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Understanding Oil and Gas Production
Upstream and downstream oil and gas production refers to an oil or gas company’s location in the supply chain. Companies in the oil and gas industry are defined as upstream, downstream, or midstream. Some companies are considered “integrated” because they combine the functions of two or three of these streams.
Key Takeaways
- Upstream and downstream oil and gas production refers to an oil or gas company’s location in the supply chain.
- Upstream oil and gas production includes identifying, extracting, or producing materials.
- Downstream oil and gas production includes the post-production of crude oil and natural gas activities.
- Midstream operations link upstream and downstream and include transportation and storage services.
Upstream Oil and Gas Production
Upstream oil and gas production is conducted by companies that identify, extract, or produce materials. These exploration and production companies identify deposits, drill wells, and recover raw materials from underground. This sector includes related services such as rig operations, feasibility studies, machinery rental, and extraction of chemical supply.
Those employed in the upstream industry include geologists, geophysicists, service rig operators, engineering firms, scientists, and seismic and drilling contractors. China National Offshore Oil Corporation and Schlumberger (SLB) are examples of large companies that focus on upstream services. Upstream operators are major diversified oil and gas firms, such as Exxon-Mobil (XOM).
Downstream Oil and Gas Production
Downstream oil and gas production companies are close to the end-user or consumer, and operations begin after the production phase and continue to the point of sale.Companies engaged in the downstream process include oil refineries, petroleum product distributors, petrochemical plants, natural gas distributors, and retail outlets.
This sector includes those who bring usable products to end-users. Companies engage in the marketing and distribution of diesel, natural gas, gasoline, heating oil, lubricants, pesticides, pharmaceuticals, and propane. Examples of downstream companies include leading U.S. refiners Marathon Petroleum (MPC) and Phillips 66 (PSX).
Important
Midstream oil operations link upstream and downstream entities and include resource transportation and storage services for resources, such as pipelines and gathering systems.
What Is OPEC?
Most crude oil production and upstream operations are controlled by national oil companies, which include OPEC. OPEC is an intergovernmental organization of 12 oil-exporting nations that coordinate the petroleum policies of its members.
What Is Midstream in Oil and Gas?
Between the upstream and downstream operations, midstream activities include storage, processing, and transportation of petroleum products.
What Is an Integrated Oil and Gas Company?
Integrated oil and gas companies operate in multiple streams. They may have drilling operations, refineries, and license gas stations to franchisees. Some of the largest and most influential energy companies are integrated companies, such as Shell, Chevron, ExxonMobil, and BP.
The Bottom Line
Upstream and downstream oil and gas production defines an oil or gas company’s location in the supply chain. Upstream operations include identifying, extracting, or producing materials. Downstream operations include the post-production of crude oil and natural gas, bringing products to consumers. Companies that provide transportation and storage services for oil and gas products are considered midstream operators.
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