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|4.1 The Oil Industry|
In 1855, Benjamin Sillian, chemistry professor at Yale, discovered that a mineral liquid (used so far by the Indians and the first settlers to make a bad, smoky and smelly light, and before that as a medicine), this same liquid could, after a simple distillation make lubricants and a wonderful, clean source of light, far cheaper that whale oil or natural gas. Following the spirit of the time, the professor started a company and began to dig for oil. In 1859 his well was producing more than 1000 gallons a day. The news of this stupendous discovery burst like a grenade and led immediately to a rush of a scale never seen since the crazy times of the gold rushes. In one year, more than 2000 new wells were dug, each spitting more than 1000 barrels a day. A new industry was born.
Structures of the oil industry
The oil industry differed from other industries like for example steel in that, at least in the beginning, it knew little barriers to entry. Crude oil producers and refiners could, with a minimum of capital, start a venture that was in direct competition with long established companies. Change in the method of refining around 1875 raised the minimum size of an efficient refinery and allowed economies of scale to benefit the big refiners. The capital needs (for derricks, pipelines, stills, tankers and scientific research) increased rapidly and soon shaped the industry as we know it : huge initial investments but once it works the marginal costs are very small.
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