The Three Oil and Gas Energy Markets: What Is Upstream?

The Three Oil and Gas Energy Markets: What Is Upstream?

The oil industry is a massive, multi-faceted environment that spans a number of different processes and occupations. Because it is so complex and encompasses so much, it is divided into three distinct sections based on the steps from drilling to refinement. These three distinct subdivisions of the oil industry are: Upstream, Midstream, and Downstream. In this brief post we will touch on that first category, upstream. We will discuss what upstream is, why it matters, and what kinds of processes are undertaken in this portion of the oil refinement process.

As you may have guessed from the categories mentioned above, upstream is the first chronological step in the oil industry. Thus, it is the upstream aspects of the oil process which occur first and must set a strong, early foundation for everything that will follow. Upstream can be broken into many components, but the main ones we’ll touch on are: searching out and selecting potential oil sites, evaluation of these sites, drilling exploratory wells, and operating these wells to extract crude oil.

Searching for Potential Oil and Gas Fields

The first step in the entire process is to search for suitable locations which might contain oil beneath the Earth’s surface. This is one of the most crucial aspects of the entire process because it provides the crude for the midstream and downstream divisions. Potential sites are typically selected with the help of geologists. Often these geologists are employed directly within the oil drilling company or by an independent firm.

These geologists use a number of highly advanced tools to help them in their pursuit of finding potential oil fields. These tools include:

Satellite Images – Help geologists examine surrounding rocks and terrain.

Gravity Meters – Measure minute changes in the Earth’s gravitational field, which may be indicative of the presence of oil.

Magnetometers – Measure minute changes in the Earth’s magnetic field, another indicator of the possibility of oil.

Sniffers – Highly sensitive devices which can detect the presence of hydrocarbons.

Compressed-Air Guns – Shoot pulses of air into water to conduct seismic surveys.

Thumper Trucks – Slams heavy plates onto the ground to conduct seismic surveys over land.

Explosives – Explosives are used on both land and in water to create the shock waves necessary to conduct the seismic surveys.

Hydrophones – Pick up vibrations over water.

Seismometers – Pick up vibrations over land.

Drilling Exploratory Wells

Exploratory Drilling RigOnce geologists have found a promising site for an oil well the next big step is to drill exploratory wells to find out if there is actually oil present. They also have to consider if it is present in a sufficient quantity and if the quality warrants a permanent well. This stage of the process represents a significant financial risk to the oil company because exploratory drilling is expensive and there is no guarantee that there will be a return on investment.

Often multiple exploratory wells are dug in the area so that they can provide geologists with a more complete core sample. These core samples supply the scientists with the final information they need to make their decision about the quality of site. If the potential site proves to be unsuccessful or unprofitable then the well will typically be plugged up and abandoned.

Often times the exploratory drilling must be done in underwater conditions. This makes the task more challenging, expensive, and time consuming. The step of exploratory drilling cannot be skipped because without actually digging down and collecting physical samples, even the most advanced seismic surveys yield incomplete or potentially false information.

Drilling and Operating Wells for Crude Oil

The final big stage in the upstream segment of the oil industry is the drilling and operating of wells that are producing crude oil. One of the main criteria that separates the upstream category from the midstream category is the nature of the oil it produces. By definition upstream must involve unrefined, crude oil, or the initial seeking out of such oil as described above.

Flex Drilling RigOnce a long-term well is set up, it may continue to produce crude oil for many years, typically between ten and twenty years. In addition to this, advancements are constantly being made to improve the efficacy of oil rigs, allowing even more oil to be successfully extracted from the field. In the cases of marine oil fields it is not uncommon for dry wells to to be used again as shipping and storage hubs for other sea-based wells. However, in addition to a lack of processing and refinement, one of the things that sets upstream apart from midstream is that storage and shipping do not take place in upstream. Therefore an oil platform that had originally been set up for the production of crude oil but was now being used as a shipping and storage hub, would be beginning to transition into the midstream phase of production.

Upstream Fuels the Midstream and Downstream Processes

As you can imagine, the boundaries between upstream, midstream, and downstream can become blurred and not clearly defined. These process categories are fairly generic terms and are simply used as classifications to discuss each phase separately. Many oil companies feature a vertically integrated approach to upstream, midstream, and downstream making overlap common.

However, the final takeaway message about the upstream segment of the oil industry is that it comprises the essential first step in the entire extraction to refining process. Without a good strong foundation in the upstream segment of the industry, there wouldn’t be any oil or there would be insufficient amounts of oil for the rest of the industry to utilize. This in turn would adversely affect consumers who depend on oil-based products for a vast range of products, fuel, and energy.

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