Oil and Gas Industry – Overview
The oil and gas industry is one of the world’s most valuable industries in terms of revenue, earning an estimated $3.3 trillion yearly. Oil is vital to the world economy, particularly for its major producers: the United States, Russia, Saudi Arabia, Canada, China, and other Asian countries. The intricate vocabulary and specific indicators used throughout the oil and gas industry can easily overwhelm investors wanting to get into the industry. This introduction explains basic concepts and measuring standards to help anyone grasp the fundamentals of organizations working in the oil and gas industry.
Ancient History To 1800’s Oil and Gas Industry
From ancient civilizations to the present, petroleum has been used for waterproofing, construction, and illumination. In seepages in Italy, China, Egypt (Gebel Zeit), Cuba, and the Dead Sea, petroleum and its semi-solid cousin, bitumen (asphalt), was discovered. From antiquity to the modern age, Baku, in modern-day Azerbaijan, was famed for its natural crude oil seeps. Early communities in ancient India, Greece, Persia, northern Iraq, and China recognized natural gas resources. Some, like those in the Sichuan Valley, used the energy to heat brine for salt manufacture.
Hydrocarbons in Oil and Gas Industry
Crude oil and natural gas, which are naturally occurring chemicals found in rock in the earth’s crust, are made up of hydrocarbons. The compression of plant and animal remnants in sedimentary rocks including sandstone, limestone, and shale produces these organic raw materials. The sedimentary rock itself is the result of ancient oceans and other bodies of water depositing silt. The rotting carcasses of plants and animals were incorporated into the developing rock when layers of sediment were formed on the ocean floor. After being exposed to particular temperatures and pressure ranges deep under the earth’s crust, the organic material finally converts into oil and gas.
Because oil and gas are less dense than water, they migrate toward the earth’s surface through permeable sedimentary rock. An oil and gas reservoir is generated when hydrocarbons are trapped behind less porous cap rock. These oil and gas reservoirs are where we get our crude oil and gas. Drilling through the cap rock and into the reservoir brings hydrocarbons to the surface. A productive oil or gas well can be built after the drill bit reaches the reservoir, and the hydrocarbons can be pumped to the surface. When drilling activity fails to provide commercially viable quantities of hydrocarbons, the well is designated as a dry hole, which is usually filled and abandoned.
What are the largest volume products in the oil and gas industry?
Fuel oil and gasoline account for the majority of the oil and gas industry’s output (petrol). Petroleum is used to make a wide range of chemical goods, such as medications, fertilizers, solvents, and polymers. As a result, petroleum is essential to numerous businesses and is vital to many nations as the cornerstone of their economies.
3 Different Segments in the Oil and Gas Industry
The oil and gas industry has three segments: upstream, midstream, and downstream.
- Upstream: Companies involved in the exploration and production of oil and gas are known as upstream firms. The upstream sector is characterized by high risks, high investment capital, long-duration (because of the time it takes to locate and drill), and technological complexity. These are the companies that scour the globe for raw material reservoirs and then drill to extract the resource. These businesses are typically referred to as “E&P” corporations, which stands for “exploration and production.” Almost every line item on an E&P company’s cash flow and income statement is directly tied to oil and gas production.
- Midstream: Businesses that are focused on transportation are classified as midstream. They are in charge of transporting the extracted raw materials to refineries where the oil and gas is processed. Shipping, haulage, pipelines, and raw material storage are all characteristics of midstream enterprises. High regulation, notably in pipeline transmission, and low capital risk characterize the midstream business.
- Downstream: Refineries are downstream enterprises. These are the businesses in charge of eliminating contaminants and transforming oil and gas into consumer products including gasoline, jet fuel, heating oil, and asphalt.
Oil and Gas Pricing
Oil prices have become a political and economic issue as the globe has become increasingly reliant on it. Until the 1960s, when oil exporting countries took control, major oil companies determined crude oil prices. After a series of oil price surges developed into oil crises in the early 1960s, price forecasting became critical. In April 2020, the price of oil fell below zero for the first time in history, at -$37 per barrel. Demand for oil fell due to the coronavirus epidemic at the time, while supply surged due to Saudi Arabia’s, Russia’s, and OPEC members’ inability to agree on oil output cuts, driving higher demand for oil storage.
In the oil and gas sector, price benchmarks are used to help buyers determine the worth of a product based on its quality and location. The following are the most common industry benchmarks:
- Brent Blend is the most widely used oil benchmark in the world. It’s situated in London and traded on the InterContinental Exchange (ICE). It’s made up of light, sweet crude oil sourced from North Sea offshore drilling.
- West Texas Intermediate (WTI) is used in the United States for light and sweet oil, notably crude oil from land-locked wells in Oklahoma;
- Dubai/Oman is utilized in the Asian market for heavier oil with a higher sulfur content from the Persian Gulf.
- The Henry Hub natural gas pipeline in Louisiana serves as the benchmark for North American natural gas and global liquefied natural gas (LNG). Crude oil is used as a pricing proxy in markets where there are no natural gas pipelines, but this is changing.
Most Important Oilfield Tools in the Oil and Gas Industry
This is the list of tools used in oilfields:
- Pipe Handling Systems
- Shale Shakers
- Power Swivel
- Draw works
- Travelling Blocks
- Mud Cleaners
- Finned Tubing
- Coiled Tubing
- Sand Pumps
- Drilling Generators
- Stabbing Guides
- Wireline Equipment
- Heat Exchangers
- Pipe & Tubing
- Pipe Fabrications
Upstream, midstream, and downstream are the three segments of the oil and gas industry. Companies in the upstream sector, often known as exploration and production (E&P), locate reservoirs and drill oil and gas wells. Midstream firms are in charge of transporting crude oil from wells to refineries, while downstream corporations are in charge of refining and selling finished goods. Drilling firms work with oil and gas exploration and production companies to extract oil and gas. On well sites, well-servicing businesses perform relevant construction and maintenance activities.