INTRODUCTION TO OIL AND GAS INDUSTRY
(UPSTREAM, MIDSTREAM & DOWNSTREAM)
As
we know the uses of Oil & Gas in Our Life there are Transportation Fuel
(gasoline, diesel fuel, jet/aviation fuel, marine fuel oil/MFO, natural gas
vehicle/NGV, high speed diesel/HSD), Power Plant Fuel (natural gas, compressed
natural gas/CNG, diesel fuel), Household Fuel (heating oil, liquefied petroleum
gas/LPG, kerosene), Petrochemical Products (plastic, fertilizer, synthetic
fiber, synthetic rubber, insecticides, pharmaceuticals, detergent, paints,
creams, solvent, industrial chemical, industrial gas, etc), Asphalt / bitumen
Oil & Gas in Our Life
Oil & Gas Early
History
Oil
& gas had been used for centuries like ancient peoples worshipped sacred
fires (eternal flame) fuelled by natural gas seeping to the surface through
pores and cracks. About 6000 BC, thick gummy asphalt was used to waterproof
boats and heat homes. About 3000 BC, the
Egyptians used asphalt in the construction of the pyramids, to grease axles of
the Pharaoh’s chariots, and as an embalming agent for mummies & medicines.
When whale oil (extracted from whale fat), the main source of lamp fuel in
early 1980, became scarce, a new source is introduced by distilling natural
petroleum seeps and coal into lamp oil / kerosene.
Modern Oil & Gas
Industry
The
First refinery begun in 1846 when Abraham Gessner of Nova Scotia, Canada,
invented a process to produce kerosene for lamp from coal. In 1858, James
Miller Williams , a 39 year old carriage maker from Ontario, Canada, made the
first major commercial oil discovery in North America at Oil Springs, Ontario,
Canada. He struck oil at a depth of only 18 m by drilling in "gum
beds" in Lambton County, 25 km southeast of Sarnia. Williams refined the
oil he produced and sold the product as lamp oil. In 1859, Colonel Edwin L.
Drake discovered oil in Titusville, Pennsylvania by drilling to 21 m. This
discovery marked the birth of the modern petroleum industry in the United
States. The invention of the gasoline
engine (1885) and diesel engine (1892) boosted the refineries industry to
produce gasoline and diesel fuel.
UPSTREAM
“The
upstream segment of oil and gas is also known as exploration and production, or
E&P, because it encompasses activities related to searching for,
recovering, and producing crude oil and natural gas.”
Finding,
lifting, and processing oil & gas from subsurface into surface and ready
for transportation. Also known as Exploration and Production (E&P).
Drill well
Upstream
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.
Exploration
Let’s
start with exploration which involves the operator obtaining a lease and
permission to explore and drill from the owner of onshore or offshore acreage
thought to contain oil or gas.
Then
the operator must conduct geological and geophysical surveys to select the
first well site to explore for, and hopefully find, economic accumulations of
oil or gas. This well is often called a “wildcat well.”
Oil and gas exploration
Drilling
Drilling
is physically creating the “borehole” in the ground that will eventually become
a productive oil or gas well. This work is typically done by rig contractors
and service companies in the Oilfield Services business sector. On a wellsite,
there can be as many as 30-40 different service contractors providing expertise
to the operator.
Wells
can be relatively simple or unbelievably complex. Wells can totally vertical
for miles or both deep and horizontal. There are also highly complex “J” and
“S” configured wells with numerous branches, or laterals,
emanating from the original, or “mother”, hole. These are called “deviated
wells.”
Drilling well
Production
Finally,
let’s discuss production, where reserves are “converted to cash” by maximizing
the recovery of hydrocarbons from subsurface reservoirs. Essentially,
production is efficiently bringing the hydrocarbons to the surface and treating
them as needed to make them marketable.
Surface Production Facilities
Oil & Gas Processing Facilities
Typical production phase
Typical
production phase start with ramp up period (increase production rate up to
peak, normally less than a year), then plateau (maintain peak for several
years, for oil production normally less than 5 years while for gas production
between 5to 10 years), then declining until reach economic limit (timing when
operating cost is higher than production revenue) or end of contractual period.
