"FREEDOM AND ENERGY GO TOGETHER"
An Address By
EUGENE HOLMAN President, Standard Oil Company of New Jersey
Thursday, April 19th, 1951
CHAIRMAN: The President, Mr. Sydney Hermant.
MR. HERMANT: Members and Guests of The Empire Club of Canada: This is Patriot's Day in the United States, marking the first armed clash of the American Revolution on Lexington Green, which took place on April 19th, 1775. It is significant that today The Empire Club of Canada welcomes the head of a great American Company which has made an outstanding contribution to Canada and the Empire--Mr. Eugene Holman, the President of Standard Oil Co. of New Jersey, the world's largest Oil Company with affiliates producing oil in sixteen countries, refining it in twenty-one, and marketing it in over one hundred. These operations account for approximately one-sixth of the world's petroleum business. Over one-third of Standard's activities outside of the United States are in the British Empire through the Anglo-American Oil Co. organized in the United Kingdom in 1888, and Standard Vacuum Oil Co. operating in South and East Africa, New Zealand, India, and Australia. There is also a Standard affiliate in Malta which this year celebrated its Golden Anniversary. In Canada, Imperial Oil Limited is a name well and favourably known to everyone. One chilly February day in 1947 an Imperial Oil Leduc discovery well hit pay dirt in Alberta's Devonian limestone and Canada achieved a new importance in this vital industry. Since then Imperial Oil alone has invested more than One Hundred Million Dollars in search for new fields. We pay tribute today not only to Standard, and Imperial, but to the entire oil industry which is essential to the welfare of Canada, the Empire, and the free world. It is reliably estimated that in the one and a half hours we are spending at this Empire Club luncheon today, 146 drilling rigs are active in Western Canada and will drill 2500 feet. During this luncheon period $38,000 will be spent searching for and developing new Canadian fields. In this same time 2200 wells in Alberta will have produced approximately 4,500 barrels, or 157,000 gallons of crude oil. Canadians during this hour and a half will use more than 750,000 gallons of oil products. The 33 Canadian refineries operated by 17 Oil Companies will manufacture about 700,000 gallons of oil products. Each of the 1,800,000 barrels of oil in the Inter-provincial pipeline will travel three miles, and Imperial alone will make committments for materials, supplies, and services, not including its own labour costs, in excess of one-quarter of a million dollars while we attend this luncheon. There could be no greater measure of confidence in Canada.
It is a great privilege to have Mr. Holman as our Speaker today. Mr. Holman graduated in geology from Hardin-Simmons University. He joined the United States Geographical Survey and then enlisted in the American Army to serve as an aerial photographer in World War I. Following the war he joined the Humble Oil and Refining Co., then associated with Standard. His first assignment was in the booming north-central Texas oil fields where he soon became a Superintendent. He then became Superintendent of the Louisiana-Arkansas Division, and later became chief geologist of the Company with headquarters in Houston, Texas. In 1929, Mr. Holman transferred to New York City to become Assistant to the Vice-President of Standard who was in charge of crude oil production. Subsequently Mr. Holman became President and Director of Creole Petroleum Corp. and Lago Petroleum Corp., both Venezuelan affiliates of Standard. Named a Director of the Co. in June, 1940, he was elected Vice-President in 1942, and President in 1944. In January, 1946, he became Chairman of the Executive Committee. Mr. Holman is a member of the American Association of Petroleum Geologists, and the American Petroleum Institute, and has contributed many technical papers and articles on the industry. A forthright campaigner for world cooperation, industrial peace, and a minimum of Government control of private business, Mr. Holman is recognized by business and labour alike as a progressive International-minded and exceptionally capable Executive, one who has reached the top strictly on his merit. In this connection I would refer to an editorial in this morning's issue of The Financial Post referring to Standard Oil entitled "Good Manners--Good Business". I now present Mr. Eugene Holman, the President of Standard Oil Company, (New Jersey) who will speak on the Subject: "Freedom and Energy Go Together".
MR. HOLMAN: My trip to Toronto to be with you today has reminded me of the farmer visiting New York who was approached during one of those "man-on-the-street" radio broadcasts. They asked him what part of America he called home.
"The top part," he replied. "America's all Grade A, but the cream lies in Canada."
