Oil 101 - What is Midstream?
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Oil 101 - A Free Introduction to Oil and Gas What is Midstream Oil and Gas? As its name implies, the midstream oil and gas segment encompasses facilities and processes that sit between the upstream and downstream segments. Activities can include processing, storage and transportation of crude oil and natural gas. In most cases, oil and gas reserves are not located in the same geographic location as refining assets and major consumption regions. Transportation is a big part of midstream activities and can include using pipelines, trucking fleets, tanker ships, and rail cars.
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Oil 101 - What is Midstream?
- 2. EKTINTERACTIVE.COM MIDSTREAM This Midstream overview includes: Midstream Business Characteristics Midstream Participants Gathering Processing – The Next Step in Adding Value Transportation Storage
- 4. EKTINTERACTIVE.COM What is Midstream? Midstream provides the vital link between producing areas and population centers.
- 5. EKTINTERACTIVE.COM Midstream Assets Field gathering, processing plants and transmission pipelines are the major assets in the midstream industry.
- 6. EKTINTERACTIVE.COM Transportation Assets Transportation assets include marine vessels, railroads and trucks. Storage assets exist throughout the chain. Marine Vessels Railroads Trucking Fleets Storage Units
- 7. EKTINTERACTIVE.COM Midstream Investment With the commercial success of US oil and gas shale plays, the Midstream business segment has taken on new importance. A 2014 study forecasted the need for over $640 billion of investment in the next 20 years to leverage US crude and natural gas shale supplies.
- 8. EKTINTERACTIVE.COM Midstream Business Characteristics A Low Risk Business Contains Regulated Components Depends on Health of Upstream Market Prices Affect Demand
- 9. EKTINTERACTIVE.COM Low Risk The business of moving oil and gas around is considered very low capital risk. Historically in most integrated oil companies, the midstream segment was considered a small part of upstream and downstream operations.
- 10. EKTINTERACTIVE.COM Highly Regulated Interstate transmission pipelines, and subsequent state and local gas distribution rates, are highly regulated in the US by the Federal Energy Regulatory Commission (or FERC).
- 11. EKTINTERACTIVE.COM Stuck in the Middle Midstream is literally ‘Stuck in the Middle’. It depends on both healthy upstream supply, and strong consumer demand.
- 12. EKTINTERACTIVE.COM Reliant on Supply Without a steady supply of oil and gas, there is nothing to process, transport and store.
- 13. EKTINTERACTIVE.COM Stuck in the Middle - Demand On the other hand, without demand from downstream commercial, industrial and retail consumers, the need to bring these supplies to market is diminished. IndustrialCommercial Retail
- 14. EKTINTERACTIVE.COM Join now for access to free eBooks, members only forums, and a growing body of digital learning content. Free eBooks include: History of Oil Upstream Fundamentals Midstream Fundamentals Downstream Fundamentals Business Processes/Risk Management Industry Trends Learn More!
- 15. EKTINTERACTIVE.COM Who are the Players?
- 16. EKTINTERACTIVE.COM US - MLPs With the growth in the MLP structure in the US, you’ll notice that the large Midstream companies aren’t the familiar oil companies.
- 17. EKTINTERACTIVE.COM Global Globally, one of the largest operators of pipelines is OAO Transneft, the Russian state- owned transport monopoly.
- 18. EKTINTERACTIVE.COM Four Major Midstream Operating Components
- 19. EKTINTERACTIVE.COM Gathering The first step in the midstream process is field gathering. Oil and natural gas production comes from thousands of wells.
- 20. EKTINTERACTIVE.COM Gathering – Crude Oil Oil is moved through a “spiderweb” of small-diameter pipelines to a central location. Here, a tank volume large enough to efficiently be sent to a refinery by truck, pipeline, barge or rail is gathered.
- 21. EKTINTERACTIVE.COM Gathering - Natural Gas Unlike crude oil, natural gas cannot be stored at or near the well. A series of smaller diameter pipelines moves it to a central treating or processing facility to remove water and impurities and separate out the NGLs.
- 22. EKTINTERACTIVE.COM Field processing requires surface units that are designed and installed to: Field Processing • Measure the production rate of the oil, gas, and water from the reservoir • Separate the oil and gas from the wastewater • Remove any impurities • Temporarily store the crude or gas until it is ready to be moved
- 23. EKTINTERACTIVE.COM Fractionation Fractionation plants separate the high-valued natural gas liquids, or NGLs, from natural gas production. These NGLs are used as blend components in refineries and as feedstock in the manufacture of petrochemicals.
