Introduction to Oil and Gas Industry

Learn about the three key sectors in oil and gas, the current state of the industry and future outlook

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Adam Muspratt
05/01/2019

Introduction to Oil & Gas Industry | Oil & Gas IQ

Uncovering the oil and gas industry

Considered being the biggest sector in the world in terms of dollar value, the oil and gas sector is a global powerhouse using hundreds of thousands of workers worldwide and 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 energy sector has three key areas: Upstream, midstream and downstream.

What is upstream? - Upstream is 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, fertilisers, 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: 2019

In consideration of industry low's, such as the price collapse in 2013 and major environmental disasters such as the Deepwater Horizon Gulf Of Mexico Oil Spill in 2014, the oil & gas sector has now recovered.

The world's dependence on oil and gas is increasing as global economies and infrastructure continue to rely heavily on petroleum-based products. Discussions of when world oil and gas production will peak seem to be on the periphery, even amid a weakened global economy and the shrinking availability of oil. The oil and gas industry continues to wield incredible influence in international economics and politics - especially in consideration of employment levels in the sector, with the U.S. oil and gas industry supporting at least 10 million jobs.

The recovery occurred for several reasons, but the chief among them is the success of the production restraint agreement between OPEC and non-OPEC nations. In addition, developing nations such as China, Brazil and Russia are increasing exploration and production efforts. However, geopolitical considerations such as the ongoing troubles in Venezuela, Iran, and Qatar's exit from OPEC will influence oil and gas supply.

The trend towards renewable and alternative energy is another threat to traditional oil and gas companies. Coupled with the rise in pro-eco legislation and governmental pressure has meant the industry is under more scrutiny than ever.

Generating electricity from solar power systems and offshore wind is becoming increasingly cheaper and cost-effective. According to IRENA, over 80 percent of newly commissioned renewable energy will be cheaper than new oil & natural gas sources.

More recently, there has been a resurgence of confidence in the industry as it enters its third 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 stabilised - steadying at around $50 per barrel. In addition, 100,000 jobs are expected to be created in 2019 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 drilling prospects on the horizon. Additionally, we can expect an improved outlook for UK upstream production. The UK offshore sector is expected to improve after historical lows in the past few years as there are 16 planned greenfield projects with identified development plans and 29 announced greenfield projects forecast to start production between 2019 and 2025.

It is estimated that 30 billion 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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