Did you know that both the oil tanker at the port and railroad cars transporting crude oil are all part of a massive yet nearly invisible network? It’s called the Midstream and is the second major sector of the Oil and Gas industry trio (Upstream, Midstream, Downstream). This network is vital as it connects the other two sectors and makes sure that all products ultimately get to consumers in various forms (e.g., gasoline, plastic, etc). We cover the Midstream today, touching its five major parts, issues and challenges faced by companies in it, and how they’re turning to technological solutions to resolve them. 

Midstream Sector – Definition and Purpose 

In the Oil and Gas (O&G) industry, the Midstream sector encompasses all those involved in the preparation and movement of natural gas, natural liquid gas (NGL), and crude oil from areas of production (i.e., oil fields) to refineries and similar facilities to be transformed into marketable products like gasoline, diesel, and plastics. The infrastructure needed to move these resources like pipelines, trucks, railways, and ships, as well as store them, are under this umbrella. 

Independent and integrated midstream companies operate in the Midstream sector. Independent midstream companies, as their name implies, primarily provide services within the sector like transporting crude oil to plants. Integrated oil companies, on the other hand, are involved in all O&G sectors: upstream, midstream, and downstream. Both types follow policies set down by the Federal Energy Regulatory Commission (FERC), which is responsible for the midstream phase in the industry. 

Parts of Midstream Sector in O&G

Midstream companies perform a variety of tasks to successfully move raw products from Upstream for their transformation into consumer-usable products in the Downstream. These tasks can be broken down into five broad parts:

  1. Gathering

After a well is drilled and is producing gas or oil (product), that product has to be gathered. A gathering system usually consists of multiple pipelines laid in one area that are designed to “gather” the product that is produced from multiple wells to a central point. This central point may be a compressor station, a storage facility, a processing plant, a larger transmission pipeline or a shipping point. A gathering system may consist of hundreds of miles of pipelines gathering gas from hundreds of wells in an area or it may be just a few small pipelines gathering the product from a small handful of wells.

Gathering is the starting point for the midstream section of the energy industry.

  1. Processing

When oil is extracted from an oil field, it comes out as a mixture of oil, natural gas, and natural gas liquids. Field processing, or simply processing, separates the oil and gas from water, removes impurities, and stores them. The water is recycled or pumped into a disposal well, while oil, gas, and natural gas liquids flow to the respective storage units. 

  1. Storing

Storage is done in field tank batteries, product bulk terminals, refinery tanks, and holding tanks. Natural gas is usually stored underground in depleted gas reservoirs, salt caverns, and aquifers. 

Storage plays an important role in maintaining a balance in the supply and demand of oil in the international market. The storage tanks hold large volumes of oil and gas, and this gives market players an advantage in determining oil prices in the market.

If the storage tanks run out of oil and gas supply, the petroleum industry will exercise minimal control only in determining market prices for petroleum products. In such a case, the international market producers will achieve significant control over the price of crude oil and its refined products.  

  1. Transporting

Crude oil, gas, and natural gas liquids are transported from the production fields to an offsite temporary storage facility. Transportation is an important component of the midstream sector since crude oil and gas must be transported to other locations for further refining and subsequent distribution to the final consumers.

The main forms of transporting crude oil and gas include pipeline, truck, rail, and ships. Pipelines are the most common means of transporting crude oil and gas over long distances since they are safer and faster compared to rail and trucks. Trucks are used to transport oil and gas from production facilities to refineries or from refineries to the end-users. Although trucks move the lowest volume of petroleum products, they compensate for the inflexibility of other means of oil transportation, such as pipelines and ships.

Railcars are considered a cheap means of transporting oil and gas since the products can be loaded onto multiple railways for further transportation to a refinery or storage facility

Once they are refined, the end products – such as gasoline, LPG, diesel, and jet fuel – are transported again to end-users such as homes, factories, and gas stations.

  1. Marketing

Companies operating in the midstream industry are often responsible for finding buyers for their products. This is especially true for natural gas and natural gas liquids (NGLs). Resellers, other marketers and distribution companies, or end-users are examples of such buyers. 

