Reviewer Intro to Oil PDF

\- law - - - - comes from different sources: sun (provides sunlight and warmth), the food we eat (gives our bodies the fuel to function), and fuels like gasoline (powers cars and other machines) FORMS: 1. **CHEMICAL ENERGY** - energy stored in the bonds of atoms and molecules...

\- law - - - - comes from different sources: sun (provides sunlight and warmth), the food we eat (gives our bodies the fuel to function), and fuels like gasoline (powers cars and other machines) FORMS: 1. **CHEMICAL ENERGY** - energy stored in the bonds of atoms and molecules EXAMPLES: **foods we eat, biomass, petroleum, natural gas, and propane** 2. **ELASTIC ENERGY** - energy stored in objects by the application of a force. EXAMPLES: **compressed springs and stretched rubber bands** 3. **NUCLEAR ENERGY** - energy stored in the nucleus of an atom- the energy binds the nucleus together **FISSION** - nuclear powerplants split the nuclei of uranium atoms **FUSION** - the sun combines the nuclei of hydrogen atoms into helium atoms 4. **GRAVITATIONAL POTENTIAL ENERGY** - energy of position or place EXAMPLE: **Hydropower such as water in a reservoir behind a dam** 5. **KINETIC ENERGY** - motion of waves, electrons, atoms, molecules, substances, and objects 6. **ELECTRICAL ENERGY** - movement of electrons EXAMPLE: **lightning** **ATOMS** - everything is made of tiny particles 7. **RADIANT ENERGY** - electromagnetic energy that travels in transverse waves. EXAMPLE: **visible light, x-rays, gamma rays, and radio waves** 8. - - the vibration and movement of atoms and molecules within substances. EXAMPLE: Geothermal Energy 9. - movement of objects and substances from one place to another EXAMPLE: **wind** 10. **SOUND ENERGY** - movement of energy through substances in longitudinal waves. **SOUND** - produced when a force causes an object or substance to vibrate. - used to generate electricity, to heat our homes, to move our cars, and to manufacture products from candy bars to cell phones. 1. FOSSIL FUELS ============ - - - **CARBON** - main constituent of these fossil fuels a. - made of decomposed plant matter in conditions of high temperature and pressure, though it takes a relatively shorter amount of time to form. COAL POWERPLANT FROM THE PHILIPPINES ==================================== - **SUAL POWER STATION** - largest and most cost-effective coal-fired power station in the country with a generating capacity of 1,200 MW. - **PAGBILAO POWER STATION** - 735-MW coal-fired thermal power plant at Isla Grande in Pagbilao, Quezon Province. - **MASINLOC POWER PLANT** - coal-fired thermal power plant located in Zambales \- originally and owned by the National Power Corporation (NPC) and started operations in 1998 - **CALACA POWER STATION** - an operating power station of at least 900- MW in San Rafael, Calaca, Batangas. - **LIMAY POWER PLANT** - a 4x150 MW coal-fired thermal power plant that uses Circulating Fluidized Bed (CFB) technology b. NATURAL GAS FORMATION PROCESS: ============================== - - organic materials, such as dead plants and microorganisms, accumulate in oxygen-depleted environments (swamps, seabeds). - due to the weight of the overlying layers. - rising pressure and temperature lead to a series of chemical reactions, breaking down complex organic molecules into simpler **hydrocarbons**, primarily **methane (CH**₄**)**. - the gas migrates upwards through porous rocks and is trapped beneath impermeable layers, forming **reservoirs**. COMPOSITION: ============ - is **mainly composed of methane (CH**₄**)**, the simplest hydrocarbon, consisting of one carbon and four hydrogen atoms. - USAGE: ====== - **electricity generation, heating,** and various **industrial processes** rely heavily on natural gas. - ENVIRONMENTAL IMPACT: ===================== - - however, it is a **finite resource** and contributes to greenhouse gas emissions when burned. GENERATION OF ELECTRICAL ENERGY FROM NATURAL GAS ================================================ - In power plants, natural gas is used to generate electricity through a series of efficient steps. First, natural gas is burned in a combustion chamber or gas turbine, producing high temperature and high pressure gases. These gases are directed onto the blades of a turbine, causing it to spin. The spinning turbine is connected to a generator, which