First off, before we can answer the question, “What is midstream?”, we first have to briefly explain upstream and downstream activities.
In short, you can think of upstream activities as the exploration and production aspect of the oil and gas industry. The EandP sector is exactly what it sounds like — all activities related to finding, drilling, and recovering natural gas and oil. Then we have the downstream segment of the industry, which involves the refining, transporting, and sale of refined petroleum products. So your local gas station would qualify as a downstream business. And although these segments can sometimes overlap, and are often organized within the same company, midstream businesses are involved in processing, storing, and transporting crude oil and natural gas.
Because oil and gas fields are so often located in remote, hard-to-reach locations, considerable logistics are involved in transporting that oil and gas where it needs to go. Midstream businesses help make sure oil and gas gets from the offshore oil fields to major consumption centers that rely on refined oil and gas products to function. This transportation occurs through a vast, interconnected network, which includes thousands of miles of pipelines, rail lines, oil tankers, and thousands of trucks.
That means midstream businesses involve companies or business divisions based around trucking, rail transportation, technology and logistics, and pipelines. What else separates midstream activities from the other sectors of the oil and gas industry?
According to an oil and gas training company, “The midstream segment is separated from upstream and downstream in most oil companies because it is considered a low risk, regulated type of business. It does not fit the risk profile or asset complexity of the other segments of the oil and gas industry.”
Although midstream business activities are generally considered low risk, there are many external factors that can influence businesses. For instance, the political fight over the Keystone XL pipeline greatly affects the transportation of oil throughout the United States. Not only that, but truck driver shortages and an aging, highly congested rail system have further complicated matters.