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Petroleum and Public Safety: Risk Management in the Gulf South, 1901-2015

Author(s):McSwain, James B.
Reviewer(s):Aldrich, Mark

Published by EH.Net (November 2018)

James B. McSwain, Petroleum and Public Safety: Risk Management in the Gulf South, 1901-2015. Baton Rouge: LSU Press, 2018. xxii + 368 pp., $55 (hardcover), ISBN: 978-0-8071-6912-4.

Reviewed for EH.Net by Mark Aldrich, Department of Economics, Smith College.

 

The primary focus of this book is the development of regulations governing the safety of storing and shipping petroleum in four Gulf Coast cities — Mobile, New Orleans, Houston and Galveston — primarily around the turn of the twentieth century. The book contains, in addition to a preface and introduction, a chapter on each of these cities. There is also an initial chapter entitled “Petroleum and Nineteenth Century Risk Culture,” as well as a conclusion and epilogue. The basic arguments are that insurance companies developed an approach to petroleum risk management in the nineteenth century and that the gulf cities “convert[ed] insurance rules into legally enforceable regulations” (p. 193).

The book reflects an immense amount of research into primary and secondary works — the author seems to have read every insurance publication there was — and the chapters on individual cities contain detail that is at times overwhelming. Although there are some differences among the cities, in each case the basic story revolves around squabbles between various interest groups — petroleum suppliers and users, third parties, and insurance interests.

I found the first chapter the most interesting as the author traces efforts of various groups to corral the risks of producing and consuming petroleum products from the beginnings to about 1900, and readers may be especially interested in the discussion of insurance companies’ safety work. The discussion of the intertwining of insurance standards and rates with municipal regulations is well done, but the chapter might have included more economic analysis; there is no discussion of moral hazard or of the externalities that bedeviled fire insurance and which surely help account for insurance companies’ enthusiasm for city-wide rules. Nor does the author integrate Dalit Baranoff’s work on competitive conditions in rate setting; did rate wars spill over to standards as well? The author hints (p. 44) at this relationship between rates and standards but does not much develop it.

Markets shaped risks in other ways as well. The author notes that adulteration of kerosene diminished as markets appeared for naphtha, but he ignores the role of prices in this story. The price spread between (cheap) naphtha and (expensive) kerosene, which measured the payoff to adulteration, gradually declined, and so, apparently, did adulteration. Standard Oil probably played a role here that the author might also have noted. Company histories depict Rockefeller as obsessed with quality control and perhaps one reason was that with Standard marketing kerosene under its own name, blowing up customers could have been bad for repeat business. The author does discuss Standard’s marketing of fuel oil as factory fuel giving it a mixed safety report card (pp. 40-41).

The end of chapter 1 provides a nice summary of how concern with petroleum risks evolved over the nineteenth century from a primary focus on volatile products (kerosene) to industrial uses of fuel oil and finally in 1902 resulted in a set of “Rules and Requirements” for fuel oil use and storage promulgated by the National Board of Fuel underwriters. This was the bible from which the insurance industry would try to shape public and private action, and the author discusses it in detail. A table might have brought this into sharper focus.

I found the four city case studies less interesting — in part because they seem broadly similar. While in his introduction the author emphasizes the differences among these cities in size and economic base, these seem to make comparatively little difference to the problem at hand — how to cope with the new risks arising from the large-scale use of petroleum after the Texas discoveries surrounding Spindletop. The basic focus is on the development of municipal regulations governing storage and transportation of crude oil and its products. The regulatory focus included such matters as the size and construction of tanks and pipelines as well as their location. Surprisingly, given modern interest in environmental justice, there is no discussion of how neighborhood racial makeup may have affected location decisions. As the author tells us, the parties shaping the rules included the oil interests, insurance companies and others. For third parties who might bear the costs of fire but not of protecting stored oil, regulations could not be too strong, but one wonders why there were such major disagreements between oil and insurance interests. In discussing events in Mobile, Alabama, at one point (p. 67) the author asserts that “potential dangers to property left other parties unfazed,” but surely tort law must have internalized risks to third parties. What may well account for some of the disagreements was expertise (as the author hints on page 82), for the insurance companies brought far more experience to the table than did the oil companies.

The author’s prose sometimes makes for difficult reading. There are too many bromides: the introductory sentence of the conclusion reads “These Gulf South cities created policies to manage risks associated with storing, transporting and consuming petroleum for fuel” (p. 190). There are also long sentences with vague words that do not read easily. Consider the following one-sentence paragraph from chapter 1 (p. 13): “Acting in step with the evolution of lighting and heating technology, as well as petroleum production, refining and transportation, federal and state governments as well as municipalities formed a risk management tradition shaped by safety and liability concerns for passenger vessels and insured property in which lamps, fixtures and gas machines burned turpentine, camphene mixtures or turpentine and alcohol, as well as naphtha, gasoline and kerosene.” Finding the focus of such constructions is challenging.

These chapters contain no discussion of insurance rates. Yet Baranoff points out that as these events were playing out, insurance interests were trying to stabilize rates and ensure that backsliders did not undercut local boards. At one point (p. 59) the author notes a company used nearby rates as evidence that its oil storage tank was acceptable to insurance companies, but such insights are exceptional and in general, one wonders if insurance companies may have employed ratings to shape safety outcomes in these cities, and if not, why not.

Economists will wonder if any of these rules and policies really did reduce risks, and they will not find an answer here. Granted that the data are imperfect; yet the author never asks the question. Were fire risks higher than average in these cities; were oil fires a peculiar problem; did risks decline and rates change with the new regulations? A stab at answering some of these questions, however imperfect, would have made these chapters more interesting to this reviewer.

 
Mark Aldrich is the author of Back on Track: American Railroad Accidents and Safety, 1965-2015 (Johns Hopkins University Press).

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Subject(s):Agriculture, Natural Resources, and Extractive Industries
Geographic Area(s):North America
Time Period(s):19th Century
20th Century: Pre WWII