Introduction to Oil and Gas Industry
In this introduction, learn about the three key sectors in oil and gas, the current state of the industry, the future outlook and more
Uncovering the oil and gas industry
Considered to be the biggest sector in the world in terms of dollar value, the oil and gas industry is a global powerhouse employing hundreds of thousands of workers worldwide as well as generating hundreds of billions of dollars globally each year. In regions which house the major NOCs, these oil and gas companies are so vital they often contribute a significant amount towards national GDP.
In this introduction to the oil and gas industry, we provide a snapshot of the petroleum sector.
What are the different oil and gas sectors?
The oil and gas industry can be broken down into three key areas: Upstream, midstream and downstream.
- What is upstream? - The upstream component is also referred to as the E&P (exploration and exploration). This involves the search for underwater and underground natural gas fields or crude oil fields and the drilling of exploration wells and drilling into established wells to recover oil and gas.
- What is midstream? - Midstream entails the transportation, storage and processing of oil and gas. Once resources are recovered, it has to be transported to a refinery, which is often in a completely different geographic region compared to the oil and gas reserves. Transportation can include anything from tanker ships to pipelines and trucking fleets.
- What is downstream?- Downstream refers to the filtering of the raw materials obtained during the upstream phase. This means refining crude oil and purifying natural gas. The marketing and commercial distribution of these products to consumers and end users in a number of forms including natural gas, diesel oil, petrol, gasoline, lubricants, kerosene, jet fuel, asphalt, heating oil, LPG (liquefied petroleum gas) as well as a number of other types of petrochemicals.
What are the largest volume products?
The largest volumes of products of the oil and gas industry are fuel oil and gasoline (petrol). Petroleum is the primary material for a multitude of chemical products, including pharmaceuticals, fertilizers, solvents and plastics. Petroleum is therefore integral to many industries, and is of critical importance to many nations as the foundation of their industries.
Oil and gas industry outlook: 2018
In recent years there has been a growing negative sentiment towards the oil and gas industry and "big energy". Major environmental disasters such as the Deepwater Horizon Gulf Of Mexico Oil Spill in 2013 have cast a negative spotlight upon the industry. The trend towards Renewable and Alternative energy is also another threat to traditional oil and gas companies. Coupled with the rise in pro-eco legislation and governmental pressure has meant the oil and gas industry is under more scrutiny than ever.
Even worse, the price collapse in 2014 had left the industry in a sluggish state. This crash occurred for a number of reasons, but the chief among them is supply and demand. Developing nations such as China, Brazil and Russia demonstrated an unending thirst for oil in the first decade of the new millennium, however, in 2010 the upward trajectory of their economies began to stall, leaving a large gap on global oil consumption. Meanwhile, the U.S. was producing 3.5 million barrels of shale oil a day, and this compounded with the shift in demand resulted in massive fluctuations in oil prices.
More recently, there has been a resurgence of confidence in the industry as it enters its second year of recovery. Growth is increasing at a remarkable rate, as increased upstream production continues to have a positive knock-on effect for midstream businesses. The price of crude has also stabilized - steadying at around $50 per barrel. In addition, 100,000 jobs are expected to be created in 2018 and the number of active drilling rigs in the U.S. has increased to 780+ compared to 591 from a year ago.
The UK continental shelf also appears to be back, with the potential to unlock dozens of undeveloped discoveries with new wells to be drilled on the horizon.
It's estimated that 30 billions barrels are consumed globally each year - primarily by developed nations. Oil also accounts for a significant percentage of energy consumption regionally from 32% for Europe and Asia, 40% for North America, 41% for Africa, 44% for South and 53% for the Middle East.
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