Current Issues, Challenges in Midstream

Unsurprisingly, midstream companies face significant challenges in the processing, transport, and storage of oil & gas products. Five major examples include:

  1. Aging Pipes

There are more than 2.6 million miles of pipelines across the US. Many of the major ones were originally designed to last only 25 years. Midstream companies need to make substantial investment and technological advancement to extend their lifespan as well as enhancing their safety and environmental attributes. 

  1. Hodgepodge Monitoring, Data Gathering Systems 

Technologies used by Midstream companies like Industrial Control Systems (ICS) and SCADA (Supervisory Control and Data Acquisition) networks are often a blend of proprietary hardware, software, and communication protocols. This makes it difficult if not impossible to monitor in real-time the movement, storage, and processing of raw products throughout the supply chain. Data gathered from such systems become near impossible to sort to make meaningful observations. 

  1. Stalling Transportation through Emission Controls and Regulations 

Increasingly strict Green House Gasses (GHG) regulations and demand for Carbon Capture and Sequestration (CCS) are putting pressure on Midstream companies, which use many carbon-emitting vehicles like trucks and trips to transport products. 

  1. Cyberattack Vulnerabilities 

Oil and gas are crucial parts of many countries’ energy plans. Striking the industry could be crippling. Yet the recent 2021 Colonial Pipeline ransomware attack against the company’s billing system showed that attacks don’t have to be physical. The incident, which disrupted fuel supplies in the US, demonstrated how much just one password could do to unprotected systems.     

  1. Increasing Government Interference, Regulation

Companies trying to make investments into midstream infrastructure have suffered billions of dollars in losses as local, state, and federal agencies have flip flopped on providing permits or giving clear regulation. This lack of consistency could lead to reduced necessary resources for updates like new pipelines mentioned above.

Other issues include attracting young workers to the field; hesitation by investors due to “anti-carbon” push by the Environmental, Social, and Governance (ESG), and the “Not in My Backyard” of building new or even replacement pipelines through public or private land. 

Digital Solutions for the Midstream Sector

Confronted by the above challenges, midstream companies are finally realizing the value of going digital. They look to tap valuable data reservoirs in order to:

  • Increased Operational Visibility –  Lack of visibility into Midstream operations and processes can lead to interruptions and overspending. Where are the trucks for this shipment? What’s the time table for that crude oil to arrive at these ports? Use of software with extensive functionality and integration capabilities like artificial intelligence allows for real-time updates, real-time visibility and data storage. Companies can then see the “Big Picture” of their operations and react accordingly. Results can also help assure governmental bodies with compliance like meeting strict greenhouse gasses limits. 
  • Reduce Costs – The O&G is very expensive to operate. Armed with the data above, Midstream companies can critically evaluate their operational procedures. This in turn can lead to optimizing business processes, identifying loopholes, and cutting production costs without affecting quality levels. This can go a long way to assuring nervous financial bodies of the profitability of the sector.
  • Respond promptly to emergencies – Abnormalities such as pressure changes or compressor failures can be detected in real-time by industrial mini PCs and dealt with by field personnel responding to these conditions. The data can also be used to determine if parts are needing repair or replacement in near future. 
  • Improve Communication with all participants – Because midstream is based in moving, storing, and processing raw materials, clear communication is essential. Midstream companies and their partners, which range from vendors, suppliers to logistics providers and even customers, should have easy-to-access means of staying in touch. A field technician reporting into a waiting oil truck via an industrial tablet is one example. 

Closing Comment 

The Midstream sector of the Oil & Gas industry – Upstream, Midstream, and Downstream – deals with the transport of crude oil and natural gas to the appropriate plants for conversion to usable products like fuel. Companies involved have to deal with numerous challenges ranging from logistics, pipeline cybersecurity, to regulations governing the carbon emissions of vehicles used for transport.

If you and your company are in the Midstream and are looking for best uses for computers in your operations, contact a representative from Cybernet. 

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