FOOTNOTES:[5]Plutarch'sLives, Alexander the Great, chap. xliv.[6]Cp. chap. xvi,The Struggle for the Oil-fields of Russia.[7]Having fallen to 920,000 tons in 1919, it had increased to 1,030,086 tons in 1920 (12 per cent. increase). This slight recovery is the first noted; for six years Rumanian production steadily decreased. The worst year was 1917.
FOOTNOTES:
[5]Plutarch'sLives, Alexander the Great, chap. xliv.
[5]Plutarch'sLives, Alexander the Great, chap. xliv.
[6]Cp. chap. xvi,The Struggle for the Oil-fields of Russia.
[6]Cp. chap. xvi,The Struggle for the Oil-fields of Russia.
[7]Having fallen to 920,000 tons in 1919, it had increased to 1,030,086 tons in 1920 (12 per cent. increase). This slight recovery is the first noted; for six years Rumanian production steadily decreased. The worst year was 1917.
[7]Having fallen to 920,000 tons in 1919, it had increased to 1,030,086 tons in 1920 (12 per cent. increase). This slight recovery is the first noted; for six years Rumanian production steadily decreased. The worst year was 1917.
CHAPTER III
AMAZING INCREASE IN CONSUMPTION
Fears of the United States
The consumption of oil is rising at a terrific rate. Entire branches of industry are transformed, and it may be said that all modern transport is increasingly dependent upon the use of the new fuel. Automobilism and aviation owe their existence to it. Not only do steam engines tend to give place to the oil motor in a great number of cases, but they themselves begin to use oil instead of coal. Locomotives and the engines of ships more and more seek the source of their energy in oil. No more smoke, no more troublesome ash, and double the calorific power. The work of a fireman, formerly so exhausting, is reduced to the opening and closing of a tap. If coal is replaced by mazut in the furnaces of ships, their radius of action is increased by 50 per cent.; it is more than tripled if the internal-combustion engine is used. Certain British engineers are not afraid to assert thatone ton of mazut, used in a Diesel engine for ships, is equivalent to at least six tons of coal.
Few countries hesitate in face of such advantages. Since 1885 the railways of Southern Russia have been run on oil; those of Rumania since 1887. The railway companies of the United States consumed 20 million barrels even in 1909—that is,one-tenthof the production at that time. And the last few years have been marked by the conclusion of contracts by the United States Railroad Administration for the delivery of 50 million barrels. The engines of the Southern Pacific Railway have been aptly described as veritable monsters. Their boilers are two metres in diameter and fourteen and a half metres long. Their heating-surface is double that of ordinary locomotives. The driver's place is in front, which allows him to see the track.
Mexico has long since followed the example set by the United States. So also has Austria for her Alpine railways. France has made experiments which have been much talked of; and the Argentine, only a few months ago, has concluded important contracts with theShell Transport and Trading Companyfor the supply of oil for her railways. Everywhere the substitution of oil for coal is going on, and consumption is developing with such rapidity that the supply is no longer anything like equal to the demand. Even if Russia recovered, the discrepancy between the needs of the world and the quantity available would be considerable. That is why theprice of liquid fuel, which requires little labour in its production, remains so high.
Since North America supplies 80 per cent. of the world production, the dollar has become the standard currency for oil. At the present time, Rumanian oil, delivered in Hungary, is sold at the same price as American oil.The market-price is therefore fixed for the whole world by New York.
Very few people realize at all clearly what will be the consumption of oil in a few years' time. It is natural enough, for it is only a short time since our great and instructive Press began—very timidly, however—to entertain its readers with this burning topic. There is no one, at present, who does not know that the question of fuel is of supreme importance to the whole industrial life of Europe.
Now, the world-production of coal was, in 1920, about 100 million tons short, compared with the production in 1913. The directors of colliery companies endeavour to increase the output of the mines, but they obtain in general only disappointing results, which is not strange when we observe the increasing number of miners' strikes, the rise in wages, and the fact that laws are continually passed to reduce the hours of labour.
In producing steam, one ton of mazut gives almost the same result as two tons of coal; more than 50 million tons of fuel-oil are therefore required to make good this enormous deficit.
Now, in 1919 the world production of mazut did not exceed 75 million tons. After making good the shortage of coal, this would leave only 25 million tons to satisfy the ordinary demand. This comparison of figures makes clear how great is the need of oil, at a time when the use of oil, in preference to coal, is becoming more and more the order of the day. Now, the great and general increase in consumption is not equalled by the production which, though far from stationary, is none the less much below the needs which are predicted for the future in competent circles. An American oil journal recently published the following figures for the consumption of the United States:—
1907 24 million tons1918 57 million tons1919 75 million tons
And even at the beginning of 1920 an increase of 25 per cent. over 1919 was noted. The rate of increase was such that, in January and February 1921, the American consumption was greater by 230,729 barrelsa daythan the national production. The stock of oil in the United States, both national and Mexican, has recently been considerably reduced, anddoes not amount to more than 114,000,000 barrels, representing only four months' consumption, although for years past it has alw ays been sufficient to meet the consumption for six months. It must be remarked that motor-cars are terrible gluttons for petrol, and that in the United States every farmer has his car. In a self-respecting family there are generally three—a limousine for use in town, an open car for touring, and a Ford for the servants to fetch provisions. It has been calculated that there is on an average one motor-car to every thirteen inhabitants. The Ford works alone are capable of turning out three million annually.
And, as if that was not enough, America is planning to develop, by motor traction, the means of transport in Asia, the continent without railways. We may predict for this a consumption of 120 million tons in the near future.
The United States consume twice as much oil as the rest of the world, while their resources do not amount to more than one-seventh of those of the world.
Their consumption increased in 1920 by 25 per cent.; their production only by 11 per cent. And already fears are entertained that it may diminish. Two-thirds of the oil-fields of Oklahoma, which state alone produces nearly one-quarter of the total, have been developed; and the number of borings tends to diminish.
If the increase in world-consumption of oil continues at the rate that it has done during the past few years, the oil reserves of the United States, calculated on the basis of 70 barrels to each inhabitant, without allowing for increase of population, would, according to the Smithsonian Institute, come to an end about the year 1927.
