understanding o&g-mdso 801 (1st vol)
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TROLEUM&
ENER
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STUD
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MDSO - 801 (Vol. 1)
UNDERSTUNDERSTUNDERSTUNDERSTUNDERSTANDINGANDINGANDINGANDINGANDING
OIL & GAS BUSINESSOIL & GAS BUSINESSOIL & GAS BUSINESSOIL & GAS BUSINESSOIL & GAS BUSINESS
COLLEGE OF MANAGEMENT AND ECONOMIC STUDIES (CMES)
EMBA - Oil & Gas Management
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Course Code: MDSO - 801 (Vol. 1)
Course Name: Understanding Oil & Gas Business
UNIVERSITY OF PETROLEUM & ENERGY STUDIES
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Contents
Unit 1 Basic Concepts ..................................................................................................... 1
Unit 2 The Micro-System .............................................................................................. 28
Unit 3 The Exploration of Oil ....................................................................................... 55
Unit 4 Oilfield Processing............................................................................................. 79
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Unit 1 1Notes
Objectives
After reading this unit, you will be able to:y Understand what is petroleum, what are its
constituents, and their significance.y Know about composition and characteristics of oil and
gas.y Understand what are the main products from oil and
gas and their uses.y Get familiar with some of the common concepts,
definitions and terminologies used with respect to oiland gas.
Introduction
Oil industry is perhaps the most exciting industry in thehistory of civilization. Although the history of oil traces backto seepages of oil as early as 3000 B.C., the real thrill of itstarted with the oil boom in the USA. When Rockefellerwas asked to tell very briefly how people get rich, he repliedSome people find oil, some don't.
It's amazing how much oil and gas has penetrated into ourlives today. The toothbrush we use to start the day, the suitwe wear, the fuel we use in our cars to drive to office, the carinteriors, back home with cozy furniture, tapestry, andmattress of the bed we sleep on - all are petrochemicalsi.e. chemicals from petroleum.
Basic Concepts
Fig. 1.1Petrochemicals in our Lives
PVC Pipes
Polyester Clothing
Acrylic Carpet
Nylon Can
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Notes
Oil business has been responsible for prosperity, war,
intrigues and adventure.
Search of oil and gas leads us to some of the most exotic
forests, deserts, and ocean. Perhaps some of the most
beautiful man made sights in the world are offshore
platform in deep ocean, array of offshore rigs in a remote
desert or jungle or an illuminated petrochemical complex at
night.
Let us understand the importance of oil and gas industry by
looking at its share in the energy supply to the world (Fig.
1.3). More than 60 % of the energy needed in the world is
provided by oil and gas.
Fig. 1.2Offshore Jackup Rig
Fig. 1.3Distribution of Energy Supply
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Notes
And it is not really as expensive as it sounds (Fig. 1.4).
To understand oil and gas business, one needs tounderstand a whole spectrum of activities from oil well topetrochemicals.
It is also important to understand the trend and future of the
industry in terms of technology, economics and pricing ofenergy resources. Energy price is very important for theeconomy of any country. As stated earlier, oil and gasprovide over sixty percent of the energy requirement of theworld. Oil had been the dominant component of the mix. Oilprices have been controlled from time to time to a high levelby the petroleum exporting countries (OPEC). But onepositive development is that now natural gas is overtakingoil. During the year 2000, the increase in the energyconsumption of the world was 180 Million Tons of oilequivalent. Out of this, share of oil was 20%, share of gas
was 55% and that of coal was 15%. Its is expected that gaswill replace oil as dominant energy provider in near future.It is cleaner, cheaper and new discoveries and reserves ofgas field are coming up in many parts of the world includingIndia.
Very often the question comes up how long thehydrocarbon resources (oil and gas) will last. Manypredict oil and gas will start depleting in another 20 to 30years.
Fig. 1.4Price Comparison
UNIT 1 Basic Concepts
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Notes
But the world is keeping on adding new hydrocarbon finds
and developing technology to recover more hydrocarbons
from existing oil and gas fields. Also major R&D work is
going on to find how to exploit huge reserves ofMethane
Hydrates i.e. an unstable compound of water and
methane, lying untapped deep below the ocean in many
parts of the world including coastal areas of India.
It is a fact that although the oil and gas industry will
continue to dominate for several decades from now, at
some point of time other forms of energy will take over. Oil
and gas industry generates wealth, and a part of the wealth
is being put into R&D to innovate for the future. We shall
cover the topic in a later section on future trends. Let us notcall the industry just oil and gas industry - it is energy
industry.
Let us start on the path of understanding oil and gas
business. The first step is to understand what is oil and
what is gas, how it originated and what we get out of it.
Unit 1 focuses on getting to understand the basics.
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Activity 1a
What is Petroleum
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Petroleum is a word derived from the Latin words Petra(rock) and Oleum (oil). It essentially comprises of naturally
occurring hydrocarbons i.e. compounds made of carbon
and hydrogen atoms. These hydrocarbons are trapped
below the surface of the earth, in porous rocks, in the form
of oil and gas.
From where did the hydrocarbons come? There are
various theories. The most accepted theory is the organic
theory:
Hydrocarbons came from remains of the bodies of pre-historic land based animals, marine organisms
(plankton) and vegetation, which were washed away
and buried below the earth during upheavals on the
earth's surface millions of years ago.
In the course of time the buried organic matters
decomposed and the carbon and hydrogen present in
these reacted under heat and pressure to form various
compounds, generally hydrocarbons.
The hydrocarbons got trapped in the porous rocks and
were covered by hard sedimentary rocks that formed
over it. They acted as cap or seal to prevent
hydrocarbons from escaping.
As explained later, carbon and hydrogen atoms can join
together to form molecules of various sizes and structures.
Hydrocarbons could be a small molecule with combination
of one or a few carbon atoms with hydrogen (e.g. Methane
CH , Ethane - C H ). Or it could be very large molecule by4 2 6combination of dozens of carbon and hydrogen atoms (e.g.
Wax - C H ) or even thousands of carbon and hydrogen20 42atoms (e.g. Polythene).
Petroleum is essentially composed of hydrocarbons with
some other impurities. The words petroleum, oil and
gas and hydrocarbon are all used synonymously in the
oil and gas industry.
UNIT 1 Basic Concepts
What is the differencebetween crude oil andvegetable oil in termsof composition andproperties?
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Notes
Hydrocarbons in petroleum could be in gaseous, liquid
or solid form depending on the type and size of
hydrocarbon molecule:
It can be in gaseous form as natural gas, which can be
associated with oil in an oil field or found free of oil in a
gas field.
It can be in liquid form as crude oil (dark and viscous), or
condensate (clear and volatile like motor gasoline).
The solid and semi-solid forms of petroleum are called
asphalt and tar.
Petroleum as a general term is used for all three mentioned
above.
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Reservoir, Well and Well Fluid
Through the burial and decomposition of organic material,
huge amount of hydrocarbons are formed below the
earth's surface. Movements and convulsions below the
earth's surface resulted in different types of geological
formations , where the hydrocarbons are trapped. In these
formations, the hydrocarbons are contained by porous
rocks known as source rock, covered with strata of hardsedimentary rocks known as cap rock which settled over
them.
When huge quantity of recoverable hydrocarbon is trapped
in rock formations below the earth, it is called Reservoir.
Fig. 1.5 depicts a typical formation of a reservoir. The
surface on earth above the reservoir is called oilfield or
gas field or condensate field depending on what it
produces.
Name Formula Phase
Methane CH4 Gas
Hexane C H6 14 Liquid
LiquidOctane C H8 18
Wax C H20 42 Solid
Table 1.1
Light and Heavy Hydrocarbon Molecules
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Notes
It must be noted that the reservoir in an oil field is not like a
pool of liquid or a container filled with gas. It is oil or gas
trapped in pores of porous sedimentary rocks, covered by
impervious cap rock.
To produce oil from the reservoir, wells are drilled through
the surface of the earth. A well is then perforated at right
location from where the oil or gas enters the well pipe and
rushes out because of high pressure.
Formation of reservoir structure is explained in greaterdetail in Unit - 3.
What is Well Fluid?
The fluid that comes out of the well in an oilfield or gas field
is called well fluid.
Well fluid is a mixture of crude oil, natural gas and
saline water along with small amounts of sand and
sludge. The water is called formation waterorproducedwater.
Points to Remember
If the crude oil had been just made of hydrocarbons,
processing to get the final products would have been easy
and at low cost. But a number of undesirable components
come out with the well fluid, which increases the processing
blocks and processing cost.
Fig 1.5Hydrocarbon Formation
Sediments formingimpervious layer calledCap Rock.
Earth movements causefolds in earth crust.
Hydrocarbons trapped bythe Cap Rock, in the poresof sedimentary rock act asa reservoir.
Gas
Oil
Water
Well pipe Earth Surface
UNIT 1 Basic Concepts
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Activity 1 b 6 Other components like sulfur compounds, carbon
dioxide, nitrogen, traces of metals are also present.
Their removal constitutes part of processing.
6 Proportion of oil, water and gas may vary widely from
one field to other. It changes substantially with time
during production.
