365 Days of Climate Awareness 87 – Upstream, Midstream and Downstream Oil Production

The oil industry is divided into three segments: upstream, or exploration and production (E&P); midstream, or transportation and refining; and downstream, marketing to customers. Globally state-owned companies control more than 75% of production, making oil and gas two of the main geopolitical tools on the planet.

Early production, until the early 20^th century, focused on easily accessible reserves on land, generally with surface expressions like anticlines (hills which denote a convex upward fold in the bedrock, often indicative of trapped hydrocarbons beneath). Geological science slowly took over the prospecting business in the early-to-mid 20^th century, and the world’s major oil fields (such as Ghawar in Saudi Arabia) came into production. By the 60’s discovery—the finding of fresh oil fields—was beginning to decline, and the search for oil moved from “conventional”, onshore sites, to “unconventional”—offshore oil, and more exotic extraction methods such as “fracking”, where high-pressure chemicals and steam are injected into oil- and gas-rich bedrock, fracturing it and allowing the hydrocarbons to flow. Another is the mining of heavy oil—asphalt-rich hydrocarbons—from sand deposits. This energy-and water-intensive method has been pursued aggressively in western Canada.

Midstream refers to the transportation, usually via pipeline or tanker, and marketing of oil. About 56 million barrels of oil, a little over 60% of the planet’s daily consumption, is shipped on the ocean. Oil tankers daily pass through chokepoints—narrow passages which constrict ship traffic—all over the world such as the Straits of Hormuz, the Malacca Strait, and the Bosporus. Pipelines are used extensively around the world, such as the well-known Trans-Alaska Pipeline connecting the production fields in the northern part of the state to the shipping terminal in Valdez. Other, less famous lines deliver produced oil to storage facilities, such as Cushing, Oklahoma, for later distribution to the downstream sector.

Global trading of oil is very much market based. Trade organizations such as the immensely powerful OPEC—the Organization of Petroleum Exporting Countries, including Saudi Arabia, Iraq, Iran, Venezuela, Brazil, Nigeria and others—tries to set national quotas in the effort to control global price. (All OPEC nations have nationalized oil production companies.) OPEC’s global power was unquestioned in the 1970’s, but  with time has become limited, as shown with stark clarity in 2014-18, when prices collapsed and the OPEC nations were unwilling to rein in production to create scarcity.

Downstream operations include refining and wholesale delivery to industrial consumers and retail sales to end users. Oil is refined into “fractions”, or chemical species based on density and other chemical properties. Typical fractions are propane, gasoline, diesel fuel, jet fuel, naphtha, and lubricant oil. Refineries generally are engineered specifically for a certain type of crude, limiting the fields from which they can accept deliveries. A refinery set up to process light, sweet crude (from Louisiana, for example) will not be able to handle the heavy, sour crude from Iran (sulfur, potentially producing the poisonous gas H₂S, requires specific treatment methods).

Though considered “downstream” within the oil industry, refined oil and natural gas products serve as feedstock for chemical and plastics manufacturers around the world, as well fuel and lubricant for end uses in cars, airplanes, ships and other machinery.

Tomorrow: peak oil.

Be brave, and be well.