These figures seem to me a little exaggerated, for the reserves contained in the soil of the United States cannot possibly be completely exploited in so short a time. But the figures published by the Geological Survey of the Department of the Interior shows that other countries consume half as much oil as the United States, while their soil contains seven times more.
"These countries consume at the present time two million barrels a year; at this rate, they have reserves sufficient for 250 years. The United States consume 400 million barrels a year; they have only enough for 18 years.[8]
"The total amount of oil which can still be extracted from the soil of the entire world has been computed at 60,000 million barrels—43,000 million have already been brought to the surface by successful borings.
"Of the 60,000 million which remain to be extracted, 7,000 million are to be found in the United States and in Alaska; 53,000 million in the rest of the world."
That is why the American Navy, having in view the treatment of bituminous shale by distillation, has reserved to itself the rights over immense deposits, chiefly in Colorado and Utah. If the United States do not succeed in acquiring new oil-fields in the rest of the world, the position will become so serious that they will only be able to avoid war at the price of economic vassalage.
There is oil in all parts of the world, and yet dominion over oil is one of the most concentrated possible.
From Alaska almost to Tierra del Fuego, every country in the New World possesses some.
Alaska.Canada: its presence was discovered in 1789 by Sir Alexander Mackenzie.United States.Mexico.Central America.Venezuela.Trinidad, Guiana.Colombia.Ecuador, Peru, Bolivia.Chili, the Argentine.Brazil and Uruguay: it is hoped that oil will be found shortly.
Alaska.
Canada: its presence was discovered in 1789 by Sir Alexander Mackenzie.
United States.
Mexico.
Central America.
Venezuela.
Trinidad, Guiana.
Colombia.
Ecuador, Peru, Bolivia.
Chili, the Argentine.
Brazil and Uruguay: it is hoped that oil will be found shortly.
In Europe it is less evenly distributed:
Hanover (Wenigsen).Alsace.Italy.Poland. The Ukraine. Rumania.Hungary: a subsidiary company of theAnglo-Persian, theD'Arcy Exploration, found oil deposits in March 1921.
Hanover (Wenigsen).
Alsace.
Italy.
Poland. The Ukraine. Rumania.
Hungary: a subsidiary company of theAnglo-Persian, theD'Arcy Exploration, found oil deposits in March 1921.
Asia is nearly as rich as America:
The Caucasus.Persia, Mesopotamia.Dutch Indies.Siam, Burma.China.Japan and Formosa.
The Caucasus.
Persia, Mesopotamia.
Dutch Indies.
Siam, Burma.
China.
Japan and Formosa.
Map of the Principal Oil-bearing Regions of the World.
Africa and Oceania, on the contrary, seem to possess only small quantities of the precious oil. There is some in North Africa, in Egypt, and possibly in Madagascar. The great British prospecting group, which I have already mentioned in connection with Hungary, is making a thorough search at this moment in Western Australia and New Zealand.
Now nearly all these oil-fields, scattered in the four corners of the world, and in so many different countries, are at the present moment in the hands of two great trusts—one American, theStandard Oil, and the other Anglo-Dutch, theRoyal Dutch-Shell—and certain companies controlled by the British Government.
FOOTNOTES:[8]Cp. Part III, chap. xiv,How the United States Lost Supremacy over Oil.
FOOTNOTES:
[8]Cp. Part III, chap. xiv,How the United States Lost Supremacy over Oil.
[8]Cp. Part III, chap. xiv,How the United States Lost Supremacy over Oil.
PART IITHE STRUGGLE OF THE TRUSTS
CHAPTER IV
THE STANDARD OIL COMPANY
Although it sometimes happens that governments oppose each other openly in the struggle for oil, as in the case of Poland, Rumania, the Caucasus, and Turkey, they prefer, in general, to hide behind trusts.
There exist in the United States numerous oil concerns whose power is far from negligible, such as theSinclair Oil Company, with a capital of 500 million dollars, and theTexasand the Doheny interests, which together represent another 500 million dollars. But all these independent producers must bow before the unchallenged supremacy of theStandard Oil.
TheStandard Oil, a purely American concern, preceded theRoyal Dutch—a Dutch company with considerable British, and recently a little French, capital[9]—by twenty years.
As a matter of fact, there is no longer to-day oneStandard Oil, but forty companies, all bearing this name followed by that of a town or State:
The Standard Oil of New Jersey,The Standard Oil of Pennsylvania,The Standard Oil of Kansas,The Standard Oil of Ohio.
The first is the most important. All are federated under one great administrative body.
The Chairman of the Board of Directors ofStandard Oil Companiesis at the present time Mr. Bedford, formerly Chairman of theStandard Oil of New Jersey, where his place has been taken by Walter Teagle. This great Council is the real brain of theStandard, from which emanates the general policy of this federation of companies, as powerful as the Government of the United States—more powerful sometimes.
Its history, like that of all American trusts, has something of the marvellous. At the beginning of a great undertaking there is always a great man: the founder of theStandardwas John Rockefeller, a small dealer in oil, who, in 1865, conceived the idea of forming a federation of all American oil-dealers.
There were in 1870, in the United States, 250 refineries, which waged among themselves a merciless price-war.
It was to put an end to this struggle, which was so advantageous to the consumer, that theStandard Oil Companywas created,a combine of refiners, not of producers. Following a strict and constant principle, which it has always observed, theStandardhas refrained from seeking raw oil, leaving this task entirely to the prospectors and producers. But as soon as it reaches the surface, the oil, wherever it is found, becomes the exclusive property of the Company, to whose innumerable refineries it is conducted by pipe-lines. The originalStandard Oil Company, that of Ohio, began humbly with a capital of a million dollars, and the small consumption of 600 barrels a day. Established in Cleveland, it grouped together all the interests in the refining and transport of oil acquired in Pennsylvania since 1865 by Rockefeller, Andrews, Harckess and Flager. Two years later, not only had it brought all the refineries in the neighbourhood of Cleveland under its own control, but it had built others at Baltimore, Philadelphia, New York, Boston, and Pittsburgh.
Six years after its inauguration, it already acquired the greater part of the crude oil produced in the United States. Moreover, its capital had been twice increased, in 1872 and 1874.
At the end of ten years, it transported and distributed 95 per cent. of the American output.