6 Normally, well fluid comes out on its own pressure, which
depletes with time. Artificial methods of recovery are
used in later stages of production.
Crude Oil and Natural Gas
The first processing step in an oilfield is separation
between crude oil, natural gas and produced water.
What is Crude Oil?
Crude oil is a mixture of about 500 organic chemicals,
predominantly hydrocarbons (molecules made of
carbon and hydrogen). It is recovered from underground
reservoirs, normally 1000 - 5000 meters down the earth.
Crude oil can be of wide variety and characteristics. It could
be very fluid, very viscous or semisolid. The colour could be
black, dark brown, amber or light brown.
It is also called Petroleum.
What is Natural Gas?
Natural gas is a mixture of the lightest hydrocarbons like
methane, ethane, propane and butane. It also contains
water to its saturation limit. It may also contain hydrogen
sulphide (H S), carbon dioxide (CO ), nitrogen (N ) and2 2 2occasionally small amounts of helium (He).
When natural gas comes out of the well along with crude
oil, it is called associated gas. Associated gas is produced
along with crude in a field which is essentially an oil
producing field.
Understanding Oil & Gas Business
Is Helium a usefulchemical? What areits uses?
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Notes
When the well produces mainly gas with very little liquids, it
is called free gas. Free gas production can be shut when
we do not want it.
When acid gases like CO and H S are present in2 2substantial quantity, the gas is called sour gas. Otherwise
it is called sweet gas.
Various Forms of Natural Gas
There often exists a lack of understanding regarding the
various terminologies or nomenclature used in the industry
in describing components or forms of natural gas. The
most commonly used ones are NGL, LPG, LNG, andCNG. Let us understand what are these and how they differ
from natural gas.
NGL: During production or transportation of gas, the
heavy components such as pentane or hexane, condense
due to natural cooling and separate out as liquids. This is
called NGL (Natural Gas Liquids).
As the name suggests, this is not really a gaseous
component, but volatile liquid.
LPG: The propane/ butane component of the natural gas
is liquefied under moderate pressures and is supplied as
cooking gas fuel.
This is called LPG (Liquefied Petroleum Gas)
LNG: Natural gas in bulk is liquefied under very low
(cryogenic) temperature for transportation in large
quantities by marine tankers. This is bulk of the natural gas
in liquefied form and is re-vaporized after receiving it at its
destination from tankers, to be used as natural gas. The
objective of converting the gas to LNG is transportation in
large quantities or export by marine tankers.
This is called LNG (Liquefied Natural Gas).
UNIT 1 Basic Concepts
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Notes
CNG: Natural gas is compressed to high pressures for use
as automotive fuel or for transportation in small quantities.
This is natural gas in highly compressed form but not
liquefied.
It is called CNG (Compressed Natural Gas).
Elementary Concepts on Hydrocarbons
Now that we know crude oil is made of around 500
components, mainly hydrocarbons and natural gas is
mainly light hydrocarbons, it becomes important to
understand a little basic about hydrocarbon molecules.
The whole petroleum and petrochemical industry
revolves around
6 Starting with the hydrocarbon molecules as produced
naturally from the well.
6 Rebuilding them into valuable products by various
types of processing.
What is Hydrocarbon?
Hydrocarbons are compounds made of carbon and
hydrogen. The hydrocarbon molecules are formed by-
6 Bonding of hydrogen atoms to carbon atoms.
6 Bonding of a number of carbon atoms to form chain or
cycle or a combination of chain and cycle.
6 The number of carbon atoms bonded together can be afew or many, in various combinations, creating
numerous chemicals.
6 The bonding of carbon atoms could be in the form of a
straight chain, branched chain or cyclic manner.
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Notes
The phase (solid, liquid or gas) of the hydrocarbon
depends on the number of carbon atoms joined togetherin a chain e.g.
CH (METHANE) : GAS4C H (BENZENE) : LIQUID6 6C H (WAX) : SOLID20 42
Crude oil is made of a mixture of more than 500
components, mainly Hydrocarbons, which are the
desired components. Crude oil contains from light
components as dissolved gases (LPG) , light liquids(Petrol, diesel) to heavy stock like wax, tar and resins.
The more carbon atoms a hydrocarbon molecule has,
6 the "heavier" it is (the higher is its molecular weight).
6 and the higher is its boiling point.
Composition of Crude Oil
Crude oil is predominantly made of hydrocarbons.
It is composed of three main hydrocarbon groups:
6 Paraffins
6 Naphthenes
6Aromatics
It also contains unstable hydrocarbons called olefin.
Paraffins are straight chain compounds, chemically
stable. Lighter ones (CH , C H ) are gas. Heavier4 2 6molecules are liquid (oil) or solid (wax).
Typical hydrocarbon structures are depicted in Fig. 1.6.
Fig. 1.6
Hydrocarbon Structure
H|C|H
H|C|H
H|C|H
H|C|H
H|C|H
H|C|H
Straight Chain Hydrocarbon Cyclic Hydrocarbon
H - - - - - - - H (C H )6 14
H|C|H
H|C|H
H|C|H
H|C|H
H|C|H
H|C|H
H - - - - - - H (C H )6 14
Straight Chain Hydrocarbon Cyclic Hydrocarbon
-
TolueneC H7 8
UNIT 1 Basic Concepts
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Activity 1d
Naphthenes consist of carbon rings, with/without side
chains. Saturated with hydrogen, naphthenes are also
chemically stable. Lighter naphthenes are liquids and
heavier ones could be solid.
Aromatics are compounds having a ring of six carbon
atoms with alternating double and single bonds and six
hydrogen atoms. They are relatively unstable.
Olefins are double bonded hydrocarbon chains, normally
produced during high temperature processing of
petroleum. Olefins are unstable and polymerize easily i.e. a
large number of olefins can combine together easily to form
large gummy or plastic molecules.
Paraffins
Naphthenes
Olefins
Aromatics
MethaneCH4
EthaneC H2 6
PropyleneC H3 6
PropaneC H3 8
Normal ButanenC H4 10 Isobutane
CyclohexaneC H6 12 Dimethyl Cyclopentane
C H7 14
BenzeneC H6 6 Toluene
C H7 8
XyleneC H8 10
Fig. 1.7
Types of Hydrocarbons
Understanding Oil & Gas Business
Write down structuralformula of sevenhydrocarbons madeof six carbon atoms
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Notes
Some Important Concepts on Crude Oil
Carbon Numbers
The hydrocarbons are often referred in terms of number of
carbon atoms rather than whole formula.
Example:
C1 = Methane
C4 = Mixture of Butane and hydrocarbons with 4
carbon atoms
C7 = Mixture of all hydrocarbons with 7 carbon
atoms.
For further clarity let us put down some of the paraffin
hydrocarbons the symbol (-) indicating carbon to carbon
bonds:
Methane CH CH4 4Ethane C H CH - CH2 6 3 3Propane C H CH CH CH3 8 3 2 3Butane C H CH - CH - CH - CH4 10 3 2 2 3
(normal butane or n-butane)
Butane structure can also bebranched chain type asgiven below:
Both the structures of butane have same number of carbon
atoms and same number of hydrogen atoms i.e. C H .4 10
The only difference is how the carbon atoms are bonded
with each other. This makes them different chemical
entities but with very similar and close physical properties
like boiling point and vapor pressure. The branched chain
hydrocarbons of same carbon numbers, same number of
hydrogen atoms and same chemical formula are called
isomers.
CH - CH - CH3 3
CH3(Isobutane or i-butane)
UNIT 1 Basic Concepts
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Notes
Now let us look at Pentane.
Pentane C H CH - CH - CH - CH - CH5 12 3 2 2 2 3(n-pentane)
Pentane can have quite a few isomers:
Thus one can have more and more isomers as the numberof carbon atoms in the chain increases.
In addition to the numerous isomers, there are other typesof hydrocarbons like olefins (double bonded or triplebonded hydrocarbons). C5 and higher hydrocarbons canhave cyclic structures (naphthenes and aromatics) andthere could be molecules with combination of cyclic andstraight chain hydrocarbons.
For example C6 hydrocarbon can be compounds of -
6 Normal paraffinic chain structure (e.g. normal hexane)
6 Isomers (iso-hexanes)
6 Olefinic structures or structures with double bond(hexenes)
6 Cyclic structure (benzene)
Thus just saying C6 means a number of hydrocarbons withsix carbon atoms put together in various forms.
That explains:
6 How innumerable varieties of hydrocarbon moleculesare possible.
6 How with same number of carbon atoms, say C8,numerous hydrocarbon compounds are possible.
Higher the number of carbon atoms, more numerous is thepossible hydrocarbon compounds.
CH3
CH3
CH2
CH - CH - CH - CH3 2 3 CH - CH - CH3 3
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Activity 1e
Classification of Crude Oil
Various crude oils are often referred by theirAPI Gravity.
API Gravity is expressed as (141.5/ Sp. Gravity - 131.5).
As specific gravity is in the denominator, API Gravity is
higher for lighter crude and lower for heavier crude.
