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Midstream: Definition, Types, And Example

Last updated 04/01/2024 by

Dan Agbo

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Midstream operations in the oil and gas industry encompass a vital phase, sitting between upstream and downstream. This article delves into what midstream entails, covering processes such as storage, transportation, and marketing of petroleum products. With a focus on the key takeaways, we’ll explore its significance, pros, cons, and answer common questions about this essential industry segment.

What is midstream?

Midstream is a term used to describe one of the three major stages of oil and gas industry operations. Midstream activities include the processing, storing, transporting, and marketing of oil, natural gas, and natural gas liquids.
Much like a symphony, the oil and gas industry operates in three harmonious movements: upstream, midstream, and downstream. While we’ve touched on the essence of midstream, let’s delve deeper into its significance within this complex orchestra.

Understanding midstream activities

Midstream activities are the unsung heroes of the oil and gas world, working tirelessly behind the scenes to ensure the smooth flow of energy resources. These operations are commonly included as part of other operations for much of the global oil and gas industry. The midstream and downstream activities take place after the initial production phase, known as upstream, and through to the endpoint of sale. Many oil and gas companies are considered integrated because of their ability to combine upstream, midstream, and downstream activities as part of their overall operations.
But what sets the midstream industry apart, making it a distinct entity in the United States and Canada? The answer lies in the vast privately-owned infrastructure. These countries boast an intricate web of oil pipelines and storage facilities, a true testament to the prowess of this industry segment. For example, the Keystone Pipeline System, commissioned in 2010, now stands solely under the ownership of TransCanada Corporation, emblematic of the robust midstream culture.
Furthermore, a league of pure midstream operating companies stands tall, including names like Oasis Midstream Partners, Sanchez Midstream Partners, Hess Midstream, Magellan Midstream Partners, and EQT Midstream Partners. Their dedication to managing the critical juncture between raw upstream production and the refining process highlights the importance of the midstream business designation.

Types of midstream operations

Midstream operations encompass a wide range of activities crucial to the oil and gas industry. These operations can be categorized into several key types, each serving a distinct role in the efficient movement and management of petroleum products.

1. Transportation

Transportation is one of the fundamental types of midstream operations. It involves the movement of crude oil, natural gas, and related products from production facilities to processing plants, refineries, and distribution centers. Various methods are employed, including pipelines, tankers, and rail transport. Pipelines, in particular, play a significant role in the long-distance transportation of oil and gas.

2. Storage

Storage facilities are essential for maintaining a steady supply of petroleum products. These facilities include tanks, caverns, and terminals where crude oil, natural gas liquids, and other products are stored before they are transported to refineries or end-users. Strategic storage management ensures the availability of products, even in times of high demand or disruptions in the supply chain.

3. Processing

Processing in the midstream sector involves the treatment of raw crude oil and natural gas to make them market-ready. This includes removing impurities, separating different hydrocarbon components, and ensuring compliance with quality standards. Gas processing plants, for instance, separate natural gas liquids from raw natural gas, making them suitable for various applications.

4. Marketing and trading

Marketing and trading encompass the sale and distribution of petroleum products to end-users, businesses, and other markets. This type of midstream operation involves various activities such as pricing, negotiating contracts, and ensuring a reliable supply chain. Companies in this segment play a crucial role in connecting producers with consumers.

5. Additive injection services

Additive injection services involve the introduction of specific chemical additives into petroleum products. These additives can enhance the quality, performance, and environmental properties of fuels. For example, the addition of additives can improve the octane rating of gasoline or reduce emissions from diesel fuel. It’s an essential aspect of midstream operations aimed at meeting environmental and performance standards.
These types of midstream operations collectively form a complex network that ensures the efficient movement and utilization of oil and gas resources. While they may vary in focus, they all play a vital role in bridging the gap between production and consumption in the energy industry.

Midstream example

To truly appreciate the role of midstream operations, consider the case of Magellan Midstream Partners. They proudly proclaim their ownership and operation of five marine storage terminals strategically located along coastal waterways. These terminals boast approximately 26 million barrels of aggregate storage capacity, with an additional one million barrels jointly owned through their Texas Frontera, LLC joint venture. Magellan Midstream Partners offer distribution, storage, blending, inventory management, and additive injection services for refiners, marketers, traders, and other end-users of petroleum products. These key services bridge the gap between the raw production sites and the refiners, making them an indispensable part of the midstream business designation.
While in the United States and Canada, the midstream industry has carved out its niche, in Europe, it’s a different melody. The transportation and storage of crude oil tend to be integrated with the upstream production business. Major European oil companies such as Shell or BP typically report production and transportation costs together in their annual financial results. Moreover, many European oil pipelines are under the control of governments or state-owned oil transportation companies. This state ownership dynamic contributes to the absence of midstream as a separately designated part of the oil production value chain, emphasizing regional variations in this symphony of operations.

The bottom line

In the intricate ballet of the oil and gas industry, midstream operations play a crucial role, often behind the scenes but never to be underestimated. They are the link between the raw production of oil and gas and the refinement and distribution to consumers. This intricate industry segment not only ensures a smooth flow of energy resources but also plays a significant role in the economy.
While midstream is more prominently recognized in the United States and Canada due to privately-owned infrastructure, its importance resonates globally. The precise coordination of storing, transporting, and marketing petroleum products ensures the energy demands of nations are met efficiently.
As the world continues to evolve towards sustainable energy solutions, midstream operations may adapt and find new opportunities. Environmental concerns, regulations, and technological advancements will shape the future of this critical sector. From marine terminals to pipelines, the midstream industry will continue to harmonize the diverse elements of the oil and gas industry.
Understanding midstream is not only key to comprehending the oil and gas sector but also to appreciating the intricate processes that power our modern world. The silent conductor behind the scenes ensures that the lights stay on, the cars keep moving, and the world remains connected through energy.
Here is a list of the benefits and the drawbacks to consider.
  • Enhanced control over the petroleum product supply chain.
  • Optimized transportation and storage efficiency.
  • Diversification of revenue streams.
  • High initial investment costs.
  • Vulnerability to market price fluctuations.
  • Regulatory and environmental challenges.

Frequently asked questions

What distinguishes midstream from upstream and downstream in the oil industry?

Midstream operations focus on processes such as storage, transportation, and marketing of petroleum products, while upstream involves raw production, and downstream relates to refining.

Are midstream operations only significant in the U.S. and Canada?

Midstream is more prevalent in the United States and Canada due to privately-owned pipelines and storage facilities, but it’s an essential industry segment globally.

What are some key players in the midstream sector?

Companies like Oasis Midstream Partners, Magellan Midstream Partners, and TransCanada Corporation are prominent in the midstream industry.

What role does midstream play in the oil supply chain?

Midstream ensures the efficient movement of petroleum products from production sites to refineries, making it a critical link in the supply chain.

How do regulatory and environmental factors affect midstream operations?

Midstream companies must navigate regulations and environmental concerns, which can impact their operations and costs.

Key takeaways

  • Midstream bridges the gap between upstream and downstream operations in the oil and gas industry.
  • Key midstream activities include storage, transportation, and marketing of petroleum products.
  • Pros include better supply chain control, optimized efficiency, and diversified revenues.
  • Cons involve high initial costs, market price sensitivity, and regulatory challenges.
  • The midstream sector has a more significant presence in the U.S. and Canada but is vital worldwide.

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