In 1881 it amalgamated thirty-nine oil companies. The trust was constituted and already disposed of a capital of 75 million dollars. The first cycle of its growth was finished. Supreme in the United States market and sure of its monopoly, it completed thelaying of its first pipe-line to the Atlantic. TheStandard Oilwas about to lay claim to Europe.
The Agreement of January2, 1882
Such fortunes were not built up by entirely honourable methods. The directors of theStandard Oil of Ohiohad formed pools. They imposed buying and selling prices on every company which participated. This system, which in a dozen years gave such wonderful results, was not without its faults. There was friction between members of the pool. The need for establishing unity of direction was soon felt. It was with this object that theStandard Oil Trustwas founded in 1882.
It was the first time that the word "Trust" appeared in the name of a firm. A Committee of nine members, or trustees, was formed. It comprised all the Rockefeller family: John Rockefeller, Payne, William Rockefeller, Bestwick, Flager, Warden, Pratt, Brewster, Archbold. The nine trustees became the sole delegates and depositories of all the 39 companies conjointly engaged. They received from each concern the shares and the corresponding voting powers. Trust Certificates, of a nominal value of 100 dollars, were exchanged for shares only in the proportion of the value of each undertaking to the total value of all the undertakings constituting the Trust.
The Agreement of 1882 which sealed the pact, provided for the admission into the Trust of new companies and the eventual formation of aStandard Oil Companyin each State of the Union.
Companies of four kinds entered the combine of 1882:—
1. Fourteen companies in whichthe wholeof the shares were held by the trustees. Among these were theAtlantic Refining Company, theStandard of Ohio, and theStandard of Pittsburgh. The first of these companies succeeded in recovering its liberty in 1911.2. Rich private individuals, having an interest in the oil industry and holders of large parcels of shares, such as W.C. Andrews and John Archbold.3. Twenty-four companies in which themajorityof the shares were held by the trustees:—Central Refining Company of Pittsburgh,Germania Mining,Empire Refining,Keystone Refining,National Transit Company, etc.
1. Fourteen companies in whichthe wholeof the shares were held by the trustees. Among these were theAtlantic Refining Company, theStandard of Ohio, and theStandard of Pittsburgh. The first of these companies succeeded in recovering its liberty in 1911.
2. Rich private individuals, having an interest in the oil industry and holders of large parcels of shares, such as W.C. Andrews and John Archbold.
3. Twenty-four companies in which themajorityof the shares were held by the trustees:—
Central Refining Company of Pittsburgh,Germania Mining,Empire Refining,Keystone Refining,National Transit Company, etc.
These twenty-four companies placed themselves under the control of the Trust from 1882 onward. Two others have come in under compulsion:—
(1) TheTide-water Pipe-line Company, having constructed pipe-lines itself, entered into fierce competition with theStandard. On October 9, 1883, it was compelled to negotiate with theNational Company. Under the resulting contract, it agreed to provide 11-1/2 per cent. of the quantity sent to the ports by pipe-lines as its share of the traffic, and was guaranteed an annual profit of at least half a million dollars for fifteen years.(2)The Producers' Associated Oil Company, born of a concerted effort of independent producers to fight theStandard, gave in in October, 1887.
(1) TheTide-water Pipe-line Company, having constructed pipe-lines itself, entered into fierce competition with theStandard. On October 9, 1883, it was compelled to negotiate with theNational Company. Under the resulting contract, it agreed to provide 11-1/2 per cent. of the quantity sent to the ports by pipe-lines as its share of the traffic, and was guaranteed an annual profit of at least half a million dollars for fifteen years.
(2)The Producers' Associated Oil Company, born of a concerted effort of independent producers to fight theStandard, gave in in October, 1887.
4. One other company alone forms the fourth class. The Trust has an interest in this but has never been able, whatever its efforts, to obtain the majority of the shares and to control the company. This is theUnited States Pipe-Line Company. This company experienced many difficulties and mortifications. After having struggled against the inertia of the railways devoted to theStandard Oil, and spent more than 15,000 dollars on law costs alone, it succeeded in pushing its lines up to Washington, but could never get any further, nor reach the coast; theStandardbought up the intervening territory.
At its zenith, in 1911, when it was declared illegalby the Supreme Court of the United States, theStandardowned 90 per cent. of the pipe-lines and controlled 86-1/2 per cent. of the oil production of America. A single company, thePure Oil Company, founded in 1895, whose field of exploitation was Germany, was able to maintain its independence. The seventy-five small refineries existing outside the Trust did not refine, all put together, a fifth as much as theStandard. The refinery which the latter possessed at Bayonne was by itself more important than ten of these competing refineries.
The European market was almost completely conquered. Everywhere theStandardoperated by means of its subsidiary companies:—
TheAnglo-American Oil Companyin Great Britain.TheAmerican Petroleumin Holland.TheDeutsche Amerikanische Petroleum Gesellschaftin Germany.TheSociété pour la Vente du Pétrolein Belgium.TheVacuum Oilin Austria-Hungary.TheSocieta Italo-Americana per Petrolloin Italy.TheRomana-Americanain Rumania.TheDanske Petroleum Altieselskabetin Denmark.TheSwenska Petroleum Altiebolagein Sweden.TheInternational Oilin Japan.
In Galicia, the Trust held its own against all similar indigenous enterprises. The Rumanian refinerswere obliged to come to an understanding with it; otherwise it would, with its powerful means of pressure, have created a monopoly for itself. And theFrench Oil Cartelwas at its mercy.
Causes of the Success of the Standard
The difficulty is not to produce oil, but to transport it, for it is generally found in more or less desert regions. Hence Rockefeller's brilliant idea, to construct pipe-lines bringing the oil direct to the great centres! Thenceforward, since the oil was transported almost automatically, its price dropped considerably. All the producers became tributaries of the pipe-lines, and theStandardobtained practically complete control of the market.
This was the first cause of the success of theStandard. All the small producing companies became compulsorily its clients. As controller of the market, it fixed the price in draconian fashion.
There is a second cause: its alliance with the great railway companies, and the support which it received from the railway magnates—Scott of thePennsylvania Railroad, Vanderbilt of theNew York Central, Jewet of theErie Railroad, Watson of theLake Shore, and many others less well known.
