The Three Oil and Gas Energy Markets: What Is Midstream?February 1, 2013
The oil industry is commonly categorized and identified by the three energy markets of upstream, midstream and downstream. The first phase of the industry involves locating oil fields, while the last phase involves serving up a wide variety of finished, high quality and fully processed products to consumers. Along the way there are quite a few integral steps. The upstream part of the industry involves the first phase of finding and drilling oil, the midstream phase involves shipping and storing the oil, and the downstream phase involves refining and distributing the processed oil-based products. In this article we will discuss that all important middle step: the midstream sector. For clarity it is also important to note that some systems of classification use only the upstream and downstream sectors as their model. In systems such as this, the parts of the process traditionally considered to belong to the midstream sector are instead classified with the downstream sector. For the purposes of this piece, however, we will assume a three system model with the midstream sector as a separate, individual entity. In its simplest terms the midstream industry can be described as the part of the process which involves the shipping and storage of the oil. Midstream is all about taking the crude oil retrieved in the upstream sector and getting it to the downstream processing facilities so that it can be turned into the various finished products in consumers' daily lives. This may seem simple enough; however, there are quite a few logistical hurdles involved in this process which the midstream must successfully navigate. Let’s take a look at an overview of how the oil is transported.
PipelinePiping, or the pipeline, represents the most common way that the oil begins the process of being transported and distributed. To accomplish this, vast networks of pipelines need to be constructed and maintained. There are many potential obstacles involved in the piping of oil because it typically needs to travel long distances. Some of the most common hurdles include: Compressor Stations/Pump Stations - Getting the oil and gas to travel the long distances to the downstream refinery locations requires extreme amounts of compression. Even with high amounts of pressure the pipeline routes need compression/pump stations at intervals to keep the flow moving. Geopolitical - Since the oil does travel so far it is not at all uncommon for it to travel through multiple countries. Thus building and maintaining the pipeline will require successfully navigating these political waters, getting the right permits and other paperwork done, keeping the pipeline in compliance with local regulations, and negotiating taxes. In addition to these potential complications, other standard logistical issues will arise that typically occur when a company needs to operate in a foreign country. For instance the company will need to pay for travel expenses and other accommodations for key personnel which will be traveling to the foreign country, or it will need to figure out a successful strategy of employing local workers, or a hybrid approach. Terrain - The pipeline will need to travel across a wide variety of different terrains. For instance it may begin its journey on flatlands, but need to travel across mountainous regions, through deserts, swamps, or frozen land. This wide variety of different terrain types will require unique considerations with regard to the pipeline’s construction and maintenance. Maintenance - As mentioned above, the challenge of maintaining the pipeline is one of the most crucial aspects of piping. It is imperative to prevent the pipes from cracking or bursting because not only would such an accident be extremely expensive, it would also be devastating to the environment, and could also cause significant problems in terms of supply and demand. As stated the nature of geopolitical affairs and terrain conditions may make proper maintenance even more complicated.
Secondary LogisticsAfter the initial pipeline transfer of the oil, additional transportation and storage may be necessary before the oil is ready to be processed and distributed in the downstream sector of the industry. This additional transportation may take several different forms such as: Trucking - The oil may be trucked over highways and roads to various facilities and processing plants. One advantage of trucking is that it allows the oil to travel to nearly any destination even if there is not a port or rail line nearby. Barge - Often the oil will be transported by barge or other seafaring vessel. This can be a very time consuming process, but it is the most efficient way for the oil to travel over oceans and other large bodies of water. Rail - Oil is often transferred over land by rail providing a cost effective and efficient option of transporting a large amount of oil quickly. Due to the highly varied ways in which the oil is transported as well as the many different challenges it faces during its journey, there are quite a few different business sectors involved in the midstream phase. The companies provide the services and materials which make the midstream transportation and storage possible. While this list is certainly not exhaustive, a few of the major ones include:
- Pipeline Developers
- Rail Providers (including Big Rail and Shortline)
- Rail Car Suppliers
- Trucking Companies
- Barge Companies
- Terminal Developers and Operators
- Transloading Providers
- Gathering and Processing Companies
- Logistics Companies
- Technology Providers