CHEMICAL & PETROLEUM –

INDUSTRY
Week 1 – Assignment 1
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Week 1 – Assignment 1

Contents
How would you describe chemicals and petroleum industry? How does it function? .......................... 2
Technological Advances - .................................................................................................................... 3
What are 2 primary segments? How would you define them? .............................................................. 4
What is one current industry trend? ...................................................................................................... 4

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How would you describe chemicals and petroleum industry? How

does it function?
Petroleum often known as “black gold” due to its extreme monetary value, is vital to many industries
and is in some form or other integral to industrial civilization as it is today.
Petroleum (which is essentially hydrocarbons) on extraction, refining, treatment and productization
yields more than 30000 chemicals and in-turn contributes to the “you-name-it” list of end products.

The journey from extraction of petroleum to the end products in hands of the end customers
comprises of 5 broad activities.
1. Exploration
2. Production
3. Transportation
4. Refining
5. Goods Production
6. Marketing and Sales

Exploration and Production are often referred to as E&P in the industry terminology.

Exploration is about locating oil & gas reserves (offshore or onshore) and determining the
operational and financial feasibility of extraction.

Production is about lifting of the oil and gas to the surface and storing them in primary location
before further use. Setting up oil rigs, drilling (offshore or onshore), enhanced oil recovery, fracking
are few of the many activities that can be cited as part of Production.

Note:
 “Time to first oil” is a key indicator used by oil companies to measure the cost of bringing oil
or gas from the reservoir to the surface.
 “Fracking” is a technical term for the process of injecting liquid at high pressure into
subterranean rocks, boreholes, etc. to force open existing fissures and extract oil or gas.

Both Exploration and Production are highly capital intensive and necessary to the industry.

Transportation is storing and moving the oil & gas (also called “feedstock”) from one location to
another for further processing (often referred as “downstream”).

Refining is the process of converting the crude oil & gas to more intermediate products or end
products. The core process involves heating the feedstock to allow fractions of products or by-
products to separate at various boiling points. Additives are also added to achieve the desired forms of
products. The products include gasoline, heating oil, jet fuel, bitumen, diesel, aromatics, etc.

Goods Production is using the by-products to generate subsidiary products which can be sold
directly in the market. These may include plastics, polymers, industrial chemicals, sealants, adhesives,
explosives, cosmetics, etc.

Marketing and Sales is another activity which becomes more relevant and competitive in today’s age
of digital revolution. This includes setting up a brand image and brand awareness (initiatives to
greener environment), getting products to market, managing point of sales.

While the Upstream segments (E&P) provides for the major chunk of revenues, the growth of the
Downstream segments depends on the volume of sales.

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The various internal challenges to the industry include operational challenges (extreme deepwater
drilling due to depleting resources), maintaining economic feasibility, limited skilled, trained and
experienced resources, EHS requirements.
Petroleum and Chemical industry is driven essentially by supply and demand. Hence the industry is
impacted and driven by many external factors -
1) Proven oil reserves now being operational (example in USA) puts pressure on global oil
prices
2) OPEC countries
3) Geo-political situations
4) Transportation challenges
5) Environmental protection and risk management, accountability & responsibility
6) Unconventional resources (shale gas, bio-diesel, ethanol from corn) and renewable resources
(solar, wind, etc)
7) Major world economy events

Technological Advances -
The recent technological advances, especially in the computer and digital technology, are now being
employed to overcome some of the operational challenges and improve the financial feasibility of the
petroleum and chemical industry.

Artificial intelligence, robotic automation, big data & predictive analytics, blockchain, customer
insights, industry standard (Industrie 4.0) are being embraced across the industry to transform the way
industry operates, avoid accidental costs, downtimes, schedule maintenance, control land-water-air
pollutants, etc. Cognitive computing is being utilized to enhance decision making and increase asset
efficiency and management. While the capital investments in the core setup and deployment cannot be
reduced to a large extent, the digital transformation by the above stated capabilities help to offset and
control the operational costs to a large extent and improve profit margins.

Some insightful citations -

 https://www.youtube.com/watch?v=GFZ2IaTVkY8&t=48s
 https://www.youtube.com/watch?v=MtW-4v_uadw
 https://www.youtube.com/watch?v=f-tw-eP0oak

Fun fact on oldest oil well in India – Digboi (Dig-Boy-Dig !)

 http://edugreen.teri.res.in/explore/n_renew/digboi.htm

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What are 2 primary segments? How would you define them?

The Petroleum and Chemical industry players (companies or conglomerates) operate into three
generally recognized segments: Upstream, Midstream and Downstream.

Upstream
These companies usually focused on the Exploration and Production (E&P) activities.

Midstream –
These companies provide the storage and transportation capabilities.
Note that the midstream operations are often taken to include some elements of the upstream and downstream
sectors.

Downstream -
These are the companies who run the refineries to convert the feedstock to fuels, chemicals and other
products.

The Petroleum and Chemical companies are identified as Integrated oil companies (IOC) and National
Oil Companies (NOC). IOCs operate across the 3 segments. National Oil Companies are either fully
owned by the governments or in collaboration along with private players.

There are some specialized companies like Haliburton or Schlumberger which provide operational
technology, tools and services to these Petroleum and Chemical companies.

What is one current industry trend?

The current industry trends that will drive and transform the industry include
 Technological advances
 Resource scarcity and climate change
 Shift in global economic power

Technological advances have been discussed earlier in response to question one. Click here to go to
the abstract.

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