Its subsidiary, theSouth Improvement Company, on January 18, 1872, made contracts with the railway companies, by which it fixed the proportionateshares in the transport of oil to the Atlantic seaboard as follows:—
27-1/2 per cent. to theErie,27-1/2 per cent. to theNew York Central,45 per cent. to thePennsylvania.
The companies thus favoured by theStandardmade their competitors pay double rates. One of these latter produced before the Inter-State Commerce Commission the scandalous tariffs demanded of them:
On theLouisville and Nashville Railroad, increased rates to competitors of 87 to 333 per cent.;On theCincinnati, New Orleans, and Texas Pacific, from 63 to 267 per cent.;On theSt. Louis, Iron Mountain and Southern, from 82 to 257 per cent.
On theLouisville and Nashville Railroad, increased rates to competitors of 87 to 333 per cent.;
On theCincinnati, New Orleans, and Texas Pacific, from 63 to 267 per cent.;
On theSt. Louis, Iron Mountain and Southern, from 82 to 257 per cent.
Systematic negligence in transport was proved with regard to competitors. TheUnion Tank Line Company, which owns tank-wagons as theInternational Sleeping Car Companyowns restaurant cars, would only put them at the disposal of theStandard, and compelled its adversaries to dispatch their oil in barrels, which is much more costly. The Trust alone was entitled to lay its pipe-lines beside the railway-lines or underneath the track. It possessed 35,000miles of such lines at the end of last century—or rather theNational Transit Line, which acts as its instrument, owned them. Such abuses could not be allowed to continue. The inquiry by the Hepburn Committee revealed a multitude of crying injustices. For example, it was enough for theStandardor theSouth Improvementto telegraph "Wilkinson and Co.have received a truck which only paid $41.50; screw them up to $57.50," and the order was executed.
The Charter of theSouth Improvement, which had even succeeded in acquiring the right of expropriation in order to construct its pipe-lines, was withdrawn under the pressure of indignant oil-producers. But the Federal Government of the United States will never succeed in crushing theStandard Oil.
Its Two Dissolutions—Roosevelt's Fight against the Standard Oil
Twice over, in 1892 and 1911, its constitution was judged illegal, but in vain.
In 1892 the system of nine trustees was declared illegal by the Supreme Court of Ohio. The trustees voted the dissolution of the Trust, but continued to administer all the corporations in the same way until 1899. The Trust was apparently divided into twenty distinct companies; the nine old trustees distributed the shares in such a way as to possess the majorityin each one. Thus they made sure, as before, of unity of direction. Rockefeller had reversed the judgment of the court.
Here is the legal formula, which is dignified in its simplicity: "John Rockefeller has placed in the hands of the said attorney256,854/292,500of the total shares held by the said trustees on July 1, 1892, in each of the companies whose shares were deposited."
Still better, after receiving the shares which were granted them in each company, the old trustees took them and sold them to theStandard Oil Company of New Jersey, which has a capital of 100 million dollars of common stock, and only ten million dollars of preferred stock. For theStandardhas a monarchical constitution. All power to the holders of preferred stock! The holders of common stock have none but that of drawing dividends. Though they may be in an enormous majority, they count for nothing in the direction of the enterprise.
About 1900 Rockefeller went still further. He increased the number of ordinary shares, and reduced that of the privileged shares. A memorandum of the Industrial Commission drew attention to this. "During the year 1900, the common stock has been increased by 38,550,700 dollars and the preferred stock has been reduced by 3,968,400 dollars."
In short, Rockefeller makes the concern more andmore autocratic. TheStandardforms a veritable State within a State, which nothing can bend. The Trust was reconstituted, with a holding company, theStandard Oil Company of New Jersey, holding the title-deeds of all the other companies.
It was then that Roosevelt undertook to destroy a power before which everything bowed down. The Federal Government brought an action before the Court of St. Louis, under the Sherman Anti-Trust Law. TheStandard Oiland the seventy companies dependent on it were accused of "conspiracy, coercion, intimidation, rebating and other illegal acts in restraint of trade." The Federal Court of St. Louis ordered the dissolution of the Trust in 1909. TheStandardentered an appeal before the Supreme Court of the United States, which confirmed the dissolution in 1911, after five years of inquiries, prosecutions, judgments and appeals. The struggle had been going on since 1906. Many judgments had to be reversed. Thus, theStandard Oil Company of Indiana, with a capital of only a million dollars, was ordered to pay a fine of 29 million dollars for an illicit understanding with theChicago and Alton Railway. It was paying only six cents a hundredweight for transport, while its competitors paid eighteen. This judgment was reversed in July 1908 by the Court of Appeal of Chicago. "It is strange," ran the decision "that a company with a capital of a million dollars should be fined a sum representing twenty-nine times this capital." The first tribunal had found 1,462 infringements proved, and had zealously applied the maximum for each case; that is how it had arrived at the incredible figure of 29 million dollars.
TheStandard Oilwas given six months to dissolve. The result was the same as in 1892. There were simply thirty-four companies apparently independent. In the midst of this new constellation, theStandard Oil Company of New Jersey, whose capital has risen to 600 million dollars, merely shines with a greater brilliance than its satellites. And theStandardhas no longer to fear attack from the Government of the United States, which bows obediently to its will. Even better, the late President Harding energetically supported its claims throughout the world. Whoever attacks theStandardattacks the Federal Government itself.
To think of Rockefeller's modest company in 1870, with its 600 barrels a day and its small capital of a million dollars, and to see what it has become to-day, is to be lost in amazement. In 1920, the Great Council of theStandardcontrolled a capital of a thousand million dollars; representing almost equal profits, and a daily consumption of two hundred million barrels, which it even hopes to see presently increased to three hundred million. Here are theoriginal and the present positions; they are widely different:—
Capital has increased from 1 to 1,000.Profits have increased from 1 to 100,000.Production has increased from 1 to 300,000.
TheStandardhas soared so high because it was a national enterprise. Every bank, every shipping company, every railway in the United States, was interested in the success of the Trust, for this great corporation exported to the four corners of the world a commodity drawn from the soil of the Union, and brought into the country, one year with another, more than a hundred million dollars. It looked as though all competition was impossible, and yet a European company has been found bold enough to attack, not only in Europe and Asia, but on its own ground of the United States, this financial power, whose turn-over must be estimated at twelve thousand million francs at least, or more than twice the pre-War budget of a nation like France.
