Fundamentals of Oil Industry

& Gas

By Hemant Kumar Domain Consultant Energy Practice

CONFIDENTIAL Copyright 2005 Wipro Technologies

By the end of this presentation youll learn

The importance of energy in our lives Overview of oil and gas supply chain What are hydrocarbons? Where do crude oil and natural gas come from? How are they produced? How are petrol, diesel etc are produced? How are they delivered to us? Who are various players in the industry?

Please also go through Oil Industry Overview CBT on learning.wipro.com>Blended Learning> Industry Courses. It will give you necessary background to understand this presentation better.
CONFIDENTIAL Copyright 2005 Wipro Technologies

Chapter- 1 Introduction to Energy

CONFIDENTIAL Copyright 2005 Wipro Technologies

You check your mails on your PC and find that youve won a quiz contest

Picture This
You read about the increase in crude oil prices in the newspaper

You wash your most favourite T-shirt in washing machine

You store the delicious dish you cooked last night in your fridge

You spend quality time with your family watching a movie dogs life

CONFIDENTIAL Copyright 2005 Wipro Technologies

Your house is sufficiently heated to protect you from cold weather. And light bulbs/tubes keep your house glowing at night

CONFIDENTIAL Copyright 2005 Wipro Technologies

And all that needs electricity to keep your day to day life running smoothly.

The electricity comes from the power plant which runs on natural gas or coal
CONFIDENTIAL Copyright 2005 Wipro Technologies

And Picture This Also

World is not so small and we require the means to move from one place to another. Fortunately we have various ways to do that

Train for long distances Public Transport for daily commutation Our personal vehicles for outings Planes for faster long distance travel

And we need roads for our vehicles to run on

CONFIDENTIAL Copyright 2005 Wipro Technologies

.And we need fuel for all these modes of transport. Unless of course you want to use a bicycle

To build roads we need TAR which is also called COAL TAR

CONFIDENTIAL Copyright 2005 Wipro Technologies

And can we live without food?

Thanks to cooking gas, preparing food is no more inconvenient Plastic bags are widely used to carry the vegetables and other food items

Vegetables we love to eat also need fertilizer

We need fertilizer to grow the food crops

CONFIDENTIAL Copyright 2005 Wipro Technologies

To cut a long story short..

The way, we live, needs lot of energy, for preparing foods, travelling, recreation, comfort and safety. The all-important energy comes from various sources like

Crude oil & Natural Gas

Wind

Water Coal

Sun

CONFIDENTIAL Copyright 2005 Wipro Technologies

Types of energy
Renewable
Renewable Energy is energy derived from resources that are regenerative (can be replenished in a short period of time) or for all practical purposes cannot be depleted Renewable energy accounts for about 14% of the world's energy consumption The five renewable sources used most often include hydropower (water), solar, wind, geothermal, and biomass.
Crude oil & Natural Gas

Bioma ss

Wind

Geotherma l

Sun Water

Non Renewable
Nonrenewable energy sources come out of the ground as liquids, gases and solids. Non-renewable sources of energy can be divided into two types: fossil fuels and nuclear fuel Coal, crude oil and natural gas are all considered fossil fuels because they formed from the buried remains of plants and animals that lived millions of years ago
Nuclear Fuel

Coal

CONFIDENTIAL Copyright 2005 Wipro Technologies

Welcome to Oil and Gas industry

Now that we have understood the importance of energy in its various forms, we also need to know where it comes from. Hydrocarbons (oil and gas), which are nonrenewable energy resources, contribute almost 60% of the total world energy requirement. In the next chapters well try to know more about hydrocarbons which are very important source of energy and critical to our economic growth and survival. When we talk about hydrocarbons, we should know that they are found, produced and delivered to us by oil and gas companies who engage in multiple activities which will be described in this presentation

In the following chapters, well learn about the various sectors in petroleum value chain and activities performed in them as shown below
Finding & producing hydrocarbons Transporting hydrocarbons Refining hydrocarbons Selling the petroleum by products

So lets get ready to learn about oil and CONFIDENTIAL gas industry Copyright 2005 Wipro Technologies

Petroleum Value Chain

Picture below gives an overview of the supply chain of the oil and gas industry. Industry is organized into three broad categories based on the activities performed therein. They are mainly a) Upstream (Finding & producing hydrocarbons) b) Downstream (Refining hydrocarbons and producing saleable petroleum byproducts) c) Retail (Selling the byproducts to all the users who need them).Midstream,Truck though is not a very popular term is used to describe the transport part.
Refineries Wellhead Producers Terminal/Storage/H ub Location Bulk Terminal Storage Gas Stations

