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The downstream process

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The term “stream” in the oil and gas sector refers to the location of oil and gas companies in the supply chain. Companies are classified into one of the three major streams: upstream, downstream, and midstream.

Downstream is the sector engaging in the refining of crude oil, the processing and purifying of raw natural gas, as well as the marketing and distribution of products derived from natural gas and crude oil.

The following are the processes involved in the downstream sector according to the order in which take place:

Refining

This is the first and most important stage in the downstream process.

Oil refining takes the crude oil, extracted during the upstream process, and turns it into a range of substances that we can use.

Refining is carried out through fractional distillation, a process that heats and separates the complex chemicals (mostly hydrocarbons) found in crude oil. Unwanted substances are removed, and any other materials produced are collected. After distillation, the fuels are transported elsewhere in the refinery to be processed.

Processing

The second important stage in the downstream sector is the processing stage.

Along with crude oil, natural gas is generally found underground, usually in close proximity to the source of oil and it is this stage they are made fit for use.

Here, water or other impurities and by-products such as sulphur and ethane are removed from natural gas.

Processed natural gas is incredibly useful, being utilized for products ranging from fuel for cooking and heating to producing cement, fertilizer, and petrochemicals and creating polyethylene polymers, the most widely-used type of plastic. Once processed, it is then distributed for use.

Marketing & Distribution

Once the oil and gas products have been refined and processed, the next stage is to get them to market.

Marketing, a major component of this, involves the wholesale and distribution of the product, as well as other elements, such as pricing. Pricing and demand are heavily influenced by a number of different factors, such as distance, economic and political conditions, rig utilization rates and oil contracts.

After marketing, products can then be distributed to the appropriate parties. Many of the major companies involved in the midstream process are also key players within the distribution process, transporting refined oil and processed natural gas out to retail outlets, factories, and storage, or even their own facilities.

Transport involved could include conventional methods, such as oil tankers, trucks, and rail shipments, or go straight from the refinery into a complex piping network to reach their destination. Generally, most companies operate with a mix of transport types.

Retail

The final stage of the downstream process is retailing the finished product.

Some degree of these sales will come through selling petrol, diesel, and other fuel straight to consumers. However, a large amount is also sold to factories and power plants, and within the transport industry.

The downstream industry also touches consumers through thousands of other products, such as heating oil, lubricants, synthetic rubber, plastics, fertilizers, antifreeze, pesticides, and pharmaceuticals.

Once again, some of the larger companies may handle all elements of the downstream process themselves, including retail. However, there are only a handful of these within the entire industry (e.g. BP, Total, Shell), and even these companies may choose to operate with multiple other players within the sector for individual contracts.

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