The Oil and Gas Industry: A Bigger Picture

//The Oil and Gas Industry: A Bigger Picture

The Oil and Gas Industry: A Bigger Picture

An Exposition on the Upstram and Downstream facets of the Oil and Gas Industry

Written and Edited By Sriniketh Sukumar

SPE and AICHE Texas A&M student chapters jointly hosted the ‘Upstream & Downstream: The Big Picture’ seminar, which featured presentations by Dr. Ibere Alves from the Petroleum engineering department and Dr. Faruque Hasan from the chemical engineering department.

From Dr. Ibere Alves:

What is the objective of an Oil and Gas Company?

Prior to learning about the nuances and intricacies of the business, it is important to understand the underlying purpose of these operations. First and foremost, an oil and gas company, like any other company, wants to make money! It makes profit by producing oil. However, this isn’t an easy task, as the oil comes from a very difficult place: Underground, in the form of reservoir. Today, we have a lot of cutting edge technology to help us accomplish this, in fact, when oil prices are low, that is when we really need technological innovation to help make more money.

The first commercial oil well was drilled in Titusville, Pennsylvania in 1859 by ‘Colonel’ Edwin Drake, it was a mere 69 feet deep, and could produce 1200 barrels a day. Today, the deepest oil wells reach down below the ocean floor, to depths of up to 8000 feet that can produce millions of barrels a day. Development was fast, after just 5 years, there were many more rigs, all over the country. Back in those days, each rig had its own tower, until the invention of the ‘rig on the truck’ in 1901, which would allow companies to save cost by transporting and reusing the same drilling tower once drilling for a well was completed.


Figure 1: First Oil Well in 1859                                                                                                                Figure 2: Oil rigs in Pennsylvania in late 1800’s


Upstream refers to the exploration and production (E&P) part of the oil and gas industry. The upstream industry is mostly employed by geologists and petroleum engineers whose jobs it is to find and economically and efficiently extract oil and gas respectively. Petroleum engineers perform a variety of different roles on the oil field. An extraction process looks something like this:

Figure 3: The oil extraction process

The first two steps are considered upstream, the transportation of oil and gas is termed midstream, and storing and refining oil deals with the downstream industry as we will consider later.

Now for some more details about the upstream E&P process:

Geology and Reservoir engineering:

Oil is generated over millions of years through a process known as catagenesis. This is the process where organic material such as the remains of plants and animals such as algae, zooplankton (an organism that constitutes up to 95% of marine life), fossil remains of ancient creatures, all get compressed together under the heat and pressure under the Earth’s surface ‘over geologic time’ to produce oil and gas. It is the petroleum geologist’s task to find these concentrations of oil deposits, using a variety of seismic detection techniques. Oil is usually formed in a source rock, such as shale, migrated to a reservoir rock with a high porosity such as sandstone, and trapped by a fault or fold and an impermeable cap rock such as shale or limestone, which concentrates the reservoir into a smaller area, which makes it easier to locate. Of course, here it helps to make a distinction: We often hear the terms conventional deposits and unconventional deposits, but what to these terms really mean?

Conventional: Oil is found in a reservoir rock, which is permeable

Unconventional: Oil has to be extracted from its source rock, which is relatively impermeable, and has to be extracted through unconventional processes like hydraulic fracturing.


Figure 4: Conventional oil and gas deposit                                                                                Figure 5: Unconventional oil and gas deposit

Geologists can locate these deposits in the ocean by using air guns to test the depth of the ocean, amongst other data sources. On land, a more direct approach is used by testing a site with explosives.

Once a potential oil field has been identified, the reservoir engineer maps a 3D model of the reservoir, to produce a more complete image of where the oil is located and how it’s trapped. This type of model is called a ‘fluid flow dynamic.’ This is a creative process and requires imagination. Reservoir engineers also model the feasibility of the production of oil and gas from the reservoir, and based on their models analyze the risk associated with that reservoir.

Figure 6: A 3D Reservoir Model


Once the reservoir has been located and modeled, the only way to be completely sure that the deposit exists is to drill into the ground, and check. Incidentally, this is also the first step of the production process. A drilling rig consists of many components, but the two most important elements are the rig tower, and a drill bit. The drilling process is mainly having a machine that cuts into the ground, cutting rock. There are many different drill bit designs suited cutting into different kinds of terrains and rock outcrops.

