The Mexican Problem (1917)/Oil Expansion
CHAPTER IX
OIL EXPANSION
The submarine, the aeroplane, the modern warship, the pleasure automobile, the motor truck and the oncoming farm tractor are all possibilities from petroleum development.
War is a tremendous consumer of oil and gasolene and is drawing down the stocks of oil above ground throughout the world. War's demand has doubled the retail price of gasolene this side of the water and multiplied it three-and fourfold on the other side, where it is permitted to be used in peaceful pursuits only to a limited extent and under government regulation.
In England no oil is permitted to lay the dust on the highways. If you have official business, you are permitted a limited amount of gasolene at seventy-five cents per gallon. It should thus be measurably clear that industrial development from oil is held back by the war. The world has use, outside the war area, for all the oil that can be produced and transported for a long time after the arrival of peace.
Nevertheless, it may be useful to note a few facts concerning naval development under oil supplies, because such development opens the way to tremendous merchant shipping developments from oil after the war. Without fuel oil the United States government could never have designed for its first line battle cruisers a boiler installation with one hundred and eighty thousand horse-power.
NAVAL OIL DEVELOPMENTS
The projected battle cruisers of the United States could not be reproduced if required to use coal nor can they be remodeled for burning coal.
One of the modern monster war cruisers may use fourteen thousand barrels of oil in twenty-four hours. Although the United States Navy is now using but a million and a half barrels per annum, the estimate of the Navy Department is that it will be using nearly seven million barrels within six years. It was declared six months ago at Westminster: "If we could describe what the recent push has meant in the way of petrol, it would stagger Parliament."
Assistant Secretary of Navy Roosevelt has declared: "It may be set down as a definite conclusion that the navy cannot revert to coal-burning vessels." Fuel oil for the navy, he says, has given increased speed and cruising radius, control of smoke-screens, reduced fire-room forces by fifty-five per cent, increased the efficiency of refueling at sea twenty-five per cent, given ability to sustain maximum speed for long periods of time without clogging the furnaces, flexibility in speed, and finally greater safety from submarines, as in modern American ships the fuel oil is disposed along the bottom to cushion the blow of exploding torpedoes.
Considering this subject, the United States naval consulting board has reported that "the Mexican oil fields are probably the most extensive deposit of oil anywhere in the western hemisphere, if not in the world. To-day Great Britain renews her oil fuel from Mexico, and is assured thereof only so long as she maintains undisputed control of the seas."
OIL STATIONS FOR SHIPS
Some economists and financiers figure that the development of the oil industry is measurably dependent upon the development of oil supply stations throughout the world, notably at the great shipping ports.
You may contract in London for annual 
supplies of coal at any shipping port in the world, and the price before the war was not far from five dollars per ton.
Coincident with the building of Diesel engine ships must be the establishment of oil supply stations around the globe, so that steamship owners and shipping agents may contract for oil supplies as they now contract for coal.
The Daniels idea of an oil base in California for the United States is an absurdity. What is wanted for our navy is American commercial oil stations. No navy can use oil in amount comparable with the uses of commerce, and only commerce can sustain oil stations around the globe.
EXPANSION IN MEXICO
Before the European war the eyes of the world outside of the United States were focused upon the Panama Canal and the nearest oil base thereto for ships.
The United States has officially opened its eyes a bit to the question of oil for its naval ships, and not long ago appropriated sixty thousand dollars to investigate fuel oil and gasolene for naval requirements and naval storage; but while the United States now is, and has been from the beginning, the biggest oil producer in the world, nobody seems to have taken the slightest interest in building up a mercantile marine for the United States on the basis of the cheapest and largest oil supplies on our side of both oceans.
While the British government announces in Parliament that its mercantile shipping is within five or ten per cent of what it was at the beginning of the war, except so far as it is commandeered for war service, and at the same time declares that its naval forces are so rapidly expanding that at the close of this war it will have a tonnage equaling the entire naval tonnage of the rest of the world, it is not unmindful of the future in its mercantile shipping, especially in relation to improvements and developments in connection with oil supplies.
While the British navy is probably taking twenty thousand barrels a day from the Mexican Eagle Company, a British steamship company is negotiating with the Mexican Petroleum Company for a very considerable part of its production in the future.
The Mexican Petroleum Company may elect to deliver the oil at Tampico or elsewhere around the world on six months' notice. Of course no producing company would now contract to ship around the world. When peace relieves the shipping situation, the development in oil shipping and in fuel oil ships will be tremendous.
EXPANDING SHIPMENTS
The Pan-American Company now has twelve steamers working for the Mexican Petroleum Company, and nine more are due this year. Six should be delivered this summer and ten thousand tons a month should be steadily added to the company's shipping facilities. Three ships aggregating thirty-two thousand tons are due next year.
The Union Oil Company has seven steamers taking Mexican Petroleum Company oil through the Panama Canal to South America, and the Standard Oil Company of New Jersey has five ships taking its oil north.
In 1916 the Mexican Petroleum Company produced 12,400,000 barrels of oil and sold 10,600,000 for $8,825,000, or a little above eighty-three cents per barrel. The cost, including bond interest, taxes, and depreciation, was twenty-five cents per barrel. The production for 1917 should equal fifty thousand barrels a day, or 18,250,000 barrels and it should realize not far from one dollar per barrel.
If I were writing a financial article, I should immediately figure that, deducting the interest on Mexican Petroleum eight per cent preferred stock, there should remain for the $40,000,000 Mexican Petroleum common stock, and United States government war taxes, not far from thirty per cent; but as I am not writing a financial article, but on the Mexican situation in general, I give the following as the best estimate I could get in Tampico of the probable movement of Mexican Petroleum Company's oil in 1917:—
| 4,000,000 | barrels to South America by the Union Oil Company. |
| 3,000,000 | barrels into New England. |
| 3,000,000 | barrels to the Standard Oil Company of New Jersey. |
| 2,500,000 | barrels to the Magnolia Oil Company (a Standard Oil subsidiary in Texas). |
| 2,000,000 | barrels to New Orleans and Florida. |
| 2,000,000 | barrels to the Atlantic Refining Company. |
| 1,000,000 | barrels to the Prudential Company. |
| 1,000,000 | barrels in "tops." |
I give the above table to show the wide distribution of this expanding company, whose production is, in my judgment, only in its beginnings. The contracts for the "tops" or distillate call for barrels of fifty-gallon capacity.
To date the Mexican Petroleum Company has produced about eighty million barrels of oil, of which more than fifty-five million barrels have come from the Casiano well at a pressure of two hundred and sixty-five pounds and with the valve unchanged during the seven years of its operation and the pressure —undiminished and Cerro Azul is younger and greater, but can be more closely shut in.