A comparative idea of this gravity unit can be obtained by
comparison with water:
Water: 10 API
Typical API Gravity figures for crude oil are
Mumbai High Crude : 40 API - Light Crude
Arabian Crude : 34 API - Medium Crude
Venezuelan Crude : 15 API - Heavy Crude
There could be sub-categorization as Medium Heavy or
Light Medium.
Another common classi f icat ion is based on
Characterization Factor, which depends on API Gravity
and Boiling Point.
The crude oils are also classified in terms of chemical
nature e.g.
6 Paraffinic base
6 Asphaltic base
6 Intermediate base
6 Naphthenic base
Crude oils for which the residue after distillation contains
paraffin wax is called paraffinic. If the residue contains
asphalt, it is called asphaltic base and so on.
Refinery processing scheme and product yields depend
on type of crude in terms of chemical nature and gravity.
It also indicates the type of product it can yield.
UNIT 1 Basic Concepts
Calculate API Gravityof crude oils withspecific gravity of0.8, 0.9 and 0.95
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Notes
As typical example:
6 Paraffinic base crude do not yield good bitumen (road
tar) and is not good for lubricating oil manufacture. But it
is good for diesel.
6 Light crude contains more ofgasoline.
6 Medium crude is good fordiesel production.
6 Heavy crude may give betterbitumen.
6 Naphthenic crudes are good forlubricating oil.
Cut or Fraction
Crude Oil and its products are mixtures of several
components. Each component has a boiling point. It is
interesting to examine what would be the boiling point of
mixture of several liquids.
Q - What is the boiling point of a mixture of two liquids A ando
B mixed 50-50, A and B having a boiling points of 70 C ando
80 C respectively?
Q - What is the boiling point of a mixture of four liquids in
equal parts having boiling points of 100,200,300 ando
400 C?
None of the above mixtures will have a single boiling
point. If you start boiling such a mixture, it will start boiling
close to the boiling point of the lightest component. The
lightest component will start vaporizing faster and as it gets
removed (along with some of heavier components), the
boiling temperature will keep rising. Towards end the last
bits of the heaviest component will be left behind and will
boil at close to its boiling point.
Thus mixtures do not have a single boiling point, it has a
boiling range - from the initial boiling point to the final
boiling point.
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Notes
Cuts, Fractions and Carbon Numbers
Crude oil is a mixture of over 500 components. It has ao
boiling range of around 40-600 C. Each product from
Crude oil is also mixture of several components
(hydrocarbons). The hydrocarbons range from C1 to C65
in terms of carbon numbers.
Product of a particular boiling range taken out of crude is
defined as cut or fractions.
The products are identified as cuts from crude of certain
boiling ranges and carbon numbers.
Petroleum Products
Crude oil (Oil) and natural gas (Gas) mixed along with
water, comes out of the well as well fluid. Crude oil and
natural gas together can be broadly referred as petroleum.
Petroleum is just a raw material. Let us see what products
we get from oil and gas that comes out from well head.
Product / Cut Boiling Range Carbon NumberNatural Gas
o
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Notes
The high calorific value of the petroleum products, its low
cost in the past and its suitability for use as relatively cleanfuel created incentive to consume as fuel. But in the current
economic scenario, valorization to higher value products
has become integral part of oil and gas industry.
It is important to note that besides producing fuel and
automotive products like gasoline or diesel, both crude oil
and natural gas provide feed stock for petrochemicals.
Feed stocks are component of crude oil and natural gas
that are converted into high value petrochemical products
like polythene, polyester, synthetic rubber and syntheticfiber etc. It is apparent from the table above, there is
substantial valorization once the oil or gas is converted to
petrochemicals.
The macro-system from well head to Petrochemicals has
been dealt in detail in the next section. For an initial
understanding of the petroleum products let us have a look
at the simple block diagram given inFig. 1.8.
Well Head to Energy and Petrochemicals
There are two distinct uses of well head oil and natural gas -as fuel and as high value products. Primary use of the
petroleum products in the early days of its exploration has
been as fuel. But later with the development of
petrochemical area (plastics, fibers etc.), emphasis has
shifted to greater valorization of the raw material. Let us
look at the table below to understand this.
Understanding Oil & Gas Business
Fuel and Products Calorific Value(Kcal/Kg)
PriceUS Dollars/Ton
Coal 6,500
Crude Oil
Fuel Oil
Motor Gasoline
Polythene
Polystyrene
10,000
11,000
Table 1.3Petroleum as Fuel and as Value Products
10,400
Not fuel
Not fuel
150
120
180
500
550
80
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Activity 1f
The various blocks in overall system are:
6 Well fluid is processed at the oilfield first. Oil and gas
are separated, made transportable and despatched to
the Refinery and Gas ProcessingFacility respectively.
6 Refinery produces products like petrol, diesel oil,
lubricating oil etc. It also produces feed stock (Naphtha)
for petrochemical (plastic, fiber etc.) manufacture.
6 Gas Processing Facility purifies the gas from
undesirable components and separates feedstock for
petrochemical production.
6 Petrochemical feed stocks from Gas Processing or
Refinery or both are sent to a Petrochemical Complex
for production of petrochemical.
6 The balance gas is used as fuel for power generation oras industrial fuel.
Each individual block in the above diagram could be a
separate company. And each of these blocks could be
located far away from each other in the same or different
countries.
This makes the oil and gas industry a real global industry.
ReservoirOil field
ProcessingTransportation
Refinery
PetrochemicalComplex
Power
Generation
Power
PetrochemicalProduct
PetrochemicalFeed stockGas
Processing
RefineryProducts
Oil
Oil
Gas
Gas
Gas
Naphtha
(Ethane / Propane)
Fig. 1.8
Petroleum Utilization Blocks
UNIT 1 Basic Concepts
Name five items ofdaily use made frompetrochemical sourceand name the petro-chemical -
e.g. Toothbrush ismade from nylon.
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Notes
Some important terms often used in oil and gas industry
with respect to the block diagram -
Offshore : Oil or gas field situated in the sea / ocean.
Onshore : Land based oil or gas field.
Upstream :The blocks covering reservoir, production,
processing and transportation of oil and gas is referred as
upstream blocks.
Downstream :Gas Process ing , Re f inery and
Petrochemical Facilities are referred as downstream
blocks.
Products from Natural gas
The natural gas is made mainly of the four lightest
hydrocarbons i.e C1 (Methane), C2 (Ethane), C3
(Propane) and C4 (Butane). As gas separates out of the
crude oil, it pulls out a little bit of heavier hydrocarbons like
C5, C6 etc.
Table 1.4 shows the typical composition of gas and use of
various components towards high value product.
Table 1.4
Gas Composition and Utilization
Component CompositionVolume %
Utilization
Methane (C1) 50-96 Fuel, Petrochemicalfeedstock, power generation
Ethane (C2) 2-15 Petrochemical feedstockPropane (C3) 1-12 Petrochemical feedstock,
LPGButane (C4) 0.5-3 Petrochemical feedstock,
LPGHeavies (C5+) (NGL) 0.1-1 Refinery blending stock,
petrochemical feedstockHydrogen Sulfide (H S)2 0-15 Toxic, corrosive and
undesirable componentCarbon Dioxide (CO )2 0-30 No fuel value, corrosive,
undesirable componentNitrogen 0-30 No fuel value, corrosive,
undesirable componentWater Saturated Undesirable componentTotal 100
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Notes
Component(Volume%)
Methane richSweet Gas
Associated gas(mildly sour)
Sour gas Gas with highN2
Methane (C1) 94.5 76.5 71.5 62.5
Ethane (C2) 2.8 12.2 10.2 4.2
Propane (C3) 1.0 6.5 5.7 2.5
Butane (C4) 0.2 1.8 1.0 0.5
Heavies (C5+) (NGL) Traces 1.0 0.5 0.1
Hydrogen Sulfide(H S)2 NilNil 3.5 Nil
Carbon Dioxide 1.5 2.0 7.6 5.4
Nitrogen Nil 300 ppm Nil 24.8
Water Saturated Saturated Saturated Saturated
Total 100.0 100.0 100.0 100.0
The points to note here are that:
6 There is a wide range of gas composition, varying from
field to field and well to well.
6 Only consistent trend is the reducing pattern of the
hydrocarbon constituents from the lightest to the heavier
ones e.g methane followed by ethane and heavier
hydrocarbons.
6 Utilization of gas as fuel is the easiest but lowest in the
value chain.
6 Utilization of gas to make petrochemicals is the highest
in the value chain.
Hence very often the components of the gas are separatedby gas processing to be used for manufacture of
petrochemicals.
While Table 1.4 gives a range for gas composition, typical
gas composition are given in Table 1.5.
Obviously each of these gases will have different
processing techniques and problems in the Gas
Processing Plant. These will be dealt with later. But let uslook at the obvious -
6 The methane rich gas will have very little feedstock for
petrochemicals.
6 The associated gas is rich in petrochemical feedstock
and LPG.
6 The sour gas will need treatment to remove highly toxic
and corrosive Hydrogen Sulfide.
6 The nitrogen rich gas will have low calorific value.
Table 1.5Typical Gas Composition
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Notes
The important petroleum products produced in bulk in a
refinery are presented in Table 1.6. Each of the productshas to meet certain performance specifications. Only one
typical specification is stated in the table for a preliminary
understanding of its significance with respect to the usage.
