A Quick Introduction to The Oil and Gas Industry

A Quick Introduction to The Oil and Gas Industry

The Oil and Gas industry is one of the biggest industries in the world in terms of US dollars. This industry is vital as they often contribute a significant amount towards a national gross domestic profit (GDP).

The oil and gas industry consists of different segments – mainly upstream, midstream and downstream.

Here is a quick overview of the oil and gas industry:

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The oil and gas industry consists of 3 major segments – upstream, midstream, and downstream.

Generally speaking, when people think of oil and gas industry, the first few things that come across their mind are drilling wells, searching for oil, and getting hydrocarbons out of the ground which mainly define the upstream. Apparently, not many people are aware of the midstream and downstream of the oil and gas industry.

Let us walk you through the differences between these 3 segments!

UPSTREAM

The upstream segment is also sometimes known as the exploration and production (E&P) or commonly known as the offshore and marine sector. The oil and gas exploration play a vital role in the upstream sector. Upstream companies involve the exploration for underground and underwater natural gas fields or crude oil fields as well as the operation of the wells that bring both oil and gas to the surface. The business from the upstream will be over once the resources have been extracted.

To summarize, the upstream segment consists of 3 sections – exploration, drilling and production.

MIDSTREAM

Midstream activities serve as an essential link between the producing areas and population centres. Some of the major assets that you can find in the midstream industry are such as field gathering, processing plants and transmission pipelines.

Businesses from the midstream segment of the oil and gas industry involve processing, storing, transporting and marketing of oil, natural gas and natural gas liquids.

What are the characteristics of midstream?

– Low risk business as it contains regulated components.
– Asset investments are said to be dependent on health of the upstream.
– Oil and gas prices affect demand.

DOWNSTREAM

Businesses from the downstream segment of the oil and gas industry involve processing, transporting and selling refined products made from crude oil.

The key downstream business sectors are oil refining, product marketing, wholesale & retail and supply & trading.

The downstream also reaches to the end user consumption and wholesale and retail marketing through products such as diesel oil, gasoline or petrol, fuel oils, jet fuel, waxes, asphalt, liquefied petroleum gas (LPG), and natural gas as well as other petrochemicals. Some other petrochemical products that many might not familiar with are such as lubricants, plastics, synthetic rubber, pesticides and fertilizers.

What are the characteristics of downstream?

It is a margin business that seems very complex to many. Global perspective plays a vital role here and it deals with getting products to the end consumers.

The term margin business simply means the difference between the price realized for the products produced from the crude oil and the cost of the crude oil delivered to the refinery.

The margin business is said to be complex because it involves activities that are diverse and complex such as – refining, petrochemicals, distribution and marketing.

A global perspective plays a vital role due to the global nature of the energy supply chain and the impact of demand and supply on both feedstock and product prices.

What is oil refinery?

Oil refinery or oil refining is an industrial process plant where crude oil is being transformed and refined into a variety of higher value products for the end-user consumption. Note that, crude oils are mixtures of thousands of different compounds called hydrocarbons. Every single compound is being refined through a number of different processing units using pressure and heat to separate the products.

The end product after refining are often categorized as light, medium or heavy.

Examples of light products are such as Liquid petroleum gas (LPG), gasoline or petrol, Naphtha (used as a solvent or paint thinner)

Examples of medium products are such as middle distillates, diesel fuel and kerosene and related jet aircraft fuels.

Examples of heavy products are such as fuel oils, asphalt and tar, lubricating oils, petroleum coke and paraffin wax.

We hope that this article has given you a better understanding of the oil and gas industry.

Previously, we’ve also written an article about the similarities and differences of analysts from the Buy side and Sell Side. Check it out here.

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Sources: 

https://energyhq.com/2017/04/upstream-midstream-downstream-whats-the-difference/
https://www.investopedia.com/features/industryhandbook/oil_services.asp
https://www.psac.ca/business/industry-overview/
https://www.oilandgasiq.com/strategy-management-and-information/articles/oil-gas-industry-an-introduction  

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