Upstream, Downstream, All Around the Stream - A brief history of petroleum

All of the oil world is divided into three: 1) The "upstream" comprises exploration and
production; 2) The "midstream" are the tankers and pipelines that carry crude oil to
refineries, and; 3) The "downstream" which includes refining, marketing, and distribution,
right down to the corner gasoline station or convenient store. A company that includes
together significant upstream and downstream activities is said to be "integrated".

By generally accepted theory, crude oil is the residue of organic waste--primarily
microscopic plankton floating in seas, and also land plants--that accumulated at the bottom
of oceans, lakes, and coastal areas. Over millions of years, this organic matter, rich in
carbon and hydrogen atoms, was collected beneath succesive levels of sediments. Pressure
and underground heat "cooked" the plant matter, converting it into hydrocarbons--oil and
natural gas. The tiny droplets of oil liquid migrated through small pores and fractures in the
rocks until they were trapped in permeable rocks, sealed by shale rocks on top and heavier
salt water at the bottom.

Typically, in such a reservoir, the lightest gas fills the pores of the reservoir rock as a "gas
cap" above the oil. When a drill bit penetrates the reservoir, the lower pressure inside the bit
allows the oil fluid to flow into the well bore and then to the surface as a flowing well.
"Gushers" - "oil fountains" as they were called in Russia--resulted from failure (or, at the
time, inability) to manage the pressure of the rising oil. As production continues over time,
the underground pressure runs down, and the wells need help to keep going, either from
surface pumps or from gas reinjected back into the well, known as "gas lift". What comes to
the surface is hot crude oil, sometimes accompanied by natural gas.

But as it flows from a well, crude oil itself is a commodity with very few direct uses.
Virtually all crude is processed in a refinery to turn it into useful products like gasoline, jet
fuel, home heating oil, and industrial fuel oil.

In the early years of the industry, a refinery was little more than a still where the crude was
boiled and then the different products were condensed out at various temperatures. The
skills required were not all that different from making moonshine, which is why whiskey
makers went into oil refining in the nineteenth century. Today, a refinery is often a large,
complex, sophisticated, and expensive manufacturing facility.

Crude oil is a mixture of petroleum liquids and gases in various combinations. Each of these
compounds has some value, but only as they are isolated in the refining process. So, the first
step in refining is to separate the crude into constituent parts. This is accomplished by
thermal distillation--heating. The various components vaporize at different temperatures and
then can be condensed back into pure "streams".

Some streams can be sold as they are. Others are put through further processes to obtain
higher-value products. In simple refineries, these processes are primarily from the removal
of unwanted impurities and to make minor changes in chemical properties. In more complex
refineries, major restructuring of the molecules is carried out through chemical processes
that are known as "cracking" or "conversion". The result is an increase in the quantity of
higher-quality products, such as gasoline, and a decrease in the output of such lower-value
products as fuel oil and asphalt.

Crude oil and refined products alike are today moved by tankers, pipelines, barges, and
trucks. In Europe, oil is often officially measured in metric tons; in Japan, in kiloliters. But in
the United States and Canada, and colloquially throughout the world, the basic unit remains
in "barrel", though there is hardly an oil man today who has seen an old-fashioned crude oil
barrel, except in a museum.

When oil first started flowing out of the wells in western Pennsylvania in the 1860's,
desperate oil men ransacked farmhouses, barns, cellars, stores, and trashyards for any kind
of barrel--molasses, beer, whiskey, cider, turpentine, sale, fish, and whatever else was
handy. But as coopers began to make barrels specially for the oil trade, one standard size
emerged, and that size continues to be the norm to the present. It is 42 gallons.

The number was borrowed from England, where a statute in 1482 under King Edward IV
established 42 gallons as the standard size barrel for herring in order to end skullduggery
and "divers deceits" in the packing of fish. At the time, herring fishing was the biggest
business in the North Sea. By 1866, seven years after Colonel Drake drilled his well,
Pennsylvania producers confirmed the 42-gallon barrel as their standard, as opposed to ,
say, the 31 1/2 gallon wine barrel or the 32 gallon London ale barrel or the 36 gallon
London beer barrel.

And that, in a roundabout way, brings us right back to the present day. For the 42 gallon
barrel is still used as the standard measurement, even if not as a physical receptacle, in the
biggest business in the North Sea--which today of course in not herring, but oil.

This article taken from "The Prize" by Daniel Yergin