It must be remembered that besides performance
specifications, there are strict specifications to meet
environment and emission norms. These are related to
polluting components like sulfur, aromatics etc.
Product Use Key Specifications
LPG Domestic fuel,Petrochemicalfeedstock
Vapor Pressure
Naphtha
Petrochemicalfeedstock
Boiling range,composition
Motor gasoline Automotive fuel Octane number
Kerosene
Domestic fuel,lighting
Smoke point
Aviation Turbine
Fuel
Aero plane fuel Freezing point
Diesel oil
Automotive fuel
Cetane number
Fuel oil
Industrial fuel
Viscosity
Lubricating oil
Industrial lubricants
Viscosity
Bitumen (asphalt) Road tar Penetration Index
Paraffin Wax Medicine, cosmetics Pharmaceutical specs.
Table 1.6Products from Crude Oil Refining
Products from Crude Oil
The five hundred odd components mostly hydrocarbon
ranging from C1 to C65 gives wider range of products.
Each of the product by itself is a composite of numerous
hydrocarbons. The crude oil is processed in the refinery to
separate the base stock (raw products) by distillation into
'cuts'. Then the various product base stocks are processed
and treated to meet specifications.
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Activity 1a
Types Bulk Petrochemicals
Use
Plastics PolythenePolypropylenePolystyrenePVCPolycarbonate
Bags, laminates, boxes,shoes, fibers, toys, electronicgoods, engineering items,numerous items of daily use
Fabric, clothing, bags,ropes, carpets, andnumerousother irtems
Fibers PolyestersPolypropyleneNylonPolyurethaneCellulosePolyacrylonitrile
Petrochemical Products / Petrochemicals
What are petrochemicals? Petrochemicals are usually
plastic products and chemicals that are derived from
petroleum and natural gas and are made on a large scale
(approximately >10,000 tons per annum upwards). As
indicated in the earlier sections, certain components from
gas processing plants and refinery are used as feedstock
for manufacture of petrochemicals (e.g ethane, propane,
naphtha).
Petroleum products from refinery and natural gas, supply
over 50% of the feedstock for the entire chemical industry
and more than 50% of organic chemicals.
As you can see in the next table, petrochemical products
have permeated into every facet of our lives.
A vast majority of them are polymers, whose molecules are
tailored by reaction process to suit specific characteristics
or properties.
Units Specifically Used in Oil and Gas Industry
Oil industry uses certain specific units for production ratesand volumes which will be bused frequently in our text. Dueto past history of oil and gas industry which ispredominantly the history of exploitation of hydrocarbonresources by the companies of American origin, theAmerican units are more often used in the industry ratherthan Metric Units. Here are some important unitscommonly used with which one must get familiar.
Table 1.7
Petrochemicals
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Notes
6 Crude-oil volume is usually measured in barrels.
6 One barrel holds 42 gallons (159 liters).
6 Weight or mass of crude in India is in metric tons(tonne).
6 A barrel of average crude oil weighs 0.150 ton, as athumb rule. It must be remembered that it depends onthe density of the crude oil.
6 Million Barrels of Oil Equivalent (MBOE) meansamount of gas or any other fuel whose calorific value orheating value is equivalent of one million barrels of
crude oil.
6 Oil production capacity or refinery capacity are oftenexpressed in Barrels Per Day (BPD) or Barrels PerStandard Day (BPSD). Roughly 20,000 BPSD isequivalent to 1 Million Tons per year of crude, taking anaverage density of crude. [Note: It obviously will dependon density of crude oil.]
6 Some typical conversion figures used in the oil industryare given in Table 1.8.
Table 1.8Commonly Used Measurement
Units in Petroleum Industry
Unit Weight or Volume Conversion Factor
1 Metric Ton (Tonne) = 7.33 Barrels= 1.165 Cubic Meters
1 Barrel (Bbl) = 0.136 Tonnes = 0.159 Cubic metres
1 Cubic Meter (CuM)= 1 Kilo Liter (KL)= 0.858 Tonnes = 6.289 Barrels
1 Million Tonne of Crude = 1.111 Billion CuM of Natural Gas = 39.2 Billion Cubic Feet Natural Gas= 0.805 Million Tonnes LNG
1 Billion CuM of natural gas= 0.90 Million Tonnes Crude Oil = 0.73 Million Tonnes LNG
1 Million Tonne of LNG = 1.38 Billion CuM of Natural Gas= 1.23 Million Tonnes Crude Oil
1 Million Tons Per Year ofcrude
= 20,000 Barrels per standard day ofcrude
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Notes
Summary
In this section we talked about the origin of petroleum (oil
and natural gas) and its composition. Oil and gas are made
mainly of hydrocarbons that originated from decomposed
organic material buried under earth's surface. Elementary
chemistry was touched upon to clearly define what is
hydrocarbon.
We defined the various forms in which gas is used like
LPG, LNG, NGL or CNG. Also the various products from
oil and gas were identified. Petrochemical products were
defined and how oil and gas provides the feedstock for
manufacturing valuable petrochemical products wasexplained.
We learnt the definition and concepts regarding:
Reservoir Reservoir Rock Cap Rock Trap
Well Fluid Crude Oil Natural Gas Produced Water
Associated Gas Free Gas Sweet Gas Sour Gas
NGL LNG LPG CNG
Boiling Range Cuts Fractions
Offshore Onshore Platform FPSO
Besides common terminologies, commonly used units for
measurement of weight and volume of petroleum was
explained.
Questions
Since this section explains elementary concepts about
crude oil and defines certain basic terminologies used in
the industry, an objective type questionnaire or quiz is the
best way to judge the competence attained by the
participants.
Objective type questions
Please circle the correct answer or answers. Each
question has one or more correct answers.
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Notes
No. Question Answer
1 Total number of chemicalcomponents in crude oil is-
(a) 100(b) 500
(c) 2502 The predominant components in
crude oil are known as(a) Paraffin(b) Aromatics(c) Hydrocarbon
3 Reservoir or hydrocarbon depositsbelow the earth surface are found ashuge lakes or sea of oil.
(a) True(b) False(c) Partly true
4 LPG is made of (a) Propane and Ethane(b) Propane and Butane(c) Butane
5 The largest constituent of natural gasis
(a) LPG(b) Ethane(c) Methane
6 FPSO is preferred for use in (a) Marshy lands(b) Shallow waters(c) Deep waters
7 Octane number of petrol used in carsin India is (a) Above 100(b) Between 85 and 95(c) Below 85
8 FPSO stands for (a) Floating ProcessSystem Offshore
(b) Floating Productionand Storage Offshore
(c) Floating Production &Storage Offloading
9 Arrange the following in decreasingdensity i.e from heaviest downwards.
(a) LPG(b) CNG(c) NGL
10 Oil and gas are contained in (a) Reservoir Rock(b) Cap Rock
11 5 Million Tons per year of crudemeans
(a) 20,000 Barrels perday
(b) 100,000 Barrels perday(c) 75,000 Barrels per
day12 Which of the following is used as
feedstock to make Petrochemicals(a) Naphtha(b) Kerosene(c) LPG(d) Ethane(e) All of above
13 Which of these items can not bemade from Petrochemicals
(a) Insulating Material forfurnaces
(b) Optical Lens(c) Pressure Vessels(d) Gas Turbine blades
14 Crude oil price during the currentyear has been in the range -
(a) 15 to 35 US$/Barrel(b) 22 to 35 US$/Barrel(c) 15 to 25 US$/Barrel(d) 15 to 22 US$/Barrel
15 Conversion of Gas to LNG is madefor
(a) Making Petrochemical(b) Transportation of Gas(c) To generate power
16 Which are the products from aPetroleum Refinery
(a) Motor Gasoline(b) Ethylene(c) Naphtha(d) Propylene(e) Lube Oil(f) Polypropylene
17 To transport gas from Qatar toJapan, use is made of
(a) Transcontinentalpipeline
(b) Marine Tankers(c) CNG
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Notes
18 Naphthenes are (a) Hydrocarbons(b) Straight Chain
Hydrocarbons(c) Non-hydrocarbons(d) Hydrocarbons with
cyclic structure19 MTOE means (a) Million Tons of Oil
Export(b) Metric Tons of Oil
Equivalent(c) Million Tons of Oil
Equivalent20 The most predominant component of
natural gas is(a) Methane(b) Ethane(c) Propane(d) Butane
21 Which of the following gases isheavier than air
(a) Nitrogen(b) Ethane(c) Butane
22 LPG contains mainly (a) Methane(b) Butane
23 Which of the following is heavier (a) 1 cubic Meter of gasat 2 bar and 30 deg C
(b) 0.2 cubic Meter ofsame gas at 20 barand 30 deg. C
24 LPG is used as domestic fuelbecause
(a) It is liquid atatmospheric pressure
(b) It is gas at lowpressure
(c) It is liquid at moderatepressure
25 Which is the heaviest crude of thethree
(a) 45 API(b) 35 API
(c) 37 API
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Unit 2 28Notes
Objectives
After reading this unit, you will be able to:y Understand the oil and gas chain from oil well down to
the petrochemical industry.y Get an overview of business environment in each
block of the chain.y Get an overview of the major players in the chain.
