To ensure the success of any business, management plays a pivotal role. In the case of the oil and gas industry, effective management is crucial due to its substantial contribution to the economies of major countries worldwide. One of the key factors for the prosperity of oil and gas companies is the continuous discovery of fresh reserves. As production levels decline over time, the industry’s survival heavily relies on finding new resources.
If the oil and gas sector fails to discover additional reserves to compensate for decreasing production, it could face significant challenges. Therefore, understanding and implementing efficient global oil and gas management practices become paramount for sustaining the industry’s growth and ensuring its long-term viability. The importance of management extends beyond just this sector; it plays a vital role in driving success in various other industries as well. Thus, delving into the realm of oil and gas management can be highly beneficial in comprehending the complexities and strategies that drive this vital sector.
Overall Oil and Gas management
In oil and gas management, a manager’s main duties are to find new oil and gas reserves, develop them, and produce crude oil and natural gas. This involves using advanced technology like seismic analysis and deep sea drilling. But it’s also important to follow government rules, guidelines, and obtain necessary permissions for exploring and discovering new oil and gas deposits. Let’s explore some broader strategies and approaches used in oil and gas management.
1. Access and exploration
Access and exploration are the first steps in managing oil and gas globally. To find new oil and gas reserves, companies need to gain legal rights to explore the land. This process can be challenging and expensive.
Outlined below are the procedures involved in accessing unexplored oil and gas reserves and conducting exploratory drilling in these areas.
- Oil Finding
The initial steps in managing oil and gas reserves involve accessing untapped resources and conducting exploratory drilling. Oil exploration, which is the search for new oil and gas deposits, can be quite challenging and costly. Early discoveries of oil and gas were made by observing geologic seepage at the surface, leading to the identification of potential resources located hundreds or thousands of feet below the ground. Mapping sedimentary rock formations on the surface played a significant role during these early years. To further advance exploration, the development of seismic technology became crucial. This technology uses sound waves generated from a source to map subsurface formations, providing valuable information about potential oil and gas reservoirs. - Rights to access and development
Before a company can begin significant exploration in a particular area, it must secure legal access to the land. Most of the mineral rights and subsurface rights are held by the state, granting them the authority to conduct exploration and development. The first step is to identify the properties and rights owners, which allows companies to negotiate access to the land for oil and gas exploration.
If oil is discovered during the exploration process, the company enters into a detailed contract with the rights holder, typically the state. This contract, known as an all-inclusive development pact, is an essential part of the country’s modern fiscal structure. It defines the company’s role in the oil and gas venture and covers important aspects such as license costs, royalties, profit/loss sharing on oil, and other financial considerations. This ensures that both the company and the state benefit from the venture.
2. Oil and gas production management
Oil and gas production management covers the entire process, starting with extracting raw materials from wells and ending with the creation of finished petroleum products. It’s a systematic approach that involves identifying potential locations, extracting the resources, and distributing the final products to merchants and consumers.
The production process can be divided into three main stages: upstream, midstream, and downstream.
- Upstream:
In the upstream phase, geologists and specialists explore and drill to discover potential oil and gas reservoirs. Once a suitable location is found, preparations are made for extraction through wells and subsurface reservoirs. - Midstream:
The midstream phase involves processing and storing the extracted oil and gas. Gas processing plants remove byproducts and non-hydrocarbon gases from oil and natural gas, and proper storage facilities are established to meet domestic and international demand. - Downstream:
The downstream phase is the final stage where crude oil and natural gas are refined to create various petroleum products that can be sold to consumers.
Overall, oil and gas production management requires a well-coordinated and efficient approach to ensure the smooth flow of resources from exploration to distribution.
3. Transportation Management
Transporting oil and gas from the wellhead to refineries and consumer markets is a crucial part of managing these valuable resources. Here are some important factors to consider in the transportation process:
Fundamentals
- Distance: The distance to be covered determines the mode of transportation. Shorter distances often use trucks, barges, or trains, while longer distances rely on tankers and pipelines.
- Gas vs. Oil: Oil is easier to transport because it’s a heavy liquid. Gas, on the other hand, requires special methods for transportation.
- Ownership and Politics: The ownership and political aspects of global oil and gas transportation can be complex, involving various parties, companies, and governments.
- Environmental Concerns: Due to safety and environmental risks, measures are taken to protect against accidents during transportation via trucks, trains, pipelines, and tankers.
- Impact on Prices: Transportation costs are factored into the selling prices of oil and gas, affecting the amount producers receive for their resources.
Upstream transportation
Crude oil, also known as “black oil,” and natural gas are moved from production fields to refineries through different modes of transportation. Land-based pipelines are commonly used for crude oil, while maritime supertankers are employed for transporting natural gas. However, accessing certain production sites on land and at sea can present significant challenges, making it hard to establish cost-effective transportation methods for oil and gas.
