ISSN: 2980-339X Date Submitted: 23.04.

2023
DOI: Date Revised: 03.05.2023
Vol. 2(1): 8-15 Date Accepted: 11.05.2023
RESEARCH ARTICLE

PRODUCTION ON THE OİL AND GAS: AN OVERVIEW

Fatma CENGİZ1
Oğuzhan KINAY2

ABSTRACT

The petroleum industry, with its diverse applications, has a significant and wide-ranging
environmental impact. Crude oil and natural gas, being crucial energy sources and raw materials,
play essential roles in modern daily life and the global economy. Over the past 150 years, their
production has rapidly increased to meet the growing demands of the expanding human
population, technological advancements, knowledge, and consumerism. The petroleum industry
has extensive environmental impacts, including the generation of toxic and non-toxic waste,
emissions of greenhouse gases, and contribution to climate change. The industry is a significant
source of carbon dioxide and methane emissions, leading to global warming and environmental
degradation. Efforts towards conservation, efficiency, and waste reduction are essential for
environmental sustainability and minimizing negative impacts.This article provides a overview of
the oil and gas industry, inculudes various aspects from production processes to major players,
economic indicators, industry trends, and environmental impacts.

Keywords: Oil Production, Gas Production, Environmental Sustainability

INTRODUCTION

1
TESPAM Researcher
2
TESPAM Executive Assistant
The process of oil and gas production involves multiple stages, encompassing the discovery of resources,
their transportation to refineries, and the conversion into sale-ready finished products. These stages are
commonly referred to as upstream, midstream, and downstream segments within the industry.

1.1. Constituents of Oil and Gas

Crude oil and natural gas, the primary constituents of hydrocarbons, exist naturally within rock formations
in the Earth's crust. The sedimentary rock originates from ancient ocean deposits and other water bodies.
As layers of sediment accumulate on the ocean floor, the decomposed remains of plants and animals
become incorporated into the developing rock. Over time, these organic materials undergo
transformations into oil and gas, facilitated by specific temperature and pressure conditions deep within
the Earth's crust.

Due to their lower density compared to water, oil and gas migrate through porous sedimentary rock toward
the Earth's surface. When these hydrocarbons encounter less-porous cap rock, they become trapped,
creating reservoirs of oil and gas.

To extract hydrocarbons, drilling penetrates the cap rock and reaches the reservoir. Once the drill bit
reaches the reservoir, a productive oil or gas well can be established, enabling the pumping of
hydrocarbons to the surface. In cases where drilling does not yield commercially viable quantities of
hydrocarbons, the well is deemed a dry hole and is typically sealed and abandoned.

1.2. Upstream, Midstream, Downstream

The oil and gas industry is broken down into three main segments: upstream, midstream, and
downstream.

1.2.1. Upstream

Upstream operations encompass companies engaged in the exploration and extraction of oil and gas
reserves. These are the enterprises that search globally for reservoirs containing these raw materials and
subsequently employ drilling techniques to extract them. Often referred to as "E&P" companies, which
stands for "exploration and production," they operate within a domain characterized by substantial risks,
significant capital investments, prolonged durations due to the time required for locating and drilling, and
high technological intensity. Essentially, all the cash flow and income generated by E&P companies
directly stem from their oil and gas production activities 1.

1.2.2. Midstream
Midstream enterprises specialize in transportation within the oil and gas industry. They assume
responsibility for conveying the extracted raw materials to refineries for processing. Midstream companies
are primarily engaged in shipping, trucking, pipeline operations, and storage of these raw materials. The
midstream segment operates under significant regulatory oversight, particularly concerning pipeline
transmission, while entailing lower capital risks. This segment's success is naturally interconnected with
the performance of upstream firms.

1.2.3. Downstream

Downstream businesses encompass refineries and gas stations. Refineries are responsible for purifying
and converting oil and gas into consumer products. Gas stations are the primary locations where
consumers refuel their vehicles at the pump 2, 3.

Ultra-low sulfur Other distialles

(heating oil)–<1
Jet fuel –4

Heavy fuel oil

Other products –6 (residual)–1

Hydrocarbon
gas liquids –2
Gasoline –20

Figure 1: Products from Crude 4

WHO IS THE MAJOR PLAYERS IN THE SECTOR

Major Players

Oil, as a dominant global energy source, is supplied by oil companies that deliver billions of barrels of
petroleum products daily to fuel transportation and industry. Despite increasing public concern about
climate change and efforts to reduce reliance on carbon-based fuels, the industry has not yet been fully
impacted by these measures.