From Wellhead to Petrochemicals
A block diagram representation of the entire industry isgiven in Fig. 2.1.
The first step in the block is oilfield processing. The wellfluid is processed in or in the vicinity of the oilfield. Theprocessing steps here are:
Separation of crude oil, natural gas and water whichcomes as mixture in the form of well fluid.
Oil and gas are treated to meet specifications fortransportation and any customer specification. Oil isnormally treated to remove water, and then it is pumpedand metered before putting it through pipeline.
Similarly gas is dehydrated, compressed and meteredbefore putting it through pipeline. Separated water(called produced water) is treated to meet environmentspecifications for discharging it.
Sometimes the produced water is re-injected into thereservoir. In such case it is treated to meet reservoirquality specifications.
Separated gas is sent by pipeline to the gas processingplant, which may be located away from the field.
Transportation of oil and gas, which are raw material, isdone by pipeline, marine tankers or rail/road tankers.Transportation by itself is a huge business sector.
6
6
6
6
The Macro-system
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Notes
The gas is first treated to remove impurities like sulfur.Then cryogenic (low temperature) processing is carried outto liquefy and separate by distillation, the components likeethane, propane and LPG. The separated components areutilized to make higher value products:
6 Methane,which is bulk of the gas, is a good raw materialfor manufacture of urea fertilizer, chemicals likemethanol or can be used as fuel to generate power.
6 Ethane and propane are sent to the petrochemicalp lants as feedstock to crack them in toethylene/propylene, which are polymerized into
plastics (polythene, polypropylene).
6 LPG (propane and butane mix) is bottled in cylindersand sent for domestic consumption.
6 The heavier hydrocarbons (C5+), which are present inthe gas condenses as Natural Gas Liquids (NGL).NGL is sent to the refinery to be processed as blendingstock for gasoline or it is sent to a petrochemicalcomplex as feedstock.
6 If the gas is to be transported to another country bymarine tankers, it is liquefied as LNG.
The oil from the oilfield processing block is pumped (ortaken by tanker) to the refinery. Oil refining is a compositeof several processing steps. The first step is separation ofraw products by distillation. There are subsequent processsteps to meet certain specification of the products. Thenthere are processing to meet environment relatedspecifications. Also there is processing to crack the heavy
part of the crude into lighter products like gasoline,kerosene and diesel. The finished products that we getfrom the refinery are summarized in Fig. 2.1.
Each of the blocks of gas processing and processing of oilin the refinery generates feedstock for PetrochemicalComplex.
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Notes
OIL/
GAS
WELL
OILFIELD
PROCESSING
WELLFLUID
T
REATED
WATER
OIL(C5+) O
IL
GAS
GAS
PR
OCESSING
REFINERY
PETRO-
CHEMICAL
COMPLEX
Kerosene/ATF
Diesel
Lubeoils
Wax
Fueloil
Bitumen
Detergents
Chemicals
LPG
Gasoline
PolymerPlastic
Rubber,Foam
Fiber&Yarn
LPG
IndustrialFuel
POW
ER
PLANT
FERTILIZER
PLANT
Power
Urea
Re
-injection
DISPOSAL
NGL
C2,C3
NAPHTHA
C1,C2,C3,C4,C5+
C3,C4
C1
NGL
NGL
(C5+)
Fig.2.1
TheOilandGasChain
.
30
UNIT 2 The Macro-system
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Notes
Naphtha is the main feedstock for petrochemicalmanufacture generated in the refinery. Even the keroseneand gas oil (raw diesel cut) can be used as feedstock.Methane, ethane, propane, butane and the NGLcomponent of the gas can be used as feedstock.
Most of the petrochemical processes are conversion of themolecules of feedstock by:
6 Cracking the feedstock i.e. breaking bigger moleculesinto smaller molecules. In Petrochemical Processescracking of feedstock like ethane, propane or naphtha isdone to generate smaller olefin molecules like ethylene
or propylene.
6 Polymerization of the olefins i.e. joining together of theolefin molecules several thousand fold producing largemolecules which are called polymers. Olefins tend topolymerize easily making resinous or plastic material likepolythene or polypropylene.
Very often a non-hydrocarbon or inorganic component canbe brought into the reaction process to generate other
petrochemical products. For example nitrogen becomes anessential raw material besides methane as feedstock, forsynthesis of urea fertilizer.
Similarly for making PVC (polyvinyl chloride), vinyl chlorideis first formed by reaction of chlorine with ethylene.
With any of the feedstock mentioned, numerouspetrochemical products are made. Starting with ethane asfeedstock, configuration of a typical petrochemicalcomplex is shown in Fig. 2.2. Ethylene is made by cracking
ethane. Vinyl chloride is made by reaction of ethane withchlorine. Plastic end products like Polythene and PVC aremade by polymerization of ethylene and vinyl chloride.
Part of the ethylene undergoes processing with benzene(originating from naphtha as feedstock) and producespolystyrene as end product.
Fig. 2.3 shows a typical petrochemical complex.
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Notes
TheEthyleneChain
Etha
ne
Steam
Cracking
Et
hylene
Polymeri-
zation
Polyme
ri-
zation
Polyme
ri-
zation
Polythene
Alkylation
Dehrodro-
genation
Ox-chlorination
PVC
Napht
ha
Aroma
tics
Recov
ery
Benzene
Styrene
Polystyrene
Viny
lChl.
Mon
omer
HCl,O
2
TheEthyleneChain
Etha
ne
Steam
Cracking
Et
hylene
Polymeri-
zation
Polyme
ri-
zation
Polyme
ri-
zation
Polythene
Alkylation
Dehrodro-
genationO
xy-chlorination
PVC
Napht
ha
Aroma
tics
Recov
ery
Benzene
Styrene
Polystyrene
Viny
lChl.
Mon
omer
HCl,O
2
Fig.2.2
Petrochemica
lBuildingBlocks
UNIT 2 The Macro-system
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Notes
Fig.2.3
View
ofaPetro
chemicalComplex
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Notes
Upstream and Downstream
These two terms are very frequently used in the petroleumindustry. Let us look in to the broad category of processingblocks we described -
6 Oilfield Processing
6 Transportation of oil and gas
6 Gas Processing
6 Refinery
6 Petrochemicals
6 Power Plants and other gas based industries
Of course another large industry not mentioned earlier isthe storage, transportation and logistics of numerousproducts that come out of processing of oil and gas.
The first two businesses i.e. oilfield processing and
transportation activities are known as Upstream. Theothers are referred as Downstream.Now we shall touch upon brief history of development of oiland gas industry. Then the Indian oil and gas industrywith reference to the macro-system, upstream and
downstream will be described.
History of Oil and Gas Industry
Oil and Gas from Seepages and Brine Wells
Use of petroleum dates back to more than threethousands years BC. But it was sourced from natural oilseepages that occurred on the earth's surface. Asphaltfrom natural oil seeps is known to have been used around3000 BC in Mesopotamia They used it for construction ofroads. Egyptian mummies were known to be wrapped inasphalt-soaked clothing. Application of asphalt was alsomade for the construction of pyramids.
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Notes
Natural gas seeps were known in the Baku region ofAzerbaijan, Iran, India and other countries. Some of themcaught fire and burnt for thousands of years. Use ofpetroleum as medicine was made in China.
The first effort for production of petroleum by digging wellswere reported in China in the year 600 BC. Crude oil isreported to have been produced during digging of brinewells.
Those days the technique for search of oil was limited tolooking for oil or gas seeps and trying to locate an adequatesource nearby. The search for oil and gas today is much
more complicated.
Industrial Revolution and the Search for Oil
During the eighteenth century, the industrial revolutioncreated the demand of lighting, fuel and lubricating oilsfor the machineries. This intensified the search for oil(exploration) and it resulted in the development of thetechnology foroil exploration.
In the middle of the nineteenth century oil from coal(named kerosene) was being used to satisfy the demand oflighting oils lamps. Whale oil and coal oil were also used forlubrication of the machines. Kerosene from the petroleumproduced from natural seepage started shortly afterwards.During the period 1850 to 1870, drilling of wells to produceoil started the oil boom in the USA. Those days often oilwas found at depths of 30 to 100 meters. Today the depth ofoil wells are a few thousand meters to several Kilometers.Development of the exploration and drilling technologymoved faster with the companies getting cash rich with the
oil boom. Some of the largest and financially strong oilcompanies emerged in the USA. The landmark events inthe history of oil and gas industry are:
In 1870, John D. Rockefeller founded the Standard OilCompany, which soon gained a near monopoly on oilproduction and became one of the largest companies in theworld.
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Activity 2 a
Till 1900, fuel oil, kerosene and lubricating oils were themain products from petroleum. Then came the advent ofcars and the demand for gasoline. During the early partof the twentieth century, gasoline-fueled cars becamepopular; locomotive and ship engines were converted fromcoal to oil; and the airplanes using aviation gasoline startedflying. The demand for gasoline went up and with theadvent of electric power, the demand for kerosene forlighting went down, bringing change in refinery technology.