If that farmer had been an oil man, he no doubt would have expressed his regional pride somewhat differently. In our business--at the refineries--various products derived from crude oil are drawn off at different levels of a distillation tower. And there, too, the best--or at least the products which fetch the best prices--come from the top.
The use of a petroleum metaphor in connection with your country is appropriate to the times. For here in Canada, oil developments have recently taken on new interest and significance. The attention of the world has turned toward your western prairies, daily becoming a more and more important producer of liquid fuels. Timely evidence of this great development will be the arrival--I understand within a few days--of Albertan oil at Sarnia. This is an event made possible by the recent completion of the pipeline stretching more than a thousand miles from Redwater to Lake Superior.
I sometimes feel, when I talk about oil, that I may be putting myself in the position of a man who makes his friends listen to long stories about his own children. I am willing to run that risk today, however. I believe that you Canadians are interested in oil--with good reason and that because of this interest some description of the present world petroleum picture as I see it may help you get a better perspective on part of your own country's future.
Someone has aptly said that the per capita consumption of fuel is an index of a nation's standard of living. You in Canada use fuel energy at an annual rate of 207 million British thermal units per person. Use of fuel energy in the United States puts us in the same league. Our use is at a rate of 229 million British thermal units annually. These are the highest national per capita rates of fuel energy consumption in the world.
The western European nations use about 32% as much fuel energy per capita as does Canada; Russia about 22% --as far as we know; and Asia 3 %.
I'm talking now about total energy use, of course--including that coming from coal, oil, natural gas, and hydro-electric power.
In the past century, people's energy needs were largely met by coal. Then, in the twentieth century, with the invention or development of the automobile and airplane, the diesel engine, and automatic home heating, use of oil began to rise sharply. In the entire fifty years of this century, there have been only four years in which the use of oil did not exceed the amount used in the previous year. The world uses about 460 million gallons of oil every day, and consumption is still rising. Four hundred and sixty million gallons is quite a lot of oil. The oil used world-wide in just one day would heat an average home in a climate like Ontario's for more than 200,000 years. A tank the size of the Empire State Building in New York would be required to hold this amount of petroleum.
Recognizing how important oil is to modern life, let us take a quick glance at the world supply of this commodity.
Oil stored above ground in tanks seldom exceeds a few months' consumption. This means that at any one time most of our petroleum supplies are still underground, stored in the natural formations where it was discovered. We in the industry call this oil "proved reserves." We can calculate with reasonable accuracy how much oil exists in these underground reservoirs. Different persons come up with different estimates of proved reserves, ranging from 80 billion to something over a hundred billion barrels as of this moment.
The United States and Canada have about 30 billion barrels of those proved reserves. Other Western Hemisphere countries have about 12 billion more. The Eastern Hemisphere, with from 40 to more than 60 billion barrels, is richer in proved reserves than the Western. Of the total amount, however, 80% is presently being developed by United States or British Commonwealth oil companies.
Now let's consider briefly the consumption side of the world oil picture.
Current world use of oil amounts to nearly 4 billion barrels per year. There is no relation between the places where oil is found and where it is used, however. Oil is found where nature put it. It is consumed where populations have concentrated and industry flourishes. Only in a few cases do the two coincide geographically. But the far-flung, efficient system that has been built up to transport oil permits producing and consuming areas to be brought together with relative ease and economy. If such barriers as international politics, currency restrictions, and similar impediments didn't exist, there would be no problems, relatively speaking, in supplying all parts of the world with all the oil they need for as far as we can see into the future.
The geographical non-coincidence of producing and consuming areas makes it clear why the oil business tends to be a global one. I'm sure Canadians must be particularly conscious of this, because for so many years your oil supplies were brought in almost entirely from abroad.
For example, 95% of Canada's petroleum requirements were being imported just four years ago. Only 5% was produced within Canada itself. In 1950, however, although you were using 35% more oil than in 1947, about 20% was produced within this country.
Development of the large oil resources of the Middle East is now bringing about a very considerable shift in the pattern of world oil commerce. South American sources no longer must supply as much oil to Western Europe as formerly. Much of this oil, and much from North America that formerly crossed the Atlantic, is now available for use in the Western Hemisphere.
