The oil and gas industry shouldn’t be thought of as a monolith. The needs and ways that each sector operates is different. Dividing the industry into upstream, midstream, and downstream more adequately captures the unique needs and behavior of each sector.
The upstream sector of the oil and gas industry involves the exploration and production (E&P) of crude oil and natural gas.
Operations include determining where to drill, how deep to drill, and the design and construction of the well site. The well must be operated and managed to deliver the best return on investment while maintaining safety and leaving the smallest footprint.
The right to drill involves leasing the acreage from the land or mineral owners and conducting the necessary reviews and interpretations of geological and geophysical data.
Drilling the well is done by rig contractors who create the “borehole” in the ground. The rig contractor is supported by several oilfield service companies that all perform the necessary functions to successfully drill and complete the well.
Producing the well includes recovering oil and/or gas using primary, secondary and tertiary oil recovery methods to maximize the oil and/or natural gas produced from the well. Once the well reaches the end of its productive life, it will be plugged and abandoned. This can be anywhere from a few years after the well is drilled to decades later.
The midstream oil and gas sector involves activities that occur between the upstream and downstream sectors of the oil and gas industry. These include processing, storage, and transportation of crude oil and natural gas.
Because oil and gas reserves are not located in the same geographic location as refining and consumption regions, they must be transported. This is done by pipeline, rail, barge, an oil tanker, or truck. The midstream segment is considered to be a low-risk, regulated part of the industry.
The downstream sector involves crude oil refining, raw gas processing, and the distribution and sales of these refined products to the end-user. The downstream sector reaches consumers through sales of fuel products such as gasoline, diesel, jet fuel, heating oil, natural gas, and liquefied petroleum gas (LPG). There are also thousands of products made from oil and gas petrochemicals that most people use on an everyday basis. Some other products most are not as familiar with are lubricants, synthetic rubbers, plastics, fertilizers, and pesticides.