Thread by @Jarushub

Understanding Oil & Gas Industry III
(See previous threads in Parts 1 & 2)

2.1 DOWNSTREAM

Earlier said Upstream is about extracting the crude oil or gas frm its natural formation environment (under earth or water),midstream is about processing it to usable form. Now downstream

Downstream is about the distribution and marketing of the products after processing. Processing (midstream) turns crude oil into petrol, kerosene, diesel, lubricants, etc (even plastic!), processing gas also turns natural gas into more industrial consumable form.

NLNG activity is also midstream. NLNG does not produce gas, it buys gas from upstream producers, processes by turning to liquid(called liquefaction), & exports by vessels (special ships) because you cant pipe gas by pipelines from Nigeria to say US. Possible but too big a project

So downstream covers the entire activities that get the PRODUCTS to the consumers. Transportation is also generally seen as downstream.

So importing fuel is downstream, filling stations are under downstream, even exporting crude is downstream. Supply and trading is downstream

The keyword in upstream is EXTRACTION(or Exploration & Production),the keyword in Midstream is PROCESSING (aka refining if we are talking of oil), the key word in Downstream is DISTRIBUTION

But remember I early said Midstream is sometimes not recognized separately frm Downstream

So the activities around buying, selling, transporting, importing and exporting petroleum products are Downstream.

Retailing (filling stations) is a downstream activity. Gas marketing is downstream

In short, the processes of getting the crude oil or the products to the consumers are called downstream. Subsidy is a downstream concern because you are the consumers and government "legislated" that one of these products (petrol) be sold to you at a price lower than market price

And the govt says I will pay you the differential. That differential is subsidy. So if XYZ Ltd brings 1m liters of PMS into the country & based on the costs he incurred and allowance for margin, it needed to be sold at N120 per liter, the government now says you must sell =<N100

That means govt will pay you N20 on every liter eg N20m as subsidy on 1m liters. Unfortunately, this was abused wit many importers getting import papers signed, would divert the fuel to other countries & sell at mkt price there, or will even get papers on PMS they never brought!

That was why subsidy was stopped and only NNPC currently imports. Unfortunately, there is also some form of subsidy because the price has a cap (N165 abi?) which was fixed when crude oil price was lower. Now way higher than when fixed, plus higher cost of fx, it became expensive

...higher than the N165 per liter since at least 4 months now. So NNPC quietly licks its wound as it takes the losses. That was why the NNPC GMD talked about the fact that they had been subsidizing in a recent statement. Total cost per liter had gone beyond that N165!

Not that subsidy is being paid to someone unlike before. It's like someone being forced to sell something to you at 165 when the total cost was 140, but cost moved to 200 and cant adjust price, so bear 35 loss on every item sold to you! And afraid of raising price due to backlash

That's the conundrum of the downstream oil sector (actually PMS - PMS is just one of the downstream products, but we subconsciously take PMS as = downstream because that's what everyone directly affects everyone (transportation)

Let me stop here. Have delved from revising midstream to explaining downstream and even talking about the general downstream sector. Hope that gives some insight into downstream for a laywoman (dem say make we no say man again!)

In part 4, will discuss Oil Servicing!