- 24. EKTINTERACTIVE.COM Transportation After field processing, treated oil and natural gas is delivered via a huge and complex transportation, pipeline transmission and distribution infrastructure.
- 25. EKTINTERACTIVE.COM Transportation - Pipelines In the US, there are hundreds of thousands of miles of natural gas, crude oil and liquids pipelines.
- 26. EKTINTERACTIVE.COM Transportation - Pipelines Natural gas, which flows at much higher pressure than crude oil, is most often transported in large diameter inter and intrastate regulated pipelines.
- 27. EKTINTERACTIVE.COM Transportation Natural Gas - LNG LNG is natural gas that has been converted to a liquid for easier transport and storage.
- 28. EKTINTERACTIVE.COM This occurs when the gas is cooled to approximately -162 degrees Celsius, or -260 degrees Fahrenheit. Large LNG vessels are used to transport natural gas for international shipments.
- 29. EKTINTERACTIVE.COM Transportation - Oil To transport crude oil, pipelines are also the safest and most efficient shipment method. However, truck and rail are more flexible in terms of timing and being able to ship to alternative and multiple destinations.
- 30. EKTINTERACTIVE.COM Crude By Rail Today in the US, the importance of rail cannot be underestimated. Most US shale oil plays do not have access to the existing pipelines. There is very little infrastructure in oil plays such as the Bakken, in North Dakota. Therefore, over 75% of the 1 million barrels a day of Bakken production is moved by rail.
- 31. EKTINTERACTIVE.COM Storage - Oil Storage for crude oil and refined products is pretty straight forward. Methods include field tank batteries, product bulk terminals, refinery tanks and holding tanks.
- 32. EKTINTERACTIVE.COM Storage - Natural Gas Because of its large volumes and high pressure, natural gas is generally stored underground until it is ready to be transported to market. Depleted gas reservoirs, salt caverns and aquifers are common storage facilities.
- 33. EKTINTERACTIVE.COM There's More? This Midstream material was taken from our Oil 101: Introduction to Oil and Gas course.
- 34. EKTINTERACTIVE.COM EKT Interactive staff have provided oil and gas training since 1986. Visit us at www.ektinteractive.com to learn more. Who are we?
Editor's Notes
- Hi, and welcome to Oil 101, the podcast. My name is Doug Stetzer and I’m content and community manager for EKT Interactive. Today we will be discussing the Midstream segment of the oil and gas industry. This content was developed by industry experts with decades of experience. For more information about our free Oil 101 content, visit www.ektinteractive.com.
- This Midstream overview includes segments on business characteristics key participants, and discussions on the main functions of midstream of gathering, processing, transportation, and storage of crude oil and natural gas. We’ll also be highlighting some of the differences between oil and natural gas at this phase.
- So, What is Midstream?
- Midstream is the function of the oil and gas industry that provides the vital link between producing areas and the population centers where industrial, refining, and residential customers are located.
- Field gathering, processing plants and transmission pipelines are the major assets in the midstream industry.
- Transportation assets include marine vessels, railroads and trucks. Storage assets exist throughout the chain.
- With the commercial success of US oil and gas shale plays, the Midstream business segment has taken on new importance. A 2014 study forecasted the need for over $640 billion of investment in the next 20 years to leverage US crude and natural gas shale supplies. So be sure to stay tuned to developments and opportunities in this major part of the oil and gas industry.
- The four key characteristics of the midstream segment is that it is generally low risk, it is highly regulated - especially pipeline components, asset investments are dependent on the health of the upstream, and oil and gas prices affect demand.
- The business of moving oil and gas around is considered very low capital risk. Historically in most integrated oil companies, the midstream segment was considered a small part of upstream and downstream operations. It wasn’t until the 1980s that US companies began spinning off these assets into publicly traded Master Limited Partnerships or MLP’s.
- The midstream field gathering and processing sector is relatively free of commercial regulation. However, interstate transmission pipelines, and subsequent state and local gas distribution rates, are highly regulated in the US by the Federal Energy Regulatory Commission (or FERC). Midstream investment can become highly politicized and even subject to Executive Decision if the proposed infrastructure crosses an international border. This has been seen in the recent national debate on the Keystone XL segment that crosses between the US and Canada.
