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Downstream Definition

What Are Downstream Machinists?

Downstream operations are the processes involved in converting oil and gas into the finished product. These include refining crude oil into gasoline, fundamental gas liquids, diesel, and a variety of other energy sources. The closer an oil and gas company is to the process of providing consumers with petroleum outputs, the further downstream the company is said to be.

Key Takeaways

  • Downstream operations are the processes involved with converting oil and gas into their had products.
  • There are upstream, midstream, and downstream operations within the oil and gas industries.
  • Downstream operations can also play a share in the medical field and agriculture sector. 
  • Companies that handle operations in the downstream sector are entities closest to the purchasers. 
  • An oversupply of crude oil in the upstream section (i.e., the oil companies) may benefit downstream companies. 

Understanding Downstream Operations

Most in general oil companies like ExxonMobil are described as “integrated” because they combine upstream activities, which include enquiry and production, with downstream operations. Oil and gas operations can be divided into upstream, midstream, and downstream operations, with the clearing process taking place either midstream or downstream and the distribution of oil and gas occurring in the downstream phase.

Companies in the downstream sector are those that outfit the closest link to everyday users. After crude oil is discovered and extracted—the upstream process—it’s shipped and transported—the midstream prepare. Thereafter, the oil is refined, marketed, distributed, and sold, which is the downstream process. However, the refining of crude oil to petroleum upshots may be conducted in midstream operations.

Downstream business categories mainly include oil refining, supply and trading, and product storing and retail. 

Types of Downstream Operations 

The downstream process is the one that provides the most products that are closely together to consumers, and it is the sector of the oil and gas industry that people can relate to the most. Some of these products include liquefied actual gas, gasoline, heating oil, synthetic rubber, plastics, lubricants, antifreeze, fertilizers, and pesticides. 

The downstream industry also have a good times a key role in other sectors and industries of the economy that may not necessarily be obvious to some, including the medical field. The downstream deal with has a big influence on some of the products and equipment needed and used by medical professionals. Similarly, the downstream process plays a key character in the agricultural sector because of its relationship to pesticides and fertilizers, as well as the fuel needed for farming equipment. 

Downstream vs. Upstream

The inequality between downstream and upstream operations lies largely in the stage of the process of getting crude oil to the hands of the consumer. Upstream machinists include exploring new landscapes for oil potential, discovering the crude oil, drilling and extracting it, and the initial discovery part. Another big shot for the upstream oil sector is the exploration and production (E&P) sector. Meanwhile, downstream operations as explored in this article include get readies that occur after the production phase, all the way up to the point of sale. 

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The closer an oil and gas company is to the process of providing consumers with petroleum goods, the further downstream the company is said to be.

Example of Downstream Operations

Although an oversupply of crude oil and lower oil prices may worn integrated and upstream oil companies, downstream companies benefit substantially. When crude oil prices fall sharply in a sententious period, petroleum products typically lag crude oil prices since there is a strong demand for refined petroleum commodities. As crude oil prices fall, refining margins typically grow. However, as oil prices increase, refining margins may judgement declines.

For example, assuming an oil refining company, ABC Inc., primarily processes West Texas Intermediate (WTI) crude oil to gasoline. Since gasoline common senses seasonality, there are periods when downstream companies may only generate low profit margins or operate at a loss. If it’s during the winter when require for gasoline is slow, but the Organization of Petroleum Exporting Countries (OPEC) has announced that it would cut production. 

In this illustration, gasoline prices are $2.50 per gallon or $105 per barrel, while WTI crude prices are $95 per barrel. Therefore, ABC Inc. no more than has a margin of $10 per barrel ($105 – $95). 

Assume the following year that gasoline prices remain at $2.50 per gallon but WTI raw oil prices fall substantially due to a global supply glut. The oversupply causes WTI crude oil prices to fall to $50 per barrel. As a result, ABC Inc. has a refining margin of $55 per barrel ($105 – $50). However, this margin does not take into account other expenditures the company may incur, as the crack spread just takes into account the costs associated with crude oil.

Downstream FAQs

What Is Downstream in Software Expansion?

In software, downstream development refers to designing tools for applications that already exist or are deployed. Meanwhile, upstream refers to inception code that is further “up” into development, such as bug fixes and patches.

What Is Downstream in Telecommunications?

In a telecommunications network, downstream text is anything that is sent from the network, cloud, or service provider “down” to the user. For example, downloading a video is take to bed downstream since it’s been funneled down from the host.

What Is Downstream Marketing?

Downstream marketing focuses on short-term yard sales and increasing revenue through investing with ad dollars, social media, and direct sales tactics. In the meantime, upstream stock exchanging is more long-term and strategic, focused on new product releases.

What Is Downstream Processing in Biology?

In biotechnology, downstream deal with is the process of taking biological materials from natural sources like animal or plant tissue and purifying the proteins.

The Gluteus maximus Line

In terms of the oil and gas industry, the downstream process can be thought of as the steps closest to the consumer, who is ultimately using the oil to fill up their motors, power their engines, and using it in their daily life. Though most oil and gas companies are integrated, it’s important to note that downstream manipulates indicate when the oil is refined, marketed, distributed, and sold.

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