Plateau
& decline phase can be extended by applying secondary recovery (i.e. gas
injection & water injection) and tertiary recovery (i.e. chemical injection
& steam injection), however cost to benefit ratio must be carefully
calculated since secondary/tertiary recovery is more expensive than primary
recovery.
Unconventional of
Oil and Gas
Unconventional
resources are defined as any resource extracted, or produced, by any method
other than the traditional vertical or slightly deviated well.
The
three main sources of technological breakthroughs that have made unconventional
developments profitable include Horizontal drilling, Hydraulic fracturing,
Subsea engineering (especially deep water production).
Unconventional of Oil and Gas
MIDSTREAM
“Midstream
is the function of the oil and gas industry that provides the vital link
between producing areas and the population centers where industrial, refining,
and residential customers are located.”
Midstream
is the function of the oil and gas industry that provides the vital link
between producing areas and the population centers where industrial, refining,
and residential customers are located. Field gathering, processing plants and
transmission pipelines are the major assets in the midstream industry.
Transportation assets include marine vessels, railroads and trucks. Storage
assets exist throughout the chain.
Four
major operating components of Midstream
1. Gathering
The
first step in the midstream process is field gathering. Oil and natural gas
production comes from thousands of wells.
Oil is moved through a “spiderweb” of smalldiameter pipelines to a
central location. Here, a tank volume large enough to efficiently be sent to a
refinery by truck, pipeline, barge or rail is gathered. Natural gas is a little different. Unlike
crude oil, it cannot be stored at or near the well. A series of smaller
diameter pipelines moves it to a central treating or processing facility to
remove water and impurities and separate out the NGLs.
Gathering
2. Processing -
Fractionation
Field
processing requires surface units that are designed and installed to:
- Measure the production rate of the oil, gas, and water from the reservoir
- Separate the oil and gas from the wastewater
- Remove any impurities
- Temporarily store the crude or gas until it is ready to be moved.
3. Transportation
After
field processing, treated oil and natural gas is delivered via a huge and
complex transportation, pipeline transmission and distribution infrastructure.
In the US, there are hundreds of thousands of miles of natural gas, crude oil
and liquids pipelines. Natural gas, which flows at much higher pressure than
crude oil, is most often transported in large diameter inter and intrastate
regulated pipelines.
LNG
is natural gas that has been converted to a liquid for easier transport or
storage. This occurs when the gas is cooled to approximately -162 degrees
Celsius, or -260 degrees Fahrenheit. Large LNG vessels are used to transport
natural gas for international shipments.To transport crude oil, pipelines are
also the safest and most efficient shipment method. However, truck and rail are
more flexible in terms of timing and being able to ship to alternative and
multiple destinations.
4. Storage
Storage
for crude oil and refined products is pretty straight forward. Methods include field
tank batteries, product bulk terminals, refinery tanks and holding tanks. Natural
gas is different. Because of its large volumes and high pressure, natural gas
is generally stored underground until it is ready to be transported to market.
Depleted gas reservoirs, salt caverns and aquifers are common storage
facilities.
Oil Transportation –
Onshore
Since
most of the oil & gas field is located far from the civilization, it is
crucial to deliver the crude oil & natural gas to increase its value. Initially,
produced oil is stored inside wooden
barrel which then delivered by using horse carriage. It is the beginning
of using “barrel” as oil volume measurement unit (1 barrel = 42 US gallon = 159
liter) . After invention of gasoline & diesel engine, horse carriage is
replaced by truck & train.
Once
the volume getting bigger and the distance getting further, barrel method
become uneconomic and pipeline was introduced. Pipeline is a long connected
pipe to transfer liquid/gas. Pipeline characteristic is mainly defined by
diameter, length, material, and thickness.
Oil Transportation – Onshore
Oil Transportation –
Offshore
Normally,
offshore pipeline laid on the seabed used to convey oil from offshore platform
to onshore facility. However, if the distance is too far or the volume is too
low, transporting liquid via pipeline can be technically and economically
challenging. In this case, oil will be stored offshore (by using FPSO, FSO, or
subsea storage) and then transported by using oil tanker.