- Midstream is literally ‘Stuck in the Middle’. It depends on both healthy upstream supply, and strong consumer demand.
- Without a steady supply of oil and gas, there is nothing to process, transport and store.
- On the other hand, without demand from downstream commercial, industrial and retail consumers the need to bring these supplies to market is diminished.
- This podcast episode is brought to you by EKT Interactive’s Oil 101 - a free Introduction to oil and gas. Within this free, members-only content area you’ll find eBooks on oil and gas industry fundamentals, relevant articles on key oil and gas topics, and a growing body of digital learning content. Claim your free membership and join the Oil 101 learning community at www.ektinteractive.com today.
- So, who are the key players in Midstream?
- With the growth in the MLP structure in the US, you’ll notice that the large Midstream companies aren’t the familiar oil companies. Some of the largest Midstream MLPs are Plains All-American, Enterprise Products Partners, Kinder Morgan, TransCanada, and Spectra Energy. Some MLPs concentrate only on transmission pipelines, some on oil, many on natural gas and others on converting natural gas to high valued NGLs or petrochemical feedstocks. The energy MLP structure is solely a United States business entity.
- Globally, one of the largest operators of pipelines is OAO Transneft, the Russian state-owned transport monopoly. There is a good list of other major pipeline operators throughout Europe, Asia and Africa in wikipedia. We’ll be sure to put the link in the program notes.
- Let’s talk about the four major operating components of Midstream.
- The first step in the midstream process is field gathering. Oil and natural gas production comes from thousands of wells.
- Oil is moved through a “spiderweb” of small-diameter pipelines to a central location. Here, a tank volume large enough to efficiently be sent to a refinery by truck, pipeline, barge or rail is gathered.
- Natural gas is a little different. Unlike crude oil, it cannot be stored at or near the well. A series of smaller diameter pipelines moves it to a central treating or processing facility to remove water and impurities and separate out the NGLs. The natural gas, primarily Methane, can then enter a large diameter transmission pipeline to be moved to end users.
- Field processing requires surface units that are designed and installed to: Measure the production rate of the oil, gas, and water from the reservoir Separate the oil and gas from the wastewater Remove any impurities Temporarily store the crude or gas until it is ready to be moved.
- Fractionation plants separate the high-valued natural gas liquids, or NGLs, from natural gas production. These NGLs are used as blend components in refineries and as feedstock in the manufacture of petrochemicals. Be sure not to confuse NGLs with LNG or Liquified Natural Gas which we’ll discuss in the transportation section.
- After field processing, treated oil and natural gas is delivered via a huge and complex transportation, pipeline transmission and distribution infrastructure.
- In the US, there are hundreds of thousands of miles of natural gas, crude oil and liquids pipelines.
- Natural gas, which flows at much higher pressure than crude oil, is most often transported in large diameter inter and intrastate regulated pipelines.
- LNG is natural gas that has been converted to a liquid for easier transport and storage.
- This occurs when the gas is cooled to approximately -162 degrees Celsius, or -260 degrees Fahrenheit. Large LNG vessels are used to transport natural gas for international shipments.
- To transport crude oil, pipelines are also the safest and most efficient shipment method. However, truck and rail are more flexible in terms of timing and being able to ship to alternative and multiple destinations.
- Today in the US, the importance of rail cannot be underestimated. Most US shale oil plays do not have access to the existing pipelines. There is very little infrastructure in oil plays such as the Bakken, in North Dakota. Therefore, over 75% of the 1 million barrels a day of Bakken production is moved by rail.
- Storage for crude oil and refined products is pretty straight forward. Methods include field tank batteries, product bulk terminals, refinery tanks and holding tanks.
- Natural gas is different. Because of its large volumes and high pressure, natural gas is generally stored underground until it is ready to be transported to market. Depleted gas reservoirs, salt caverns and aquifers are common storage facilities.
- Thanks for listening, and we hope you’ve learned a few things about the midstream segment of the oil and gas industry.
- Be sure to share this as you see fit, and review us on itunes if you have a chance. Your feedback really helps us improve as we move forward. If you want more information about our Oil 101 “Microbes to Markets” content go to www.ektinteractive.com and register to access our free content library. Thanks again, and we’ll see you next time.