What are the 3 Sectors of the Oil and Gas Industry?

Oil and gas are one of the major industries in India. It should also be noted that India is the world’s 3rd largest consumer of crude oil. The oil and gas industry are divided into three sectors. Let us learn more about the three sectors of the oil and gas industry.

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What Are the Three Sectors of The Oil and Gas Industry?

The oil and gas industry is divided into three sectors. They are the Upstream sector, Midstream sector and Downstream sector.  Each of them operates in various areas of the oil and gas industry. Let us look at them in detail.

Upstream Sector

Among the three sectors of the oil and gas industry, the upstream sector is the one that takes up the exploration activities as well as the production activities. Exploration activities include conducting geographical surveys, obtaining land rights etc. Production activities include onshore drilling and offshore drilling.

Exploration

Exploration is the process of finding crude oil and natural gas deposits under the earth’s crust. The potential sites for oil extraction can be done using modern equipment and technologies.  In old times the oil seeker depended on the natural surface signs like natural oil seeps. But modern methods are more efficient and easier. First geological surveys are conducted for this purpose. This could be done by testing the subsoil as in the case of onshore exploration or utilizing seismic imaging like that in the case of offshore exploration. There is always ongoing competition among energy companies to acquire the mineral rights that are granted by the government. The first way of doing this is by entering a concession agreement. Here, all the products produced are solely the property of the producer.  Another way is entering a production-sharing agreement. Here, the government always retain participation rights and ownership.

Exploration is very expensive and involves high risks. They are done primarily using corporate funds. An unsuccessful exploration, which is where we conduct all the required studies but end up drilling a dry well can lead to a loss of 5 to 20 million dollars or sometimes even more per exploration site. But in case of a successful exploration endeavor, all these exploration costs will be recovered and are even significantly lesser than other expenses of production.

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Production

The oil and gas industry are very capital-intensive. It requires highly skilled labor and expensive equipment.  After a successful exploration, the plans for drilling begin. Many oil and gas companies hire drilling firms specializing in it and then pay the labor charges and rig day rates. The drilling duration can be affected by several factors. This includes:

• Drilling depths
• rock hardness
• weather conditions
• distance of the site

The data is tracked using smart techniques to ensure the efficiency and performance of the tasks. Drilling uses the same components everywhere. However, the method of drilling can vary according to some factors such as the type of oil, the geology of the location and the type of gas.

Onshore Drilling

In the case of onshore drilling, all the Wells are put in groups in a field with half an acre per well in the case of crude oil and 80 acres per well for natural gas. Each of these Wells is connected by carbon steel tubes. These tubes are used to transport the oil into and production and processing facility. Here the oil and gas are treated via chemical and heating processes. The onshore production companies can turn on and turn off the rigs far more easily than the offshore companies in response to market conditions.

Offshore Drilling

In offshore drilling, a single platform is used. It could either be fixed i.e. bottom supported or mobile i.e. floating, only secured with anchors. Offshore drilling is comparatively more costly than onshore drilling. It should also be noticed that the fixed rigs for offshore drilling are much more costly than the floating i.e. mobile rigs. Most of the production facilities near offshore rigs are located on coastal shores.

Upstream Companies Example

Some companies put more focus on the upstream section of the three sectors of the oil and gas industry. Some of them are listed below.

• Oil and Natural Gas Corporation (ONGC)
• Indian Oil Corporation Limited
• Gujarat State Petroleum Corporation
• Reliance industries
• Essar oil
• Cairn India

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Midstream Sector

The midstream sector deals with things such as storage, transportation and processing of oil and gas products. The unrefined oil and gas products are transferred from the drilling sites to the refineries. The refineries are often located in sites that are completely different from the rig sites geographically. The unrefined crude oil is mainly transported using two methods. The first option is tankers and the next is the pipelines. After the separation and extraction of oil from natural gas, it is transported via pipelines to another carrier or directly to a refinery. Then the refined petroleum products are transported to other parts of the country or the world by a tanker, railways, trucks, ships or sometimes even through more pipelines. Another important factor is that the midstream sector treats the product to remove water as well as other waste materials from it.

Modes of Transportation

Crude oil is transported from the site of drilling to refineries and markets using the modes of transportation provided below.

