Oil 101: Introduction to Oil and Gas What is Downstream? This Downstream module includes the following sections: -Downstream Business Characteristics -Refining – Products and Participants -Consumption – The Final Step in Adding Value -Marketing and Retail Downstream Processing, transporting and selling refined products made from crude oil is the business of the downstream segment of the oil and gas industry. Key downstream business sectors include: -Oil Refining -Supply and Trading -Product Marketing and Retail The downstream industry provides thousands of products to end-user customers around the globe. Many products are familiar such as gasoline, diesel, jet fuel, heating oil and asphalt for roads. Others are not as familiar such as lubricants, synthetic rubber, plastics, fertilizers and pesticides. The downstream segment is a margin business. Margin is defined as the difference between the price realized for the products produced from the crude oil and the cost of the crude delivered to the refinery. Although the price of crude sets the absolute level of product prices, it may or may not affect refining or marketing margins. Downstream margins tend to be reduced, or squeezed, when crude price increases often cannot be recovered in the marketplace. On the other hand, margins tend to hold, or even increase, when crude prices drop and the marketplace more slowly adjusts to these lower crude prices. The downstream segment includes complex and diverse activities including manufacturing, petrochemical refining, distribution, and retail. A global perspective is important because of the global nature of the energy supply chain as well as the impact of supply and demand on both feedstock and product prices.

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Oil 101:
Introduction to Oil and Gas
What is Downstream?

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Downstream
This Downstream module includes:
Introduction to Downstream
Downstream Business Characteristics
Refining – Products and Participants
Consumption – The Final Step in Adding Value
Marketing and Retail

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What is Downstream?
Processing, transporting and selling refined products
made from crude oil is the business of the downstream
segment of the oil and gas industry.

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What is Downstream?
Key downstream business sectors include:
Oil Refining
Supply and Trading
Product Marketing & Retail

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What is Downstream?
The downstream industry provides thousands of products
to end-user customers around the globe.

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Petroleum Products
Many products are familiar such as gasoline, diesel, jet
fuel, heating oil and asphalt for roads.
Others are not as familiar such as lubricants, synthetic
rubber, plastics, fertilizers and pesticides.

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Characteristics of Downstream

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Refining, A Margin Business
Refining is a margin business.
Refinery Margin = price realized for the products -
cost of the crude

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Complex, Diverse Activities
The downstream segment includes complex and diverse
activities including:
Manufacturing,
Petrochemical refining,
Distribution,
Retail.

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Oil Refining
Crude oils are not uniform, but rather are mixtures of
thousands of different compounds called hydrocarbons.
Each component of each compound has its own size,
weight and boiling temperature.

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Refineries process crude into a variety of useful products
through a number of different processing units using heat
and pressure to separate the products.

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Petroleum Products
The resulting petroleum products are often classified as
light, medium, or heavy.

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Light Products
Liquid petroleum gas (LPG)
Gasoline (or petrol)
Naphtha - used as a solvent or paint thinner.

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Medium Products
Middle Distillates
Kerosene and related jet aircraft fuels
Diesel fuel

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Heavy Products
Fuel oils
Lubricating oils
Paraffin wax
Asphalt and tar
Petroleum coke

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Participants - Integrated
Integrated Refiners:
BP - ExxonMobil - Chevron - Shell - Total

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Participants - Independent
Independent Refiners:
Valero - Tesoro - Sunoco

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Independents
Independent refiners will often have a chain of service stations to market their
products.

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What makes them an independent is the fact that they
have no E&P operations.

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Consumption

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The final link in the oil and gas value chain is CONSUMPTION.
It is the end users or customers of oil and gas products that give them their
ultimate value.

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Globally, the most widely known crude oil product is
GASOLINE.

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Other well-known crude oil products include:
● Distillate fuel oil (home heating and diesel fuel)
● Kerosene-type jet fuel
● Liquefied refinery gases
● Residual fuel oil (heavy oils used as fuels in industry, marine transportation and electric
power generation)
● Asphalt for roads

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Natural Gas Products
Natural gas products include the following:
Natural gas itself – used in electricity generation and as fuel for home heating and cooking.
Liquefied Natural Gas (LNG) – a cooled, liquefied version of natural gas used to ease shipment and
storage.
Natural Gas Liquids (NGLs) – used as raw materials in oil refining and petrochemical manufacturing.
Compressed natural gas – used as fuel for buses and commercial vehicles.

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Marketing and Retail
Product marketing is the business of
finding and supplying customers.

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These customers possess either internal demand for refined fuels or
distribution networks for reaching retail customers.

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Direct consumers of energy products include:
Petrochemical & Industrial Manufacturers
Utilities
Municipalities
Trucking Fleets
Airlines

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Other companies may possess distribution assets
or brands aimed at reaching retail end users.

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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 has been a leading oil and gas
training company since 1986.
Visit us at www.ektinteractive.com to learn
more.