FOOTNOTES:[9]Forty per cent. of the capital of theRoyal Dutchis in French hands, but France unfortunately has no voice in the direction of this undertaking.
FOOTNOTES:
[9]Forty per cent. of the capital of theRoyal Dutchis in French hands, but France unfortunately has no voice in the direction of this undertaking.
[9]Forty per cent. of the capital of theRoyal Dutchis in French hands, but France unfortunately has no voice in the direction of this undertaking.
CHAPTER V
THEROYAL DUTCH-SHELL
In face of the formidable hegemony which theStandard Oilexercised over the oil markets of the world, an opposition arose, at first timid, then bolder in proportion as success attended its efforts.
This was theRoyal Dutchallied to theShell. Thirty years have sufficed to give it a unique position in the world.
It was in 1890, at The Hague, that theRoyal Dutch Oil Company[10]was founded, with a capital of 1,300,000 florins. As a result of borings carried out in the Sunda Islands, the Government of the Dutch Indies granted it concessions at Sumatra. After some years, as the sale of crude oil did not give a sufficient return on the capital already sunk, the directors of the young company resolved to erect a refinery on the spot. It was necessary for this purpose to increase the capital to 1,700,000 florins in 1892. A strange fact to relate to-day, this issue was a failure.The capitalists of the day had lost confidence in an undertaking whose net profits for two years had beennil. In spite of these initial difficulties, the board of directors persevered. It even acquired new concessions, whose more profitable exploitation allowed of a first dividend in 1894 of 8 per cent. This distribution restored the confidence of the public, and theRoyal Dutchwas able to increase its capital without difficulty in 1895 to 2,300,000 florins, with a view to extending its sphere of action. In the same year it was able to distribute a dividend of 44 per cent. Considering the importance of its operations, the company decided in 1897 to increase its capital to 5,000,000 florins, in order to obtain tank steamers to transport its products. The dividends had then risen to 52 per cent., but it could not keep up for long so exceptional a rate. For, from 1898 onward, theStandard, becoming uneasy, tried to obtain control over its rival. To escape from its grip, theRoyal Dutchwas compelled to issue one and a half million preference shares, which were allotted to friendly groups. A bitter economic struggle followed. TheRoyal Dutchmaintained its independence, but theStandard, to destroy its young rival, did not hesitate to sell in extra-American markets at less than cost, and the steady lowering of the price of oil compelled the Dutch company to reduce its dividend to 6 per cent. It was maintainedat this rate the following year, but began to rise again in 1900, and reached 24 per cent. in 1901.
Since then theRoyal Dutchhas progressively increased its capital to the present fantastic figure, under conditions which were so many windfalls for its shareholders. Its dividends during the great world War rose to the enormous rates of 45, 48 and even 49 per cent. There were some years when it went so far as to distribute to its shareholders dividends in shares of 200 per cent., thus tripling its nominal capital.
The Alliance with the Shell
The early career of theRoyal Dutchwas as modest as that of theStandard Oiland far more troubled. At its very beginning it found in the East a young British firm, theShell Transport and Trading Company, which put up a keen competition, the more disastrous because the latter possessed a fleet of tank steamers, while theRoyal Dutchas yet had none. TheShellwas directed by Sir Marcus Samuel, one of the cleverest business men in London.
Samuel had begun humbly as a trader in sea-shells. His business prospering more and more, he hunted about for some commodity to exchange for the shells which he brought from the East. He decided upon oil, and became himself a producer in Borneo.
In 1897 theShellwas registered in Great Britain, with the view of absorbing the business ofSamuel and Companyand certain other similar concerns. The new company had a large number of tank steamers and hundreds of depots.
TheRoyal Dutchhad then amalgamated the greater number of the independent producers of the Sunda Islands, but was experiencing some difficulty in getting its oil to Europe, and so decided to negotiate with theShell.
Hence the agreement of 1902, by which the two companies entrusted the sale of their products to a company which they created specially for the purpose, theAsiatic Petroleum. Its capital was subscribed as follows:—
1/3 by theRoyal Dutch,1/3 by theShell Transport,1/3 by the Rothschilds.
This simple alliance became a complete union ten years later. TheRoyal Dutchand theShellamalgamated on the following basis:—
On January 1, 1907, the two groups transferred their assets to two companies, one Dutch, one British. These were theBataafsche Petroleum Maatschappijand theAnglo-Saxon Petroleum.
TheBataafsche, orBatavian Oil Company, which now has a capital of 200 million florins, wasspecially entrusted with the extraction of oil and with everything concerning its production. Its oil-fields are situated in Java, Sumatra and Borneo, and it exploits them directly or by subsidiary companies. It has interests in the MexicanCoronacompany and in many Russian companies.
Although this last part of its program has not hitherto been productive, theBataafschehas distributed during the last few years dividends representing annually nearly half its capital. Directly or indirectly, it is responsible for almost the whole production of the Dutch Indies, which amounts to nearly 20 million barrels annually, and is steadily rising. To meet this increase, theBatavian Oil Companyis obliged every year to construct new reservoirs. In 1920 their capacity had reached more than 900,000 tons.
TheAnglo-Saxon Petroleum, with its head-quarters in London, was entrusted with everything concerning the transport and sale of oil, that is to say, with the commercial side of the business. Unlike theBataafsche, this company undertakes no direct exploitation, although it controls the production of a large number of subsidiary companies in Ceylon, British India, Malay, Northern and Southern China, Siam, the Philippines, Australia, New Zealand and South Africa. For theRoyal Dutch-Shellhas an almost organic structure. Instead of reproducing itself innew companies, always the same, like theStandard Oil, it only receives new adherents for distinct functions. One company is entrusted with the distribution of its products, another with the exploitation of oil-fields or with refining. TheRoyal Dutchand theShellhave become to-day holding companies. In 1907 theRoyal Dutchceased to be an industrial enterprise and became an omnium of oil securities.
Forty per cent. of the profits resulting from this co-operation were to come to theShell, 60 per cent. to theRoyal Dutch, which has reserved the lion's share for itself.
