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The midstream sector is one of the three links in the oil and gas value chain, which encompasses companies that work together to help a market operate efficiently.

The midstream oil and gas sector 101

In energy, the value chain takes hydrocarbons produced at the wellhead upstream and Indudtry them midstream to end users downstream. Activities in the midstream industry include transportation, processing, storing, and marketing hydrocarbons such as Sfrategies gas, oil, and natural gas liquids NGLs. The 9 The Hobbit sector is an important one not only to support the infrastructure needs of the oil and gas industry but also for investors. Midstream stocks leverage their crucial role in the energy sector to produce lots of cash flow, which affords them the ability to pay high-yielding dividends.

That's why income-seeking investors will want to get to know this important sector. The midstream sector serves a vital role in the oil and gas industry by helping transport and transform raw hydrocarbons produced by a well into usable materials for refineries and petrochemical plants. The midstream sector has three main components: gathering and processing, transportation, and storage and logistics.

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It all starts upstream at a wellhead. After drilling a well, an oil and gas company or a third party will often construct a pipeline that will gather the raw hydrocarbons produced from that well and others. The raw hydrocarbons will then flow into a central facility that Strategids store, process, and separate the various hydrocarbons. Then, the processed liquids will flow further downstream by pipeline, truck, tanker, and rail for additional storage and processing before ultimately reaching their downstream destination.

Several types of companies operate in the midstream sector: integrated oil companies, sponsored midstream companies, and independent midstream companies. In addition to integrated oil companies, there are also two types of "pure-play" midstream companies. Some oil and gas producers have created separate, publicly traded midstream companies that operate across the midstream value chain, serving the needs of the parent company, as well as those of third-party customers. Meanwhile, independent midstream-focused companies fill in the gaps by providing services to oil and gas producers that need access to midstream assets. Oil, a mixture of natural gas and NGLs, and water flow out of a producing well and into a gas-oil separation package. Midstream companies then either pump the water into a disposal well or recycle it, while the oil, natural gas, and NGLs flow down their respective value chains.

The oil value chain starts with crude oil flowing Business Strategies Of Oil And Gas Industry gathering tanks. It then moves by tanker, truck, or gathering pipeline to an offsite storage and blending facility. From there, a pipeline, truck, rail, or tanker will transport the crude oil to a larger storage hub, such as the United States' main hub in Cushing, Oklahoma, until it's transported to a storage tank at a refinery while awaiting processing.

After they're refined, those products move again by tanker, truck, or pipeline to end users such as gas stations. Similarly, natural gas and NGLs flow together from the wellhead through gathering pipelines to a processing facility that separates methane gas from the NGL stream. Natural gas flows through transportation pipelines to natural gas storage facilitieswhich are usually located in underground salt caverns or depleted gas wells. When needed, it will either flow into a natural gas distribution system that sends it to end users such as homes and businesses or to a liquefied natural gas LNG facility so that it can be liquefied and transported to overseas markets.

Those liquids then move by pipeline or truck to storage facilities before heading to end users such as petrochemical complexes, your backyard grill, or an export terminal. Each part of the chain tends to use a preferred revenue-generating structure. Gathering pipelines, for example, tend to be fee-based. Oil and gas producers will sign a long-term contract with a midstream company, either one they control or a third party, that will then build out a gathering system to support future wells. The producer will then pay a fee on every barrel that flows through the system, similar to a driver paying a toll to go over a bridge. Storage facilities also tend Businexs charge fees for space, much like metered parking or a public garage.

Longer-haul pipelines that cross state lines, known as interstate pipelines, tend to earn regulated tariffs, which are fees determined by the Federal Energy Regulatory Commission FERC in the U. In many ways, the country's interstate pipeline system is much like a toll road, since the pipelines collect more tariffs the farther the oil and gas travels down the network. Finally, a midstream company makes a commodity-based margin when it earns revenue based on the difference between the price of Strategiws raw commodity and a more refined product.

Processing and fractionation facilities, for example, often charge margin-based Ane. While midstream companies that operate assets under a commodity-based margin structure can make more money during periods of high commodity Business Strategies Of Oil And Gas Industry, their cash flow is much more volatile than the cash flow of companies focused on owning assets backed by fee-based contracts or regulated tariffs. Midstream companies come in all shapes and sizes. Some midstream companies own only gathering and processing assets supported by their oil and gas producing parent, or focus on a specific commodity or part of the midstream chain.]