Who’s Looking Out for You

As the cold weather sets in and the snow begins to fall, when the nights are frigid and the days are gray and raw, who is going to make sure that your heat comes on, that your stove works, that you’re kept safe and warm in your house.

Is it the people holding placards shouting “No Fracking Way?”  (Why aren’t they mad at cantaloupes, which sickened thousands and killed dozens?)

Is it the Department of Environmental Conservation?

Governor Cuomo?

Your town, city, county, your state legislators?

Your mayor?

In fact, you are going to be kept safe and warm because companies like Chesapeake Energy, Range Resources, National Fuel and Dominion locate natural gas, drill for it and send it to you.

These companies don’t get their money sitting in the Oval Office schmoozing the President. These companies make their money keeping you warm when the temperature outside drops to 10 degrees below zero.

We have two fundamental choices in this nation this day.

Either trust your life and your future to the feculent rabble who occupied Zuccotti Park for two months with a wink and a nod from our politicians.

Or you can support the people on drill pads who, everywhere except New York State, work sixteen hours a day to keep you warm at night.

It’s something we all have to figure out and we’d better figure it out fast. Winter is here.

Birth of an Industry

A gentleman named William Hart noticed bubbles of natural gas rising from a stream on his farm in Fredonia.  Mr. Hart could actually set his stream on fire.

Sound familiar?

Did Hart immediately called a “Concerned Citizens” Group?  No.

Was the Department of Environmental Conservation consulted for advice?  No.

Was Channel Two News called to the scene?  No.

It was 1821 and Mr. Hart drilled himself a natural gas well, the first in America.  The next year the first gas company in the United States was formed, The Fredonia Gas Light Company.

One hundred and ninety years before “Gasland” there was methane gas in the water. It’s a natural occurrence.  That’s why it’s called natural gas.

Almost two centuries ago, New York State invented the natural gas industry.  Now we’re afraid to drill for it.  It’s like Florida being terrified of oranges, Kentucky shying away from horses, Idaho outlawing potatoes.

Natural gas is our heritage.  It should be our future.

Sim Real City

About twenty years ago a family friend was playing the earliest version of Sim City on his computer.  We watched in awe as little tornadoes and fires over took his city.  He was trying to find the perfect balance between low taxes to stimulate growth and the municipal services to keep the city safe and clean.  As we watched, he was failing miserably.

Sim City is much more elaborate now, as are the problems of municipalities. An example would be the small city of Olean, NY, population about 14,000, located in the southwestern part of the state.  It was the center of the oil industry in the late 1800’s and early 1900’s,  the hub of the first major pipe line in the nation.  The pipe line, built by the Standard Oil Company in 1881, ran 315 miles from Olean to Bayonne, New Jersey, with a total capacity of 50,000 barrels a day.  Although the oil boom moved westward, an industrial base remained and the population peaked, according to census data, in 1950 at 22,884.   Since then many of the industries have moved on and Olean’s population has declined substantially, each decade taking a slew of people away.

Population of Olean, Ny 1870-2009. Graph by Economics Courageous. Source: United States Census 1870-2000, Census Bureau Estimate 2009.

Unfortunately, unlike Sim City, municipalities experiencing an exodus, such as Olean, cannot cut expenditures as quickly as the population decreases.  Look at Olean’s total budgeted expenditures, the sum of a General Fund, a Water Fund and a Sewer Fund. In 2002-03  the expenditures were just shy of $17 million. Eight budget terms later the expenditures had increased by $3 million, increasing extensively just as the national economy faltered in 2008.

Graph by Economics Courageous. Source: City of Olean Budget Documents 2002-2011

Naturally when a population decreases and the expenditures increase, the tax levy and the fees for water and sewer have to increase to fill the void. The tax levy of Olean for the past nine years is an excellent example of this phenomenon.

Graph by Economics Courageous. Source: City of Olean Budget Information

Given the parameters of a decreasing population and high taxes, a Sim City gamer would quickly reduce spending and taxes to restore equilibrium. In the next few articles we will be exploring in detail the economics of a small city in a big state like New York. Not a virtual city, but a real city with problems not so easily solved. It should be interesting, not as graphic as Sim City, but a visual story none the less. It won’t be as entertaining as Sim City, but very enlightening.

Samuel M. Kier – Crude Refiner

Oil was actually an intruder in salt wells in the early 1800′s. The mysterious greasy useless substance plagued salt wells in West Virginia, Ohio and in Pennsylvania along the Allegheny River. Samuel M. Kier a druggist in Pittsburg, was familiar with the problem of  oil at the salt wells in Tarentum, a town about 20 miles up the river. Kier had a hunch that there was more to the product than waste.

Initially he bottled the oil as a healing compound:  ”Kier’s Petroleum, or Rock Oil, Celebrated for its Wonderful Curative  Powers”.  According to Sketches in Crude Oil by John J. McLaurin (1902) though two barrels of the oil were sold daily at 50 cents per half pint, it wasn’t a profitable venture for Kier.  He instinctively knew the product had more qualities and started to experiment with it.  Kier had a mission: to make the oil an illuminant to compete with coal.  It was a tough challenge.  Burning crude oil produced stench and smoke, not very marketable.  He needed to refine the oil.