At the time of signing this agreement theShellwas not without a certain anxiety. Thus it was agreed, in order to safeguard its interests, that theRoyal Dutchwould buy, on January 1, 1907, half a million ordinary shares of theShellat the price of thirty shillings, and would undertake not to sell again without the consent of the board of directors of theShell.
In case of liquidation or sale by private contract before January 1, 1932, it was stipulated that the net product of the liquidation, up to £9,000,000 sterling, was to be divided equally between theShelland theRoyal Dutch, and that only above this amount the products should be shared in the proportion of 40and 60 per cent. We see how closely these two concerns are allied. The only difference which exists between them is that, officially, one is Dutch, the other British.
Deterding's First Victory. The Chinese Campaign
Freed from all obstacles in the Dutch Indies and allied with one of the most powerful British firms, theRoyal Dutch, under the skilful guidance of Henry Deterding, was ready to attempt a conquest of the world.
But for the second time it came up against the hostility of theStandard Oil, which waged a bitter warfare in the Far East—the famous price-war of 1910.
TheStandard Oil of New Yorkconsidered China as its private property. It had taught the Chinese to use kerosene by distributing, free of charge, lamps inscribedMei Foo, orGood Luck. When this method became too expensive it sold them at cost price, and when theRoyal Dutchappeared as a competitor it was selling, in this way, two million lamps a year. With a population of 400 million Chinese, this produced an unlimited market for kerosene, for which, in comparison with petrol, the American demand is small.
TheStandardtried to fight by selling refined oil below cost price in foreign markets, while keeping the price very high in America in the shelter of the tariff wall. It even went so far as to sell in the Far East 50 per cent, lower than in Holland, although the latter market was nearer the American oil-fields. At the same time the refined American oil, which was quoted in England at the end of August 1910 at 6-1/4d. a gallon, fell at the end of November to 5-3/4d., and in December to 5-1/2d. Deterding's receipts from the sale of kerosene were reduced by 3,750,000 dollars. But he would not give way. He did not leave China; he stood his ground and fought. Although his oil was of an inferior quality to that of theStandard, it was near at hand, and had not to be transported for long distances like that of its rival (which involved the latter in great expense). An agreement was finally made. TheStandard, which had taken possession of the Chinese market in 1903, gave up 50 per cent, of that trade to theRoyal Dutch. The latter's share has even been increased recently to 60 per cent. For the first time Deterding had conquered!
Perhaps he would not have triumphed so easily if theStandard Trusthad not been dissolved just at that time by the Supreme Court of the United States. But two such powerful groups could not have continued indefinitely to struggle for the international market without making sure of some stability and limiting their respective zones of operation.
After many attempts they have come to an understanding.
In 1907 an agreement fixed the quota of oil that each group might send to the British market.
In 1912 an agreement of a similar kind put an end to the struggle that had been going on in the Far East.
The absence of a definite general agreement between the two great Trusts did not exclude the possibility of tacit agreements, which regulated their operations in the international market and assured to both an extraordinary prosperity.TheStandardhas several times made very tempting offers of close co-operation to theRoyal Dutch,leaving this group free to make its own conditions. TheRoyal Dutch-Shellhas always refused, forthe future is its own. What will happen to theStandard, an almost exclusively American concern, when the oil resources of the United States are exhausted? Since 1919 it has been endeavouring to acquire oil-fields in the rest of the world, to guard against this danger, but everywhere it finds the "closed door." TheRoyal Dutch, aided by the British Government, has taken possession of all that remain in the world.
New Struggle with the Standard Oil for the Conquest of the World
One day, to the great astonishment of everybody interested in the American oil industry, Mr. Deterding brought a cargo of oil to the United States and sold it under the very nose of the directors of theStandard Oil. Emboldened by this first success, he tried to establish himself in the United States, and with this aim in view bought oil-bearing properties in Oklahoma. TheRoyal Dutchrapidly increased its territory.
By a bold policy and without recourse to the sharp practices of the directors of theStandard Oil, Deterding revenged himself for the attack upon him in the Far East. TheRoyal Dutchsent large quantities of petrol to America and sold them at rates as high as those of theStandard. This enabled it to make good its losses in the Old World and to emerge victorious from the struggle.
During his Chinese campaign Deterding had been handicapped by the inferiority of the oil from Borneo. To remedy this he proposed to obtain possession of various Californian wells.
Of all the wars that Deterding has waged, that of California is the most interesting and perhaps the most strenuous. It required a remarkable audacity for theRoyal Dutchto establish itself on the veryterritory of theStandardin America. Would it not meet there the coalition of this great firm and the independent oil companies? And yet Deterding triumphed. He created theRoxana Petroleum Companyin Oklahoma, theShell Company of Californiaon the shores of the Pacific, and then extended his conquests to Texas, New Mexico, Colorado, Utah, Arizona, Montana, Dakota and Nevada. Everywhere theRoyal Dutchbrings with it its curious methods. It begins by taking an option for six months on an oil bearing property, giving it the right to examine the books of the company and to make an inquiry. At the end of six months it takes an option on another property, and continues in this way throughout the region. After leaving nearly all the options without sequel, theRoyal Dutchis ready to begin boring operations on its own account in selected places.
This method, adopted for the first time in California, is to-day thehabitual methodof theRoyal Dutch-Shell. Thus this company rarely makes miscalculations in the oil-fields it exploits. Its agents have orders to report the minutest details to head-quarters.
In order to interest the American public in the success of his enterprise, Deterding was clever enough to place upon the New York market, in 1916, 220,000 so-called American shares. This issue was a great success, and it has thus become against the interest of many Yankees for the United States Government to start reprisals against theRoyal Dutch, of which the late President Harding has often spoken.
In 1915 theRoyal Dutchalready controlled one-ninth of the American output.One-third of its total production comes to-day from the United States.It has obtained for its pipe-lines the right of passage to St. Louis and the river, and its surveys of Virginia and Louisiana are complete. It owns the great refineries of Martinez, near San Francisco, and of St. Louis and New Orleans.
Seventy-five per cent. of the Californian output, which exceeds ten million tons, now escapes the control of theStandard Oil.
