Question

Write to maximum of 5 pages summarising your understanding of petroleum value chain. First divide the industry into the segments and summarise how petroleum gains value as it travels through the value chain.

Answer 1

Petroleum value chain consists of the upstream chain, midstream chain and downstream chain.

Upstream chain refers to the exploration and production of crude oil. Upstream oil and gas production and operations identify deposits, drill wells, and recover raw materials from underground. This chain also includes related services such as rig operations, feasibility studies, machinery rental, and extraction of chemical supply.

Midstream chain refers to the refining, transportation (by pipelines, rail, tankers), storage and wholesale marketing of crude or refined petroleum products. The transportation of petroleum crude oil, natural gas, natural gas liquids (mainly ethane, propane and butane) and byproduct sulfur is done. Midstream operations are sometimes included in the downstream category.

Downstream chain refers to the transportation and marketing of end-user products, e.g. petrol, diesel, and liquefied petroleum gas (LPG).  Oil is  enhanced or blended with additives for consumer use and ultimately shipped to airports, power plants, and, of course, gas stations, where it is ultimately consumed by end users. Downstream operations are oil and gas processes that occur after the production phase to the point of sale. Companies engaged in the downstream process include oil refineries, petroleum product distributors, petrochemical plants, natural gas distributors, and retail outlets. Many major downstream companies are also diversified and engage in all levels of the production process.

Petroleum products include transportation fuels, fuel oils for heating and electricity generation, asphalt and road oil, and feedstocks for making the chemicals, plastics, and synthetic materials that are in nearly everything we use.Thus, petroleum gains value.