Oil Tankers

They carry oil and other similar materials in bulk like a cargo or a cargo residue. The various kinds of tankers available are:

• Oil tankers
• Parcel tankers or chemical vessels
• Combination carrier
• Barges

One concern everyone has about the safe transport of bulk liquid cargo using tank vessels is nothing other than the stress on the hull. This could lead to bending in the form of sagging, hogging and shear force.

LNG Tankers

The transportation of compressed natural gas using tankers is considered to be difficult because of the possibility of explosion due to high pressure. But because of the present scientific developments natural gas can be liquified at really low temperatures and hence be transported as liquified natural gas (LNG). LNG tanker is designed to have double hulls. This is to allow extra ballast as the LNG is lighter than water. It also provides additional safety features.

Pipelines

The word Pipelines can be used to refer to:

• Gathering systems: go from the wellhead to the processing facilities.
• Transmission lines: takes products from the supply areas to the market.
• Distribution lines: used to take LNG to medium and small consumers.

Pipelines are important because oil and some other petroleum products are mostly transported by pipelines at least for some part of their route. A good strategic plan is essential for determining and building the shortest and most cost-effective pipelines. The latest improvements in technology have contributed majorly to pipeline monitoring, efficiency and safety. Safe designing and construction are ensured by the standards set by the concerned authorities.

Barges

They are used mainly in rivers and canals for the transportation of petroleum. They require less infrastructure when compared to building pipelines but still cost more. Here the transportation volume is low and the time taken to load the cargo is longer.

Railway 

Railways are the traditional method for transporting petroleum products in old times. Today the pipelines give them a strong competition in this respect. They may be more expensive than the pipelines but the already existing rail lines are a huge help and acts as a flexible alternative route for the products when all the needed pipelines are at their full capacity. Petroleum products are transported to the market mainly by trucks and railroads.

Tugboats

The oil demand keeps increasing with every year passing. This necessitates deeper drilling in sites which are located further offshore. For transporting products from there, large tugboats are used.

Storage

The supply and demand inconsistencies can be solved to an extent using the storage of oil and natural gases. Companies tend to store these products more when their process is less than they like. Then they release the stock into the market when the prices are higher. The cheapest method to store is to use underground spaces like a depleted reservoir. This method is for natural gas and finished oil products cannot be stored in such a way because (underground natural spaces) due to guidelines. For all other storage purposes, ground tanks are used. In retail locations, the stock is stored underground to meet the safety regulations. Sometimes when the land storage is at its capacity, tanker ships are used for storage. But this is an expensive option.

Midstream Companies Example

Some companies put more focus on the midstream section of the three sectors of the oil and gas industry. Some of them are listed below.

• Hindustan Petroleum Corporation Limited
• Indian Oil Corporation
• Petronet LNG Limited
• Gail Limited
• Adani Enterprises Ltd

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Downstream Sector

In the petroleum sector, crude oil is transformed into a variety of useful products for use in industry, commerce, and homes, including heating oil, lubricants, kerosene, jet fuel, asphalt, gasoline, diesel, and LPG (liquefied Petroleum Gas). Refineries handle all of this. The downstream industry includes marketing and refining. The process of refining crude oil, which is nearly useless in its raw form, is complicated, but the result is simple: petroleum products that can be used for a range of applications, including home heating, automobile fuel, and the production of petrochemical plastics.

Refining involves a variety of steps based on the desired final result. While cracking splits molecules into smaller pieces to create gasoline and other lighter hydrocarbons, hydrotreating is used to remove undesirable components from hydrocarbons, such as nitrogen and sulphur. Plastics and synthetic rubber are two more goods made from the gasses released during cracking.

Refineries are often situated close to major cities to make final product marketing and distribution easier. Marketing is the process of distributing refined petroleum products to the general public, businesses, industries, and government agencies at both wholesale and retail prices. Because the closest market has fewer transportation costs and higher net revenue for the supplier, crude oil and petroleum products typically flow to markets that offer the supplier the most value. However, in actuality, the trade flow might not adhere to this pattern because of many elements like product demand mix, refining settings, and quality requirements.

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Downstream Companies Example

Some companies put more focus on the downstream section of the three sectors of the oil and gas industry. Some of them are listed below.

• Bharath Petroleum Corporation Limited
• Indian Oil Corporation Limited
• Hindustan Petroleum Corporation Limited
• Nayara energy limited
• Reliance industries limited

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