I have already published the list of Oil and Gas Companies in Nigeria and now, this article is dedicated to discussing more of Upstream vs Downstream based on the growing inquiry in Google search. Check out list of the top Oil and Gas training schools in Nigeria
When most people think of the oil and gas industry, they only think of the Upstream sector – Which involves searching for oil, drilling wells, and getting hydrocarbons out of the ground and little or no knowledge midstream and downstream sector of the oil and gas industry even though we interact with them on daily basis.
Oil and gas, like every other commodity-based business, are price sensitive and bound to experience a multifaceted cycle throughout any single career lifespan. Things are constantly changing! The more you know about how upstream vs downstream and how they work together the better. Don’t be that person who thinks that what’s outside of your particular segment can’t affect you.
What is Upstream?
Most oil and gas companies’ business structures are segmented and organized according to business segment, assets, or function. Upstream of the oil and gas business is better known as the exploration and production (E&P) sector because it covers all activities related to searching for, recovering and producing crude oil and natural gas.
The upstream oil and gas sector like mentioned in the previous article, is all about wells: where to locate them; how deep and how far to drill them; and how to design, construct, operate and manage them to deliver the greatest possible return on investment with the lightest, safest and smallest operational footprint.
The exploration segment of the upstream oil and gas industry involves obtaining a lease and permission to drill from the owners of onshore or offshore land thought to contain oil or gas and conducting necessary geological and geophysical (G&G) surveys required to explore for (and hopefully find) economic accumulations of oil or gas.
There are 4 key steps to summarize the upstream oil and gas exploration process:
- First is understanding and evaluating the geologic setting, called a play,
- Next is obtaining access to the potential reserves usually in the form of a lease,
- The third step is determining where to drill and complete a successful discovery or “wildcat” well.
- If successful, the additional hydrocarbon reserves can finally be added to the portfolio
As you can probably imagine, the primary purpose of exploration is to discover new accumulations of hydrocarbons, called reserves. Today the larger reserve prospects are most often located in remote areas or deep water and can be tens of thousands of feet below the surface.
Conventional oil and gas accumulations only occur under very precise geological conditions. Discovering these conditions requires a very disciplined analysis approach. Improving exploration success through extensive seismic, logging and drilling technologies is discussed further in subsequent parts of the Exploration module.
Typical Exploration Department
An Exploration Department is usually a globally centralized function that includes the following key technical disciplines and roles:
A Geophysicist uses surface methods to measure the physical properties of the subsurface in order to detect or infer the presence, position and concentration of hydrocarbons.
An Exploration Geologist identifies exploration opportunities that will contribute to the long-term established reserves replenishment goals of the companies.
A Geologist applies scientific methods to assure that all geologic factors affecting the location, design, and construction of the exploratory well are recognized.
There is always uncertainty in the geological and geophysical survey results. The only way to be sure that a prospect is favourable is to drill an exploratory well.
Drilling is physically creating the “borehole” in the ground that will eventually become an oil or gas well. This work is done by rig contractors and service companies in the Oilfield Services business sector.
Today, technologies are now available for the industry to drill wells over 25,000 feet, with bottom hole temperatures exceeding 400 degrees and pressures approaching 20,000 PSI. In both onshore and offshore operations, horizontal and deviated wells to maximize reservoir recovery are now the norm.
Oilfield Services Companies Role in Drilling:
Oilfield services companies design, produce and deliver both equipment and technical services needed to drill and complete wells. In addition to the drilling rig contractor on the well-site, there can be 30-40 different contractors doing technical services like cementing, perforating, logging, and testing.
Once oil or gas is found with a wildcat or discovery well, the next step in adding value to reserves is to get the reservoir fluids brought to the surface, or “produce” them. After all, upstream is also called E&P!
The production segment of upstream oil and gas maximizes recovery of petroleum from subsurface reservoirs. Production activities include efficiently recovering the oil and gas in a producing filed using primary, secondary and tertiary, or enhanced oil recovery (also referred to as improved oil recovery).
The economic success of a well depends in large part on how the well is completed. Successful completion must first make the optimum mechanical connection between the wellbore and the reservoir.
The easy oil and gas throughout the world have already been produced, and there are new challenges to leave as little valuable hydrocarbon resource behind as possible, over what may be a 100+ year life of a field.
