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The History of Oil Discovery in Kuwait, How Does Oil Form and Where to Find Crude Oil

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On February 22nd, 1938, oil was discovered in the Burgan field of Kuwait

The Kuwait desert had long stood witness to several strange black patches of a rough bituminous substance; but it was not until the matter was investigated in 1935 did it become apparent that the wealth of Kuwait had remained underground for years, and was yet to be discovered. In 1921, Sheikh Ahmad Al-Jaber Al-Sabah became the Ruler of Kuwait. A brave and resourceful leader, a man of vision as well as a valiant warrior, Sheikh Ahmad was to steer his people through difficult times. As the 1920s was drawing to a close, the cultured pearl industry became a serious, and ultimately overwhelming competitor to Kuwait's main industry, pearl diving. In spite of this, and a subsequent worldwide decline in trade as the thirties began, he kept his faith in the future. This was largely because of several strange black patches of a rough bituminous substance that had long been observed in different parts of the desert. The Ruler and his people were well aware of the activities of the oil prospectors in neighbouring Bahrain, Saudi Arabia and Iraq - to say nothing of the Anglo-Persian Oil Company's successes in southern Iran. Their expectations raised by the Bahrain oil discoveries of 1932, the people of Kuwait were hopeful that these surface deposits were indications of underground reservoirs of a commodity, which could stimulate and revitalize their country’s economy.

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Drilling offshore is much more expensive than drilling onshore. It usually uses the same drilling techniques as onshore, but requires a massive structure that can sustain the tremendous strength of ocean waves in stormy seas. Offshore drilling platforms are some of the largest manmade structures in the world. They often include housing accommodations for people who work on the platform, as well as docking facilities and a helicopter landing pad to transport workers. The platform can either be tethered to the ocean floor and float, or can be a rigid structure that is fixed to the bottom of the ocean, sea, or lake with concrete or steel legs. The Hibernia platform, 315 kilometers (196 miles) off Canada’s eastern shore in the North Atlantic Ocean, is one of the world’s largest oil platforms. More than 70 people work on the platform, in three-week shifts. The platform is 111 meters (364 feet) tall and is anchored to the ocean floor. About 450,000 tons of solid ballast were added to give it additional stability. The platform can store up to 1.3 million barrels of oil. In total, Hibernia weighs 1.2 million tons! However, the platform is still vulnerable to the crushing weight and strength of icebergs. Its edges are serrated and sharp to withstand the impact of sea ice or icebergs. Oil platforms can cause enormous environmental disasters. Problems with the drilling equipment can cause the oil to explode out of the well and into the ocean. Repairing the well hundreds of meters below the ocean is extremely difficult, expensive, and slow. Millions of barrels of oil can spill into the ocean before the well is plugged. When oil spills in the ocean, it floats on the water and wreaks havoc on the animal population. One of its most devastating effects is on birds. Oil destroys the waterproofing abilities of feathers, and birds are not insulated against the cold ocean water. Thousands can die of hypothermia. Fish and marine mammals, too, are threatened by oil spills. The dark shadows cast by oil spills can look like food

Oil can damage animals’ internal organs and be even more toxic to animals higher up in the food chain, a process called bioaccumulation.

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The prestige of Middle Eastern countries in world energy markets stems primarily from their role in the oil market, even though the region also owns substantial reserves of natural gas. Their fortune is thus directly related to how well oil holds its share vis-à-vis other forms of energy in the evolving global energy balance. Over the years, starting with the sharp price increases of the 1970s, it has lost some ground to other fuels. The continued strength of oil in global energy stems from its dominance of the transportation sector, where it now accounts for about 96 percent of the market. It also accounts for 27 percent in the industrial sector and 9 percent in power generation—having lost ground to coal, gas, and nuclear power in these sectors (see International Energy Agency, 2001, 2002, for more details)

The rate of substitution away from oil is directly related to how technically feasible such changes are and to the availability of cost-effective substitutes, which explains why oil has continued to dominate the transportation sector, where efforts to introduce alternatives have so far had limited success. In contrast to oil, the share of natural gas in total primary energy has been on the increase; it rose from 18 percent to about 23 percent between 1973 and 2001, spurred by a combination of higher oil prices, the need for energy self-sufficiency in the major consuming countries, and diversification, as well as recent environmental concerns relating to global warming and climate change. Natural gas is the least carbon-intensive of the fossil fuels, followed by oil and then coal (see, among others, Mitchell, 2000, for a brief discussion of the environmental dimension of fuel use in the context of ongoing negotiations on climate change). The use of natural gas has also increased as a result of secular growth in the petrochemical industry, where it is the main feedstock for a wide variety of petrochemical products (Pindyck, Robert S., 1978).

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To summarize, this new world has become increasingly complex and political, with Venezuela and Russia as representative examples. Hugo Chavez’s decision in 2007 to abandon production agreements and other forms of collaboration with IOCs in Venezuela has tightened control of PDVSA’s (The National Oil Company of Venezuela) current production and access to reserves by the government. The same is essentially true in Russia, where the government has strengthened the position of Gazprom, the state-controlled gas conglomerate, to the point of reneging on contracts with IOCs. The dramatic change in the balance of control over the global oil and gas business is illustrated by the two pie charts, The New Leadership – NOCs. In 1972, IOCs and major independents accounted for 93% of the world’s production, while NOCs accounted for 7%

Today the balance is all but reversed, with NOCs now controlling 73% of a much larger pie of world oil and gas production.

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Mitchell, John V., 2000, “Energy and the Environment,” paper prepared for conference on the Seventh International Energy Forum, Riyadh, Saudi Arabia, November 17–19.

Okogu, Bright E., 2002, “Issues in Global Natural Gas: A Primer and Analysis,” IMF Working Paper 02/40 (Washington: International Monetary Fund).

———, 2003, “Middle East to Dominate World Oil for Many Years,” Finance & Development (March).

Pindyck, Robert S., 1978, “Gains to Producers from Cartelization of Exhaustible Resources,” Review of Economics and Statistics, Vol. 6 (May), pp. 238–51.

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