Downstream Essay ⋆ Business Essay Examples ⋆ EssayEmpire

The term downstream has historically been used in the natural resources and chemicals industries, and specifically in the oil and gas industry, to refer to activities that relate to the processing of crude oil and natural gas or related petroleum products to the point where the feedstock is broken down and purified into a series of products such as aviation gas (avgas) or bitumen for roads, or petrol/gasoline for cars and trucks, or even when natural gas is used as a source material for electricity generation.

The origins are in the sense of location of the deposition of minerals in a streambed, e.g., gold-panning activities (so even older than petroleum exploration and production) where heavy minerals were deposited “downstream,” i.e., away from the water’s source but originated “upstream.” It is, however, also used today to refer to bioprocesses where it refers to the purification and quality control processes for new biological materials, data transfer speeds between host servers and clients analogous to downloading, and as a term for later activities or later elements of sequencing in manufacturing and production processes.

Petrochemical products, for example bitumen, were found to have been used in Roman camps such as Uttoxeter in the United Kingdom, but until the late 19th century, interest in downstream products was based around their roles as lubricants. Much of industrial development was coal based with interest growing in petroleum, though gas was almost an inconvenience. With the dwindling of black-coal mining, which is associated with high health and safety risks, in many countries, oil and gas-based chemical production has taken over and many downstream products are in everyday use.

While upstream companies may just concentrate on the exploration and production of oil and gas, an activity still possible on a small scale of a single oil well and with limited capital, downstream activities are large scale and hugely capital intensive. Plant design, scale, and scope (integration) are all important drivers for firms to capture as much of the added value chain for bulk low-margin products such as olefin precursors used in polymers and plastics. Many of the larger companies adopted an integrated strategy from upstream to downstream activities, a strategy still in use by national oil companies such as Petrobras and Petronas. Indeed, ExxonMobil began life as Standard Oil of Ohio in the oil refining business—the Standard Oil companies were a cartel controlling 85 percent of the United States’ oil industry and were then split into a number of companies that form the precursors of today’s Western super majors.

Downstream petrochemical activities are often split into self-explanatory areas such as bulk chemicals, fine chemicals, or fertilizers, many categories of which are traded as commodities on world markets. Key success determinants are access to cheap feedstock (upstream-generated oil and gas of the optimal quality and chemical constitution for the plants in question); other allied input costs include cheap energy and skilled labor. Plant set-up costs are high, technology is heavily protected, and there are limited numbers of world-class suppliers. However, it is the opportunity to capture added value within resource owning host government countries that is attractive, with the result that many major downstream activities are now located closer to production sites or to major users. An example of this trend would be Saudi Arabia’s development plans for further petrochemical processing and product delivery.

This drift away from Western Europe and the United States has also been affected by the consequences of plant closures in the former Soviet Union and Eastern bloc as a result of failure to meet European Community safety and health standards and also environmental pressures in the West for better emissions management and enhanced ecological expectations. This trend is also affected by events that became international incidents when systems failed and serious accidents occurred. One such event—the explosion at the Bhopal plant in India in 1984 with serious loss of life, injury, and ongoing contamination issues—focused international opinion on foreign company investments in this sector. Older plants are much more expensive to adapt to modern standards, and secondhand plants from country to country are not always as attractive a cost option as they initially appear, leaving many firms with expensive and sometimes technically challenging issues around decommissioning old plants but also facing increasingly urgent claims from a wider universe of stakeholders than in the days when the plant was the major employer and stakeholder groups felt less able to speak out about problems.

Bibliography:

Burdick and W. Leffler, Petrochemicals in Nontechnical Language, 3rd ed. (Pennwell Publishing, 2001);
Business Monitor International, Saudi Arabia Petrochemicals Country Report 2008 (Business Monitor International, 2008);
Dawe, Modern Petroleum Technology, Upstream, 6th ed. (Institute of Petroleum, 2002);
Gary, H. Handwerk, and M. Kaiser, Petroleum Refining Technology and Economics, 5th rev. ed. (CRC, 2007);
Leffler, Petroleum Refining in Nontechnical Language, 3rd rev. ed. (Pennwell Publishing, 2000);
Lipton, “Exxon Discovers Profits Downstream,” Forbes (April, 26, 2007);
Lucas, Modern Petroleum Technology, Downstream, 6th ed. (Institute of Petroleum, 2002);
Zerk, Multinationals and Corporate Social Responsibility: Limitations and Opportunities in International Law, Cambridge Studies in International and Comparative Law No. 48 (2002).

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