Upstream, Midstream and Downstream. What are these terms?

For Oil&Gas professionals these 3 terms are quite common and with clear understanding. For people not part of the Oil&Gas industry these terms are not known and understood.

These three areas are quite different from each other and require unique skill sets and business models. Oil Companies normally have independent business units for each area, sometimes even subsidiaries. On the people side, once a professional settles in one area of the industry, it is rare to see movement to another one. Even movement inside the same area is rare to see.

Upstream is known as the exploration and extraction of crude oil from the ground. It encompasses finding the reservoirs, drilling the wells to have access to the reservoirs and extraction (normally referred to as production) of crude oil.

Midstream refers to the storage and transportation of oil and gas. At this point, oil and gas have already been separated from each other and are treated as two independent streams. Transportation could be a pipeline connecting two facilities, road trucks or ships and barges transporting the fluids.

Downstream refers to the sector that refines, purifies and distributes the products. The refineries are a vast world of industries of high complexity. And the distribution is even more complex than the refineries.

As all definitions, there are exceptions to the rules. For example how would you classify a pipeline that transports the oil (or gas) from the production facility in the middle of the ocean to shore? The first answer would be midstream, of course. However most Oil Companies allocate these pipelines to the upstream business unit.

Another example is the temporary storage of crude oil in certain offshore production facilities. Would it be classified as midstream or upstream? Midstream of course! Well, these tanks are an integral part of the offshore production facility, which is classified as upstream.

Oil Companies are now turning their attention to offshore wind generators. There are hundreds, if not thousands, of commonalities between offshore oil production and offshore wind generation. Will be interesting to see how the Oil Companies settle their structure. Will they add the offshore wind generators to the traditional upstream business unit? Or will they create a new business unit?