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Overview

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There are many ways to look at the oil and gas industry.

From a personal perspective, oil and gas provide the world's 7.7 billion people with 57 percent of their daily energy needs. The other 43 percent comes from coal, nuclear and hydroelectric power, "renewables" like wind, solar and tidal power, and biomass products such as firewood.

As fuels, they keep us warm in cold weather and cool in hot weather; they cook our food and heat our water; they generate our electricity and power our appliances; and they take us by car, bus, train, ship or plane to places near and distant. We all feel the economic pinch when the prices of gasoline (Figure 1), home heating fuel or electricity increase sharply, even though in many developed countries, they still cost less than some brands of bottled water!

Figure 1

Figure 1: The changing fuel prices affect us all.

As petrochemical feedstocks, oil and gas are the raw materials used to manufacture fertilizers, fabrics, synthetic rubber and the plastics that go into almost everything we use these days (Figure 2), from toys to personal and household items to heavy-duty industrial goods.

Figure 2

Figure 2: Plastics and many other products are derived from petrochemical feedstocks.

From a business perspective, oil and gas represent global commerce on a massive scale (Figure 3). World energy markets are continually expanding, and companies spend billions of dollars annually to maintain and increase their oil and gas production. Over 200 countries have invited companies to negotiate for the right to explore their lands or territorial waters, hoping that they will find and produce oil and gas, create local jobs and provide billions of dollars in national revenues.

Figure 3

Figure 3: The oil and gas industry influences virtually every aspect of the global economy.

From a geopolitical perspective, large quantities of oil and gas flow daily from "exporting" regions such as the Middle East, Africa and Latin America to "importing" regions such as North America, Europe and the Far East. This creates political, trade, economic and even national security concerns on both sides (Figure 4). Oil and gas exporters want to maximize their revenues and improve their trade balances while maintaining control and sovereignty over their natural resources. At the same time, importing nations want to minimize trade deficits and ensure a steady, reliable oil supply. China, for example, has recognized that it must obtain access to oil in order to continue its long-term sustained growth and is actively seeking new sources of supply in the major producing companies.

Figure 4

Figure 4: Maintaining a steady supply of oil and gas is vital to a country's long-term economic growth (Houston Port).

From an internal policy perspective, producing countries continually wrestle with questions of how best to develop their resources and attain long-term sustainable benefits for their people. At the same time, consuming countries are always considering how to reduce their dependence on imported oil, either by imposing higher energy taxes to spur conservation, tapping into domestic resources such as coal (less costly but more polluting than imported oil) or developing alternative energy sources such as nuclear power (Figure 5).

These issues have major long-term impacts, both within individual countries and on the world at large, even affecting such fundamental issues as war and peace.

Figure 5

Figure 5: Both exporting and importing countries face major policy decisions related to oil, gas and other energy resources.

Finally, from a health, safety and environmental (HSE) perspective, there is a continuous concern for safety in oil and gas operations, the impact that new projects have on surface environments, the possibility of oil spills and the effect of pollutants such as CO2 (carbon dioxide, a product of hydrocarbon combustion) on global climate change and air quality (Figure 6).

Figure 6

Figure 6: Air pollution ("smog") over the city of Los Angeles, California impacts the health of local society.

The oil and gas business is clearly a multifaceted, global industry that impacts all aspects of our lives. And yet it is one that we tend to take for granted until a crisis emerges-a tanker runs aground, a hurricane damages a refinery, a country changes political leaders or revises its energy policies. Then we blame "big oil" or OPEC or the politicians or the local service station attendant before things quiet down again.

In this module, we will learn about the nature of oil and gas, define some basic industry terms and list common units of measurement and conversion factors. We will introduce the concept of the Oil and Gas Value Chain, and examine its structure and functional relationships. We will then look at sources of oil and gas supply, major areas of demand, pricing fundamentals, drivers of demand and future trends. Finally, we will identify some of the key players who make up this dynamic and vibrant industry.