A Short History of Energy as a Business

In the 1850s a group of investors in New Haven, Connecticut, organised by a lawyer named George Bissell, paid a Yale chemist, Benjamin Silliman Jr., to examine the "rock oil" that seeped from the ground in western Pennsylvania. His report of 1855 concluded that it could be refined into a good illuminant. The market for light already existed. Whale oil and spermaceti candles lit wealthy homes, and their price had risen as whale stocks were depleted; town gas, made by heating coal, lit city streets; and kerosene distilled from coal or shale had shown how much people would pay for a cheap, bright lamp fuel. What was missing was cheap supply. The investors' company, renamed the Seneca Oil Company, sent Edwin Drake, a former railway conductor given the honorary title "Colonel", to a farm near Titusville to find it.

Drake hired a salt-well driller, William Smith, and drove an iron pipe through the loose overburden so that the hole would not collapse. On 27 August 1859, at 69½ feet, they struck oil. The investors had nearly given up; a letter ordering Drake to stop is reported to have arrived after the strike. Within months wells crowded the banks of Oil Creek, and the first oil boom began. So did the first oil bust. Crude reportedly fell from about $10 a barrel in early 1861 to as little as about ten cents later that year as flush production overwhelmed demand, and towns such as Pithole rose and vanished within a few years. The rule of capture under American property law let any landowner produce the oil beneath his neighbours' land, which rewarded drilling fast and wastefully.

Drake himself made little money. The fortunes went to the people who controlled what happened to oil after it left the ground. Twenty-three years later, on 4 September 1882, Thomas Edison's Pearl Street station in lower Manhattan began selling electricity to a few dozen customers, and the second template of the energy business began. This chapter traces both, because nearly every argument about energy in the 2020s, over cartels, utilities, markets, shale or subsidies, restates one from an earlier era.