Natural Gas is King in Pittsburgh – Deja vu All Over Again?

I was reading an article from the New York Times the other day, and the first line of the article was, “Natural gas is King in Pittsburgh.”

The article described how much natural gas development is under way in the region; that with respect to overall enterprise cost, “gas is far cheaper as fuel than coal,” especially for manufacturing; that it is reinvigorating the economy of Pittsburgh, and attracting capital to the region; and finally, that natural gas is a clean fuel.

The date of this article was October 18, 1885.

Read more here.

Wind vs. Petroleum. Near Delft, Netherlands, 1977.

Celebrity Poker: Albania, 1935

From an era long before "Celebrity Poker" became a staple of basic cable TV -- indeed, from an era before there was basic cable TV . . . this little New Yorker story, vintage 1935, illustrates another kind of celebrity poker:

A quartet of gentlemen adventurers connected with the Standard Oil Company, and headed by a Mr. Owen, have just returned from Tirana, the capital city of Albania, with a surprising little tale. Seems that after a strenuous summer of surveys in the Balkans, they came to Tirana with hopes of finding excitement and gaiety. Tirana, however, turned out not to have any night life at all: no night clubs, no theaters. After a late dinner, the four retired to their hotel suite and settled down to an evening of draw poker. Beside them, a tall French window overlooked a darkened city. Far away across the city, a light shone in the royal palace; elsewhere there was nothing. In about ten minutes, the telephone rang. Mr. Owen answered and was addressed first in Italian, then in French, and finally in English. He replied in English, and a small sad voice inquired, "Is it bridge or poker?" He said it was poker. "This is King Zog speaking," the voice went on. "I wonder if I could come over and take a hand." Owen told him to come right ahead. He arrived 15 minutes later, played for the rest of the evening, and lost the Albanian equivalent of $1.50, after which he bought them a round of drinks at the hotel bar. Seems he keeps a telescope at the palace, and manages to get in quite a little night life that way.

If an Explorer Falls Down in the Forest . . .

Frederick A. Cook -- explorer, oil promoter and convicted fraud -- was born on this day in 1865 in Calicoon Depot, New York.

Trained as a physician, Cook served as surgeon on three expeditions to Greenland led by Robert Peary (1891, 1893, 1894) and a Belgian Arctic expedition (1897). In 1906 he led his own expedition to Mt. McKinley, and claimed to be the first to successfully ascend the peak, although the Explorers Club of New York and the American Alpine Club refused to acknowledge Cook's claim after reviewing the evidence. Next Cook claimed to be the first to reach the North Pole on April 21, 1908 and was greeted as a hero on his return, but Peary publicly questioned his claim, and a report by Copenhagen University discredited Cook's story, paving the way for Peary to claim to be the first to reach the Pole the following year.

Cook enjoyed popularity on the lecture circuit for a time, but drifted into oil well promotion, eventually starting the Petroleum Producers Association in Ft. Worth, Texas in 1922 and raising funds through the sale of stock. A year later, however, he was indicted and convicted for fraudulently disbursing stock-sale proceeds as dividends to early investors, claiming revenue from non-producing wells and misrepresenting the company's financials. He was sentenced to 14 years, 9 months in prison, but was paroled after 7 years in Leavenworth.

Cook was pardoned by President Roosevelt shortly before his death on August 5, 1940 in New Rochelle, New York. The Frederick A. Cook Society continues to advocate on behalf of Cook's claims of priority on Mt. McKinley and at the North Pole.

Flagler's Fortunes, Part II

In 1901, North Carolina songbird Mary Lily Kenan became the third wife of Standard Oil/Florida real estate millionaire Henry M. Flagler -- she was 34, and he was 71. In 1913, after Flagler died following a fall at their palatial estate, Mary Lily Kenan Flagler became the wealthiest woman in the U.S., with an estimated fortune of almost $100 million.

Three years later, Kenan married an old college sweetheart, lawyer Robert Worth Bingham -- who happened to be deep in debt. Although he had signed a prenuptial agreement giving up all claims to Mrs. Flagler's fortune, she was very generous with her new husband, giving him a trunk filled with $1 million and paying off his debts.

Shortly after their marriage, however, Bingham began to spend considerable time away from home, coinciding with his engagement of a physician to treat Mary Lily for heart trouble with injections of cocaine and morphine. After Mary Lily was found dead in her bathtub at age 50, scarcely a year after her marriage to Bingham, Bingham showed up with a signed codicil to her will giving him $5 million.

The Kenans contested the codicil and accused Bingham of murder, going so far as to exhume Mary Lily's body for an autopsy; and although the scandal raged through the tabloids and the courts for some time, both Bingham and the Kenans were able to enjoy splendid shares of Henry Flagler's fortune, estimated in total in the hands of their heirs at $500 million by 1995.