1. Saudi Arabian Oil Co. (Saudi Aramco)

• Revenue (TTM): $590.3 billion

• Net Income (TTM): $156.5 billion

• Market Cap: $1.8 trillion

• 1-Year Trailing Total Return: -3.7%

• Exchange: Saudi Arabian Stock Exchange

Saudi Aramco is the largest global oil company in terms of revenue and one of the largest companies
across all industries worldwide. While it is the only company on this list not traded in the U.S., Saudi
Aramco holds a prominent position as the world's largest integrated oil and gas company. It has
established facilities in strategic innovation hubs in the United States, Europe, and Asia 5, 6.

2. China Petroleum & Chemical Corp. (SNPMF)

• Revenue (TTM): $486.8 billion

• Net Income (TTM): $10.5 billion

• Market Cap: $55.7 billion

• 1-Year Trailing Total Return: 18.6%

• OTC Markets

China Petroleum & Chemical, also known as Sinopec, is a major producer and distributor of various
petrochemical and petroleum products. Their offerings include gasoline, diesel, kerosene, synthetic
rubbers and resins, jet fuel, and chemical fertilizers. Sinopec ranks among the largest oil refining, gas, and
petrochemical companies globally 6.

3. PetroChina Co. Ltd. (PCCYF)

• Revenue (TTM): $486.4 billion

• Net Income (TTM): $20.9 billion

• Market Cap: $78.7 billion

• 1-Year Trailing Total Return: 12.5%

• OTC Markets

PetroChina, the publicly listed unit of China National Petroleum Corporation, stands as the largest oil and
gas producer and distributor in China. It contributes approximately 50% and 60% to China's domestic oil
and gas production volume, respectively 6.

WHAT IS THE ECONOMİC INDICATORS

Oil and gas investors rely on specific economic indicators to gain insights into future trends in the
petroleum industry. Similar to other commodity markets, oil and gas companies and petroleum futures are
influenced by factors such as inventory levels, production rates, global demand, interest rate policies, and
aggregate economic indicators like gross domestic product (GDP).

Oil Inventories

Oil reserves are crucial resources with significant economic and strategic importance for many countries.
Nations like the United States maintain substantial stockpiles of crude oil for future use. Changes in oil
stock levels serve as indicators for investors, reflecting trends in production and consumption.

The Energy Information Administration provides a weekly estimate of petroleum and liquid supplies,
offering insight into market dynamics. When inventory levels consistently increase, suppliers tend to lower
prices to encourage more purchases. Conversely, declining production levels lead to higher prices as
buyers compete for limited supply of petroleum commodities.

Refinery Use and Production

Accompanying the release of crude inventories, various data points focus on crude oil production,
including domestic output, refinery input and utilization rates, as well as inventory levels of products like
motor gasoline. All this information helps investors understand the fundamentals of the crude oil market.
Refinery use is particularly significant, as it determines the available capacity for additional supply. High
refinery utilization means it is challenging to process more oil, resulting in lower supply and higher prices.

Investors should pay attention to the ratio between refinery use and capacity. Expanding refinery capacity
is a costly and time-consuming process. If demand surpasses the existing capacity, it can lead to higher
prices until capacity can be increased.

Global Demand and Economic Performance

Economic development in densely populated countries like India and China can significantly drive up
global demand for oil and gas products. Conversely, economic downturns often reduce petroleum demand
as businesses scale back operations and households curtail gasoline usage to save money. The Great
Recession of 2007-2009 serves as a notable example, during which oil and gas prices plummeted by over
70% in less than six months.

Aggregate indicators of economic performance provide insights into expected shifts in oil and gas demand.
Gross domestic product (GDP) measures the overall levels of spending and production in an economy,
and it is generally assumed that increases in GDP lead to higher demand for oil.

Government Policy: Interest Rates, Taxes, and Regulation

Government policies play a significant role in shaping the oil and gas industry, particularly through interest
rates, taxes, and regulations. These factors have wide-ranging impacts on the sector, commodity prices,
and the operations of producers, consumers, and investors.

Interest rates are crucial economic indicators that affect industries tied to commodities and finance.
Changes in interest rates influence inventory storage costs, borrowing and spending behaviors of
producers and consumers, as well as the capital costs and structure for petroleum producers, including
land, buildings, machinery, and equipment.

Tax policies implemented by governments have a direct impact on business performance and profitability.
Higher taxation on petroleum products or oil and gas companies can restrict output and potentially lead to
price increases. Conversely, lower taxes can have the opposite effect, stimulating production and
potentially lowering prices.

Regulation is another critical aspect that must be considered. With growing environmental concerns
associated with the burning of fossil fuels, governments may impose higher taxes or stricter regulations
on oil and gas companies to intentionally reduce consumption levels. These measures directly influence
supply and demand dynamics and consequently impact prices.

