The Upstream and Downstream Oil and Gas Industries

One of the primary challenges faced by oil and gas companies is adapting to an energy transition. By communicating their contribution as allies rather than adversaries, companies will increase their chances of survival in this rapidly changing industry.

Upstream activities encompass activities from production through storage of natural gas. Storage typically occurs in salt caverns or depleted gas reservoirs.

Upstream

The upstream oil and gas industry focuses on finding, extracting, and producing crude oil. It includes service providers such as engineering and scientific firms, rig operators, equipment manufacturers, and companies that conduct geophysical surveys and acquire mineral rights to drilling sites.

Upstream activities encompass exploration, which typically involves conducting geological surveys to locate potential petroleum reserves. Once found, companies must then secure all required permits and leases before drilling a well to discover crude oil or natural gas in the ground using either wildcat wells or discovery wells; then use primary, secondary, and tertiary recovery methods to extract hydrocarbons from reservoirs.

Once the upstream sector has extracted and recovered crude oil and natural gas resources, they must then be transported to significant consumption areas by way of pipelines, trucks, and tanker ships. Furthermore, storage and distribution may also occur within this sector.

Some large oil and gas companies operate across all three segments of the industry – known as integrated companies – while other oil and gas firms specialize in only one of them.

The downstream oil and gas supply chain represents the final step in turning raw crude oil into products we use every day. It consists of petroleum product distributors, natural gas distributors, oil refineries, and petrochemical plants – each acting as its own distributor in this chain. Consumers around the globe use products manufactured in the downstream sector. End users include automotive companies, airlines, energy-based industrial firms, and households. Companies operating in the downstream segment of the oil business may sell their products directly to consumers or wholesale or retail companies that distribute on behalf of the company or manufacture their own. Due to its complex global supply chain structure and inherent volatility, investing in this industry can be risky.

Midstream

Midstream oil industry processes take crude oil and natural gas retrieved by upstream stages and transform them into consumer goods such as fuel (such as petrol or diesel), lubricants, heating oils, asphalt, and waxes used daily in everyday products.

Midstream companies specialize in processing raw material extracted from the earth and then transporting it to end users using specific infrastructure such as pipelines, trucks, rail tankers, and transcontinental tankers. They provide storage and balancing services as well as supply-demand management to manage fluctuations in supply-and-demand fluctuations within markets; some even maintain strategic petroleum reserves (SPRs) to safeguard energy security in emergencies or shortages in supply.

As this industry is hazardous, employees working in its midstream phase are subject to intensive safety training. Furthermore, companies operating in this sector must adhere to stringent environmental impact and operational efficiency regulations; carbon dioxide and hydrogen sulfide monitors are integral tools in gas processing facilities to ensure safe working conditions; employees in this sector should attend periodic refresher courses so they are up-to-date on new technology and safety standards.

Though challenging, this industry offers lucrative opportunities. The global demand for petroleum continues to increase rapidly, and thus, the number of jobs within this field will likely expand as time goes on.

Innovation and technology should play a central role in achieving success in this sector. This is especially relevant in pipeline operations, which must withstand high temperatures and pressures, so companies such as Sourcrude are adopting cutting-edge solutions such as automation and artificial intelligence into their operations to boost efficiency while cutting costs; this enables them to predict maintenance needs more accurately while improving reliability, while at the same time giving maintenance crews better data from which they can identify weak points that need fixing before becoming catastrophic issues.

Downstream

The downstream oil and gas industry consists of equipment, facilities, and systems used to refine, trade, and distribute petroleum products directly to end users. Basically, this area of business involves transporting and delivering gasoline or heating oil products now to users – as well as natural gas transportation, storage, and refining processes.

Companies operating in the downstream sector provide direct consumer access. Their products, which include gasoline, diesel fuel, jet fuel, and heating oil, are well-known among their target audiences and may be sold either through wholesalers or directly to end consumers.

Comparable to upstream and midstream operations, downstream operations require less capital investment and are generally considered low risk. This is because oil and gas prices are tied directly to global demand for petroleum and natural gas resources, and it makes forecasting and planning more straightforward.

While upstream and midstream oil and gas sectors can be considered high-risk/high-reward industries, downstream operations tend to be commodity businesses that require targeted investments to maximize margins. Although downstream operations play an integral part in society and the economy alike, they do pose unique risks.

Like its upstream and midstream counterparts, the downstream segment of the industry can be broken into various subsectors that specialize in specific tasks – for instance, processing, transporting, and marketing petroleum-related products such as gasoline, petrochemicals, and chemicals before selling these through service stations, dealers and jobber distributors to reach the market.

Transportation services provide transport of crude oil between processing plants and its final destination via pipelines or railways, then loaded onto ships to be distributed directly to consumers or stored at bulk terminals for later use.

Supply Chain

Supply chain activities in the oil business span from crude oil storage facilities to fuel distribution in gas stations nationwide, with natural gas distribution to both residential and commercial consumers primarily. Their ultimate objective is to ecologically produce affordable energy while simultaneously supporting operational success for their business license.

Supply chain management requires strong safeguards against cost inflation and supply risks, so to combat rising costs, companies must reexamine how they do business and align strategic direction across their organization rather than siloed areas. By doing so, they could potentially lower operating and capital costs, stabilize lead times, protect margins, and create a reliable supply base.

Upstream and midstream sectors of the oil industry rely heavily on their supply chain partners to meet their needs. These providers must supply services, equipment, and materials necessary for job completion as well as use advanced technologies like cloud, IoT, and team collaboration digital solutions to optimize warehouse inventory strategies, manage risks effectively, monitor transportation logistics, and ensure smooth supply chains.

Oil & gas companies are facing increasing difficulties with their supply chains, including high levels of uncertainty around labor and material supplies due to cost increases, shortages of critical raw materials, and staff absence rates as workers seek better wages and working conditions elsewhere in the industry.

To address this, the oil industry employs various supply chain management strategies, including standardizing contracts and instituting an effective supplier onboarding process, while using data analysis to create predictive models and analyze inflation risk by category. This enables them to assess their exposure and assess its impact on profit margins, and identify any repercussions for profitability.

Customer-centric approaches to the three strategic questions of “when, where, and how” are central to the success of any oil business. It allows players to enter markets when demand is highest, invest capital into projects that best match customer requirements, and define an operating model necessary for meeting desired outcomes of projects – all while supporting initiatives to reduce carbon emissions and meet public sustainability commitments.