The oil and gas industry is composed of segments and Midstream is one of these segments. It sits between the Upstream and Downstream oil and gas segments. A glance at the overview of this section it will reveal that the Midstream segment is comprised of its characteristics, participants, the gathering process, transportation and storage of crude oil and Gas.
To put this segment into perspective it’s critical to understand that this segment provides an important link between the production areas and the centers where industrial, refining and residential customers are situated.
The finite and major assets of the midstream segment or industries are comprised of: field gathering, processing plants and transmission pipelines. Further, the assets that are part of transportation include: marine vessels, rail tracks and road trucks. Finally, the storage assets are found along the chain that is part of the midstream segment.
The recent oil and gas extraction from shale resources has been revolutionary and economically successful and thus has prompted the key players and processes of the midstream industry to take on a new dimension. At 301 billion metric tons, the oil shale deposits of United States of America are the largest in the world and potentially provide vast scales of economic return on investment, With a 2014 study forecast revealing the need for over US$ 640 billion of investment being made in the next two decades to leverage the vast United States of America’s crude and natural gas shale supplies.
“Midstream provides an important link between production areas and the centers where industrial, refining and residential customers are situated”
Thus, segment of the oil and gas industry provides a variety of opportunities and possesses immense commercial potential for investment.
Business Characteristics of the Midstream Segment
This segment is characterized by four key issues which include:
- It’s a highly regulated industry
- Presents a generally low risk
- Asset Investments are dependent on the well-being of the upstream
- Oil and gas prices certainly affect demand
Highly Regulated Industry
Investments concerning the midstream segment often involve establishment of infrastructure that crosses international borders. This can be a highly political and certainly an issue for the executive wing of the government. This has been witnessed in many countries before but recently a similar matter has risen as the case seen of the Keystone and Dakota pipelines that involve the US and their northern neighbor-Canada.
In addition, the interstate transmission pipelines and the subsequently state and local gas distribution rates are greatly regulated by the Federal Energy Regulatory Commission (FERC)
The midstream segment is separated from upstream and downstream in most oil companies because it’s 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. Factoring history, most companies then considered midstream to be part of either the upstream or downstream segment until 1980s when US companies began turning these assets into publicly traded Master Limited Partnerships (MLPs).
Dependent on the upstream
Since the midstream is sandwiched between the upstream and downstream it can literally be referred to the segment that is “stuck in the middle”. It certainly links the other two segments but depends mostly on the well-being of the upstream segment. That is to say, it’s heavily dependent on the supply and strong consumer demand such that when there is scarcity or nothing at all then the segment shuts down since there is zero products to be processed, transported and store. In addition, without demand from consumers found in the downstream segment the reality of supply becomes a virtual dream.
Oil and Gas price affect demand
When there is a high demand for oil and gas the price increases and when the opposite occurs that is a decrease in demand oil and gas prices come down. All this are dictated by upstream and downstream segment and thus the midstream segment is a casualty of this play or forces of the market.
“Midstream segment often involves establishment of infrastructure that crosses international borders. This can be a highly political and certainly an issue for the executive wing of the government.”
Critical Midstream Players
The midstream is defined by players that provide various logistical services such as: barge companies, railroad companies, trucking and hauling companies, pipeline transport companies, logistics and technology, transloading companies, and terminal developers and operators
Since there is a growth in the MLP kind of structure in the US that characterizes the midstream segment, some of the largest companies that are part of this segment may not be familiar BUT include:
- Enterprise Products Partners
- Plains All American
- Kinder Morgan
- Spectra Energy
- Ultrapar Holdings
- Oneok Partners
- Energy Transfer Equity
When it comes to a global perspective the largest operators of pipelines is the OAO Transneft, a Russian state owned transport monopoly. In Europe, Asia and Africa there are companies involved in the midstream segment of the oil and gas industry and you can find them in the following links:
The Operating Components of the Midstream
In most cases oil and gas reserves are not located in the same geographic location as refining assets and major consumption areas. This therefore calls for field gathering where thousands of oil wells are involved. After the identification of the numerous oil wells, the actual oil is moved through an intricate system of small-diameter pipelines to a central point. There, a large tank is filled with this oil which is sufficient to be sent to a refinery through a pipeline, barge, and truck or by rail.
When it comes to natural gas, it can be slightly different. This is because it cannot be stored at or near the well. Therefore, a series of smaller diameter pipelines moves it to a central treating or processing facility to remove water and impurities and separate out the natural gas liquids (NGLs).
“Oil and gas reserves are not located in the same geographic location this calls for field gathering where thousands of oil wells are involved.”
Methane which is a one of the key components of natural gas is allowed to flow into a large diameter transmission pipeline to be moved to consumers.
Processing of oil and gas into marketable products marks the actual commencement of the midstream segment and it involves the following sub-sections or phases.
This is the first phase of oil and gas processing, starting in the onshore or offshore production field. At this point, surface facilities are designed and installed that:
- Measure production rate
- Separate the oil, gas and water
- Remove impurities
- Temporarily store the crude or gas until the point of movement
This is the process that follows and involves removal of natural gas liquids (NGLs) from the produced oil and gas. The natural gas liquids are used as blend components in the refining process in refineries and used as fuel or feedstock in the manufacture of petrochemicals.
Extreme attention should be paid when discussing natural gas liquids (NGL) so as not to be confused with liquefied natural gas (LNG) which will be addressed in the transportation section.
When field processing and fractionation is conducted, treated oil and gas is delivered though complex transportation, transmission and distribution infrastructure which in the United States of America involves a vast network of natural gas, crude oil and liquids pipeline.
Natural gas is transported under higher pressure compared to crude oil and is commonly passed through large diameter inter and intra state regulated pipelines. Natural gas is transported in a form that was referenced earlier; liquefied natural gas (LNG). This form is achieved when the gas is cooled to approximately -168oC or -260oF. There are special marine vessels that are used to transport liquefied natural gas (LNG).
Pipelines are preferred compared to road and rail transport because it’s an efficient and safe mode of shipment. However in terms of flexibility factoring time and ability to shift to alternative and multiple destinations; rail and road are the best selections.
“The United States of America has a vast network of natural gas, crude oil and liquids pipeline.”
Historically the rail has played a crucial role in the revolution of modes of transport and transportation of cargo. However it still has quite significance in the US today, where most US shale oil and gas has to be dependent on this mode since there is hardly any access to the existing pipelines such as Bakken in North Dakota. In Bakken therefore over 75% of the 1 million barrels of oil produced a day are moved by rail.
Storage is the last component of the midstream segment and involves storage facilities for crude oil and refined liquids, these include:
- Bulk terminals
- Refinery tanks
- Holding tanks
In the context of the natural gas, because of its extremely high pressure, natural gas must be stored in underground reservoirs until is ready for transportation to the market. Most commonly depleted gas reservoirs are utilized with salt caverns and aquifers used for natural gas storage.