Search and production of oil became more technologyoriented since early twentieth century. Rotary drills wereused to dig wells for oil. The first offshore wells were drilled
in California in 1896. In 1948 the first platform was usedto drill an offshore well in Louisiana.
In the first half of the twentieth century, the discovery oflarge oilfields spread to the other parts of the world. Newfields were discovered in erstwhile USSR, the Middle Eastand other locations. USSR became a major producer of oilunder state ownership of the various oil reservoirs. With theparticipation in major discoveries and ownershipworldwide, some of the pioneering American companies
like Standard Oil, Texaco, Mobil became giants.
In India, the oilfield in Digboi was discovered during thelater part of nineteenth century. Till 1970, oilfields in Assamand Gujarat were the major producers. In the seventies,Mumbai High was developed into a major producer.
TheMiddle East came into the picture in the 1930s. In1932, the first crude oildiscovery in Bahrain was made byStandard Oil. In 1936, Standard Oil of California joinedwith other American majors to form Arabian American Oil
Company (ARAMCO). Aramco made a major oildiscovery in Saudi Arabia in 1938.
North Sea oil field were discovered and developed duringthe late sixties and seventies. During the eighties andnineties, some of the Latin American countries (Mexico,
Venezuela) made major oil field discoveries anddevelopment. During the nineties, Asia Pacific countrieslike China and Indonesia became major producers.
UNIT 2 The Macro-system
Find out which fuelsare used in automobileengines besidesgasoline.
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NotesOil Scenario Worldwide
The regions having the largest proven oil reserves today
are given in Fig. 2.4 below.
It is important to know that India's proven reserves are
meager compared to the size and potential of the
country.
The oil producing countries are divided into two groupsthose who are members of Organization of Petroleum
Exporting Countries (OPEC) and those who are not. Thesignificance of OPEC will be explained later. The top oilproducing countries of the world are presented in Table 2.1
No. Country ProductionMillionBbl/Day
ProductionMillion TPY
OPECMembership
1 USA 9.0 No
2 Saudi Arabia 8.7 Yes
3 Russia 7.3 No
4 Iran 3.8 Yes
5 Mexico 3.6 No
6 Norway 3.4 No
7
China
3.3
No
8
Venezuela
3.1
Yes9
Canada
2.8
No
10 United Kingdom 2.6 No
0
200
400
600
800
1000
1200 1,100
600
450
190 175
30
160
EstablishedReserves(BBOE)
TheMiddle
East
Russiaand CIS
Countries
USACanada
AsiaPacific
SouthAmerica
Europe SouthAsia
Regions
Table 2.1
Top Ten Oil Producing Countries (Year 2001)[Source: The World Oil Market -Mohan G. Francis]
Fig. 2.4Region-wise Hydrocarbon Reserves
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Activity 2 b
These top ten are closely followed by Iraq, Nigeria, Kuwaitand U.A.E, all of whom are OPEC members.
Some important features of OPEC and non-OPEC
countries are:
6 Proven crude reserves are concentrated in OPECcountries. Out of the world's 1.0 trillion barrels of provenreserves, 80% is held by OPEC.
6 80 to 90% of the oil produced by them are exported.
6 There is very little internal consumption indicating theeconomy to be oil export dependant.
6 OPEC countries have very high spare capacity forproduction. Non-OPEC countries hold approximately acombined 500,000 barrels per day (bbl/d) of spare oilproduction capacity, while OPEC spare productioncapacity is estimated to be as high as 8 million bbl/d.
6 The petroleum resources of OPEC countries are mostlyowned by the State whereas in non-OPEC countries theownership is generally in private hands.
6 Greater OPEC production as a proportion of worldproduction will be seen in the future.
With this kind of profile of OPEC countries, it is apparentthat they are in a position to control the oil prices in theworld, whenever they are united.
There are a few important points to note in the globalproduction and consumption pattern. There is not a singleOPEC country in the top ten oil-consuming countries. This
indicates that in terms of industrial development other thanoil production, the OPEC countries are lagging behind. Theonly developing countries in the top ten oil consumers areChina, Brazil and India. This indicates a growth of industryand infrastructure driven by oil and gas as sources ofenergy.
UNIT 2 The Macro-system
Make a list of allcountries who aremembers of OPEC.
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Notes
No. Company Annual TurnoverUS$ Billion
World rank
1 Exxon - Mobil 192 2
2 BP/Amoco/Arco 174 4
3 Royal Dutch Shell 135 8
4 Chevron Texaco 100 14
5 Total Fina Elf 94 15
Table 2.2The Largest Oil Companies
[Source: FORTUNE, July 22, 2002 Data for 2001; Figures in US $ billions]
Understanding Oil & Gas Business
Major Oil Companies
Major oil companies are very large transnationalcorporations. They rank among the largest corporations inthe world. There has been a number of mergers recently tomeet the crisis created by slowing down of the economysince the late nineties. As per survey done by Fortunemagazine, five oil companies feature among the top fifteencompanies in the world in terms of revenues (see Table2.2).
There has been a spate of mergers between major oilcompanies in the recent times. As apparent from the above
table, some of the largest companies are result of merger ofmajor oil companies of the world. The merger of Exxon andMobil, and that of BP, Amoco and Arco happened duringthe last few years. Some more mergers are in the offing.
The result has been detrimental to the consumers. USAhas seen a rise in gasoline prices as a result of the mergerswhich has lessened competition.
The cartel created by OPEC which is keeping oil prices
around 28 to 30 Dollars per barrel and the recent mergersof oil majors has created a situation detrimental to thegrowth of oil importing countries.
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Notes
The Indian Perspective - Upstream
Oil exploration and production industry in India dates
back to the late nineteenth century. The first commercialoilfield was struck at Digboi in North-Eastern India in theyear 1890. Till the 1970s, petroleum production wasmainly from oilfields in the North-Eastern region andGujarat.
The government owned companies known as PublicSector Units (PSU) earlier dominated the upstream oil andgas industry. The two companies - Oil and Natural GasCorporation Ltd (ONGC) and Oil India Ltd (OIL) were themain players. They were responsible for exploration andproduction. Bombay High (now known as Mumbai High)was discovered in the 1970s and was one of the largestfinds in the world at that point of time (albeit not enough for alarge country like India). The government felt the need forliberalizing participation of foreign companies forexploration and production. In 1991 various offshore blockswere offered for licensing. The government policy nowallows joint as well as private sectors to participate in thissector.The government has leased a number of blocks ofpotential fields to both Indian and multinational companies.
As a result of these measures the number of players in theupstream industry has gone up substantially. ReliancePetroleum became owner of a few major oilfields in theMumbai High region. A number of Indian and overseasprivate operators explored and produced oil from newlydeveloped fields in Krishna Godavari and Kaveri basin.ONGC is still the biggest player upstream due to historicalreasons. The proven oil and gas resources are still meagerfor Indias size and requirement.
Oil and Gas Field
Fig. 2.5 shows the producing and proven oil and gasreservoirs in India.
The locations of the various reservoirs is only indicative.They do not show the map and size of the fields. Some ofthe major gas and oil pipelines are also shown in Fig. 2.5.
UNIT 2 The Macro-system
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Fig. 2.5Location of Producing and Proven Reservoirs
MumbaiHigh
Hazira
Uran
Haldia
Barauni
Naharkatiya
Digboi
KrishnaGodavary
Basin
CauaveryBasin
Cambay
NorthGujarat
Delhi
Mathura
Jagdishpur
Bijaipur
Technomanage
Oil PipelineGas PipelineOil / Gas Field
Let us understand the oil and gas infrastructure of India bylooking into a few of the systems with the macro-systemblock diagram ofFig. 2.1 in mind.
Mumbai High is the largest oil and gas producer in India. Itis located offshore about 200 Km. away from the coast offMumbai. As seen in the map an oil pipeline and a gaspipeline are laid below the sea reaching landfall point at aplace called Uran south of Mumbai. Up to this point, it canbe called the upstream and is owned by ONGC. The oil isdistributed to the refineries (BPCL) near Mumbai. LPG isextracted out of gas at Uran. Also ethane and propane areextracted out of gas in the gas processing facility locatedat Uran. The balance gas goes to nearby power plant andfertilizer plants at Thal (Maharashtra). The ethane andpropane extracted from gas at Uran goes to petrochemicalcomplex at Nagothane (Maharashtra).
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Activity 1c
Another major pipeline originating from Mumbai High areais a gas pipeline laid below the sea up to landfall point at aplace called Hazira. Bulk of the gas comes from a gas field
offshore near Mumbai High called South Bassein Field.This gas is sour gas (Hydrogen sulphide bearing).
A major gas processing complex is located at Hazira wheresweetening (removal of sulfur from gas) and recovery ofLPG are carried out. Hazira is the originating point ofIndias longest gas pipeline network called HBJ Pipeline(Hazira Bijaipur Jagdishpur pipeline).
HBJ Pipeline is a network of over 2000 Km. of pipelineextending from Hazira to northern part of India. It provides
feedstock to numerous fertilizer plants, power plants andpetrochemical plants on its route. In addition the balancegas provides fuel to the industries. From Hazira onwardsownership of the pipeline and gas distribution facilitieschanges from ONGC to Gas Authority of India Ltd.(GAIL).
