Introduction To The Oil And Gas Industry PDF

INTRODUCTION TO THE OIL AND GAS INDUSTRY The oil and gas industry is one of the largest sectors in the World in terms of monetary value. It has generated an estimated value of $5.3 trillion in 2024 to the global revenue. Oil is very important to humanity, because, it has a lot...

INTRODUCTION TO THE OIL AND GAS INDUSTRY The oil and gas industry is one of the largest sectors in the World in terms of monetary value. It has generated an estimated value of $5.3 trillion in 2024 to the global revenue. Oil is very important to humanity, because, it has a lot of impact on the global economy. Its impact is felt in almost every aspect of life, starting from Transportation, to Heating to Electricity to Industrial production down to Manufacturing. When you look at the nature of oil and gas industry, you will be overwhelmed with joy because of its prospects and achievements. This introduction aims at helping us to understand the fundamentals of the oil and gas sector, by explaining the key concepts and the standards of measurement. The oil and gas industry will not be complete without the presence of hydrocarbon. HYDROCARBONS These are chemical organic compound which composed of hydrogen and carbon atoms. They are naturally occurring substance that formed crude oil, natural gas, coal and other forms of energy. Hydrocarbons are found in sedimentary rocks. ORIGIN OF HYDROCARBONS Hydrocarbons are formed from the remains of dead plant and animals. The remains of these dead organic matters are lowered into the seafloor, mixed with other sediments and buried overtime. Eventually, these seas dried up and are left with dry basins called the sedimentary basins. Overtime, the organic matters are then compressed with the sedimentary basins at high temperature and pressure in the presence of little or no oxygen. At these point, the organic matters begin to transform into a waxy substance called kerogen. The kerogen is further subjected to higher temperature and pressure and begin to crack it selves by the process called catagenesis. After the process of catagenesis, hydrocarbons are formed. Naturally, oil and gas are less dense than water, so they migrate through porous sedimentary rock to the Earth’s surface. When the hydrocarbons are trapped beneath porous cap rocks, the oil and gas reservoirs are formed. These reservoirs are the main source of crude oil and natural gas. PRODUCTION OF HYDROCARBONS Hydrocarbons are brought to the surface or extracted by the process of drilling into the reservoir through the cap rock. During the drilling operation, the drill bit creates a productive oil or gas wells in the reservoir, through which hydrocarbons will be pumped out of the wells with the aid of production tunings to the surface. If the quantity of the hydrocarbons are not commercially viable, the well cannot be produced. If there is no hydrocarbon in the well, it is called a dry hole, and well will be plugged and abandoned. SEGMENTS OF OIL AND GAS INDUSTRY The oil and gas industry is broken down into three segments mainly upstream, midstream and downstream. Upstream: The upstream sector are oil and gas companies involved in exploration and production. In exploration, they search for reservoirs and wells whose hydrocarbon are commercially viable. In production, they drill to extract the hydrocarbons out from the wells. They are also known as E&P (Exploration and Production). Midstream: The midstream business focus on gathering, storage and transportation. They are the ones responsible for moving the extracted hydrocarbons to the refineries to be processed into various petroleum products. They transport crude oil through shipping, trucking and pipelines. The success of the midstream is tied to the upstream. Downstream: These are refineries, gas stations and other companies responsible for the refining, processing, marketing and distribution of petroleum products. OVERVIEW OF THE OIL AND GAS INDUSTRY WITH SPECIFIC FOCUS ON HISTORY AND TECHNICAL ACHIEVEMENTS The history of exploration in Nigeria started in the year 1908 by a German company Nigerian Bitumen Corporation at Araromi area in Ondo State. During exploration of hydrocarbon, an oil seepage was found. But the exploration activities did not last long and was terminated due to the outbreak ok the First World War which started in 20th July 1914 and ended 11th November 1918. Nineteen years later, the exploration activities began again in 1937 by Shell D’ Arcy (the front runner of Shell Petroleum Development Company) and the exploration activities was still interrupted by the second word war in 1st September 1939 and ended 2nd September 1945. The