Platform Producers

Platform Producers

Source:http://www.adventuresinenergy.com
Platform Producers

Upstream

Midstream

Downstream

Retail
CONFIDENTIAL Copyright 2005 Wipro Technologies

Exercise
Find the best match of terms in column A & B

A
Upstream Solar

Answer
Exploration & Production

B
Refining

Renewable Energy

Nonrenewable Energy

Downstream
Coal

Refining

Exploration & Production

Nonrenewable Energy

Renewable Energy

Supply Chain
Energy

Upstream, Downstream & Retail

Road, Food, Power & Transport

Road, Food, Power & Transport

Upstream, Downstream & Retail

CONFIDENTIAL Copyright 2005 Wipro Technologies

Chapter- 2 Origin of Oil & Gas

CONFIDENTIAL Copyright 2005 Wipro Technologies

What Hydrocarbons are

Hydrocarbons are naturally occurring chemicals that are made up of just two elements carbon and hydrogen. Chemicals based on carbon and hydrogen are called as hydrocarbons The Simplest Hydrocarbon is methane (CH4) is made up of one carbon, four hydrogen atoms From now well use terms hydrocarbons and oil & gas interchangeably (which is perfectly alright)

CONFIDENTIAL Copyright 2005 Wipro Technologies

Origin of Oil and Gas

Oil was formed from the remains of animals and plants that lived millions of years ago in a marine (water) environment even before the dinosaurs. Over the years, the remains were covered by layers of sand, silt and mud. Heat and pressure from these layers helped the remains turn into what we today call crude oil . The word "petroleum" means "rock oil" or "oil from the earth." Nowadays the terms petroleum is used as a common denotation for crude oil and natural gas, i.e., the hydrocarbons. Hydrocarbon Formation

Once the body of prehistoric animals and plants became trapped they partially decomposed using up the dissolved oxygen in the sediment. As soon as the oxygen is used up, decay stops and the remaining organic matter is preserved. Continued burial, subject the organic matter to higher temperatures and pressures, which cause physical and chemical changes in the organic. These produce tiny droplets of hydrocarbons.
Source- http://www.eia.doe.gov/kids/energyfacts/sources/non-renewable/oil.html#How%20used
CONFIDENTIAL Copyright 2005 Wipro Technologies

Origin of Oil and Gas

Facts
Oil & gas do not occur in an underground pool but lies in the pore pace of the rocks which are also called the source rocks The oil & gas are forced through the rock on account of three reasons Expansion of the oil itself Expansion of gas from above Pressure of the water from below. Oil can be found with in the depth of ranging between 2km 9km

What a petroleum bearing rock looks like

CONFIDENTIAL Copyright 2005 Wipro Technologies

Origin of Oil and Gas- Petroleum System

As we learnt, oil and gas originate in source rock and once fully formed they start moving towards the surface through channels in the rocks surrounding the source rocks. Once their upwards movement is impeded by non permeable rocks also called trap or seal or cap rocks they tend to accumulate in the porous (containing pores) and permeable rocks also known as reservoir rocks.
Petroleum System

Petroleum SystemIs a oil & gas bearing structure containing source, reservoir and cap rocks. An oil & gas field consists of one or many such petroleum systems

Source Rock

Pore is a small open space between the rock particles

Permeability is provided by the channels connecting different pores

CONFIDENTIAL Copyright 2005 Wipro Technologies

Exercise
Find the best match of terms in column A & B

A
Ability to flow

Answer
Permeability

B
Porous & Permeable

Porosity

Storage Capacity

Permeability

Petroleum System

Source, Trap & Reservoir

Sedimentary Rock

Hydrocarbon

Carbon & Hydrogen

Storage Capacity

Reservoir

Porous & Permeable

Source, Trap & Reservoir

Source Rock

Sedimentary Rocks

Carbon & Hydrogen

CONFIDENTIAL Copyright 2005 Wipro Technologies

Chapter- 3 Oil & Gas Exploration & Production

CONFIDENTIAL Copyright 2005 Wipro Technologies

Exploration- Finding Oil & Gas

Oil & gas fields are identified using seismic data which is obtained from Seismic Surveys
Seismic Data Acquisition
Seismic Survey

Seismic Data obtained from Seismic Survey

Computer generated model of underground rocks and trapped oil&gas reserves Seismic Data processed at the Workstation
CONFIDENTIAL Copyright 2005 Wipro Technologies

Exploration- Finding Oil & Gas

To confirm the interpretations of the seismic data, drilling is done which is also called as exploratory drilling.An exploratory well is known as Wild Cat is its a first time drilling in an unknown area and requires a lot of safety precaution. Drilling is done using drilling rigs each adapted to different water depths (more than 2000 m in some cases)
Jack up Rig- is fitted with long support legs (3 0r 4) which are lowered until they rest on the sea bottom. This allows the working platform to rest above the surface of the water, as opposed to other floating rigs. Used in shallow depth