converts the mechanical energy into electrical energy through electromagnetic induction. This electricity is then distributed via power lines to homes and businesses. Natural gas power plants are known for their efficiency and lower emissions compared to coal or oil plants, as they operate at higher temperatures and produce less carbon dioxide and other pollutants. NATURAL GAS POWER PLANTS ======================== - I**LIJAN POWER PLANT** - a 2x600 MW that is a combined cycle power plant in Batangas City - SANTA RITA COMBINED-CYCLE NATURAL GAS-FIRED POWER ================================================= - located in the **First Gen Clean Energy Complex** in Batangas City, its operations commenced in **August 2000**. - it **uses natural gas from the Malampaya gas field** in offshore Northwest Palawan, and can also utilize condensate, distillate. and naphtha as back-up fuel. - SAN LORENZO COMBINED-CYCLE NATURAL GAS-FIRED POWER ================================================== - AVION OPEN-CYCLE NATURAL GAS-FIRED POWER PLANT - 97-MW ====================================================== - SAN GABRIEL COMBINED- CYCLE NATURAL GAS-FIRED POWER =================================================== - - country. ENERGY FROM THE ATOM - NUCLEAR ENERGY ===================================== **NUCLEAR ENERGY -** is released during nuclear reactions like fission or fusion, involving the nucleus of an atom (protons and neutrons). - the energy released in nuclear reactions is much more concentrated than in chemical reactions, making it a potent power source. TYPES OF NUCLEAR REACTIONS: =========================== a. - the nucleus of a heavy atom (e.g., **uranium-235 or plutonium-239**) is split into two smaller nuclei, releasing heat, light, and gamma radiation. - heat produced generates steam, which powers turbines connected to generators to produce electricity. - b. NUCLEAR FUSION : ================ - fusion involves combining light nuclei, like hydrogen isotopes (deuterium and tritium), to form a heavier nucleus. - - offers the potential for a limitless and clean energy source, achieving the conditions for controlled fusion on Earth is still a challenge. GENERATION OF ELECTRICAL ENERGY FROM NUCLEAR ENERGY =================================================== Electrical generation from nuclear energy involves a process called nuclear fission. In this process, the nucleus of a heavy atom, like uranium, is split into two smaller nuclei, releasing a large amount of heat. This heat is used to tum water into steam, which drives a turbine connected to a generator. The generator then converts the spinning motion of the turbine into electricity. This electricity is sent to power grids and used to light up homes, run appliances, and power industries. It\'s a controlled way of unlocking the energy stored in atoms to create useful electricity. **RENEWABLE ENERGY** - power generated from natural sources that replenish themselves, such as sunlight, wind, water, and geothermal heat. 1. **SOLAR ENERGY** - energy harnessed from the sun using photovoltaic(PV) cells, which convert sunlight into electricity. **PHOTOVOLTAIC (PV) CELLS** - devices used in solar panels that convert sunlight into direct current (DC) electricity by exciting electrons in a semiconductor material. **SAN CARLOS SOLAR ENERGY** (SCSE) - major solar power plant in the Philippines, located in San Carlos City, Occidental, with a capacity of 100 MW producing clean energy from sunlight. 2. **BIOMASS** - energy derived from organic materials such as wood, agricultural residues, and waste, which can be burned or processed to generate electricity. GENERATION OF ELECTRICITY FROM BIOMASS ====================================== Electrical generation from biomass involves converting organic materials such as wood, agricultural residues, and waste, into usable energy.The process typically starts with these biomass materials being burned or processed in specialized facilities. The heat produced from combustion or other conversion methods is used to create steam, which then drives a turbine connected to a generator. This spinning turbine generates electricity that can be fed into the grid for various uses. Biomass energy is a form of renewable energy because the plants and waste products used are continually replenished. This approach contributes to sustainable energy production while managing waste materials effectively, offering an eco-friendly solution to our energy needs. BIOMASS POWERPLANT IN THE PHILIPPINES ===================================== - **TALISAY BIOMASS POWER PLANT** - a biomass power plant in Negros Occidental, Philippines that uses **sugarcane** by products to generate **21 MW** of electricity - **SAN CARLOS BIOPOWER** - a biomass power plant that generates **20 MW** of electricity from **crop residues** and **agricultural waste** and generates approximately **141 million kWh** annually. 