Difference Between Upstream, Midstream and Downstream

The Upstream, Midstream, and Downstream refer to the different stages of the petroleum value chain, each with intricate procedures and separate operational objectives. Despite their differences, these sectors are deeply interconnected, working together to overcome the challenges of exploration, production, transportation, storage, refining, and distribution of oil, natural gas, and their derivatives.

Curiously, the terms ‘Upstream’ and ‘Downstream’ have roots outside the oil and gas industry, drawing inspiration from the Kanban methodology—a system originally developed to optimize workflows in manufacturing. Thus, understanding this origin provides valuable insights into how the industry’s segmentation reflects efficiency-driven principles. But are you familiar with the Kanban methodology?

 

Kanban: About the methodology

 

Kanban is a workflow management methodology designed to improve efficiency, minimize waste, and enhance productivity in various industries. Originating in Toyota’s manufacturing system in the 1940s, Kanban relies on visual signals—such as cards or boards—to track work progress and control production flow. Taiichi Ohno, Kanban’s creator, wrote in his book that this system ensures that resources are allocated efficiently by maintaining an agile approach, ensuring that new tasks or materials are only introduced when there is capacity to handle them, preventing bottlenecks and overproduction.

Beyond manufacturing, Kanban has been widely adopted in software development, logistics, and service management due to its adaptability. The methodology is built on core principles such as workflow visualization, limiting work in progress (WIP), and continuous improvement. By breaking down complex processes into manageable steps, Kanban helps teams identify inefficiencies, reduce delays, and streamline operations.

The Kanban definition is used to describe the different stages of the industry value chain, even though intermediate processes are not categorized, segmenting the stages into exploration and production (Upstream), transportation and storage (Midstream), and refinement and distribution (Downstream).

 

Upstream

 

The Upstream sector of the oil and gas industry focuses on the exploration and production (E&P) of crude oil and natural gas. And, besides extracting hydrocarbons from underground reservoirs, this stage involves identifying potential reserves, conducting geological surveys, and performing exploratory drilling, which includes utilizing techniques such as hydraulic fracturing (fracking), Enhanced Oil Recovery (EOR), and Coal Bed Methane (CBM) to extract petroleum and natural gas from underground wells.

These operations can occur in onshore fields and offshore platforms, with offshore extraction presenting unique challenges. Harsh marine conditions, deepwater pressure, and constant exposure to saltwater lead to corrosion, weakening infrastructure, and increasing maintenance costs. Additionally, offshore drilling involves complex logistics, requiring specialized rigs, subsea equipment, and transport systems to operate efficiently. Harsh weather, such as storms and high waves, adds further operational risks, making safety and reliability critical concerns.

According to Australian Kanban Consulting Provider Evogility, “Upstream” refers to the initial phase of a workflow in the Kanban methodology, where work is prepared and prioritized before entering the main process. Just as Kanban’s Upstream focuses on refining ideas and ensuring readiness before execution, the oil and gas Upstream sector lays the foundation for the entire industry by securing the raw materials needed for subsequent Midstream and Downstream activities.

 

Midstream

 

Midstream connects upstream and downstream, linking exploration and production to refineries. The Midstream stage covers the transportation, storage, processing, and logistics of crude oil, natural gas, and derived products. Pipelines, tanks, and terminals are critical infrastructure for the midstream segment, as they allow for the safe and efficient flow of these resources over long distances.

One of the most crucial aspects of Midstream operations is the extensive network of pipelines used to transport crude oil and natural gas from production sites to refineries and distribution centers. Pipelines offer a cost-effective and efficient means of moving large volumes of hydrocarbons over long distances, reducing reliance on more expensive and less environmentally friendly transportation methods such as trucks or ships. These pipeline systems are designed to operate continuously, ensuring a steady supply of resources while minimizing delays and disruptions.

 

Downstream

 

The Downstream sector encompasses refining crude oil, processing natural gas, and distributing finished products to consumers. This stage includes converting raw hydrocarbons into fuels like gasoline, diesel, jet fuel, and petrochemical products employed in producing plastics, lubricants, and chemicals. In this phase, refineries use complex processes such as distillation, molecule cracking, and reforming to enhance efficiency and meet market demand.

 

 

In the Kanban methodology, the Downstream phase represents the final execution stage, where refined outputs are delivered efficiently after passing through controlled processes. Similarly, in the oil and gas industry, the Downstream sector ensures that crude oil and natural gas are transformed into finished products that power industries, transportation, and daily life.

 

 

Challenges of the Petroleum Value Chain

 

The petroleum value chain, from exploration to refined product distribution, faces numerous operational challenges across its three main sectors. Each stage must navigate complex technical, logistical, and environmental obstacles that impact efficiency, safety, and profitability. Understanding these challenges is essential for improving resilience and sustainability in the industry.

 

Upstream

 

The Upstream sector faces significant challenges related to People on Board (PoB) constraints, particularly in offshore operations where space and logistics are tightly regulated. The article ‘’Maritime Platform Facilities POB Plan Management Module Research and Development’’ states that when dangerous situations occur in offshore operations, such as typhoons, distress, facility pipeline breakage, etc., it can lead to huge losses and threaten the safety of offshore operators. As a result of this dicey scenario, there are several concerns about POB limitations in offshore facilities, such as planning, conducting, and providing direction for on-site activities effectively and efficiently.

 

Midstream

 

Midstream operations rely on extensive pipeline networks that span vast distances, often crossing remote or inaccessible areas. Over time, these pipelines are exposed to harsh environmental conditions, making them susceptible to corrosion, leaks, and structural failures. Additionally, aging infrastructure and increasing regulatory standards add further complexities, requiring continuous monitoring and maintenance to prevent disruptions and environmental hazards.

 

Downstream

 

The refineries of the Downstream sector are highly susceptible to corrosion due to the extreme conditions involved in refining and processing crude oil. High temperatures, chemical reactions, and exposure to aggressive substances accelerate equipment degradation, leading to increased maintenance costs and potential safety hazards. Managing corrosion effectively requires advanced coatings and rigorous inspection protocols, but achieving long-term reliability remains a persistent challenge as aging infrastructure continues to operate under high-demand conditions.

 

Conclusion

 

The oil and gas industry segmentation into Upstream, Midstream, and Downstream reflects a structured, efficiency-driven approach to managing complex operations, much like the principles behind Kanban. While the industry’s use of these terms differs from their original manufacturing context, the core idea remains: ensuring a seamless flow of resources through well-defined stages. Understanding this framework highlights the industry’s operational intricacies and underscores the importance of integration across sectors to maintain a stable and efficient energy supply chain.