Pipelines
Pipelines play a vital role right from the beginning of oil and gas management. Engineers often say, “Nothing happens until we get our lines in place,” emphasizing their importance in the process. Whether the well is on land or at sea, the initial step in transporting the produced oil and gas is to confine it within pipelines.
Buried pipelines offer greater safety and security, but they come with higher construction costs. However, these added expenses are quickly recovered over the pipeline’s lifetime through reduced repair and maintenance expenses.
Pipelines serve as the backbone of the global energy distribution network for oil and gas. They cover vast distances, crossing challenging terrains like undersea tunnels, dense rainforests, and steep mountain ranges, ensuring efficient transportation of these valuable resources worldwide.
Oil Tankers
Today, the primary mode of transporting crude oil is through oil tankers. These specialized ships are designed to carry crude oil over long distances, mainly from production sites to refineries. For moving petrochemical products from refineries to consumer markets, smaller product tankers are usually used, as they are better suited for navigating narrower waterways and have handling facilities available.
To accommodate various restrictions like draught, waterway width, and navigational abilities, smaller tankers are often necessary for coastal and inland waterway movements. However, for long-distance crude oil transportation, massive carriers called Very Large Crude Carriers (VLCCs) and Ultra Large Crude Carriers (ULCCs) take center stage. These behemoth ships traverse global trade routes, efficiently moving vast quantities of crude oil across the globe.
Downstream Transportation
Refined derivatives and petroleum-based products, which are downstream products of crude oil, are transported using various transportation methods. These can include almost every imaginable mode of transport. On the other hand, upstream products are predominantly moved through pipelines and large tankers.
When it comes to transporting petroleum products from refineries to consumers, the most common means are pipelines, railroads, and tanker trucks. These methods are widely utilized in the industry for their efficiency and effectiveness.
Present-day railroad transportation
In the present day, railroad tanker cars used in global oil and gas management have seen significant advancements. They are now more expensive, sophisticated, and technologically advanced compared to their older versions.
Today’s train tank cars come with various distinctive features. Depending on the requirements, they can be single- or multiple-load capable, insulated, lined, pressurized, or capable of carrying different types of loads. These tank cars are highly specialized vehicles, often utilizing materials like glass to separate the tank from the cargo being transported. This is especially crucial when dealing with caustic or acidic loads.
Due to their unique design and purpose, tank cars can only travel in one direction and are not as commonly found as freight or boxcars. Their specialized nature makes them an essential component of transporting various types of liquids and gases in the oil and gas industry.
4. The refining management
The refining process plays a vital role in oil and gas management as it adds economic value to crude oil by transforming it into consumer goods. A refiner’s assessment of crude oil’s value is solely based on the worth of the products that can be derived from it. Here are the competitive dynamics in the refining industry and some key developments that influence the field.
Refining Methods
Modern refining techniques in global oil and gas management face unique challenges. Refiners constantly strive to optimize operations, reduce costs, and minimize emissions to maximize profits per barrel of crude oil. As a result, refining processes are continually evolving.
Crude oil typically contains water, inorganic salts, suspended particles, and trace metals soluble in water. Desalting, the first refining step, is crucial to prevent equipment corrosion, clogging, and fouling, and protect processing unit catalysts from poisoning. This process removes contaminants to achieve dehydration.
The next step is distillation, where the oil is heated to high temperatures in a furnace to separate its different components.
To remove pollutants like nitrogen, sulfur, oxygen, and metals from petroleum liquids, a pollutant-removing hydrogenation process known as “hydro treatment” is applied. Compliance with fuel standard regulations dictates the number of contaminants to be removed. Ensuring these pollutants are removed from petroleum fractions is vital to maintain machinery, catalysts, and the overall quality of the final product in the refinery’s processing units.
Integrated and independent Refiners
Integrated refiners have a competitive advantage as they control the entire production process and can handle price fluctuations in refining components better. On the other hand, independent refiners may face lower refining profits if they are exposed to rising crude oil costs and falling processed goods prices. Integrated refiners optimize their complex network of assets by engaging in strategic crude buying and selling with other refiners.
5. Financing management
In the oil and gas industry, just like any other business, having access to capital at reasonable costs is crucial for smooth operation and growth. However, managing finances in the oil and gas sector can be more challenging as its capital needs tend to increase rapidly compared to many other industries.
Conclusion
Oil and gas management plays a vital role in the global economy. Besides being a primary fuel source, petroleum finds use in various other applications. The industry is preparing to tackle challenges brought on by climate change, alternative energy sources, energy replacements, and changes in the quality of downstream feedstocks. As a result, there is a growing need for managers with a comprehensive understanding of oil and gas management to address these complexities effectively.
