DOWNSTREAM PROCESS by RAGAVENDAR.A & SABARESAN.M
CRUDE OIL PRODUCTEXPLORATION & REFINING DISTRIBUTION & PRODUCTION SALES DOWNSTREAM
The petroleum industry can be divided into three broad segments: Crude oil exploration and production Refining & Product distribution and sales. Crude oil exploration and production is commonly referred to as the “Upstream”. Refining and product sales are generally referred to as the “Downstream”. As the industry is globalising new major companies are being formed, particularly in Russia, China, India and Brazil. These companies are exhibiting global ambition both in the upstream and downstream.
The petroleum industry can be divided into three broad segments: crude oil exploration and production, refining and product distribution and sales. The downstream oil sector is a term commonly used to refer to the selling and distribution of natural gas and products derived from crude oil. The downstream sector includes petroleum product distribution, retail outlets and natural gas distribution companies.
CHARACTERISTICS UPSTREAM REFINING DISTRIBUTION & SALESSOURCE RESOURCE MANUFACTURING MARKETING EXTRACTION • Revenue depends • Revenue depends • Revenue depends onKEY DRIVERS on absolute price on margin margin • Access to resources • Location • Location • Technical skills • Configuration • Marketing skills • Technical skills • Economy of scaleFINANCIAL Highly capital Highly capital Low capital relativeRESOURCE intensive intensive to other segments Often highly taxed Subject to corporate Subject to corporateGOVERNMENT taxes taxes. ProductsTAXATION highly taxed in Europe
There are three main channels of sale for products from a refinery to the consumer : Retail, Wholesale and Bulk. The wholesale (or distributor) sector supplies to customers in small loads either directly from a refinery by truck or from a distribution terminal that is fed from a refinery or imports. Bulk sales are large volume sales that are generally made directly by the refiner or by a large trading company. Typical customers would be a petrochemicals plant or nearby power station.
Refined products are traded in reference to prices at a few key locations in the world. Their prices are set in relation to supply/demand pressures that are specific to the products markets. Market prices can be used to set transfer prices between a refinery and a distribution affiliate, so as to understand how much margin is made in both segments.