A good deal of the credit for having oil ready in sufficient quantities to meet today's requirements must be given to those nationalities--British, Dutch, Canadian, and American--that have worked and competed to find the oil, get it out of the ground, refine it, and deliver it to customers. The industry has always been one marked by dynamic expansion--and that process of expansion is still going on.
In anticipation of a continuing upward trend of consumption, oil companies are energetically engaged today in large-scale construction programmes. A new thousand-mile pipeline has recently been completed from Saudi Arabia to Sidon, Lebanon, on the shores of the Mediterranean. Another 500-miles is under construction from the Kirkuk field in Iraq to the Syrian coastline. Additional pipelines now planned, or under construction, include a 10-inch one in France, several long 20-to 24-inchers in the United States, and lines in your own backyard that will bring products to Toronto.
Facilities to transport crude oil and products by sea are also being increased. Last year alone, 128 ocean tankers were delivered. At the present time, 380 ocean tankers are reported to be under construction or on order.
By the end of 1953, new foreign construction programmes will have added more than a million barrels per day to the world's present refining capacity. Right now in such varied places as Bordeaux, France; Leghorn and Milan, Italy; Cartagena, Spain; Antwerp; Rotterdam; and Melbourne, Australia new equipment is either going into place or is already in operation turning out petroleum products. One of the results of my own company's part in this expansion will be that the location of the Commonwealth's biggest refinery will shift from Sarnia to Fawley, near Southhampton, England. I'm sure, however, that Sarnia will not lose its title without putting up a fight and that the distinction of having the largest oil refinery in the Commonwealth may be regained by Canada sometime in the future.
In building up productive and transportation facilities, the industry has not forgotten its traditional goal of service to the customer. Therefore, a proportionate growth is taking place in oil marketing facilities, too. New and enlarged bulk stations and service stations are being built in many places throughout the world. New and bigger tank trucks and other distribution equipment are being put into service for the oil consumer.
All these new facilities will naturally increase the amounts of liquid energy available for consumption--but no more so than demand for them is expected to grow. The constant rise in consumption might cause some alarm if you were to take the figure of 80 billion barrels of proved reserves and divide it by the consumption figure of 4 billion barrels annually. A snap conclusion would indicate that the world was going to run out of oil about twenty years from now--or sooner, as consumption rises. Such a calculation, however, would be erroneous because it doesn't allow for the fact that every year new oil is discovered.
For the last half-century, with one or two exceptions, more oil has been added to world supplies each year than was consumed. So despite constantly increasing withdrawals of oil from the earth, proved reserves of underground oil, world-wide, have increased and are now at an all-time high.
In the oil industry, we are as sure as humans can be that many more billions of barrels of oil will be discovered. Geological knowledge, outlining the conditions which existed ages ago when oil deposits were formed, helps us to predict places where oil deposits may be present. With proper exploration and testing, it is reasonable to expect that in many of these areas new oil reserves will be found. But the job of finding and developing these potential reserves lies in a never-ending search.
It took more than twenty years and many millions of dollars, for example, to reveal the location of the great oil fields in the Edmonton area of Alberta. All that time and money were spent because men thought that oil was there and were willing to back up their conviction. Wallace Pratt, a great geologist and a good friend of mine, has expressed it well. He says that oil exists first in men's minds. In one of his books, he states: "Whatever the geological conditions may be and whatever technique we employ, we find oil in the earth very rarely unless we have first acquired an appropriate mental attitude. The very state of mind of the social order as well as of the individual is involved in successful oil finding."
But even if oil does exist in the mind, it will never be found unless men are free to go out and look--free to follow their own hunches, and disregard experience if it doesn't happen to fit the terrain. The most important element in the search for oil has always been the element of freedom. Men have looked for oil when there were no restrictions on them.
In this business it seems to follow that lots of liberty results in lots of oil--the source of half our modern energy. Experience in totalitarian countries (and I think of no better example than Soviet Russia) confirms this finding. There, in some of the most promising oil territory in the world, in spite of a driving urgency to develop the potential, and adjusting for all physical differences, production does not nearly approach our own. No one is free to look for oil in Soviet Russia. The state runs the industry on a cut-and-dried basis. And without competition, production lags.