A drilling fluid is stored in a tank, and is pumped through tubing, through the drill as it’s cutting through the subsurface, and cools and lubricates the drill bit, and brings up the rock cuttings and store it back in the tank. Once the drilling is completed and we’ve ‘struck oil’, we cement the well by putting a strong pipe between the drill pipe and the rock, firmly cementing it into the ground. Another important component is the blow out preventer, which halts all drilling operations if the pressure in the casing goes beyond a specific limit. A blowout in a drilling rig can be a very dangerous situation, since the oil and gas being produced can ignite, and potentially destroy the entire oil rig.


Figure 7: A drilling rig setup                                                                                                            Figure 8: Some drill bit designs


The next step in the extraction process is completions, which is done to increase the ability of the well to produce oil. One way to accomplish this is to perforate the cementing, casing and outer lying rock with a series of controlled explosions, and then in the case of hydraulic fracturing, which involves horizontal or directional drilling, inject fluid and sand proppant into the fracture. All this is controlled through an assemblage of valves and pipes sometimes referred to as a ‘Christmas Tree’ due to its resemblance to the famous holiday icon.

Figure 9: A Christmas Tree for Flow Control


This is the process where oil and gas are actually produced from the wells. A variety of very interesting things take place in place of production, which combines the fields of science, technology and economics, such as the formation of natural gas hydrates from gas dissolved in oil, when the temperature is decreased during drilling oil, which forms what is essentially, ‘ice that burns’. Another example of innovation is Remote operated vehicles, or ROV’s, which are robots that are used to analyze subsea situations involving wells, whether they are for repairs or modifications. Wells can be considered asset production systems, whose time bounded production can be used to calculate its net present value, which is the technical term for finding out how much a particular well is worth.

On a concluding note, the upstream industry is a primary sector industry that deals with the extraction of raw materials, which serve as the input for a plethora of industrial and daily use products.

From Dr. Faruque Hasan:


By contrast, the downstream industry is a very broad application of the oil and gas input provided by the upstream industry. The field of chemical engineering began in the 1880’s during the industrial revolution, when engineers produced many innovative machines, but required different kinds of fuels to power them, amongst various other forms of chemicals and other materials to ‘tie together’ the process in various other engineering disciplines. For this reason, chemical engineers are sometimes referred to as the ‘jack of all trades’.

Figure 10: The field of Chemical Engineering

Chemical engineers work with the oil supply chain, which is the process flow associated with separating different types of chemicals from crude oil, and the storage and distribution of the refined fuels. Chemical engineers ask questions such as where a plant should be located, as well as how to….

  • Store
  • Transport
  • Separate
  • Refine
  • Plan
  • Schedule
  • Optimize and control operations

Figure 11: Process Flow Diagram for an oil refinery

So, as we can imagine, a chemical engineer works on multiple levels. More specifically, a process engineer is responsible for creating and maintaining a process flow diagram for the duration of the entire project.

The oil itself is separated by a process of fractional distillation, which works on the principle of relative volatility. Since crude oil is a mixture that contains many different compounds, each of which has a different boiling point, it can be refined in a fractionating tower. Each fraction has its own application, as shown in Figure 12. A fractionating tower produces both final products such as fuels, diesels, and refinery gas, but it also produces intermediaries that are further used as inputs for producing petrochemicals.

Figure 12: A Fractionating tower

It is perhaps appropriate to include a note about environmental concern here: A chemical refinery plant does indeed emit greenhouse gases, but chemical engineers are also responsible for taking into account the acceptable levels for this as well, when planning out process flow diagrams. For example, a chemical engineer might ask himself, what is the maximum amount of fuel I can burn given this limit of pollutants, and but still meet the minimum needed to meet the current energy demand? Oftentimes, this is not at all an easy question to answer.

But in a more general sense, chemical engineers are in a way kind of economists, because they have to examine the hierarchy of demand, that is, the societal need for these products, and plan their supply and production accordingly. Since so much information and analysis is needed to predict demand accurately, chemical engineers are considered to be on the lowest level of informational downflow.

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