As its name implies, the midstream oil and gas segment encompasses facilities and processes that sit between the upstream and downstream oil and gas 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.
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Transportation is a big part of midstream activities and can include using pipelines, trucking fleets, tanker ships, and rail cars.
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Characteristics of the Midstream Segment
The midstream oil and gas segment is separated from upstream and downstream in most oil companies because it is considered a low risk, regulated type of business.
It does not fit the risk profile or asset complexity of the other segments of the oil and gas industry.
Success in this segment depends on many external forces including:
- Upstream operations continuous delivery of reserves
- Refinery margins that encourage refined product production
- Health of the downstream, natural gas, and petrochemical industry markets.
- Natural gas price levels that impact the attractiveness of NGL’s as feedstock
- Political sentiment for pipeline expansion and “not in my backyard” hurdles
While the midstream gathering and processing sector is relatively free of commercial regulation, the movement of gas by interstate pipelines and subsequent state level distribution activities are highly regulated in the US by the Federal Energy Regulatory Commission (FERC).
Further, cross-border pipeline expansions like the proposed Keystone XL segment linking Canadian oil fields with US pipelines and refining capacity can require approval from the Executive branch and become part of the national political debate.
In Europe, the European Union (EU) has a hand in regulating similar assets.
Midstream Oil and Gas Companies
Largest North American Midstream Oil and Gas Companies by Market Cap (2022):
- Enbridge
- Enterprise Product Partners
- TC Energy Corp.
- Kinder Morgan
- The Williams Companies
- Energy Transfer LP
- MPLX LP
- ONEOK
- Pembina Pipeline Corp.
- Targa Resources
Large Private Midstream Operators:
- Koch
- Transmontainge
They process crude oil and natural gas to separate the high valued NGLs, and are categorized by the key components of the midstream assets, such as:
- Distribution
- Storage
- Processing
- Fractionation
- Marketing
These assets will be discussed further in subsequent sections.
Oil and Gas Processing – Next Step in Adding Value
Processing oil and gas liquids into marketable products is the beginning of the midstream segment of the business. These products then continue into the refining processing portion of the downstream segment.
Field processing is the first phase of oil and gas processing starting in the onshore or offshore oil or gas production field.
Here, surface facilities are designed and installed that:
- Measure the production rate of the oil, gas, and water that is produced from the reservoir
- Separate the oil, gas, and water from one another
- Remove impurities to prepare the crude or gas for sale or the next process
- Temporarily store the crude or gas until it is ready to be moved to the next process
Fractionation plants, which remove natural gas liquids (NGL) from the produced oil and gas are also a component of the midstream activities. These NGLs are used as blend components in a refinery and used as fuel or feedstock in the manufacture of petrochemicals.
Transportation
After field processing, treated oil and gas is delivered via a complex transportation, transmission and distribution infrastructure.
Crude and refined liquids start their journey in a spider web of small-diameter field gathering pipelines. Once accumulated, larger volumes are transported internationally in tankers or vessels and moved along the coast or through rivers in smaller barges. Land transportation methods include pipelines, truck and rail.
Natural gas, which flows at much higher pressure than crude oil, is most often transported in large-diameter, high-pressure-handling pipelines called transmission lines.
NGL vs. LNG
NGL is an acronym for Natural Gas Liquids – the liquid hydrocarbons normally associated with “Natural gas, which is composed mainly of methane, ethane, and “heavies” like propane & butanes. Depending on the gas pressure, the heavies will condense and constitute the liquid or “wet” portion of the natural gas. NGLs are much more valuable as raw material for further processing than as fuel for simple combustion.
LNG is an acronym for Liquefied Natural Gas – the gaseous portion of natural gas (mostly the methane and a little ethane) in the liquefied state (-260 oF) & 1 atm. This is an efficient way to move, transport and handle large, build quantities of natural has instead of trying to store it in the gaseous state of elevated pressures.
While pipelines are the safest and most efficient and way to transport oil and gas, trucks and rail are more flexible in terms of timing and destination. Adding new pipeline infrastructure takes considerable time and investment, and often faces political resistance.
The recent growth in domestic US production has led to an expansion of crude-by-rail shipments since many new fields are not connected to existing pipeline infrastructure. A lack of pipelines directly to domestic refining centers in the Northeast and Gulf Coast exists as these have traditionally been supplied by oil imported from overseas.
This concept will be discussed further in the Industry Trends module.
Storage
Crude Oil
Storage facilities for crude oil and refined liquids include bulk terminals, refinery tanks and holding tanks to get material into pipelines, or ready to be shipped on a vessel.
Cushing, OK is the delivery point for the NYMEX/CME crude oil futures contract. As such, it is an important storage location for traders looking to deliver oil against these contracts. There is currently storage capacity to hold about 65 million barrels of oil at this location (up from about 26 million in 2005).
The Strategic Petroleum Reserve (SPR) is an emergency storage of oil maintained by the US Department of Energy. Current storage capacity is approximately 727 million barrels, with about 695 million barrels (or 36 days consumption) in inventory. The SPR was started in 1975 after the oil embargo of 1973-74 supply disruption.
Natural Gas
Because of its extremely high pressure, natural gas must be stored in underground reservoirs until it is ready to be transported to market. Most commonly depleted gas reservoirs are used, with salt caverns and aquifers being other storage possibilities.
There is approximately 3.5 trillion cubic feet of working gas in nearly 400 facilities in the US.
Midstream Oil and Gas Summary
The Midstream oil and gas business concentrates on the processing, transportation, and storage of crude oil and natural gas.
Midstream activities are considered a low-risk, highly-regulated segment of the oil and gas industry.
Field processing is the first phase of oil and gas processing starting in the onshore or offshore oil or gas production field.
Fractionation plants, which remove natural gas liquids (NGL) from the produced oil and gas are also a component of the midstream activities.
After field processing, treated oil and gas is delivered via a complex transportation, transmission and distribution infrastructure.
Storage facilities for crude oil and refined liquids include bulk terminals, refinery tanks and holding tanks. Because of its extremely high pressure, natural gas must be stored in underground reservoirs until it is ready to be transported to market.
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