OIL 101

FUNDAMENTALS
OF MIDSTREAM

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 MIDSTREAM
This Midstream overview includes:

Midstream Business Characteristics

Midstream Participants

Gathering

Processing – The Next Step in Adding Value

Transportation

Storage EKTINTERACTIVE.COM
What is Midstream?

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 What is Midstream?

Midstream provides the vital link between

producing areas and population centers.

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 Midstream Assets

Field gathering, processing plants and

transmission pipelines are the major assets in
the midstream industry.

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 Transportation Assets

Marine Vessels Railroads Trucking Fleets Storage Units

Transportation assets include marine vessels, railroads and

trucks. Storage assets exist throughout the chain.

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 Midstream Investment
With the commercial success of US oil and gas shale
plays, the Midstream business segment has taken on new
importance.

A 2014 study forecasted the need for over $640 billion of

investment in the next 20 years to leverage US crude and
natural gas shale supplies.

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 Midstream Business Characteristics
A Low Risk Business

Contains Regulated Components

Depends on Health of Upstream

Market Prices Affect Demand

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 Low Risk

The business of moving oil and gas around is considered

very low capital risk.

Historically in most integrated oil companies, the

midstream segment was considered a small part of
upstream and downstream operations.

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 Highly Regulated

Interstate transmission pipelines, and subsequent state

and local gas distribution rates, are highly regulated in
the US by the Federal Energy Regulatory Commission (or
FERC).

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 Stuck in the Middle

Midstream is literally ‘Stuck in the Middle’. It

depends on both healthy upstream supply, and
strong consumer demand.

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 Reliant on Supply

Without a steady supply of oil and gas, there is

nothing to process, transport and store.

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 Stuck in the Middle - Demand

Commercial Industrial Retail

On the other hand, without demand from downstream

commercial, industrial and retail consumers, the need to
bring these supplies to market is diminished.

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Who are the Players?

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 US - MLPs
With the growth in the MLP structure in the US, you’ll
notice that the large Midstream companies aren’t the
familiar oil companies.

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 Global
Globally, one of the largest operators of
pipelines is OAO Transneft, the Russian state-
owned transport monopoly.

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Four Major Midstream
Operating Components

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 Gathering

The first step in the midstream process is field

gathering. Oil and natural gas production comes
from thousands of wells.

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 Gathering – Crude Oil

Oil is moved through a “spiderweb” of small-diameter

pipelines to a central location. Here, a tank volume
large enough to efficiently be sent to a refinery by truck,
pipeline, barge or rail is gathered.

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 Gathering - Natural Gas

Unlike crude oil, natural gas cannot be stored at or near the

well. A series of smaller diameter pipelines moves it to a
central treating or processing facility to remove water and
impurities and separate out the NGLs.

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 Field Processing
Field processing requires surface units that are designed and
installed to:
• Measure the production rate of the oil, gas, and water
from the reservoir
• Separate the oil and gas from the wastewater
• Remove any impurities
• Temporarily store the crude or gas until it is ready to
be moved

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 Fractionation

Fractionation plants separate the high-valued

natural gas liquids, or NGLs, from natural gas
production.

These NGLs are used as blend components in

refineries and as feedstock in the manufacture
of petrochemicals.

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 Transportation

After field processing, treated oil and natural gas is delivered

via a huge and complex transportation, pipeline transmission
and distribution infrastructure.

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 Transportation - Pipelines

In the US, there are hundreds of thousands of miles of natural

gas, crude oil and liquids pipelines.

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 Transportation - Pipelines

Natural gas, which flows at much higher pressure than crude

oil, is most often transported in large diameter inter and
intrastate regulated pipelines.

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 Transportation Natural Gas - LNG

LNG is natural gas that has been converted to a liquid

for easier transport and storage.

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 This occurs when the gas is cooled to approximately
-162 degrees Celsius, or -260 degrees Fahrenheit.

Large LNG vessels are used to transport natural gas for

international shipments.

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 Transportation - Oil

To transport crude oil, pipelines are also the safest and

most efficient shipment method.

However, truck and rail are more flexible in terms of timing

and being able to ship to alternative and multiple
destinations.

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 Crude By Rail

Today in the US, the importance of rail cannot be

underestimated. Most US shale oil plays do not have access to
the existing pipelines.

There is very little infrastructure in oil plays such as the Bakken,

in North Dakota. Therefore, over 75% of the 1 million barrels a
day of Bakken production is moved by rail.
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 Storage - Oil

Storage for crude oil and refined products is pretty

straight forward. Methods include field tank
batteries, product bulk terminals, refinery tanks
and holding tanks.

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 Storage - Natural Gas

Because of its large volumes and high pressure, natural

gas is generally stored underground until it is ready to
be transported to market.

Depleted gas reservoirs, salt caverns and aquifers are

common storage facilities.

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 There's More?

This Midstream material was taken from our

Oil 101: Introduction to Oil and Gas
course.

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 Who are we?
EKT Interactive staff have provided oil and gas training
since 1986.

Visit us at www.ektinteractive.com to learn more.

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