exploration activities began again in 1947. After several years, an estimated value of over ₦30 Million was invested into the oil business, eventually, the first commercial oil well was discovered at Oloibiri in Niger Delta, Bayelsa State in 1956. In 1958, Shell Petroleum Development Company (SPDC) started production and exportation from the Oloibiri field at a rate of 5100 barrels per day. In 1959, the sole concession rights over the whole country given to Shell Petroleum Development Company was reviewed and extended to other oil and gas companies as well to increase the pace of exploration and production in order not to depend on one company alone. This development opened up the oil and gas industry in 1961, bringing in Mobil, Agip, Elf, Texaco and Chevron to join the exploration of oil on both offshore and onshore in Nigeria. After the concession right of exploration on offshore and onshore, some foreign companies came into Niger Delta. At the end of Biafran war in 1970, there was a rise in the price of crude oil and Nigeria was able to reap instant riches from oil production. Nigeria joined OPEC (Organization of Petroleum Exporting Countries) in 1971. In 1977, NNPC (Nigeria National Petroleum Corporation) was established. NNPC is a state owned company whose sole aim is to control the activities of both upstream and downstream sectors. Petroleum production and exportation play a dominant role in Nigeria’s economy and account for about 90% of its gross revenue. This dominant role has push away Agriculture the traditional main stay of the economy to the background. Nigeria is the highest producers of crude oil in Africa and 14th in the world. It has a proven reserve of 37.5 billion barrels and a daily production rate of 1.8 million barrels per day. Nigeria oil production attained its peak in 1979 at a rate of 2.4 million barrels day (all time high oil production rate). GLOBAL DISTRIBUTION OF OIL AND GAS RESERVES The oil reserves are distributed into the seven different regions which are: North America, South and Central America, Asia Pacific, Europe, Middle East, Africa and Common Wealth Independent State. Below are some of the countries under these regions. North America: Canada, Mexico and United State of America (USA). South and Central America: Argentina, Brazil, Colombia, Ecuador, Peru, Trinidad and Tobago, Venezuela, etc. Europe: Denmark, Italy, Norway, Romania, United Kingdom (UK) etc. Middle East: Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, Syria, United Arab Emirate (UAE), Yemen, etc. African: Algeria, Angola, Chad, Republic of Congo, Egypt, Equatorial Guinea, Gabon, Libya, Nigeria, Sudan, Tunisia, etc. Asia Pacific: Australia, Brunei, China, India, Indonesia, Vietnam, etc. Common Wealth Independent State: Azerbaijian, Kazakhstan, Russian Federation, Turkmenistan, Uzbekistan etc.  Oil Global Reserves for the Year 2000, 2010 & 2020 Regions 2000 Billion (bbl) 2010 Billion (bbl) 2020 Billion (bbl) North America 236.5 220.3 242.9 S & C America 96.0 320.1 323.4 Europe 21.0 13.6 13.6 CIS 120.1 144.2 146.2 Middle East 696.7 765.9 835.9 Africa 92.9 124.9 125.1 Asian Pacific 37.7 47.8 45.2 Total 1300.9 1636.9 1732.4 Oil Global Reserves for the Year 2000, 2010, 2010 900 800 700 600 2000 Billion (bbl) 500 400 2010 Billion (bbl) 300 200 100 2020 Billion (bbl) 0 North S&C Europe CIS Middle East Africa Asian America America Pacific  Percentage of the Total Oil Global Reserve Regions 2000 (%) 2010 (%) 2020 (%) North America 18.20 13.46 14.02 S & C America 7.40 19.56 18.67 Europe 1.61 0.831 0.785 CIS 9.23 8.81 8.44 Middle East 53.55 46.80 48.23 Africa 7.14 7.63 7.22 Asian Pacific 2.90 2.92 2.61 Total 100 100 100 Percentage of the Total Oil Global Reserve 2000 7% 3% 18% North America 7% S & C America 2% Europe 9% CIS 54% Middle East Africa Asian Pacific  Percentage of the Total Oil Global Reserve 2010 8% 3% 13% North America S & C America 19% Europe 47% CIS 9% Middle East 1% Africa Asian Pacific Percentage of the Total Oil Global Reserve 2020 7% 3% 14% North America S & C America 19% Europe 48% CIS 8% Middle East 1% Africa Asian Pacific  DISTRIBUTION OF ENERGY AND HYDROCARBON IN NIGERIA Crude oil, petroleum liquids, natural gas, and coal are fossil derived fuel sources for electricity generation. Electricity Generation: Nigerians mostly rely on fossil derived fuel sources for power generation, but they also employ some hydropower to meet their electricity needs. Nigeria generated about 31.5 giga watt hours (GWh) in 2021, about 75% was derived from fossil fuel sources and the remainder from hydropower. According to estimates by the World Bank, about 48% of Nigerian households in 2010 had access to electricity