The oil industry has always played a significant role in the economics of any given country. The industry is complex and occupies a substantial portion of the global market. The complexity of the supply chain caused it to be divided into three separate segments: upstream, midstream, and downstream. It is necessary to analyze all segments of the supply chain to clarify the differences between them.
Due to the complexity of oil and gas products’ production, transportation, storage, and realization the supply chain is divided into three segments according to the stage the product is at currently. Some companies include all three stages in their operations, but due to their complexity, most companies opt to focus on one or two segments (Lima & Relvas, 2016). Management of only one segment of the supply chain has its benefits and drawbacks: it is less financially burdensome for the company but is more prone to the volatility of the market and global competition.
The upstream segment of the supply chain focuses on crude oil extraction and its transportation. The process begins with an exploration of new areas for potential crude oil fields. Once a well is found, new drilling constructions are built and the oil is extracted to be later transported to refining factories. The process of refining is also known as the midstream segment of the petroleum industry. Midstream companies purify crude oil and natural gas making them into a product for the market. The downstream segment includes storage, primary and secondary distributions, and marketing of refined products. Logistics is one of the key assets of such companies since they rely on optimized routes to deliver final products to customers that are divided into two groups: wholesale and retail (Lima & Relvas, 2016). The wholesale segment is represented by power plants and large fuel consumers, while retail consumers use fuel for domestic purposes and transportation.
Due to the complexity of the petroleum industry, it has to be divided into three separate segments. Upstream and midstream segments focus on extraction and refining of crude oil and natural gas, while the downstream segment’s main focus is marketing and transportation. Petrol and natural gas are realized on the market for two types of customers, according to the number of products they consume.
Reference
Lima, C., Relvas, S., (2016). Downstream oil supply chain management: A critical review and future directions. Computers & Chemical Engineering, 92, 78–92.