During the initial stages of a well’s producing life, the fluids are kept moving as long as the natural pressure of the reservoir fluids is higher than the pressure in the wellbore.
The fluids then flow into the wellbore, up the tubing string and into a stock tank. When the formation pressure becomes insufficient to lift the fluids to the surface a lot of oil is still left behind.
Can more of this oil be recovered? Yes, using what’s known as artificial lift. Every oil well and many gas wells will need an artificial lift at some point in their producing life. Artificial lift refers to the use of mechanical devices, or artificial methods, to increase the flow of fluids in producing oil and gas wells.
Plug and Abandonment:
Plug and abandonment mark the end of the productive life of a well. That event can occur anywhere from a few years after the well is drilled to five or six decades later. The Production and Offshore Construction Module provides a high-level overview of production operations.
It introduces the offshore contractors and production service providers that assist E&P companies in efficiently producing oil and gas. Now let’s take a look at the second part of the difference between upstream and downstream?’
What is Downstream?
Unlike the Upstream, Downstream includes everything involved in turning crude oil and natural gas into thousands of finished products we depend on every day. The downstream sector are involved with Oil and Gas processes that occur after the production phase to the point of sale.
Key downstream business sectors include:
- Oil Refining
- Supply and Trading
- Product Marketing and Retail
The downstream industry provides thousands of products to end-user customers around the globe. Many products are familiar such as gasoline, diesel, jet fuel, heating oil and asphalt for roads. Others are not as familiar such as lubricants, synthetic rubber, plastics, fertilizers and pesticides.
The downstream segment is a margin business. Margin is defined as the difference between the price realized for the products produced from the crude oil and the cost of the crude delivered to the refinery. Although the price of crude sets the absolute level of product prices, it may or may not affect refining or marketing margins.
Downstream margins tend to be reduced, or squeezed when crude price increases often cannot be recovered in the marketplace. On the other hand, margins tend to hold, or even increase, when crude prices drop and the marketplace more slowly adjusts to these lower crude prices.
The downstream segment includes complex and diverse activities including manufacturing, petrochemical refining, distribution, and retail. A global perspective is important because of the global nature of the energy supply chain as well as the impact of supply and demand on both feedstock and product prices.
The complete refining overview includes segments on:
- Why we refine crude oil
- A basic summary of the refining distillation process
- Historical perspective on the evolution of refining.
The complete Refining Module includes lessons on crude oil and products, refinery processes, key business drivers that impact refining profitability, and more.
Why Do We Refine Crude Oil?
Crude oil cannot be used as it occurs in nature, other than burning for fuel, which is wasteful. It must be refined to manufacture finished products such as gasoline and heating oil.
In the refinery, crude oil components can first be split by carefully applying heat to capture various parts, called fractions, within certain boiling ranges. This is called distillation.
The quality of these initial fractions produced is not sufficient to be sold directly as petroleum products without further treatment and moreover, the yield of products from the straight distillation of crude oil is not the same as the “demand barrel” needed for the marketplace.
Crude oil must, therefore, be further processed using both heat and pressure to improve qualities and meet market demand. A large part of refinery processing is concerned with converting unwanted heavy fuel oil into marketable gasoline and diesel, using various processing methods.
Petroleum Product Marketing:
Marketing is the final step in the ‘Microbes to Markets’ chain that delivers useful petroleum products to end-user customers. The main business drivers of this segment are volume, market share and margin. Worldwide, transportation fuels including gasoline, diesel, jet fuel and marine fuel oil account the largest percentage of global demand, and it is the fastest-growing portion of refinery products.
In Nigeria, passenger cars still consume more petroleum products than any other sector. Today, 44% of the world’s gasoline consumption comes from the US. Every refiner is slightly different, but Marketing Departments are usually organized by retail and wholesale channels.
As its name implies, the midstream oil and gas segment encompasses facilities and processes that sit between the upstream and downstream oil and gas segments.
Activities can include processing, storage and transportation of crude oil and natural gas. Transportation is a big part of midstream activities and can include using pipelines, trucking fleets, tanker ships, and rail cars.
The midstream segment is separated from upstream and downstream in most oil companies because it is considered low risk, regulated type of business. It does not fit the risk profile or asset complexity of the other segments of the oil and gas industry.