Oil Transportation – Offshore
Gas Transportation
Initially,
gas is considered by-product which is only disposed by burning or commonly
known as flaring. Only after gas can be monetized / sold (petrochemical plant,
power plant), gas transportation is required. Since natural gas cannot be
stored easily like liquid, produced gas has to be delivered soon after
processed by using pipeline, either onshore or offshore. However, if the
distance is too far and the volume is too big, pipelines become un-economical.
In this case, gas has to be transformed into liquid phase by condensing it up
to -162o C in atmospheric temperature to reduce its volume by 600 times, which
is known as Liquefied Natural Gas (LNG). LNG can be transported in a specially
designed cryogenic tank attached to vessel (known as LNG tanker) or truck.
LNG process
Floating LNG (FLNG)
DOWNSTREAM
Refining
A
portion of the industry that is responsible for the refining, distributing, and
retail of petroleum products, sometimes also called Refining & Marketing
(R&M). Refining means process the raw materials (crude oil & natural
gas) into higher value product, either final product (ready to consume like LPG
for home cooking) or intermediate product (raw material for further processing
like ammonia for fertilizer). Downstream plants include oil refineries and
petrochemical plants.
Oil Refinery
Crude
oils are not uniform, but rather are mixtures of thousands of different
compounds called hydrocarbons. Each component of each compound has its own
size, weight and boiling temperature. Crude oils have low value if not
processed/refined. Petroleum refining is a physical and chemical process to
transform crude oils into useful products. First, crude oils are washed in a
desalter and then heated. Next, they
enter the crude fractioner (tall vertical column) which separate the oil
components based on each component’s boiling point without chemical reaction.
From crude fractioner, crude components are further processed, sometimes
involving chemical reaction, to create higher value products.
Simplified Oil Refinery Diagram
Petrochemical
Petrochemical
is a chemical product derived from petroleum. Primary petrochemical are divided
into 3 groups based on their chemical structures :
- Olefins includes ethylene (C2H4), propylene (C3H6), and butadiene (C4H6). Ethylene and propylene are important sources of industry chemicals and plastic products. Butadiene is used in making synthetic rubber. Olefin is produced by fluid catalytic cracking of petroleum fraction or steam cracking of natural gas liquid.
- Aromatics includes benzene (C6H6), toluene (C7H8), and xylenes (C8H10) or BTX. Benzene is a raw material for dyes and synthetic detergents. Benzene and toluene is used in making polyurethanes. Xylenes is used to produce plastics and synthetic fibers. Aromatics are produced by catalytic reforming of naphtha.
- Synthesis gas is a mixture of carbon monoxide (CO) and hydrogen (H2) used to make ammonia and methanol. Ammonia is used to make the fertilizer urea and methanol is used as a solvent and chemical intermediate.
Petrochemical Simplified Diagram
Fluid
Catalytic Cracking is a chemical process using liquid catalyst to create new,
smaller molecules from larger molecules (cracking) to make gasoline and distillate
fuels. Steam Cracking is a chemical process using steam to thermally cracked
the feedstock into lighter hydrocarbon.
Marketing
Downstream
consumers includes commercial and retail consumers. Commercial consumers
includes petrochemical & industrial manufacturers, utilities (especially
power plant), transportation fleets (airlines, trucks, vessels), and
municipalities. Downstream industry may also only involve in distribution and
sales of petroleum product, either to commercial or retail consumer, without
having any plant.
Downstream
product pricing, especially mass product like gasoline, highly depends on oil
price. However, specialized product like racing lubricant is less sensitive to
oil price.
Downstream product
References:
- Aryanto R., Puput, 2017, Introduction to Oil and Gas Industry Upstream Midstream Downstream, slide share presentation
- EKT Interactive, Inc., 2017, Introduction to Upstream, Oil 101 series, Book 1
- EKT Interactive, Inc., 2017, Introduction to Midstream, Oil 101 series, Book 2
- EKT Interactive, Inc., 2017, Introduction to Downstream, Oil 101 series, Book 3
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