Freedom not only promotes the development of energy in the form of oil; it also promotes the development of other sources of energy such as coal and gas, making for greater availability of these other servants of man. For fuels, like other products in a free, competitive economy, are developed in the proportion in which they give human satisfaction. Competition, responding to demand, brings forth greater amounts of fuel and thus more energy becomes available to society as a whole. The use of this energy, in turn, builds up the industrial plant, thus requiring the use of still more energy sources.
My country and yours have always left the final decision on what fuels are to be used to produce energy up to the choice of the consumer. That is the only way real competition works. If we were to replace this system of free selection which has served us so well with one that leaves such decisions to a single authority, I think we'd soon find that the contribution of all fuels to our energy requirements would be seriously weakened.
Coming even closer to home in this matter of freedom, I might underscore our confidence in its effectiveness by explaining that Jersey Standard believes firmly in arranging its affairs in such a way as to encourage initiative and resourcefulness. The role of the parent company is to coordinate and pass along experience gained by one member that might be of value to another. Our family policy of decentralization seeks first to insure freedom for each member to direct its energies to the conduct of its own affairs. We think this system produces mutual strength without making for rigidity or permitting complacency.
So long as men keep the freedom to inquire and explore, I'm completely confident that there will be enough liquid fuel for the world. I might observe right here that we oil men are simply peddlers of liquid energy. We'll get the liquid fuels to supply our customers--if not from one source, then from another. If demands should mount to a level where they could not be satisfied from petroleum, the manufacture of liquid fuels from coal, tar sands, and other sources would undoubtedly be expanded. Due to the ample volumes of petroleum now available in my own country, I see no reason to begin production of synthetic fuel on a commercial scale in the United States at present. If the time does come for such production, Canada--with such enormous reserves as the Athabasca Tar Sands--should continue to hold its position as a substantial producer of liquid fuel.
Even if the problem of synthetic supply never arises, other problems will. All international commerce has its problems, oil being no exception. I feel, however, that such difficulties prove to be less formidable when they are attacked with goodwill on both sides and with the benefit of long experience in international trade.
Experience in our company has resulted in the conviction that operations in international trade should be conducted in a spirit of cooperation and mutual confidence between the parties of different nationalities. In return for its investment of capital, technical knowledge and management skill, a company undertaking oil developments on the other side of the world wants security of title to property, observance of contracts, managerial control of operations, and the right to fair profit. On the other hand, those granting concessions are entitled to fair participation in resulting benefits. These include the payment of reasonable royalties and taxes, the avoidance of waste, and the fulfillment of domestic oil requirements before any is exported. Included, too, are training and employment at fair wages for the nationals of countries where oil is being developed.
The absence of such conditions creates road blocks to international trade--to the detriment of people everywhere. We in my company seek to work consistently for relationships based on mutual respect and amity, believing that international trade conducted in this way will serve the countries and companies concerned and other peoples in many lands.
We think these are sound principles and cannot help but encourage an honest desire on both sides to resolve international problems concerned with oil.
In the persuasive atmosphere of the will to agree, the work of removing misunderstandings has already gone forward. A good example is the dollar-sterling situation of the past few years. There was a knotty problem! Yet goodwill and patient work is bringing about a removal of the difficulty.
Many intricate details had to be worked out before that settlement was reached. They cover years in time and the most complex questions of economics and national feelings. The dollar-sterling problem had all the thorny characteristics of others facing British Commonwealth and United States oil men today, and which we both may well face in the future. The willingness to understand, which worked so well in the one case, proves to me that agreement is possible without loss of principle or advantage on either side. In such a spirit, other difficulties standing in the way of increased oil production may be resolved.
The real meaning of the world oil situation lies in the realm of spirit rather than in the most imposing thicket of figures. In the production of energy, the statistical amount of fuels under the earth of a country is demonstrably less important than the amount of freedom among its people. Our two countries have buried within them approximately a quarter of the world's proved oil reserves. Yet between us we produce and consume more than half of all the liquid fuel serving mankind. And every year we keep on finding more oil than we use.
Canada's secret, like that of the United States, is very simple. We both consider human attitudes and abilities to be more vital than natural resources. What is buried underground means nothing unless we have the skills, the capital, and the drive to explore, discover and put the hidden fuel to work. People who have both the freedom and the energy to do that are, I believe, strong to defend themselves and prosper.
VOTE OF THANKS, moved by Mr. J. Allan Ross.