3. **HYDROPOWER** - electricity generated from the movement of water, typically using dams and turbines to convert kinetic energy to electrical energy. \- flowing water creates power that can be captured and turned into electricity. GENERATION OF ELECTRICITY FROM HYDROPOWER ========================================= Electrical generation from hydropower harnesses the gravitational potential energy of water directing its flow through turbines. Dams or diversion structures control the water's movement, allowing it to flow through the turbines. The turbines convert the water\'s kinetic energy into mechanical energy, which drives generators to produce electricity. This process is based on fundamental principles of energy conversion utilizing water\'s movement to generate clean and efficient electrical power. Hydropower stands as a significant renewable energy source, capable of providing consistent and grid-stabilizing electricity while minimizing environmental impact. HYDROELECTRIC POWERPLANT IN THE PHILIPPINES - MAGAT DAM HYDROELECTRIC POWER PLANT =================================== - CALIRAYA- BOTOCAN- KALAYAAN (CBK) HYDROELECTRIC COMPLEX ======================================================= - - AMBUKLAO-BINGA HYDROELECTRIC COMPLEX - WIND ENERGY =========== Electrical generation from wind involves converting the kinetic energy of moving air into electricity through wind turbines. These turbines consist of blades mounted on a rotor, which is connected to a generator. As the wind blows, it causes the rotor to spin, and the kinetic energy of this motion is converted into mechanical energy. The generator then transforms the mechanical energy into electrical energy, producing a usable power output. This process capitalizes on the principles of aerodynamics and electromagnetic induction, enabling the efficient transformation of wind\'s energy into electricity. 5. **WAVE ENERGY** - converted into electrical energy by capturing the movement of ocean waves using specialized devices. GENERATION ELECTRICITY FROM WAVE ENERGY ======================================= These ocean wave energy converters harness the up and down motion of waves to drive mechanical systems, such as pistons or turbines. This mechanical motion turns generator, which converts it into electrical energy The electricity is then transmitted through underwater cables to the shore, where it can be supplied to the power grid or used locally. This method effectively transforms the kinetic energy of waves into usable power. 6. **GEOTHERMAL ENERGY** - is converted into electrical energy by harnessing heat from the earth\'s interior. GENERATION ELECTRICITY FROM GEOTHERMAL ENERGY ============================================= First, wells are drilled into geothermal reservoirs to access hot steam or hot water underground. This steam or hot water is brought to the surface and used to spin a turbine connected to a generator As the turbine spins, it generates electricity The cooled steam or water then reinjected into the Earth to be reheated, creating a sustainable and continuous energy cycle. This process effectively transforms the Earth\'s natural heat into usable electrical power. GEOTHERMAL ENERGY IN THE PHILIPPINES ==================================== - The Philippines is a leading country in utilizing geothermal energy due to its location along the Pacific Ring of Fire, which provides abundant geothermal resources. - The country harnesses geothermal energy primarily for electricity generation and has significant geothermal power plants spread across various regions. - As of 2024, the Philippines is one of the world\'s top producers of geothermal energy, generating about 1,900 megawatts (MW) from geothermal sources, making it a leader in using this type of energy. **ENERGY SYSTEM -** refers to the interconnected network of components and processes that work together to produce, transfer, convert, and utilize energy for various purposes. SEVERAL KEY COMPONENTS ====================== 1. - includes fossil fuels (coal, oil, natural gas), renewable sources (solar, wind, hydro, biomass), and nuclear power, which generates electricity with minimal carbon emissions. 