A chemist in Philadelphia suggested distillation.  Kier set up a very primitive distillation process and managed in about 1851 after countless experiments and apparently no catastrophic consequences to produce  an illuminating oil, which he called Carbon Oil. He also invented a lamp which could use the oil for a steady light. The oil sold  for $1.50 per gallon and provided a market for the previously useless substance in the salt wells.

According to John P. Herrick in Empire Oil (Dodd Mead, 1949)) , Kier’s “enthusiasm and faith in petroleum did much to inspire less visionary men in the one most important organic material that made possible the metamorphosis of the world from the darkness of the Middle Ages to the brilliantly lighted super-civilization of today.”

Where is Milton Friedman When You Need Him

He is on You Tube, still educating and promoting free markets. He is the best.

Misinformation Fuels Leftists Attacks on Natural Gas

Misinformation Fuels Leftists Attacks on Natural Gas.

Tanks. A Lot.

Linen Post Card of an Oil Tank Farm in Olean, NY (circa 1900)

Very basic marketing problems had to be tackled as oil production increased in the Allegheny River Valley  – how to sell and how to store. Problems that people were eager to solve and tweak as the industry matured.

Initially oil was sold in whisky barrels.  Early barrels were not uniform in size and necessity caused the development of a standard barrel which held 42 liquid gallons, a measurement that holds to this day. Made of white oak  and banded with iron, the barrels carried the petroleum to markets in the metropolitan areas and abroad. Cooperages became a booming industry to meet demand, and with the Allegheny Mountains as the back drop for the oil industry, timber was not in short supply.  Sampson and Ballard produced barrels in Salamanca, NY on the Seneca Indian Reservation.  The company floated its product down the Allegheny River on rafts to the oil fields in Pennsylvania.

Very early on in 1861 wooden storage tanks that could hold up to 1000 gallons were built at well sites, by the end of the decade iron tanks replaced the primitive wooden forerunners.

By the 1880′s Olean, NY had become the crossroads of the oil trade. During the 1870′s pipelines were built that moved oil from the oil fields into Olean and bigger pipelines moved it from Olean to New Jersey.  During this time ten million barrels of oil were stored in the tank farms that were erected in the Olean area.  The oil storage tanks were generally 30 feet high and 90 feet wide.  According to John P. Herrick in Empire Oil they were made of 5 by 10 foot riveted iron plates that tapered from a thickness of one-half inch on the bottom ring to one-quarter inch on the top two rings.  They had a roof of riveted iron plates and were supported by 8 by 8 timbers.  Each tank held 35,000 barrels of oil, weighed over 1.2 million pounds and was surround by a four-foot fire wall. The largest tank farm was on the Allegheny River in West Olean, three other tank farms were in the Homer Hill area of North Olean.

Pipe Dreams to Pipe Lines in Ten Years

Drake’s well was a success –  and the search for underground oil had begun. 

• Up the Allegheny River  Col. Bradford H. Alden successfully negotiated to lease lands from the Seneca Nation of Indians, the first lease in New York State for the exploration of oil.  Alden partnered with Samuel W. Bradley of Olean, New York and Jonathon Watson of Titusville, Pennsylvania and drilled three test wells between 1860 and 1861 along the  river — all dry wells.  On the Seneca Oil Spring Reservation, the company was more successful, but the four wells did not produce enough oil to make it a commercial venture.
• The first commercial oil well in New York State was drilled in Limestone in 1865 by Job Moses and associates doing business as the Hall Farm Petroleum Company.  The company purchased 1250 acres of land from Lewis and William Hall for $20,000 on June 25, 1865.  Job Moses personally chose the site on the banks of Limestone Run.  The well was completed in November 1865 and produced seven barrels a day.

And that was just the beginning… 

• The first oil pipe line in NY State was built in 1875 in 80 days. The two-inch wrought iron pipeline started at a pump station in Tuna Valley in Carrollton and ran a fourteen and a half mile trek to Olean via Rock City Mountain.  A booster station at the foot of the mountain helped the oil ascend 968 feet to an elevation of 2350 feet above sea level.  The pipeline ran close to Rock City then  followed the Olean Highway until it hit Wildcat Run, headed a bit north and crossed the Allegany River at Fourth Street.  On November 23, 1875 the Tuna Valley pump station received its first oil, two days later that oil was in Olean.  The Pennsylvania Railroad’s feeder line, The Buffalo, New York and Philadelphia Railroad, was ready for the oil at the intersection of Third and Wayne Streets.