and about 55% in 2020. Nigeria’s electric power sector faces many challenges, such as poor and underdeveloped power infrastructure, high transmission and distribution losses. Even those with access to electricity deal with frequent electricity load shedding events that result in blackouts. As a result, residents and businesses rely on power generators or other renewable sources to meet their energy needs. In 2022, the Nigerian government revealed its Energy Transition Plan, which outlines its strategy to reduce carbon emission across some key sectors such as power, transport, oil and natural gas, etc. to become carbon neutral by 2060. The Energy Transition Plan requires an estimated value $1.3 billion to achieve this target. The government is seeking to raise funds to help implement this plan. According to the International Hydropower Association, Nigeria has natural resources that provide significant hydropower potential, but hydropower in the country is underdeveloped. The Nigerian government is seeking to build hydropower plants and increase its hydropower capacity to help the government better address domestic electricity needs. In November 2022, the Nigerian government invited bids for private investors to operate the 700-megawatt Zungeru hydropower plant, which was completed in 2023. The Zungeru hydropower plant is the largest hydropower plant in Nigeria which is installed on the Kaduna River in Niger state. Government support has grown for solar power projects that will increase access to electricity in remote and rural areas. In October 2022, the Nigerian Rural Electrification Agency with support from the United Nations Development Program (UNDP) in Nigeria and the Global Environment Facility (GEF), launched the Africa Mini grids Program. This program supports solar mini grid development and provides off-grid solar system which is a cleaner and cheaper alternative to diesel power generators for end users. Hydrocarbons: Nigeria is a major hydrocarbon producer in Africa and its production is the mainstay of the country’s economy. Oil and natural gas revenue is the country’s primary source of foreign exchange, and the change in crude oil price affect its economy. Nigeria holds the largest natural gas reserves in Africa and ranked sixth globally among exporters of liquefied natural gas (LNG) in 2021 according to Statistical Review of World Energy estimates in June 2022. Although Nigeria is the leading oil producer in Africa, disruptions have affected production and resulted in unplanned outages in recent years. These disruptions have brought about significant decline in crude oil production and less investment in the oil and gas sector. In third-quarter 2022, Nigeria’s crude oil production briefly dropped below one million barrels per day because of these extended disruptions stemming from crude oil theft and pipeline vandalism. Oil and gas industry in Nigeria is primarily located in the Southern Niger Delta area, where there are conflicts (Local groups seeking a share of the wealth, oil theft, pipeline vandalism, militancy, etc.) resulting in loss of oil production and pollution due to oil spillage. This damage has forced so many companies to shut- in production and left the country for good. Crude Oil: Nigeria held an estimated value of 37.5 billion barrels of proven crude oil reserves and its crudes oil are mostly light and sweet crude oil which are exported to the global market. Nigeria produced about 1.6 million barrels per day of crude oil in 2021, nearly a 37% decline from its production average in 2012. Nigeria’s hydrocarbon production declined in recent years due to some factors, such as: 1. Lower international investor interest in upstream sector. 2. Oil theft and smuggling. 3. Maturing fields. 4. Aging and poorly maintained infrastructure. 5. Disruptions and forced shut-ins stemming from security related incidents.  Nigeria’s Oil Production from Q1 of 2017 to Q3 of 2021 Time (quarter) Oil Production (bbl/quarter) 1st Quarter 2017 1,750,000 2nd Quarter 2017 1,870,000 3rd Quarter 2017 2,020,000 4th Quarter 2017 1,950,000 1st Quarter 2018 1,980,000 2nd Quarter 2018 1,840,000 3rd Quarter 2018 1,940,000 4th Quarter 2018 1,910,000 1st Quarter 2019 1,990,000 2nd Quarter 2019 2,020,000 3rd Quarter 2019 2,040,000 4th Quarter 2019 2,000,000 1st Quarter 2020 2,070,000 2nd Quarter 2020 1,810,000 3rd Quarter 2020 1,670,000 4th Quarter 2020 1,560,000 1st Quarter 2021 1,720,000 2nd Quarter 2021 1,610,000 3rd Quarter 2021 1,570,000  OIL PRODUCTION Vs TIME 2500000 2000000 Oil Production (bbl/quarter) 1500000 1000000 500000 0 Time (quarter) Nigeria’s Oil Production versus Time from 2017 to 2021  Nigeria’s Oil Reserve