What Streams May Come: An Overview of the Oil and Gas Industry’s Streams
These are just a few headlines that have appeared in the news over the past couple weeks. It doesn’t take long to notice what they have in common: the word “midstream.” Midstream? Yes, midstream. You might be thinking to yourself, “Self, I’ve heard you ‘shouldn’t change horses midstream’ and something about not ‘crossing the streams,’ but what do either of those things have to do with what these oil and gas companies are doing?” Simple answer: not much. In fact, “midstream” is an industry term that probably has nothing to do with old-timey idioms or movie references from more than 20 years ago, even though it would be a lot cooler if it did.
The oil and gas industry is broadly categorized into three markets or sectors commonly referred to as upstream, downstream and midstream.
As a native Oklahoman and someone with family connections to the oil and gas industry for as long as I can remember, I have heard these terms for quite some time, but it wasn’t until recently that I gave them much thought. If you’re like me and are tired of having to awkwardly smile and nod as your friends talk about the latest happenings in the midstream oil and gas world, you will want to stick with me a while as we explore these concepts together and find out what this stream talk is all about.
Upstream is the exploration and production sector. It includes searching for, drilling and operating wells. This is where all the, “I drink your milkshake,” stuff happens. As the term implies, it’s like the source of a river; everything flows from it toward the destination. When you hear about all the newly active regions in oil and gas production, like the Marcellus Formation in Pennsylvania and the Bakken Formation in North Dakota, you can connect this to the upstream market.
This is the sector that likely needs the most explanation. It refers to the transportation, storage and wholesale marketing of the products the upstream sector has produced, which includes oil, natural gas and natural gas liquids. The midstream sector provides the vital service of linking the producing areas, which are often in remote, dispersed areas, to populated regions. At its most basic level, the midstream industry transports the crude products produced upstream to the downstream facilities, and the most common methods of transporting these products are by pipeline, rail, truck and barge.
This is the refining, processing, consumer marketing and distribution of the products produced in the upstream sector and moved through the midstream sector. When you stop at the gas station to fill your vehicle’s fuel tank, buy that plastic widget at the store, or use your home’s power, you are probably participating in the downstream market. Congratulations, you are an oil and gas industry insider!
Well, that does it. I do believe I have explained the upstream, midstream and downstream sectors of the oil and gas industry sufficiently enough that you will no longer be embarrassed when someone says, “Hey, did you hear about that midstream company that’s building a new compressor station down the road?” Now you don’t have to act like you didn’t hear the question while simultaneously pretending to receive an important text message, and instead, you can confidently answer, “I sure did, and I completely understand everything about this topic. Let’s talk about it.”