Fig. 2.5 also shows a few major oil pipelines. From theNorth-Eastern oil fields of India, the first major crosscountry pipeline was laid starting from Nahorkatiya in
Assam to Barauni and Haldia. This pipeline feeds oil to allmajor refineries in the North-Eastern and eastern India
including Barauni refinery and Haldia refinery (see Fig. 2.6for refinery locations).
Major Player Upstream
The major player of upstream are given in Table 2.3.
Table 2.3Major Players Upstream
No. Company Exploration & Production Areas Other activities
1 Oil & Natural Gas Corpn.Bombay High, South Bassein, Heera
and other western offshore Oilfields,
KG basin, Assam, Gujarat, Rajasthan
Oil and Gas Pipeline
2 Reliance India Ltd.Neelam, Panna, Krishna Godavari
Basin
Downstream refineries &
petrochemicals, Pipeline
3 Oil India ltd. Assam, Rajasthan
4 Cairn Energy India Cauvery Basin
5 Essar Oil Ratna Oilfield Development Downstream Refinery
6 Gas Authority of India Oil Exploration, Gas Pipeline Petrochemicals
7 Hindustan Oil Exploration Co. KG Basin (PY3), Cambay Basin
8 Videocon Petroleum KG Basin (Ravva Offshore)
9 Niko Resources Cambay Basin
UNIT 2 The Macro-system
In a photocopy of theblock diagram, startwith Mumbai HighField and put down thenames of var iouscompanies util izingthe oil and gas inthe various processingblocks shown
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The domestic oil production and consumption arepresented in Table 2.4. It can be seen that we are grosslyinsufficient in our hydrocarbon resources and
dependant on imports of oil and gas.
Natural Gas
The production of natural gas in the country during 2001-2002 has been around 80 million standard cubic metersper day (SCMD).
The demand of gas has been projected by variousestimates depending on assumed user pattern at figuresbetween 150 to 200 million SCMD. Major consumption ofNatural Gas in India will be in the Power and Fertilizersectors. Natural Gas consumption in other industries, suchas petrochemicals, town gas, or as Compressed NaturalGas (CNG) in the automobile sector, are also considered inthe projections.
This leaves a wide gap in the supply demand balance
for Natural Gas in the country. The India HydrocarbonVision 2025 * has projected that the demand for NaturalGas will go up to about 230 million standard cubic metersper day by 2007, to more than 310 million standard cubicmeters per day by 2011, finally reaching a level of 390million standard cubic meters per day by 2025. In the longterm policy statement, the Government of India hasvisualized Hydrate reserves and coal bed methane, aspotential indigenous resources.
Item 1999 - 2000 2000 - 2001 2001 - 2002 2003 - 2004
Crude OilProduction
32 32.4
32.0 32.0
Crude OilConsumption
100.0 103.5 107.3 110.0
DomesticProduction as %of Consumption
32.0 31.529.9 29.1
Table 2.4
Oil production & consumption in India
(Million tons per year)[Source: Indian Economic Survey 2000-2001 /
Centre for Monitoring Indian Economyhttp://petroleum.nic.in/oil.htm]
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Activity 2 d
Earlier plan was to meet the future gas requirements byimport of LNG. Recent hydrocarbon discoveries ofReliance and ONGC are expected to bridge the gap to acertain extent.
Future Perspective
The per capita energy consumption in India is very low atthe level of 226 Kg of Oil Equivalent compared to 7759 KgOil Equivalent in the USA. With a low base, the energysupply in India has been growing @ 6% annuallycompared to an average of 1.5% worldwide. It is projectedthat the growth rate of Indian economy may go up to 7-8%
in the near future. This will further increase the energyrequirement for the future.
Obviously the future energy needs has to be plannedkeeping hydrocarbon, coal, hydroelectric power, nuclearenergy and unconventional sources of energy intoconsideration. The hydrocarbon resources are expected tobe enhanced in the following manners.
A comprehensive energy study and planning with aboveresources and other resources like coal, hydro-electric,,nuclear and non-conventional energy is needed for longterm planning of energy needs.
6 Increased search of hydrocarbon resources in India by
the policy of liberalization and leasing out prospectivehydrocarbon basins.
6 Prospecting for hydrocarbons overseas by Indiancompanies (e.g. ONGC investing in Vietnam and otherprospective regions).
6 Import and distribution of LNG. Petronet, a public sectorLNG distribution company was set up for this activity.
6 Linking hydrocarbon resources from countries likeBangladesh, Iran by cross country pipeline to India.
6 Exploitation of hydrate resources in coastal sea bed.
6 Exploitation of coal bed methane reserves.
UNIT 2 The Macro-system
Make a list of existingand proposed LNGprojects in India.
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Notes
India nationalized the refining and product marketingsector in 1976. Regulatory regime was introduced on
production, distribution and pricing of crude oil andpetroleum products. State owned companies such asIndian Oil Corporation , Bharat Petroleum and HindustanPetroleum were the largest companies in the refinerysector.
The Administered Pricing Mechanism implemented inthe seventies subsidized prices for products like keroseneand LPG. Charging higher prices for other products likegasoline and aviation fuel generated part of the subsidy.
Diesel prices were kept neutral. The Administered PricingMechanism was based on fixed 12% post-tax return on networth deployed for refining, distribution and marketing.
The Refining Industry
India has one of the largest and fastest expandingPetroleum Refinery industry in Asia with over 110 Milliontons per year installed capacity. During the year 2001-02,the installed capacity is around 114 Million tons peryear. The petroleum products' demand is expected to be
150 Million tons per year by the year 2006-07. The stresswill be on revamp, expansion and de-bottlenecking as wellas new refineries.
The installed capacity of the refineries in India during 2001is reported in the Table 2.5. The location of variousrefineries is shown in the Fig.2.6. Additional refiningcapacity of 70 - 80 MMT per annum will be required by theyear 2010 for domestic consumption alone.
Understanding Oil & Gas Business
The Indian Perspective - Downstream
The refinery industry also dates back to over onehundred years. India's first refinery was built at Digboi in1901 by BritishPetroleum. In the late '50s and early '60smultinational oil companies such as Shell, Caltex andEsso invested in refineries in India. Indian Refineries Ltd.,the first state owned (public sector) refinery was built inGuwahati in the early sixties. Later it became Indian OilCorporation.
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[Source: Annual Reports & Industry Data, Oil Company Websites]
Table 2.5
Oil Refining Companies in India (2002)
Name of the Oil company
PrincipalShareholders
Location ofrefineries
Capacity
(million
tons/year)
Bharat Petroleum Govt. of India Mahul 6.9
Bongaigaon Refineries Indian Oil Corp. Bongaigaon 2.4
Chennai Petroleum Indian Oil Corp. Chennai 6.5
Chennai Petroleum Indian Oil Corp. Narimanam 0.5
Hindustan Petroleum Govt. of India Vizag 7.5
Hindustan Petroleum Govt. of India Mahul 5.5
Indian Oil Govt. of India Vadodara 13.5
Indian Oil Govt. of India Mathura 8.0
Indian Oil Govt. of India Panipat 6.0
Indian Oil Govt. of India Barauni 4.2
Indian Oil Govt. of India Haldia 4.6
Indian Oil Govt. of India Guwahati 1.0
Indian Oil Govt. of India Digboi 0.7
Kochi Refineries Bharat Petroleum Kochi 7.5
Mangalore Refineries and
Petrochemicals Limited
Hindustan Petroleum
/Aditya Birla Group Mangalore 9.6
Numaligarh Refineries Bharat Petroleum Numaligarh 3.0
Reliance Petroleum
Reliance Industries,
its subsidiaries and
associates
Jamnagar 27.0
Total 114.4
UNIT 2 The Macro-system
With the de-regulation of the oil economy initiated in the
early nineties, a number of private players emerged. TheReliance refinery at Jamnagar became the biggest refineryin India and one of the biggest in the world. Other playerslike Mangalore Refineries and Petrochemicals Ltdemerged in the private sector. Privatization of some of thepublic sector refineries are also on the cards but presentlyheld up in the legalities.
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petrochemical complex in India, which are also among
the largest in the world.
The Petrochemical Industry
In the Petrochemical sectoralso, the initial big playerswere the multinational companies in the private sector.National Organic Chemical Industries Ltd. (NOCIL) andUnion Carbide plant at Mumbai were the first two majorpetrochemical plants in India. The Indian PetrochemicalCorporation Ltd. (IPCL) at Vadodara was the first majorpetrochemical complex set up under state ownership in themid '70s. This was followed by another major
petrochemical complex at Nagothane in Maharashtraunder IPCL.
India has also a large and growing Petrochemical industrywith one of the largest integrated petrochemicalcomplexes in the world and several other petrochemicalcomplexes. India has the second largest fertilizerproduction capacity in the world.
There is abundance of small and medium size
petrochemical and chemical plants badly needingimprovements through revamp for increasing theirefficiencies. Many of them are old and revamp of the plantspose a challenging opportunity.