For his own part, Bingham seems not to have suffered much from the scandal. With Mary Lily's inheritance, he purchased the Louisville Courier-Journal (1918) and became a leading Kentucky kingmaker. After supporting Franklin Roosevelt in the 1932 presidential campaign, Bingham was rewarded by being nominated to serve as U.S. ambassador to Great Britain. The only opposition to his nomination came from partisans in his own backyard, as Kentucky congressman Andrew May demonstrated in a speech against Bingham on the floor of the House:

"When that distinguished police court lawyer takes his seat on one side of the table, a seat once occupied by the immortal Ben Franklin, and when Lloyd George and Ramsay MacDonald take their seats on the other side of the table, we will have just about as much chance in that crowd as a wax cat would have in a battle with an asbestos dog in the bottomless pits of hell."

Bingham ultimately served as ambassador until his death in 1937.

Flagler's Fortunes, Part I

Oil man, real estate developer and prodigious party-hat-wearer Henry M. Flagler was born on this day in 1830 in Hopewell, New York.

A successful grain merchant, in 1868 Flagler joined with John D. Rockefeller to establish the partnership that would become Standard Oil; Rockefeller always gave him credit for some of the key ideas that helped to launch the petroleum behemoth. By 1876, however, Flagler turned his attention to family matters, taking his tubercular wife Mary to Florida on doctor's orders. She died in 1881, and shortly thereafter Flagler married his wife's nurse, Ida Shourds, and returned to Florida to speculate in land.

In 1888, Flagler built his first Florida hotel, the 540-room Ponce de Leon in St. Augustine, followed a few years later by another luxury hotel, the Royal Poinciana on Palm Beach Island. Ultimately, his strategy was to build a trans-Everglade railway, stringing together each of his lavish resorts from Jacksonville to Miami to the Keys, catering to wealthy New Yorkers.

Flagler also knew how to throw a party, and his hotels became known for their bacchanalian excesses; at some of the famous drag costume balls at the Poinciana, Flagler would lead the pack dressed as Marie Antoinette (albeit with an ever-present mustache and cigar).

Within this heady atmosphere, Ida Flagler began to break down mentally, and Flagler hesitated little before having her carted off to a New York sanitorium and taking a new mistress -- this time a classical singer and pianist, 37 years his junior, named Mary Lily Kenan. Divorce was not legal in New York in those days, however, so Flagler changed his residence and used all of his political capital (as well as some well-placed "contributions") to persuade the Florida legislature to pass a law permitting divorce on the grounds of "incurable insanity." In 1901, after providing for Ida with a settlement of $2.3 million in securities and property, Flagler married the 34-year old Kenan, giving her a wedding gift of $3 million and a palatial mansion, "Whitehall," on Lake Worth in Palm Beach.

After another decade of outrageous parties, Flagler died a few days after being knocked down a flight of marble stairs by a pair of pneumatic doors that Mary Lily had installed at Whitehall. At his funeral, Mary Lily Kenan Flagler was touted as the wealthiest woman in the U.S., with a fortune of between $60-100 million.

But that wasn't the end of the story . . .

From Oil Creek to Spindletop

Yesterday was the birth anniversary of Benjamin Silliman, Jr. (born in 1816 in New Haven, Connecticut, died there on January 14, 1885), a Yale chemist and son of American science pioneer Benjamin Silliman, Sr., who was hired by the promoters of the nascent Pennsylvania oil industry to analyze seep oil and who discovered the practical uses for petroleum -- in particular, that petroleum could be refined into mighty fine kerosene. Silliman's report ("Report on Rock Oil, or Petroleum, from Venango County, Pennsylvania," 1855) was used in raising funds for the wells drilled by "Colonel" Edwin Drake, an ex-railroad conductor who struck oil at 69-1/2 feet below the surface at Oil Creek, Pennsylvania on August 28, 1859.

The Oil Creek strike launched a frenzied oil rush in Western Pennsylvania and Eastern Ohio, ultimately drawing in and making the fortunes of the Rockefeller clan and countless others.

In 1901, however, a one-armed amateur geologist almost singlehandedly (please excuse the pun) shifted the entire focus of the American oil industry to Texas and the Southwest.

Pattillo Higgins (born on this day in 1863 in Sabine Pass, Texas) lost an arm during a gunfight with a deputy sheriff when he was 17. Claiming self-defense, he somehow emerged without being convicted, and thereafter became a born-again Baptist and a brick and glass entrepreneur.