Overall, government policies regarding interest rates, taxes, and regulations significantly shape the oil and
gas industry, influencing costs, production levels, and ultimately, the price of petroleum products 7.

WHAT IS OİL AND GAS INDUSTRY TRENDS

Upstream: Creating Opportunities in the Oil and Gas Industry

A strong financial position paves the way for opportunities in the oil and gas sector. In the upstream
segment, global companies are expected to generate record-high free cash flows of $1.4 trillion by the
end of 2022, assuming an annual Brent oil price of $106 per barrel. By focusing on cash flow generation
and shareholder payouts, upstream companies have the chance to make significant investments or
increase their reinvestment rate, driven by the need to provide affordable energy to the world.

Clean Energy:Accelerating the Clean Energy Transition with New Policies

The increasing support for clean energy, combined with improved cash flows in the oil and gas industry,
has enabled companies to boost investments in clean energy solutions. While this trend is expected to
continue, several factors may influence the pace and focus of clean energy investments in the next year.
New policies and investments could also enhance the role of natural gas, including initiatives to reduce its
greenhouse gas intensity and improve related infrastructure. The United States, in particular, aims to
produce natural gas with lower carbon and methane emissions while exporting additional supplies,
especially to Europe. Certified natural gas and carbon-neutral liquefied natural gas (LNG) are projected
to gain momentum in 2023.

Downstream: Adapting to Changing Energy Demand in Refining

Refineries may face challenges in the upcoming year, including weakening demand, concerns about a
potential recession, and a projected increase of 1.6 million barrels per day in global refining capacity. US-
based refiners, prioritizing financial stability, operational optimization, and the production of renewable
fuels, are not expected to significantly expand their core refining capacity.

Mergers and acquisitions: Market Trends and M&A Outlook

The oil and gas industry is poised for mergers and acquisitions (M&A) as projected record cash flows and
renewed interest in resource industries create favorable conditions. However, M&A activity in 2023 may
be tempered by capital discipline and uncertainties in the economic environment. A survey reveals that
27% of executives consider high and stable energy prices crucial for sustaining M&A momentum in the
coming year 8.

THE EXTENSIVE ENVIRONMENTAL IMPACT OF THE PETROLEUM INDUSTRY

The extraction, refinement, and transportation of oil and gas generate substantial amounts of both toxic
and non-toxic waste. Improper management of industry by-products, such as volatile organic compounds,
nitrogen and sulfur compounds, and oil spills, can lead to harmful levels of pollution in the air, water, and
soil 8, 9.
The emissions from the petroleum industry, including greenhouse gases like carbon dioxide (CO2) and
methane, as well as micro-particulate aerosols like black carbon, contribute to global climate change,
ocean acidification, and rising sea levels.

Beyond fuel production, petroleum enables the manufacturing of various consumer chemicals and
products, including fertilizers and plastics. Many alternative technologies for energy generation,
transportation, and storage are currently dependent on petroleum due to its wide-ranging usefulness.
However, industry and consumer efforts towards conservation, efficiency, and waste reduction can
contribute to better environmental sustainability and minimize the negative impacts associated with
petroleum products 10, 11.

CONCLUSION
The production of oil and gas involves multiple stages like including the exploration and extraction
of hydrocarbon reserves. Upstream companies are responsible for exploration and production,
midstream companies focus on transportation, and downstream companies deal with refining and
distribution. Crude oil and natural gas are formed through the compression of organic remains in
sedimentary rocks and are extracted through drilling techniques.
Some of the major players in the oil and gas industry include Saudi Aramco, China Petroleum &
Chemical Corp (Sinopec), and PetroChina Co. Ltd. While these companies generate significant
income, and they are giving way to the industry.
The role of the Economic indicators in the oil and gas industry, influencing factors such as
inventory levels, production rates, global demand, interest rates, and government policies.
Investors closely monitor indicators like oil inventories, refinery use and production, global
demand, and economic performance to gain insights into future trends.
Industry trends include opportunities in the upstream sector, clean energy transition, challenges
faced by refineries, and the potential for mergers and acquisitions. Upstream companies have the
chance to make significant investments due to improved cash flows, while the increasing support
for clean energy is driving investments in renewable solutions. Refineries may face challenges
due to weakening demand and increased refining capacity.

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Ethics Committee Permission

Ethics committee permission is not required for this study. No research has been conducted on any living
creature (human and animal). The article belogst to the field of literature.

Deconfliction Statement
The author of the article declares that there is no conflict of financial interest between him and any
institution, organization, person related to this study.

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