Scenic Overlook on NY Route 16, Photo by Economics Courageous

• Three weeks later construction on a small oil refinery started in North Olean where the Erie Railroad and The Buffalo, New York and Philadelphia Railroad intersected.
•  In 1876 a three-inch line was added to the two-inch line and in 1877 the two-inch line was replaced with a four-inch line.
• By 1878 a narrow gauge railroad was completed servicing four new oil towns: Four Mile, Rock City, Knapp’s  Creek and State Line. A fifth town, Barnum was not on the railroad line but had a post office.  
• Olean was the hub of the first major pipe line in the country built by the Standard Oil Company in 1881.  The six-inch pipe line ran 315 miles from Olean to Bayonne, New Jersey. Over the next few years three more lines were laid making the total capacity of the line 50,000 barrels a day.

All the above information is in Empire Oil by John P. Herrick (Dobbs, Mead and Company 1949).

A Book Illuminated by Oil

The country roads of Cattaraugus and Allegany counties in New York State  are still much like Father Joseph DeLaRoche Allion and Benjamin Silliman  described 383 and 187 years ago respectively.  There are still an incredible number of wild animals, who somehow make it though the harsh winters.  The rivers still provide fish and the bounty of the farm lands is still significant: corn, wheat, rye, alfalfa, berries, beans, pumpkins, squash, tomatoes, cherries, grapes,and apples; the same crops that sustained the Indian villages in this region four centuries ago.  The maple trees are tapped for syrup and dairy-farming is major industry in the area.

What is different is the grasshopper pumps that dot the area. They are everywhere and those of us who grew up here don’t even notice them.  Friends would have them in their back yard, sometimes they pumped, sometimes they were stationary.  We didn’t pay attention and didn’t give it a second thought.

Those rusty pumps are the remnants of  the golden age of Western New York history where all roads — actually pipe lines – led to Olean, NY.  It is a history that most of us never knew about but it is intriguing and eye-opening.

John P. Herrick wrote a fascinating book, Empire Oil (Dodd, Mead, & Company, 1949), which documents the history of  oil in New York State.  It’s a must read for anyone who has taken the hill to Bradford and passed Wildcat, Barnum, Four Mile and Knapp Creek and wondered about their origin.  The book is a treasure trove of information about the early oil industry in other communities such as Wellsville, Bolivar and Richburg, but the epicenter of the nation’s early exploratory, production, refining and storage is Olean.

The next few installments will be borrowing from his research, but if you are interested in names or geneology Mr. Herrick’s documentation is phenomenal.

Allegheny River: Birthplace of Industrial America

The Allegheny River sputters out of the ground in Northwestern Pennsylvania and heads north into New York’s  Cattaraugus County. As the river takes on a western course it quietly flows through the small towns built on its banks of Portville, Olean, Allegany and Salamanca. The river passes through the Seneca Nation and skirts Allegany State park before heading back into Pennsylvania.

The fairly formidable foothills of the Allegheny Mountains rise above.  The river’s course is a remnant of the ice age; the mountain range can trace its roots back to the prehistoric Devonian period. Pick up a rock in the area and it just might tell you the story of ancient sea creatures and plants that inhabited the area hundreds of millions of years ago.

Back in Pennsylvania, the mountains are more substantial and the forests denser as the Allegheny makes its way southwest to Pittsburgh were it merges with the Ohio River. Eventually the waters of the Allegheny make their way to the Gulf of Mexico.  The river is about 325 miles long and has thousands of  miles of tributaries.

Some of the tributaries are legendary.

Early in his military career George Washington traveled along French Creek to Fort Le Boeuf, near today’s Waterford, Pennsylvania, with a message from his British commander that asked the French to leave  this wilderness outpost that both nations had claimed.  The French politely declined and George Washington started the rugged trip back to Virginia.   Within a year the British were fighting the French and Indian War.

Some historians argue that this event was the start of the modern world.  The American colonists were willing to put up with the British while the French were a threat.  However once the French met defeat, the colonists no longer felt the need for British protection. The American Revolution followed and the slow shift in the balance of power between the old world and the new had begun. The world as we know it began to take shape.

Fly ahead one hundred years to 1854. George H. Bissell had a hunch when he came across a bottle of “Rock Oil” in a laboratory at his alma mater, Dartmouth College.  It was oil that floated on Oil Creek in Northwestern, PA. Intrigued with the possibilities that the oil might possess,  Bissell purchased the land on which the oil was  found and formed Pennsylvania Rock-Oil Company, the nation’s first oil company.  Bissell took on a partner but needed more capital.

In an effort to attract investors Bissell had the oil analyzed by Benjamin Silliman, Jr., a second generation Yale chemist – his father had developed  the process of fractional distillation a few years earlier. Professor Silliman’s report gave the oil glowing reviews: as assumed, it was an excellent illuminant, but the oil also contained gas, paraffin and lubricating oil. It was a raw material with many possibilities.

In the next few years Pennsylvania Rock-Oil Company was subject to early corporate raiders and shenanigans. It reemerged as the Seneca Oil Company and dispatched Edwin L. Drake in 1858  to Titusville, PA to drill for oil.

Drake’s success caused an energy revolution that brought unparalleled prosperity, unforseen perils and an energy drama that continues to this day.