But more than this, theRoyal Dutchis gaining possession of the deposits of Mexico and Venezuela. The oil-bearing territories of Tampico and Panuco, the railway, and the local oil companies belong to Mr. Deterding. The importance of this region is well known. Its geographical position, a few miles from the sea, and its nearness to the Panama Canal double its value. Three hundred and fifty kilometres by sea, one hundred and seventy-five by pipe-line across the isthmus of Tehuantepec, and the oil can be delivered at a centre which commands the whole South American market.
Not content with conquering theStandard Oilon its own ground, Deterding also caused it to lose its"Algeria." Master of theMexican Eagle, which he bought from its founder, Lord Cowdray, in 1918 for more than a thousand million francs, he controls to-day the bulk of Mexican production. By this master-stroke he increased by 50 per cent. the quantity of oil that theRoyal Dutchcan offer to the world.
The Americans felt the loss very keenly, for hitherto all the output of theMexican Eaglehad gone to theStandard Oil.
TheMexican Eaglehad a large number of tank steamers, the acquisition of which brought up the fleet of theRoyal Dutch-Shellto more than a million tons.
Moreover, the directors of theRoyal Dutchdo not hesitate to assert that the oil-bearing district of Venezuela, of which, since their agreements with theGeneral Asphalt Company, they control more than 15,000 square miles, is as rich in oil as the district of Tampico. That is why they have put up enormous buildings, both warehouses and refineries, at Curaçao. TheShell, which has operated for four or five years in Venezuela, has just overcome the difficulties of approaching the coast by constructing a flotilla of tankers of very small draught, thus permitting the transport of oil from Maracaibo to Curaçao.
The Panama Canal itself is seriously menaced. The United States have spent more than 300 milliondollars in constructing the canal, and now American vessels are going to be dependent upon theRoyal Dutchfor oil. Mr. Deterding has a depot at one end of the canal and another at the entrance to the gulf. He dominates American commerce.
This is indeed a work of conquest. Mr. Deterding follows the commercial example of Great Britain.He has stations at all the strategic points of the world.He also controls the Suez Canal at both ends. The capacity of the refinery at Suez has been increased by 7,000 barrels a day, on account of the increase in the tonnage passing through the canal during the War. Mr. Deterding is building a station on the Cape Verde Islands, situated just half-way between Africa and America. He has establishments at the Antipodes, in the East and West Indies, on the west coast of South America, on the coast of Africa, and at the Azores. The European market, in particular the French, is dependent on him. Through the instrumentality of M. Deutsch de la Meurthe, the oil deposits in Asia, owned by the Rothschilds, have come under theRoyal Dutchtrust, which possesses 90 per cent. of the capital of the oil companies of the Caspian and Black Seas and 25 per cent. of that of theNew Russian Standard Companyof Grosny. In August 1920 theShellbought theMantasheffand theLianosoff, together with a 40 per cent. interest in theTsatouroff, fearing to see theStandard Oilacquire the Nobel properties at Baku. The contract was signed in London, but was incompletely carried out, for Great Britain hoped to treat directly with the Soviets at Genoa and to have no more responsibility towards the former owners.[11]
A large part of the Rumanian production is controlled by theRoyal Dutch.
In Germany theRoyal Dutch-Shellhas an interest in theErdol und Kohle Veränderung Aktien Gesellschaft, theAktien Gesellschaft für Petroleum Industrieand theDeutsche Bergin Aktien Gesellschaft.
Since 1912 it has established itself in Sweden as theAnglo-Swedish Oil Company, to drive out theStandard Oil, until then mistress of the market. Everywhere theRoyal Dutchinsinuates itself into the good graces of governments, thanks to its elastic methods and to the cleverness of some of its directors, such as the brilliant Armenian Gulbenkian, who has been well named the "Talleyrand of Oil." In co-operation with the Belgrade Government, it has just formed a new company at Agram, with a capital of 50 million crowns, to exploit the oil of Jugo-Slavia.
As theFinancial Timeswrote: "Following the creation in France of theSociété Maritime des Pétrolesand theSociété pour l'Exploitation des Pétroles, theRoyal Dutchis able to obtain from the French Government an important interest in the oil-fields which remain at its disposal."
Its last triumph was its entry into Spain. The eminently suggestive list of companies controlled by theRoyal Dutchwill give an idea of the network which it has spread over the whole world:—
Shell Transport and Trading Company.Asiatic Petroleum Company.Anglo-Saxon Petroleum.Bataafsche Petroleum Maatschappij.Erdol und Kohle Veränderung Aktien Gesellschaft.Aktien Gesellschaft für Petroleum Industrie.Deutsche Bergin A.G.Anglo-Swedish Oil Company.Asiatic Petroleum(Ceylon).Asiatic Petroleum(Egypt).Asiatic Petroleum(Federated Malay States).Asiatic Petroleum(India).Asiatic Petroleum(Northern China).Asiatic Petroleum(Philippines).Asiatic Petroleum(Siam).Asiatic Petroleum(Southern China).Asiatic Petroleum(Straits Settlements).Anglo-Egyptian Oil-fields.British Imperial Company(Australia).British Imperial Company(New Zealand).British Imperial Company(South Africa).Astra Romana.Caribbean Petroleum.Dordesche Petroleum Industrie Maatschappij.Dordesche Petroleum Company.Sumatra Palembang.Nederlandsche Indische Tanks Troomboat.Vereinigte Benzinwerke, Hamburg.Home Light Oil Company.British Petroleum Company.Norsk Encelska Mineralojeanie Colaget.Shell Marketing Company.Italian Company for the Import of Oil.British Tanker Company.Moebi Hid.Ceram Petroleum.Ceram Oil Syndicate.Société Bnito.North Caucasian.Russian Standard of Grosny.Mazut Company.Ural-Caspian Company.Grosny Sundja Oil-fields.New Shibaïeff Petroleum.Commercial and Industrial Oil Companies of the Caspian and Black Seas.Mantasheff.Lianosoff.Tsatouroff.Kotoku Oil-fields Syndicate.United British Refineries.New Orleans Refining Company.Simplex Refining Company of Panama.Panama Canal Storage Company.Shell Company of California.Californian Oil-fields, Ltd.W.V. Oil Company.Volley Pipe-Line Company.Roxana Petroleum Company(Oklahoma).Trahola Pipe-Line Company(Oklahoma).Shell Corporation of Martinez.Shell Company of Canada.Roxana Petroleum Maatschappij(Texas).Tampico-Tanuco Petroleum.La Corona.Mexican Eagle.Eagle Oil Transport.Venezuelan Concessions Company.Curaçao Petroleum.General Asphalt Company.Burlington Investment Company.United British Oil-fields of Trinidad.United British West Indies Petroleum Syndicate.Turkish Petroleum.Roxana Petroleum Corporation of Virginia.Ozark Pipe-Line Corporation.Union Oil of Delaware.Société Maritime des Pétroles.Photogen(Austria, Hungary, Poland).Jugo-Slav Petroleum.
