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A Perspective of the Oil and Gas Industry

Oil was always used for commercial purposes like lighting and heating for a long time. In 1859, the first commercial oil well was drilled for the purpose of finding oil and using it for industrial purposes

What does crude oil contain?

• Crude oil is a naturally occurring fossil fuel - meaning it comes from the remains of dead organisms like algae
• Crude oil is made up of a mixture of hydrocarbons - hydrogen and carbon atoms, methane, ethane, propane, and butane exist as gases, while pentane exists as liquids
• An oil well predominantly produces crude oil, which is mixed a bit with natural gas, mainly methane
• A gas well produces natural gas predominantly with very little crude
• Crude oil is often referred to as petroleum. This is because petroleum includes both the unrefined crude oil as well as refined petroleum products.

The oil and gas industry has the following stages of oil extraction:

• Upstream - Exploration and Production
• Midstream - Transportation
• Downstream - Refining and Marketing

1.1 Exploration and Production

Oil and gas exploration encompasses the processes and methods involved in locating potential sites for oil and gas drilling and extraction. Early oil and gas explorers relied upon surface signs like natural oil seeps, but developments in science and technology have made oil and gas exploration more efficient.

In the past, surface features such as tar seeps or marks provided initial clues to the location of shallow hydrocarbon deposits. Today, accurate geological surveys are conducted using various means for exploration. Rock or sand surveys are done to see if there can be any possible deposits under the surface. Seismic surveys are also conducted by geologists to find oil deposits under the surface. If a site seems to have oil, an exploratory well is drilled and if there are deposits worth of value, then full-fledged development wells are drilled to extract the oil

Once the prospective reserve is found, companies will start drilling using mobile offshore drilling units (MODU). Once the drilling units find oil, the company will replace it with a more permanent oil production rig to capture oil.

Exploration is of high risk and expensive. The cost of a basic exploration, such as one that involves deep seismic studies, can cost $5-$20?million per exploration site, and in some cases, much more. However, when an exploration site is successful and oil and gas extraction is productive, exploration costs are recovered and are significantly less in comparison to other production costs.

Proven reserves measure the extent to which a company thinks it can produce economically recoverable oil and gas in place, as of a certain point in time, using existing technology.

Once a company identifies where oil or gas is located, plans begin for drilling, and the drilling methods vary depending on the type of oil or gas and the geology of the location.

To drill a well, it is necessary to simultaneously carry out the following drilling process.

• Crush the rocks under the earth to small pieces so that liquid can flow and the drill can travel down to get to the oil or hydrocarbons
• Remove the rock debris and continue drilling
• To make sure the holes do not cave in, preventing the drilling
• Prevent the fluids contained in the drilled formations from entering the well.

This can be achieved by using rotary drilling rigs, which are the ones operating today in the field of hydrocarbon exploration and production. The drills have a conveyor belt which continuously removes the debris that the drill digs out. These modern drills operate with great efficiency, but they can also cause damages to the areas around the drill site if they are not operated according to the conditions. The specialized equipment and complex technology make drilling of oil wells extremely expensive and of high risk.

1.1.1 Onshore

In onshore drilling facilities, the wells are grouped together in a field, ranging from half an acre per well for heavy crude oil to 80?acres per well for natural gas. The group of wells are connected by steel tubes, which send the oil and gas to a production and processing facility where the oil and gas are treated through a chemical and heating process. Onshore production companies can turn on and off rigs more easily than offshore rigs to respond to market conditions due to the need that offshore rigs need to be visited by engineers to inspect and close.

1.1.2 Offshore

Offshore drilling uses a single platform that is either fixed (bottom supported) or mobile (floating secured with anchors). Offshore drilling is more expensive than onshore drilling, and fixed rigs are more expensive than mobile rigs. Most production facilities are located on coastal shores near offshore rigs to reduce expenses and safety issues.

1.1.3 Hydraulic Fracturing

Fracking, or hydraulic fracturing, is a technique where a high-pressure liquid is injected to form cracks or fractures on the rocks to extract oil or gas. The use of fracking has led to recovering gas, and the oil extracted by this method is called shale oil.

Once a prospective reserve is found, companies will drill highly regulated exploration wells with Mobile Offshore Drilling Units (MODUs).

The MODU's job is to drill down into the ocean floor and find oil and natural gas reserves.

Once a well is found, the company switches to a more viable model of production. All the legal entities are created, and in many cases the drill that was used for initial explorations will be used for the production as well. The part of the well that allows the drill bit to drill without interruptions, like a pipe or casing, is called riser. A drilling riser may terminate at the sea floor or may extend slightly into the earth to prevent water infiltration.

Source: EnggCyclopedia.com.

1.2 Midstream Transportation

The midstream sector involves the transportation (by pipeline, rail, barge, oil tanker, or truck), storage, and wholesale marketing of crude or refined petroleum products. Pipelines and other transport systems can be used to transport crude oil from production sites to refineries and deliver the various refined products to downstream distributors. Natural gas pipeline networks aggregate gas from natural gas purification plants and deliver it to downstream customers, such as local utilities.

Midstream activity starts after oil and gas is extracted. Once the gas is extracted from the wells, it must be refined. Midstream activity consists of the different process steps to transport and refine the oil.

Modes of transportation include the following:

• Oil tankers: A tank vessel as one that is constructed or adapted to carry oil or hazardous material in bulk as cargo or cargo residue - as defined by the US Coast Guard. There are various types of tankers like oil, parcel tanker, combination, and barges. Many oil companies work on upstream, downstream, midstream and hence considered integrated. In many countries, midstream business does not exist as a separate business and is combined with upstream business.
• LNG tankers: High-pressure possibility of explosions make it difficult to transport natural gas. For this reason, natural gas is liquefied at extremely low temperatures and transported as LNG via liquefied natural gas (LNG) tankers. LNG tankers are specially designed with double hulls to allow extra ballast water because LNG is lighter than gasoline.
• Pipelines: Pipelines can do the work of transporting oil and gas to gathering systems (wellhead to processing facilities), transmission lines (supply areas to markets), or distribution pipelines (most commonly to transport natural gas to medium or small consumer units). Pipelines play a very critical role in the transportation process because most of the oil moves through pipelines for at least part of the route. After the crude oil is separated from natural gas, pipelines transport the oil to another carrier or directly to a refinery. The only challenge is laying of pipelines to get the oil transported.
• Strategic planning involves determining the shortest and most economical routes where pipelines are built, the number of pumping stations and natural gas compression stations along the line, and terminal storage facilities so that oil from almost any field can be shipped to any refinery on demand.
• Railroad/tank trucks: Historically, before the introduction of pipelines, railroads were used to transport petroleum. Today, railroads compete with pipelines. The existing railroad infrastructure creates a more flexible, alternative route when pipelines are at capacity. For instance, many a times, a railroad exists; however, laying a pipeline becomes a huge challenge. The railroad would have been laid before the actual development or roadblocks came up due to growth in the area, and it would now become a challenge to create new pipelines. Also, there are many chances of pipelines breaking or getting damaged. Reaching a damaged pipeline maybe a difficult task for engineers, and it is time-consuming. However, transporting oil by railroads has its own set of challenges.
• Storage of oil and natural gas helps smooth out supply and demand discrepancies. Companies store more when the prices are lower than they...