000 kilograms of coal.231 Though commercial development of this product may be slower than its inventor expects, Standards success in breaking through the old Dutch-Shell barrier which surrounded the Bergius and other German chemical trust patents may prove eventually more important than the Rockefeller connexions in Russia. This will depend largely on the rapidity with which the prospective shortage in natural petroleum develops in the United States.
In Germany, where such a shortage in mineral petroleum has always existed, the chemical trust expects under the Bergius and other oil-from-coal processes to produce by 1937 enough synthetic oil to meet Germanys estimated demands of 2,500,000 tons annually at that time.232 Annual capacity of these plants in 1928 was estimated at 300,000 tons. Investments in the German plants are said to total $30,000,000, in addition to about $20,000,000 spent on experiments.
German chemical trust officials are convinced this synthetic product will be manufactured in the future by all countries lacking adequate natural petroleum supplies.233 Foreign countries with coal deposits but without petroleum will want the process at any cost, even where it is not commercially profitable in competition with petroleum, Dr. Karl Bosch, an I.G. director, said in a recent London interview.234 Hydrogenation of coal tomorrow will be regarded as essential to national defence as is the air-fixation process today. For national defence Great Britain above all will want to produce benzine from coal. The British navy will insist on having hydrogenation plants at home. In time of war there is always the risk of being cut off from this or that oil field.
Great Britains present oil plight, despite all her post-war success in acquiring foreign producing fields, is described by Sir Thomas H. Holland, former president of the Institution of Petroleum Technologists, in the October 1927 Journal of that society. The total consumption of petroleum products in the British Empire, however, amounts to about 10,000,000 to 11,000,000 tons, whilst its own output of crude oil is only about 3,000,000 tons, Sir Thomas points out. Thus, the Empire is dependent on outside sources, not only for three-quarters of its normal requirements of petroleum products, but it has still insufficient refining capacity, even if it could be sure of getting a sufficient supply of crude. ... It is important to remember that, in case of temporary isolation, even the Empire sources of crude oil may not be accessible. In any event, they would be quite insufficient even if they were available to the full, and thus the prospect of obtaining oil from materials other than crude free petroleum is one that is of special importance to Great Britain. But, as he goes on to say, there seems little hope in the near future of turning our oil shale and torbanite to account in quantity sufficient and with commercial profit to meet the growing demand for the various products of oil.
Processes for obtaining motor fuel from coal are grouped by the United States Bureau of Mines in four classes: high-temperature carbonization of coal, including the gas and coke manufacturing industry; low-temperature carbonization of coal; hydrogenation and liquefaction of coal by the Bergius process; complete gasification of coal and conversion of the resulting gases by pressure synthesis into methanol, synthol, and other liquid combustibles. In addition to such processes, experiments are being carried on in several countries in utilization of agricultural products for production of motor fuels, including alcohol.
The oldest method of supplementing natural oil obtained from wells is extraction of petroleum from oil shale. For more than 75 years an oil shale industry has operated in Scotland, much of the time at a profit. This industry has suffered reverses latterly in competition with low-priced American and other well-oil in a period of over-production. Production from oil shale in Scotland was under 2,500,000 barrels for the peak year 1914, which is somewhat less than daily crude oil output in the United States in 1928. Shale-oil is produced in smaller quantities in France, Italy, Spain, Esthonia, and Australia.
The Coolidge Federal Oil Conservation Board has studied prospects for large scale shale-oil production in the United States to take the place of diminishing well-oil reserves. In commenting on the results of its investigations covering production of natural petroleum substitutes from agricultural products, coal and lignite, as well as oil shale, the Board stated:
Oil shale operations, in order to be profitable, doubtless will have to be conducted on a very large scale, involving a probable capital outlay of several million dollars for a single commercial plant. Unlike the oil industry, where a man with small capital by making a strike can often obtain a quick return of many times the capital invested, the oil shale industry is likely to be a large-scale manufacturing industry with a small profit per ton of material treated. Although the industry, when once established, will doubtless pay a fair return on the capital invested, it may be difficult to finance operations until the supply of crude oil is definitely on the decline or until the demand exceeds the supply over a period of years.
Oil shale cannot be considered as an immediate source of oil, either for displacing oil from wells or for supplementing the production from wells, except to a very limited extent. It should be considered as an important oil reserve, to be drawn upon if and when conditions become such that operations can be conducted at a profit. In the meantime, however, experimental and development work might well be continued, so that when shale-oil is needed the information will be available as to the best methods to follow in retorting the shale and refining the shale-oil.
Other important sources of oil are the coal and lignite deposits of this country. It has been estimated that the reserves of bituminous, sub-bituminous, and semi-bituminous coal in the United States, within 3,000 feet of the surface, amount to nearly 2,500,000,000,000 tons and would yield about 92,000,000,000 barrels of motor fuel. This is more than 300 times the production of motor fuel for the year 1927. It should not be considered, however, that all this coal could be made available at present prices, since some of the deposits are far removed from the railroads and in many places the beds are too thin or too deep to be worked under present conditions. It has been estimated that the lignite deposits of the country amount to 940,000,000,000 tons capable of yielding 12,000,000,000 barrels of motor fuel. ...
The possibility that coal will be the source first to be drawn upon for supplementing the petroleum supply leads this Board to unite with the Naval Oil Reserve Commission in recommending the creation of two reserves of coal available for this special purpose. ... The proposed reserves to be recommended for Executive withdrawal include some 4,000 acres of publicly owned coal deposits in Wyoming and Montana, with an estimated content of 250,000,000 tons of sub-bituminous coal from which 80,000,000 barrels of oil could be produced.235
Sir Henri Deterding is of the opinion that substitutes will not be able to compete with the natural product under normal conditions. His 1927 Dutch-Shell report, as summarized by the London Times, June 9, stated: The question whether benzine obtained from coal may be able to compete with natural benzine is one of price. The conclusion arrived at is that the natural benzine distilled from crude oil must of itself continue to hold the advantage over synthetic benzine, and that, in those countries where no excessive taxes are levied and other uneconomical burdens do not bear down the oil industry, it will always be able to compete with success against the synthetic product.
Sir John Cadman in his inaugural address as chairman of Anglo-Persian on November 2, 1927, discussed the same subject. In my opinion, he said, very many years must elapse before natural petroleum resources will be unable to meet the greater part of the worlds requirements. Of course, the time will eventually come when the world may have to look for a great part of its supplies from secondary and synthetic sources, but he would indeed be an optimist who imagined thaton the reaching of such a stageprices would remain as low as those existing in the past.
Dr. Bergius claims he is producing his substitute at a cost of 90 marks a ton, and selling it for 165 marks. He argues that, with large scale production, natural petroleum prices must be cut in half to compete with Bergin.236
228. Cf., Chap. II.
229. Cf., Boston Living Age, Sept 15, 1927.
230. Wirthschaftsdienst, Aug. 26, 1927.
231. New York Wall Street Journal, Nov. 30, 1927.
232. Cf., Commerce Department, Commerce Reports, April 16, 1928. Foreign Trade Notes, Oct. 8, 1927.
233. Cf., New York Wall Street Journal, Jan. 10, 1928, for efforts of German chemical trust to penetrate the United States and to form world combine.
234. Ibid., Jan. 14, 1928.
235. Second Report, Jan. 16, 1928.
236. Cf., Boston Living Age, March 1, 1927. Tulsa Oil and Gas Journal, Dec. 29, 1927.