This list is certainly not complete, and it grows longer every day. Is it not eloquent by itself?
TheRoyal Dutchhas penetrated every State in the world, assuming everywhere the national colour of the country it desires to conquer.
It has travelled far since it began in the Dutch Indies, with a tiny capital of a million florins and seven small tank steamers. Its annual production, which was then 25,000 tons, to-day exceeds 15 million tons. Its fleet of tankers is one of the most powerful in the world. Last year it amounted to 1,400,000 tons.And theRoyal Dutchcontrols a capital of twenty-two thousand million francs.
Partial Decline of the Standard
TheStandard Oilis certainly no longer the colossus of the world. It has never completely recovered from the last judgment delivered against it in 1912, which compelled it to separate from its subsidiary companies. Although the sentence of the SupremeCourt could not put an end to the community of interests which united these—since Rockefeller himself possessed 25 per cent. of the shares of the various affiliated companies—it has certainly hampered the development of theStandardduring the last few years. The very heavy taxation imposed upon it has also contributed to limit its powers of expansion. The American Government takes 44 per cent. of its income in the form of taxes. In 1920 Rockefeller paid an ordinary federal tax of 12 per cent. and a super-tax of 65 per cent. In fact, Rockefeller and all his associates are being driven out of the business by the federal taxes. If Rockefeller is the person who paid in 1920 the largest sum in income tax (14,800,000 dollars), it is clear that the greater part of his money is passing from the coffers of the company to be invested in Government, State and municipal securities which are not taxable.
Up to about 1890 theStandard Oilreigned as absolute mistress of the oil market, both in Europe and America. But in 1890 the oil from the Caucasus, Galicia and Rumania began to break up this monopoly. Purely European financial groups, the Rothschilds of Paris and Vienna, the Nobels of Sweden, the great German banks, and those of Lille and Roubaix which later were to form the "Consortium du Nord," became progressively more and more interested in the new oil enterprises that were taking shape in Eastern Europe. Germany had formed an actual Trust, theEuropeanische Petroleum Union, which, but for the War, would certainly have led to German control of all European oil. Instead of only two great Trusts fighting for world supremacy for the benefit of Britain or the United States, we should see a third, claiming Europe and Turkey in Asia for its share in the name of Germany.
But this group, expanding rapidly when war broke out, found itself opposed from that moment by another organization, theRoyal Dutch-Shell, which was also advancing by giant strides and which concentrated all its power throughout the world against that of theStandard Oil.
The most skilful part of the policy of theRoyal Dutchwas toestablish itself wherever there was any oil, while theStandardconfined itself almost exclusively to America. This was a great mistake. To dominate the production and sale in America was defensible as a commercial policy so long as the United States were the greatest producers of oil. It became an error from the day on which important oil deposits were discovered in other parts of the world.
TheStandardstill has the preponderance in the United States, where theShellonly appeared in 1900, but it is far from controlling 86 per cent. ofthe output, as it did at the height of its power in 1911. It has been much too negligent about extra-American oil deposits.
In 1890 a representative of theStandard Oilwas in Java, studying the oil situation in the Far East. He urged theStandardto establish itself there before any competitor appeared. Hypnotized by the American market, it refused.
In a similar way it came into Rumania too late, and controls only 10 per cent. of the total output, while theRoyal Dutchcontrols 31 per cent. In Mexico theStandardalso met with the competition of theRoyal Dutch, which, in combination with British interests, takes 40 per cent. of the production. In Russia its rôle is insignificant.
This state of affairs has been brought about by the errors of judgment of the directors of the Trust.The power of theStandard Oilhas diminished, and it no longer exercises a really effective control except within the United States. Even this control theRoyal Dutchis striving to filch from it. The latter has just formed a new trust, uniting the companies hitherto independent: the Doheny group and the British Pearson syndicate, theAssociated Oil, theOklahoma Producingand theOil Union of Oklahoma, with six or eight other undertakings which have been successfully conducted during the last few years. TheShellis trying to bring in theMexican PetroleumCompany of Delaware,[12]a sister company to theEagleand the greatest producer in Mexico, which has up to now remained faithful to theStandard Oil. That is why it bought up large quantities ofMexican Petroleumstock in May 1919 on the New York Exchange. If it succeeds theStandardwill see its remaining share in Mexico yet further diminished.
This new Trust has the financial support of the Morgans. It is particularly directed against theStandard Oil.
These facts are very little known in France.TheRoyal Dutchis about to launch a new attack on theStandard, or to acquire an interest in a Trust destined to combat it, which will perhaps end by grouping under its ægis all Rockefeller's competitors.
The Pearson syndicate, under Lord Cowdray, has joined theRoyal Dutch. Now, Mr. Doheny himself is coming in too.
The great oil International develops continuously. Where will it end? Already theStandard Oilproduces no more than 17 per cent. of the oil of theUnited States—it is true that it has always disdained the extraction of petroleum—but it refines only 49 per cent., which is a much more serious matter.
Rapid Increase in the Activities of the Royal Dutch
Production1910 1,600,000 tons1913 7,000,000 tons1920 15,000,000 tonsNet Profits1907 13,000,000 florins1915 29,000,000 florins1920 130,000,000 florinsDividends1907 27-3/4 per cent.1915 49 per cent.Authorized Capital1890 1,300,000 florins1902 7,500,000 florins1910 50,000,000 florins1911 100,000,000 florins1916 150,000,000 florins1918 230,000,000 florins1919 400,000,000 florins1921 600,000,000 florins
Financial Results of the Royal Dutch since its Agreement with the Shell.