The terms upstream and downstream are related to the production process of the oil industry and sometimes to the flow of a river.
To learn about the production process of the oil and gas industry, you have to understand that the supply chain is the most important part of the production process and is essential for the success of the business.
The use of terms upstream and downstream comes into use as the manufacturing process is imagined to be like the flow of a river.
- Downstream refers to activities that occur later in a process or supply chain, such as manufacturing, distribution, and sales, while upstream refers to earlier activities, such as resource extraction and raw material processing.
- In the oil and gas industry, downstream operations include refining and marketing crude oil into various products. In contrast, upstream operations involve exploration, drilling, and extraction of oil and gas resources.
- Downstream activities are closer to end consumers, while upstream activities are closer to the initial sources of raw materials and resources.
Downstream vs Upstream
The difference between upstream and downstream production processes is that the upstream process refers to all the activities performed to gather all the initial materials for manufacturing, whereas the downstream process includes the refining of crude oil and the retailing of the products to the consumers. There are two production segments in the manufacturing process: upstream and downstream.
The downstream production process is the final step in the manufacturing process of the oil and gas industry. The final steps include oil refining, supplying produced products, marketing, and retail.
The downstream process covers many activities, including large-scale manufacturing, petrochemical refining, distribution, and retailing of the final products.
The downstream segment is controlled by multi-national oil and natural gas manufacturing companies which sell the products made in the industry.
On the other hand, the upstream production process is all about finding the locations of wells and other required materials for the manufacturing process.
In the upstream stage of the production process, the workers search and extract the raw materials. The upstream industry basically consists of three segments, namely, exploration, drilling, and production.
The upstream production process is conducted by companies that search, identify, extract and produce raw materials for the oil and gas industry.
|Parameters of Comparison
|The final segment of the manufacturing process in the oil and gas industry including the sale of the final products
|The initial stage including activities like exploration and production of oil and natural gas
|Type of work done
|Converting crude oil into other products and selling those to consumers
|Locating underwater oil reserves and providing raw materials to manufacturers
|Distribution, retailing, wholesaling
|Exploration, drilling, production
|Atmospheric distillation unit, Vacuum distillation unit, Emission stacks
|Rigs, Donkey pumps, Christmas tree system
|Companies including oil refineries, petroleum product distributors, retail outlets
|Geologists, Geophysicists, Service rig operations, Scientists
What is Downstream?
The downstream segment of the manufacturing process includes activities like processing of oil and natural gas, refining crude oil, and transporting and selling refined products from crude oil.
The first step in the downstream process is oil refining, which is followed by the production of products that are then sold to consumers through retailers.
Once the crude oil is sent for refining, the work of the downstream segment workers starts. They store the crude oil in the Refineries and eventually send it to the distillation unit, where it is converted into various products like Petrol, Diesel, Kerosene, and many more.
These products are stored in tanks and later sent to the filling stations, whereas the excess oil left is exported for different use.
The downstream segment also includes the processing of natural gas as well. It is a very complex process involving chemical reactions to produce various products like ethane, propane, butane and many more hydrocarbons.
As for crude oil, it is refined using fractional distillation and produces many end-products, including gasoline, naphtha, diesel oil, and many more.
What is Upstream?
In the oil and natural gas industry, the upstream is the initial stage of the manufacturing process. It is all about finding locations of wells and about designing them to deliver a great result for the manufacturing process.
The upstream segment consists of three main processes: exploration of minerals, drilling and constructing wells, and producing oil and natural gas.
The first step of the upstream segment, exploration, refers to geologic surveys and gathering information about locations of specific areas minerals are likely to be found.
The geophysicists working in the upstream segment use various methods to measure the physical properties to detect the presence of oil or natural gas.
Then the geologists study the geological factors by scientific methods to design and construct a well to extract the minerals found in that place.
The second step in the upstream process is drilling. In order to be perfectly sure about the location of the well, one is to drill and find out.
After constructing the well, all that is left to do is to take the found crude oil and store it in the production unit until its time for the last step in the upstream segment.
The final step included in the upstream production process is the production itself. The production segment maximizes the recovery of petroleum from the reservoirs.
The crude oil is then transferred into the stock tank, from where the downstream production process starts.
Main Differences Between Downstream and Upstream
- The upstream segment involves the initial stages of the process, like exploration and extraction, whereas the downstream segment includes the final stages of the production process, like oil refining and retail.
- The downstream production process comes under the control of oil and gas retail companies, whereas the upstream production process is controlled by companies that explore and extract the raw materials.
- The upstream segment is about exploring and constructing wells, whereas the downstream process is about selling the final product.
- The upstream segment involves geologists, scientists, and geophysicists, whereas the downstream segment provides employment to many retailers.
- In the downstream process, the margins are reduced when the increased crude price is not recovered in the market, whereas in the upstream process, there is no such compromisation in margins.
Last Updated : 26 July, 2023
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Piyush Yadav has spent the past 25 years working as a physicist in the local community. He is a physicist passionate about making science more accessible to our readers. He holds a BSc in Natural Sciences and Post Graduate Diploma in Environmental Science. You can read more about him on his bio page.