In the Petrochemical Sector, the major players are:
6 Reliance Industries Ltd (RIL)6 Reliance Industries Ltd (RIL)6 National Organic Chemical Industries Ltd (NOCIL)6 Indian Petrochemical Corporation Ltd. (IPCL)
now acquired by Reliance6 Haldia Petrochemicals Ltd. (HPL)6 Gas Authority India Ltd. (GAIL)
UNIT 2 The Macro-system
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Except GAIL, which is Government owned company(PSU), the rest are private holdings listed in the stockexchange. HPL is held jointly by Government and Privateentities.
Transportation Infrastructure
India has major ports for handling of oil and products(export and import) at Jamnagar, Mumbai, Mangalore,Cochin, Chennai, Vizag and Haldia. Inland transportationof crude from the production sites or ports is primarilyundertaken via pipelines.Transportation of refined products is carried out through
multiple options - pipelines, the rail system, road tankersand coastal shipping using marine tankers. A very broadand approximate distribution of load on various modes oftransportation of petroleum products is:
Thus railways carry almost as much load as pipelines as faras product transportation is concerned. With greaterinvestments coming in pipeline, in future the balance willbe in favor of pipeline.
Pipelines
A few of the major pipeline systems in the country is shownin Fig. 2.5.A vast network of oil, gas, LPG and petroleumproduct pipelines exist all over the country.
Rail system
About 40 Million tons of petroleum products are movedfrom refineries to storage terminals or depots in othervarious cities and towns by the railway network.
6 Pipelines: 42 %
6 Marine transportation: 10 % .
6 Rail transportation: 38 %
6 Road transportation: 10 %
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Activity 2 e
Future Vision for Indian Oil and Gas Industry
While the large gas finds in the Eastern Coast alleviatesthe shortage of petroleum resources in India, a long termvision is needed to attain self-sufficiency in the energysector.
ONGC is aggressively going ahead with investment inexploration and production overseas. It has alreadyinvestment and production sharing arrangement inVietnam offshore. It is acquiring exploration and productionrights in counties like Sudan, CIS countries. Thegovernment has created a Hydrocarbon Vision 2025 policy
document to achieve growth and self sufficiency in thissector.
Hydrocarbon Vision 2025 -
Agenda For Implementation
6 Achievement of 100% coverage of unexplored basins ina time bound manner to enhance domestic availability ofoil and gas.
6 Secure acreages** in identified countries having highattractiveness for ensuring sustainable long termsupplies.
6 Pursue projects to meet the deficit in demand and supplyof natural gas, and facilitate availability of LNG.
6 Maintain adequate levels of self-sufficiency in refining(90% of consumption of middle distillates).
6 Establish adequate strategic storage of crude andpetroleum products in different locations.
6 Create additional infrastructure for distribution andmarketing of oil and gas.
6 Open up the hydrocarbon markets so that there is freeand fair competition between public sector enterprises,private companies and other international players.
UNIT 2 The Macro-system
Prepare a list of majoroil, gas, LPG andproduct pipelines inIndia.
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6 Create a policy framework for cleaner and greener fuels.6 Have a rational tariff and pricing policy, which would
ensure the consumer getting the petroleum products atthe most reasonable prices and requisite quality,eliminating adulteration.
6 Announce a long-term fiscal policy to attract requiredinvestment in the hydrocarbon sector.
6 Restructure the oil sector PSUs with the objective ofenhancing shareholder value and disinvest in a phasedmanner in all the oil sector PSUs.
6 To develop regulatory and legislative framework forproviding oil/gas security for the country.
The Opportunities
The picture of growth in demand and investments coupledwith economic liberalization offers tremendousopportunities. To highlight the opportunities [Source:Petrotech 1999] the hydrocarbon sector offers-
6 India is looking for large and sustained investments ofUS $ 100 billion in upstream, downstream andinfrastructure development in the next ten years.
6 Exploration, production, refining and marketing sectorshave been opened up to the private and foreigncompanies. With economic liberalization, the foreigninvestment is expected to go up substantially.
6 Indian oil and gas industry offers one of the highest growth
rates in the world.
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Summary
In this section, the total macro-system from oil well to
petrochemicals was explained in the form of block diagram.Flow of various components of gas and oil in to themanufacturing blocks of refinery and petrochemicalsleading to final products was highlighted.
Indications were given how at each step of processing theoil and gas get valorized in to higher priced products.
Having explained the macro-system, a brief history of oiland gas industry was presented. Major players in the worldand specifically in India were identified. Hydrocarbon
infrastructure in India was presented with maps. The highgrowth potential of oil and gas business and futureopportunities were highlighted.
Review Questions
(1) Draw a block diagram showing the flow of gas andits components from a gas field offshore to furtherprocessing and generation of ethylene basedpetrochemicals.
(2) Name three of the largest oil companies in the world.
(3) In a blank map of India, mark the location of majoroilfields and major refineries.
(4) Name three of the upstream oil companies in India.
(5) Name four major refining companies in India withapproximate refining capacity owned by them.
Group Tasks
(1) Starting with Mumbai High oilfield, trace in the form o fa block diagram the following:
6 How oil and gas are transported to shore
6 Where do the sub-sea oil and gas pipelines terminate
6 To which refineries the oil is transported by pipeline
UNIT 2 The Macro-system
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6 What happens to the gas after it reaches shore
6 How is the gas distributed
6 What are the Petrochemical Complexes and fertilizerplants based on Mumbai High Gas
(2) Carry out a similar exercise for the oil, gas, refineryand petrochemical facilities of Reliance Petroleum.
Quizzes
Circle the correct answer or answers. Each question hasone or more correct answers.
No. Question Answer
1 The materials that goesas feedstock formanufacture ofpetrochemicals are
(a) Ethane(b) Propane(c) Jet Fuel(d) Naphtha(e) Motor gasoline(f) NGL
2 LPG is produced as oneof the products in
(a) Refinery(b) Gas Processing Plant(c) Offshore Platform
3 It is techno-economicallymost attractive to use oiland gas as industrialfuel.
(a) True(b) False(c) Partly true
4 Which of these are notpetrochemical products?
(a) Polythene(b) Synthetic Rubber(c) Diesel Oil(d) Nylon(e) Ethane
5 Identify the countrieswhich are not membersof OPEC
(a) Russia(b) Venezuela(d) Saudi Arabia(e) U.K.(f) Iran(g) UAE
6 The number of refineriesin India are
(a) 5-10(b) 10-15(c) 15-20(d) 20-25
7 The major oil producingcompanies in India are
(a) BPCL(b) ONGC(c) Reliance(d) IOCL
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8 The largest refinery inIndia is owned by
(a) IOCL(b) Reliance(c) HPCL
9 The highest refiningcapacity in India is with
(a) IOCL(b) HPCL(c) MRPL(d) Reliance
10 Which of these industrysegments is referred asupstream ?
(a) Refineries(b) Petrochemical Plant(c) Oilfield processing
11 Total oil production inIndia in terms of MillionTons per year is between
(a) 10-25(b) 20-25(c) 25-35(d) 35-40
12 Total refining capacity inIndia in terms of MillionTons per year is between
(a) 30-40(b) 40-70(c) 70-100(d) 100-120
13 Major oil and gas fields inIndian lie in
(a) U.P.(b) Gujarat(c) Karnataka(d) Assam(e) Andhra Pradesh
UNIT 2 The Macro-system
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Unit 3 55Notes
Objectives
After reading this unit, you will be able to:y Understand how hydrocarbons (oil and gas) were
formed and trapped below the surface of the earth.y Understand how hydrocarbons are explored, located
and assessed for commercial viabilityy Get an overview of primary production methods and
enhanced oil recovery methods.
Formation of Oil Traps
It is important to have an elementary understanding on howhydrocarbon is formed and trapped in the rocks below theearth. It was explained in Unit-1 that according to the widelyaccepted organic theory, oil and gas were originated fromhuge masses of organisms, animals and vegetation thatgot buried under the earth and were covered bysedimentary rocks. Layers of rock formed over it and theformation and trapping of the hydrocarbons took place inthe following stages over millions of years.
Formation of Hydrocarbons : The hydrocarbonformation took place by decomposition in various layers ofrock called source rock. The decomposition took place
0under high pressure and temperatures between 50 C and
0170 C at depths between 1500 meters and 6000 meters.
At lower temperatures (normally at lower depths) heavieroil was formed and higher temperatures lighter oil wasformed.
Migration of Hydrocarbons: Due to lighter gravity of
hydrocarbon formed compared to water which is alwayspresent below earth's surface and due to high pressuresbelow the earth, oil and gas migrated slowly through thegaps in subsurface rocks with high permeability. During themigration, the oil and gas got into densely packedsedimentary rocks of very high porosity known asreservoir rocks. Sandstone and limestone are commonreservoir rocks. Fig 3.1 shows typical indicative sketch ofpermeable rocks and Fig 3.2 shows an indicative sketch ofporous reservoir rocks.
The Exploration of Oil
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Fig.
3.1
Migrationo
fHydrocarbonsThrough
Rocks
HavingPermeability
Technomanage
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Fig.
3.2
Poro
usReservoirRocks
m
T e c
h n o
a n a g e
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