While the traditional view of the oil and gas distribution system held only two segments, upstream and downstream, the now more widely accepted model shows three segments. All of the processes between the wellhead and the refinery gate are now considered “midstream.” In his presentation at VMA’s Leadership forum in Dallas, January 2013, Paul Hart, editor of Midstream Business, analyzed the opportunities in this segment of the oil and gas industry.
The largest area of growth is, of course, the development of shale gas plays, thanks to technological advances that have made it possible to extract both natural gas and liquids from hitherto unreachable reserves. The issue has become one of getting those natural resources from where they are extracted to where they are needed.
It is there that huge potential exists for valve, actuator and control manufacturers in the midstream process, which includes gathering, processing and production clean-up of sulfur, and CO2 along with water removal. According to Hart, the midstream segment also includes separation of natural gas liquids including ethane, propane and butane from the stream. Storage and transportation liquefied natural gas by pipeline, barge, or truck is also considered midstream.
Before the evolution of the midstream segment, gathering, processing and affiliated processes were considered a part of, and operated as an adjunct to the upstream and downstream paths. However, the current view is that separate, stand-alone companies can be responsible for this segment, resulting in better focus on those processes. Often these companies are comprised of master limited partnerships, which attract investors with high returns.
Technology Feeds Midstream
Part of what has made it possible to operate these functions as a stand-alone segment is the huge change in technology over the last five years. This is especially true for the resources being tapped from unconventional plays. Drillers have perfected methods to extract oil & gas from tight rocks, progress that has basically changed “everything” according to Hart.
While there has been a huge increase in natural gas production, there has not been a corresponding increase in demand. Consequently, prices are low, which opens the door to an improved and renewed U.S. petrochemical industry since its feedstock—ethane, propane and butane—are derived from natural gas. This works in consort with the jump in crude oil production, which increased 23% from 2012 to 2014, and is currently at its highest level in 25 years.
Getting Resources to Users
What does this have to do with the growth in the midstream sector? Hart responded: “Because resources aren’t necessarily found where they can be used. That gas or oil needs to get from the plays to the refineries, meaning that there will be big opportunities in new oil and gas gathering and processing systems.”
There is a huge need for pipelines for crude oil as well as gas and gas liquids. There is growth also in the need for refinery modifications and, since the petrochemical industry itself is set for a growth spurt, that means opportunities in new plants.
There has also been a push to run automobiles on compressed natural gas, meaning there are midstream opportunities for the infrastructure to make it feasible to run consumer vehicles on the substance. Additionally, due to the surplus in natural gas, there is much discussion about liquefying natural gas and exporting it—another growth opportunity for midstream companies.
Worldwide Markets Beckon
These are just in the domestic market. Worldwide there are many more opportunities, according to Hart. There are big shale plays in Asia and Europe awaiting development, and there are numerous refining expansions going on in the Mideast and Asia.
The opportunities in all of this for valve, actuator and control manufacturers, are enormous. Hart enumerated the valves used in midstream: quarter-turn ball valves, control valves, plug valves and pipeline through-conduit gate valves. Of course, these will all need actuation and sophisticated control systems to keep track of all that hardware.
With pipeline safety under so much scrutiny, this is an opportune time for innovation in the sector, for manufacturers and suppliers to engineer the best possible products that will satisfy the increasingly stringent requirements from midstream end users, regulatory bodies and the general public.