from 2010 to 2020 Time (Year) Oil Reserves (bbl/year) 2010 37200000000 2011 36200000000 2012 37100000000 2013 37100000000 2014 37400000000 2015 37100000000 2016 37500000000 2017 37500000000 2018 37000000000 2019 36900000000 2020 36900000000  OIL RESERVES vs TIME 3.8E+10 3.75E+10 Oil Reserves (bbl/year) 3.7E+10 3.65E+10 3.6E+10 3.55E+10 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Time (year) Nigeria’s Oil Reserve versus Time from 2010 to 2020  Grades of Crude Oil Produced in Nigeria Crude Oil Grades API Gravity (o) Sulfur Content (%) Agbami 47.2 0.05 Akpo 45.8 0.07 Amenam 37.0 0.17 Bonga 29.1 0.29 Bonny Light 34.5 0.14 Brass River 36.5 0.13 Erha 33.7 0.18 Escravos 34.0 0.15 Forcados 30.0 0.15 Qua Iboe 36.6 1.60 Usan 30.6 0.23 Natural gas: Nigeria held an estimated value of about 209 trillion cubic feet (Tcf) of proven natural gas reserves as at January 1th 2024. The gas reserve is made up of 102.59 trillion cubic feet of associated gas and 106.67 trillion cubic feet of non-associated gas. Nigerians daily associated gas production averages about 4.213 Billion cubic feet and 2.644 Billion cubic feet of non-associated gas. Significant amounts of natural gas production in Nigeria is either re-injected or flared. Owing to the fact that we lack the infrastructure to capture the natural gas produced with oil (associated gas).  PHYSICAL AND ENVIRONMENTAL CONSIDERATION IN THE OIL AND GAS INDUSTRY The environmental impact of the petroleum industry is extensive and expansive due to petroleum having many uses. Crude oil and natural gas are primary energy and raw material sources that enable numerous aspects of modern daily life and the world economy. Their supply has grown quickly over the last 150 years to meet the demands of human population and consumption. Substantial quantities of toxic waste are generated during the extraction, processing, refining and transportation stages of oil and gas. Some of its by-products, such as volatile organic compounds, nitrogen, sulfur compounds and spilled oil can pollute the air, water and soil to an extent that is harmful to man, animals and plants if improperly managed. Climate warming, ocean acidification, and sea level rise are global changes enhanced by the industry's emissions of greenhouse gases such as carbon dioxide, methane, micro-particulate aerosols (black carbon) and fossil fuel. In 2017, the International Energy Agency reported that oil and gas industry contributed to about 55% of CO2 that is being released into the atmosphere. This emissions continue to rise nearly every year unless a proactive measure is taken to curb this effect. AIR POLLUTION: Green-house gases: Emission of Carbon dioxide is being caused by different sources ramping up one after the other. Global Carbon Project show that most emissions are being absorbed by carbon sinks such as plant growth, soil uptake and ocean uptake. Petroleum extraction disrupts the equilibrium of earth's carbon cycle by transporting geologic carbon into the biosphere. The carbon is used by consumers in various forms and a large fraction is combusted into the atmosphere; thus creating massive amounts of the greenhouse gas (carbon dioxide, methane etc.) as a waste product. Since the industrial age began (1750–1850) with the use of wood and coal, the atmospheric concentration of carbon dioxide and methane have increased about 50% and 150% respectively, above their relatively stable levels. Each is currently increasing at a rate of about 1% every year. The growth in annual emissions has also been so rapid that the total amount of fossil carbon extracted in the last 30 years exceeds the total amount extracted during all, prior human history. Exhaust emissions: Emissions from the petroleum industry occur in every chain of the oil-producing process from the extraction to the consumption phase. In the extraction phase, gas venting and flaring release not only methane and carbon dioxide, but also other pollutants like nitrous oxides, aerosols, carbon monoxide and methanol. However, despite the large amounts of pollutants, there is variation in the amount and concentration of certain pollutants. The refining stages of petroleum also contribute to large amounts of pollution in areas where there are situated. This increase in pollution has adverse effects on human health due to the toxicity of oil. Vapor intrusion: Volatile organic gases or vapours emitted by various solids and liquids during burning of Petroleum hydrocarbons such as gasoline, diesel, or jet fuel intrudes into indoor spaces from underground storage tanks or brownfields, threatens human safety and causes adverse health effects upon inhalation. Acid rain: The combustion