Recently I have been very fortunate to know about the world’s most important sector i.e. Oil & Gas. The Oil & Gas Industry sometimes becomes too difficult to grasp and hence I decided to post this article to explain the basics for this Industry.
A Primer on the Oil & Gas Industry
The Oil & Gas Industry is typically divided into 3 segments-
a. Upstream Segment encompasses activities like exploration and production of hydrocarbons. ONGC is the major player in the upstream segment contributing 58% of total crude produced in India.
b. Midstream Segment encompasses activities like transportation, storage and processing of hydrocarbons. IOCL operates 13,391 km network of crude, gas and product pipelines which forms 30% of the nations total pipeline network.
c. Downstream Segment encompasses activities like filtering and refining of hydrocarbons. IOCL controls 10 out of 22 Indian refineries.
Oil & Gas Value Chain
The very first step in the value chain is to identify the basins which have potential of hydrocarbons. Hydrocarbons are naturally occurring substances found in the earth’s crust which make up crude oil and natural gas. These organic raw materials are created by the compression of the remains of plants and animals in sedimentary rocks. As and when the layers keep forming on the earth’s surface these hydrocarbons gets trapped beneath the surface of the earth due to excess heat and hence the role of the upstream players is to identify these hydrocarbons with the help of seismic surveys. Seismic surveys are detailed images of various rock types and location of hydrocarbons beneath the earth’s surface. It uses reflected sound waves to produce a “Cat Scan” of Earth’s surface. The source of seismic waves is either an explosive which directly generates the seismic wavelets. These wavelets are recorded by the Geo-phones. By analyzing the time it takes for the seismic waves to reflect off the subsurface formations and return to the surface, a geophysicist can map the subsurface formations and anomalies and predict where oil and gas may be trapped in sufficient quantities for exploration activities.
After an area has been identified, the site must be prepared and one or more exploratory wells are drilled. Exploratory wells drilled in areas with no previous production are referred to as wildcat wells. If the well logs, cuttings, and core samples from the exploratory well indicate the presence of oil and gas, then the well is completed. Wells drilled to produce the previously discovered reservoir are known as development wells.
Wells are typically drilled using rotary rig or drilling rig with a BIT (cuts into the rock) attached to the string. After the hole is drilled, sections of steel pipe (casing), slightly smaller in diameter than the borehole, are placed in the hole and cement the wall of the hole to prevent contamination of groundwater, prevents water encroachment into the well and enhance structural integrity of the hole. Once the desired depth is reached, the well is completed, which means equipment like the wellhead or Christmas tree is installed to enable production of the oil and gas.
Oil is recovered from a reservoir through primary, secondary, and tertiary (or enhanced) recovery techniques. Primary recovery uses either natural pressure differential or lift pumping to bring the fluid to the surface. Secondary recovery involves using push mechanisms to move the fluid, like water flooding and gas injection. After primary and secondary recovery is exhausted, enhanced recovery is used as the final stage in extracting oil (and gas) from the reservoir. Enhanced Oil Recovery (EOR) can extract 30% to 60% or more of a reservoir’s oil, compared to 20% to 40% using primary and secondary recovery. The most common technique used is hydraulic fracturing or “fracking.” Fracking is the process of drilling down into the earth before a high-pressure water mixture is directed at the rock to release the gas inside. Water, sand and chemicals are injected into the rock at high pressure which allows the gas to flow out to the head of the well. The process can be carried out vertically or, more commonly, by drilling horizontally to the rock layer, which can create new pathways to release gas or used to extend existing channels.
The fluid from the well is directed to a field separator located on the well pad so that the three components – gas, oil, and water – can be split into separate streams. The gas mixed with the oil in an oil well is called associated gas. The associated gas is split from the crude oil in the field separator. Gas from a gas well is either considered wet or dry. As wet gas flows through the separator, the heaviest dissolved hydrocarbons in the gas drop out as liquids and are called condensate. If the gas contains minimal dissolved hydrocarbons, the gas is considered dry. Dry natural gas contains at least 85% methane whereas Wet natural gas contains some methane, but also contains liquids such as ethane, propane and butane.
The condensate and crude oil from the separators are stored in tanks on the well pad. These components are moved to refineries by trucks, rail cars, pipelines, and tankers so that they can be processed and refined into more useful components like petroleum naphtha, gasoline, diesel, asphalt base, and kerosene.
As it is evident, locating, producing, processing, and refining oil and gas is a complex endeavor and with this article I hope the value chain of an oil and gas industry has been cleared for a starter.