Throughout the 1890s, Higgins told anyone who would listen that there was oil underneath Spindletop Hill, an otherwise worthless piece of land near Beaumont, Texas -- experiencing reactions that ranged from pity for a "harmless fanatic" to "he may have a point there." Higgins turned out to be correct, and when "Captain" Anthony Lucas' first Spindletop well gushed mud, rocks and crude oil 200-feet into the air in January 1901, the Texas oil industry was born. Cheated out of the financial benefit of Lucas' well by the terms and conditions required by Lucas' investors (who numbered among them banker and Treasury secretary Andrew Mellon), Higgins sued, received some settlement money, and proceeded to develop some of the most productive wells on the Spindletop acreage by himself. Thereafter, Texas was the Mecca and the playpen of the major petroleum developers, and Western Pennsylvania as an area for oil exploration was relegated to poor sister status.

A living embodiment of the boom-and-bust rhythms of the oil industry in general, Higgins gained and lost millions over the span of his petroleum career. He died on June 5, 1955 in San Antonio, Texas.

M. King Hubbert

Geophysicist and mathematician M. King Hubbert was born on this day in 1903 in San Saba, Texas.

In 1956, M. King Hubbert, the head of Shell Oil's research lab and a brilliant but cantankerous University of Chicago scientist, made a bold prediction that raised the ire of his powerful employer. Starting from the assumption that there is only so much oil in the ground, Hubbert designed a mathematical formula that could be used to chart the rate of consumption against the remaining reserves of any finite resource. The resulting curve, known as "Hubbert's peak," would roughly show the point in time at which the production of oil in the U.S. would peak and thereafter decline.

Hubbert's prediction? That the production of crude oil in the U.S. would peak some time between 1966 and 1971, then fall off rapidly to nearly zero. Shell Oil was aghast; Hubbert's estimate of future reserves in the U.S. was far below what Shell and its competitors had predicted, and Hubbert was failing to take into account the uncovering of new reserves and the improvement of exploration technology.

Hubbert stuck to his guns, however. In 1958, Hubbert published a report recommending that the U.S. increase its importation and storage of foreign oil -- in response to which, ignoring Hubbert's estimates, the U.S. government tapped Francis Turner to expand the interstate highway system. In 1962, he wrote the energy section for a National Academy of Sciences report commissioned by President Kennedy, but his conclusions about peak oil production were toned down for the executive summary. Hubbert reached the mandatory retirement age at Shell at age 60 and assumed joint appointments with the U.S. Geological Survey and Stanford University in 1964.

In February 1975, when the U.S. was experiencing a "surprise" oil crisis, the National Academy of Sciences finally accepted Hubbert's calculations, admitting that the U.S. peak had occurred in 1970 -- leaving Hubbert to conduct "I-told-you-so" interviews with the press. "A child born in the middle [19]30s will have seen the consumption of 80% of all American oil and gas in his lifetime," he declared, and "a child born about 1970 will see most of the world's [reserves] consumed."

With better statistical information, Hubbert's successors have concluded that worldwide peak oil production will occur no later than 2020, although industry diehards continue to dispute Hubbert's methodology, awaiting the new technology panacea. With consumption rates in China and India growing by leaps and bounds at the beginning of the 21st century, the Hubbertists claim that the peak could occur even sooner.

Some experts now believe that Hubbert's 1956 prediction should have been a Bill W. moment of self-awareness in America concerning its addiction to petroleum -- if you suddenly became aware of the fact that you would have to have your gin shipped to you from half-way across the world in specially-built tankers just to keep up with your glorious future thirst, wouldn't that be an opportune time to try to kick the habit? Although the macroeconomic significance of "Hubbert's peak" should have led public policy to favor the development of alternative energy sources in 1956, its macroeconomic significance 50 years hence is simply that buyers and sellers, in a world gravely dependent on oil, are now aware that the end is in sight, and prices will continue to rise accordingly.

While "Hubbert's peak" propelled Hubbert to visionary status, his earlier work in geophysics was also highly influential. In 1937, while teaching at Columbia, Hubbert employed a mathematical analysis to explain how the hardest of rocks forming the crust of the Earth could show signs of plastic flow under extreme geophysical pressures. By the 1950s, his work regarding the flow and entrapment of underground fluids caused the oil industry to rethink its basic exploration methods; and much later, Hubbert authored a compelling argument that overcrust faults, whose origins had long puzzled geologists, originated as a consequence of underground fluid pressures. Hubbert was also influential, at Stanford and at Berkeley (1973-6), in advocating that earth and environmental science programs place a greater emphasis on mathematics and physics. He passed away in 1989.

"Growth, growth, growth -- that's all we've known . . . World automobile production is doubling every 10 years; human population growth is like nothing that has happened in all of geologic history. The world will only tolerate so many doublings of anything -- whether it's power plants or grasshoppers." -- M. King Hubbert, 1975.