Jack up Rig

Semisubmersible Rig

Drill Ship

Semi-submersible Rig- floats and retains its stabilized position by means of anchors fixed on the seabed. Used in deep waters

Sea Bed

Water Level

Drill Ship- is a ship designed to carry out the drilling operations in deep water. A drill ship must stay relatively stationary on location in the water for extended periods of time. This positioning may be accomplished with multiple anchors, dynamic propulsion (thrusters) or a combination of these.
CONFIDENTIAL Copyright 2005 Wipro Technologies

Exploration- Exploratory Drilling

Once an area has been selected and the right to drill thereon has been obtained, actual drilling may begin. The most common method of drilling in use today is rotary drilling. Rotary drilling operates on the principle of boring a hole by continuous turning of a bit. The bit, which is the most important part and also is hollow and very heavy, is attached to the drill string. A drill string is composed of hollow lengths of pipe leading to the surface. As the hole gets deeper, more lengths of pipe can be added at the top.

Drill Bit

CONFIDENTIAL Copyright 2005 Wipro Technologies

Oil & Gas Production

Exploration

Oil companies have to drill many exploratory wells before discovering a potential oil filed which is also called as prospect. The success rate also known as strike rate depends on the geological history of the particular region where exploratory activities are being performed. On an average the strike rate varies between 5% to 15%. For example a 10% strike rate would mean one prospect among 10 exploratory wells drilled. It also means the 9 of them would be dry holes. Drilling a well is a very costly activities especially in deep water. Oil companies are using the modern technologies to increase the strike rate during exploration Hydrocarbons discovered by the initial exploration wells are further confirmed by appraisal drilling i.e. drilling more wells in the area Following appraisal drilling, decision is taken whether to develop the field for commercial extraction or stop further activities in case the producible quantity of oil and gas do not justify the investment in development. Enormous thought goes into the best way of extracting the hydrocarbons, attempting to recover the maximum quantities of oil and gas in the safest conditions. These forecasts, studies and the eventual construction of the installations constitute the development stage of the field. Once everything is in place, extraction can start. The life of an oil field continues for many years
CONFIDENTIAL Copyright 2005 Wipro Technologies

Production

Oil & Gas Production

Production consists of bringing the hydrocarbons contained in the subsurface to the surface. This requires the use of a large number of wells. Question is, how many wells are required? Imagine A field spreads over a vast area, at least several km and sometimes more than 100 km A traditional well (vertical or slightly deviated) only draws oil or gas from a radius of a few tens of meters. Moreover, such wells only cross the reservoir over the limited height of a vertical or near vertical cross section. A large number of vertical wells would therefore be necessary to completely extract the contents of a reservoir.

The horizontal well has a much greater length of contact with the reservoir. Thus, the technique enables a significant reduction in the number of wells necessary for a given development. However drilling horizontal involves a lot of technical complexity and is also more costly

Reservoir

Small Drainage Area for Vertical Well

Large Drainage Area for Horizontal Well

CONFIDENTIAL Copyright 2005 Wipro Technologies

Oil & Gas Production- Development

Its not enough to drill wells in a field to ensure production. To ensure safe production from the high pressure fields, safety equipments and other installations are set up. The picture below shows an offshore oil platform which takes production from 10-12 wells housed within the platform

Oil Wells

CONFIDENTIAL Copyright 2005 Wipro Technologies

Exercise
Find the best match of terms in column A & B

A
Jack-Up

Answer
A type of rig

B
Offshore platform installation

Production

Hydrocarbons to surface

Exploration

Seismic Survey

Exploration

Large Drainage Area

Horizontal wells

Large Drainage Area

A Type of rig

Development

Offshore platform installation

Hydrocarbons to surface

CONFIDENTIAL Copyright 2005 Wipro Technologies

Chapter- 4 Oil & Gas Transportation

CONFIDENTIAL Copyright 2005 Wipro Technologies

Transportation
The crude oil & gas transportation begins from the wells where production from different wells is taken to a large processing platforms via small diameter (2-8 inches) pipes.

