No. 600.
Mr. Lothrop to Mr. Bayard.

No. 145.]

Sir: Notwithstanding the very full information which has been furnished you by our consuls touching the production of Russian petroleum and the trade in the same, I have thought that a recent article published in the Journal de St. Petersbourg would be interesting, as presenting the latest Russian view on the subject. It will be seen that the entire expulsion of American petroleum from the European markets is confidently looked for. And whatever superiority in quality may exist in favor of the American product, yet the ease and abundance of the production of the Russian wells and the cheapness at which their product can be placed on the market can not but cause some solicitude respecting the future of a business which has hitherto been so valuable to the producers in the United States. The article and translation is annexed.

I am, etc.,

Mr. V. N. Lothrop.
[Inclosure in No. 145.—Translation of an article from the Journal de St. Petersbourg, of September, 14–26, 1887.]

The Parole de Kieff (Kiebckoe Clobo) draws attention to the constant progress of the naphtha industry in the Caucasus and Transcaucasus. The importance of this industry is already considerable, and there is every reason to believe that it will end by driving American petroleum from the European markets. A pamphlet of Mr. Charles Marwin has just appeared in London, entitled “The approaching deluge of Russian petroleum.” This writing and the report of the consul of the United States at Bakoo furnish our contemporary with the information for the following considerations:

In the district of Bakoo the production of refined petroleum in 1883 was about 60,000,000 gallons (the gallon is equal to nearly a third of a vedro). This proportion, in 1884 had amounted to nearly 100,000,000 gallons, and the year following to nearly 132,000,000. This branch of the industry has more than doubled, therefore, in three years. On the other hand, a notable diminution in the importation of American petroleum has been observed in Europe.

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The following table shows the variations of this importation during those three years in the following countries:

1883. 1884. 1885.
Gallons. Gallons. Gallons.
Austria-Hungary 15,500,000 6,300,000 2,000,000
Greece 1,300,000 1,100,000 300,000
Turkey in Europe 4,200,000 3,000,000 2,000,000
Turkey in Asia 3,100,000 3,500,000 2,100,000
Gibraltar and Malta 2,700,000 3,300,000 1,000,000

In short, an importation reduced to one-quarter—from 26,800,000 gallons to 6,700,000— and that in three years alone; and let it not be forgotten that the naphtha industry in Russia is developing without check, putting itself in unison with the requirements of our consumers of the West, whilst in America many wells have become exhausted. In Pennsylvania, for instance, in order to obtain naphtha, it is necessary to bore into the earth to the depth of 2,000 feet, whereas at Bakoo the deepest wells are only 700 feet; and besides Bakoo, we have abundant springs of naphtha on the shores of the Black Sea, in the environs of Anapa and Novorossisk; they are to be worked by a French company, disposing, it is said, of a capital of 15,000,000 of rubles.

Let us now see what has been the development of the production of Russian naphtha. In 1872 only 750,000 gallons had been extracted; in 1870 (sic), 3,500,000. Until 1873 the production of naphtha formed a state monopoly. The contractor, Mirzoiew, while making an immense fortune, did little towards giving an impulse to this industry. The abolition of the tax changed the stagnation into feverish activity, especially since the arrival at Bakoo of the Nobel Brothers, Finlandish engineers, to-day called the naphtha kings.

The 1st of September, 1877, the tax on naphtha was abolished. The free extraction of this product has given rise to many abuses. Has not one often heard of the discovery of gigantic fountains of naphtha, which, from the lack of resources to dam it and preserve it, was lost in the sand or in the Caspian Sea. On the other hand, the natural naphtha of Bakoo gives only 30 per cent, of petroleum, 70 per cent, of the natural matter having to be employed in the manufacture of paraffine, of aniline colors and of different kinds of oils. Well, scarcely any profit is derived from it. Only the refuse, the mazout, as it is called locally, is used as a combustible of an inferior quality.

Here are some more figures, which characterize the extent of our riches in minera-oils. The firm of Nobel Brothers own 32 wells, which work permanently, and furnish from 150 to 500,000 hectoliters daily. It owns also the best organized and largest petroleum refinery in Russia, 13 maritime constructions specially arranged for the transport of petroleum, as also a great number of cistern-wagons to be met with on all our railways. There are in all at Bakoo, 200 workshops for the production of refined petroleum. The daily production is 1,200,000 gallons.

Of all the quantity produced, 35,000,000 gallons were exported abroad. The ways of exportation were by Batoum on the Black Sea, Riga, Libau, and Wierzbolowo, for Germany; Warsaw, Radzivilow, and Volotchisk, for Austria-Hungary.

One can judge of the development of which the exportation of our petroleum is susceptible by the following facts, related by Mr. Marwin: Three years ago a well discovered at Bakoo was much talked of, from which 3,400 tons of naphtha daily spurted up a quantity larger than the whole of the production of the 25,000 wells of North America. At first these rumors were received with much want of confidence, but it was found that really the spring was still more abundant than had been said. In fact, in 1886 the said well produced daily up to 11,000 tons of naphtha, by which the production of one locality was larger than that of the whole world—America, Galieia, Roumania, etc. On October 6, 1886, the manufacturer Tagniew had discovered a spring which threw up to a height of 224 feet, hurling stones and sand 3 versts around, oven reaching the town of Bakoo. Thirty thousand pounds of naphtha were emitted from it every hour, to the point where it became necessary to put out all the fires of the factories of the “black city” in order to prevent terrible conflagrations.

In the presence of this richness of the wells, and their relative proximity to the markets of Europe and of Asia, one-can understand that Mr. Marwin speans of the “deluge” with which Russian petroleum threatens Europe, definitively ruining the naphtha trade of North America, which henceforth will only have to supply the local demand.

The consul of the United States at Bakoo sees things differently. He recognizes the loss to America of the markets of Austria, of Southern Europe, of a part of Germany, even of Asia, but he hopes to keep those of France, England, and of the other part of Germany.