process of petroleum, coal and wood is responsible for increased occurrence of acid rain. Combustion causes an increased amount of nitrous oxide, along with sulfur dioxide from the sulfur in the oil. These by-products combine with water in the atmosphere to create acid rain. The increased concentrations of nitrates and other acidic substances have significant effects on the pH levels of rainfall. Data samples analyzed from the United States and Europe from the past 100 years and showed an increase in nitrous oxide emissions from combustion. The emissions were large enough to acidify the rainfall. The acid rain has adverse impacts on the ecosystem. WATER POLLUTION: Oil spills: An oil spill is a form of pollution by which liquid petroleum is released into the environment (land or water) due to human activity. Oil spills may occur due to releases of crude oil from tankers, pipelines, offshore platforms, drilling rigs, wells, and spills of refined petroleum products (gasoline, diesel, etc.) and their by-products. Spilt oil penetrates into the structure of the plumage of birds and the fur of mammals, reducing its insulating ability, and making them more vulnerable to temperature fluctuations and much less buoyant in the water. Cleanup and recovery from an oil spill is difficult, depending on some factors such as the type of oil spilled, the temperature of the water, the types of shorelines involved, the continuous inputs of petroleum residues and the rate at which the environment can clean itself. Spills may take weeks, months or even years to clean up. Produced water and drilling waste discharges: Produced water discharges from petroleum extraction results in Poly-aromatic Hydrocarbon emission in the ocean. Approximately 400 million tons of Produced water discharge is released annually from oil-fields in the North Sea, UK and Norwegian discharges combined. Produced water discharge is the largest emission event in the marine environment world and it is a result of offshore oil and gas production. The composition of materials in the Produced water depends on the characteristics of the region. However, Produced water mainly contains a mixture of products such as formation water, oil, gas, brine water and other chemicals. Just like Produced water, formation water composition also depends on its surroundings although, it mainly consists of dissolved inorganic and organic compounds. Produced water was responsible for releasing 129 tons of Poly-aromatic Hydrocarbons in 2017. Due to the presence of harmful chemicals in Produced water, it is responsible for evoking toxic responses in the surrounding environment. Formation of Poly-aromatic Hydrocarbons burden caused DNA damage and digestive-gland. Poly-aromatic Hydrocarbons also pose a serious threat to human health. Long term exposure to Poly-aromatic Hydrocarbons have been linked to a series of health problems such as lung, skin, bladder, gastrointestinal cancer. GLOBAL IMPACTS Climate change: The emissions from the extraction, refinement, transportation, and consumption of petroleum have caused changes in Earth's natural greenhouse gas levels, due to carbon dioxide emissions. Carbon dioxide is a greenhouse gas that attracts heat in order to keep Earth's temperature from below freezing but the excess amount of carbon dioxide in the atmosphere from the petroleum industry have caused an imbalance. These emissions record are high and the IPCC (2007) states that Earth's climate system will heat up by 3 degrees Celsius if there is further increase in carbon dioxide. These numbers are troubling as the resulting climate change will cause more intense hurricanes and storms, increased droughts and heat waves, frequent flooding, and severe wildfires. For low income communities that have inadequate infrastructure, they will hardly recover from infrastructure damage due these climate disasters. Ocean acidification: Following the carbon cycle, carbon dioxide enters our oceans where it reacts with the water molecules and produces a substance called carbonic acid. This increase in carbonic acid has dropped the pH level of the Earth's oceans, causing an increase in the acid level. Since the Industrial Revolution, from the beginning of petroleum era, the pH level of oceans has dropped from 8.21 to 8.10. The difference may not seem much, but there is a 30% increase in acidity which can caused a lot of problems for aquatic plants and animals. As Earth's oceans continue to acidify, it will be difficult for aquatic organisms to build and maintain their shells and skeletons. Based on current levels of carbon dioxide, Earth's oceans could have a pH level of 7.8 by the end of the 21st century.