At process platform oil, gas and water are separated and impurities like condensate, sulfur, hydrogen sulphide removed. After processing crude oil and gas are sent to the their respective destinations; refineries & gas processing units via pipelines or tankers (more about these later)
CONFIDENTIAL Copyright 2005 Wipro Technologies

Transportation
FPSO ( Floating Production Storage Offloading) are used where its not possible or economically justifiable to install sea bed pipelines or expensive process platforms. FPSOs find their application in sub sea wells in remote and deep water fields. In a sub sea well wells are located on the seabed as opposed to the conventional wells at the surface

Oil Tanker

The FPSO is usually a decommissioned oil tanker which has been stripped down and equipped with facilities to process and stabilize the crude oil and enable it to be connected to another oil tanker or transport tanker. Oil is processed and accumulated in the FPSO until there is sufficient to fill a transport tanker, at which point the transport tanker connects to the stern to the stern or bow of the FPSO and offloads the oil.
Sea Bed
CONFIDENTIAL Copyright 2005 Wipro Technologies

Transportation
Once the crude oil and natural gas are separated, the need to be sent to the refineries/processing units for further processing. This is called primary transportation Since most of crude oil & gas are found in remote places like deserts, sea or hills, transportation of crude oil to its destination (refineries) is sometimes very complicated. Sometimes many modes of transports are utilized to achieve this goal. Broadly there are four modes of oil & gas transportation Pipeline, Maritime, Railways & Trucks.
Maritime

Pipelines Truck

Railways

Many factors determine the choice of one mode of transport over another like cost, distance, volume, accessibility, time and availability. However in majority of the cases Maritime (large oil tankers) and Pipelines are the most preferred means of transport. Lets learn a little more about them

CONFIDENTIAL Copyright 2005 Wipro Technologies

Oil Transportation-Pipelines
Pipelines are large diameter tubes that can transport enormous quantities of oil, up to several tens of millions of tons per year. Since oil is produced in areas far away from major marketplaces where population and manufacturing centers are located, pipelines permit the movement of crude oil to these areas with little or no disruption to communities everywhere. The oil circulates by means of pressure maintained by pumping stations located every 60 to 100 km. The oil travels in the pipelines at speeds of around 2m/sec (7km/h). Due to the very nature pipelines are considered to be the safest, most efficient and economical way of transportation. Pipelines are owned by the oil companies or third party operators who lease the pipelines to the oil companies. Carrying capacity of a pipeline is expressed in terms of thousands barrel per day
Pipeline shown in the picture is Trans Alaska Pipeline System (TAPS). 800 mile long, its one of the of the largest pipeline systems in the world. Its also the most photographed pipeline as it, unlike most pipelines, has significant portions of the system above ground.
The United States has the largest network of energy pipelines both oil and natural gas -- of any nation in the world. The network of crude oil pipelines in the U.S. is extensive. There are approximately 55,000 miles of crude oil trunk lines (usually 8 - 24 inches in diameter) in the U.S. that connect regional markets CONFIDENTIAL Copyright 2005 Wipro Technologies

Oil Transportation-Maritime
Maritime transport involves transporting crude oil through large oil tankers. The oil tanker fleet in divided into six major categories, based on their carrying capacity. In order to benefit from economies of scale companies typically charter the largest possible vessel that can be accommodated in their arrival and discharge ports. The six categories of vessels are: ULCCs and VLCCs (Ultra and very large crude oil container) Largest vessels used for long hauls(carrying capacity- 200,000 dwt* and greater) Suezmax and Aframax- Mid size vessels used for short to medium hauls(carrying capacity- 80,000 to 200,000 dwt). These two are most commonly used. Panamax and Handysize- Small size vessels used for short hauls (carrying capacity- 10,000 to 80,000 dwt)

The seaborne crude oil transportation business is highly fragmented and is generally provided by two types of operators: independent ship owners and captive fleets of privately and state owned oil companies. Within the industry, independent owners account for approximately 80.4% of the tanker capacity, and the top ten owners account for 26.4% of the world tanker fleet
*DWT- Deadweight Tonnage is the total weight of the ship minus the actual weight of the ship (with nothing onboard)
CONFIDENTIAL Copyright 2005 Wipro Technologies

Gas Transportation
Overall, the problems of transport and of storage of gas are the same as for oil; production and consumption points are far apart and gas has to be taken from one to the other. But in detail, things are quite different. Overland or underwater transport by gas pipeline is preferred. Unlike oil, the gas is in a gaseous state at normal pressures and temperatures. This means that, for the same quantity of energy, it occupies a volume 600 times greater than that of oil. Therefore, there is no question of chartering vessels to transport gas in its gaseous state. That would cost 600 times too much!
The most usual method of transportation is therefore by gas pipelines. These gas pipelines are not visible: for reasons of safety and security they are buried underground. The compressed gas circulates at high speed in a gas pipeline, with the aid of compression plants positioned at regular intervals along the network.

In certain cases where the construction of gas pipelines is technically impossible or too expensive, a method of maritime transport based on the liquefaction of the gas (LNG, liquefied natural gas) is used
Source- http://www.planete-energies.com/content/oil-gas/distribution/supply-storage-gas.html
CONFIDENTIAL Copyright 2005 Wipro Technologies