2. - Power plants burn fossil fuels or harness renewable resources like wind and sunlight to generate electricity. Generators or turbines transform mechanical energy into electrical energy. 3. 4. 5. energy can be released when needed, ensuring a steady supply even when generation is intermittent. 6. 7. ENERGY SUPPLY AND DEMAND ======================== **ENERGY SUPPLY -** refers to the available resources, while energy demand is the energy required for various activities. \- In the Philippines, **ENERGY DEMAND** peaks during daytime hours and hotter seasoned use of cooling systems. Residential, commercial, and industrial sectors all contribute to consumption. real-time data to balance supply and demand, with flexible power plants adjusting output as needed. **DEPARTMENT OF ENERGY** (DOE) - supports energy efficiency through labeling programs and public awareness campaigns. FUNDAMENTALS OF THE OIL AND GAS SUPPLY CHAIN ============================================ \- these stages are crucial for ensuring the efficient delivery of energy resources from natural sources to end-users. EXPLORATION AND PRODUCTION ========================== **EXPLORATION** - the phase where geologists and engineers identify potential oil and gas reserves using **seismic surveys** and geological studies. **EXPLORATORY DRILLING** - A process used to verify the presence of hydrocarbons after reserves are identified. **PRODUCTION** - the extraction of hydrocarbons (oil and gas) from reservoirs. In this phase, drilling technology and well management are used to maximize recovery and resource efficiency. TRANSPORTATION AND DISTRIBUTION =============================== **DISTRIBUTION** - the phase that ensures refined products like gasoline, diesel, and jet fuel reach retail outlets, industrial users, and end-users. REFINING AND PROCESSING ======================= STORAGE AND DISTRIBUTION CENTERS ================================ **STORAGE** - holding refined products and natural gas in tanks or underground facilities to manage supply and demand, especially during peak times or disruptions. **DISTRIBUTION CENTERS** - these coordinate the logistics of moving products from refineries to retail outlets, managing inventory and ensuring product availability. RETAIL AND END-USE ================== **RETAIL** - the sale of refined products like gasoline and diesel at gas stations. **END-USE** - the utilization of oil and gas products in sectors such as transportation, residential heating, electricity generation, and manufacturing. GLOBAL PLAYERS AND ORGANIZATIONS: ================================= 1. **INTERNATIONAL OIL COMPANIES** (IOCs) - major privately-owned companies like ExxonMobil, BP, and Shell that operate globally in exploration, production, refining, and distribution of oil and gas. 2. **NATIONAL OIL COMPANIES** (NOCs) - state-owned companies such as Saudi Aramco, Gazprom, and Petrobras that control large portions of the world\'s oil and gas reserves and influence global supply through production decisions and policies. 3. **OPEC** - the Organization of the Petroleum Exporting Countries, which coordinates production policies among member countries to manage global oil prices and supply. GEOPOLITICAL INFLUENCES ======================= **GEOPOLITICAL EVENTS** - conflicts, trade sanctions, and diplomatic relations can disrupt the oil and gas supply chain, affecting production, transportation, and exports, often leading to supply shortages and price spikes. **INTERNATIONAL AGREEMENTS** - policies on climate change and trade influence production levels, technological investments, and the shift towards alternative energy sources. MARKET DYNAMICS =============== 1. **SUPPLY AND DEMAND** - the balance between supply and demand dictates oil and gas prices. Prices rise when demand exceeds supply and fall when supply surpasses demand. 2. **TECHNOLOGICAL ADVANCEMENTS** - innovations such as shale oil extraction and EOR (Enhanced Oil Recovery) methods can shift the market by increasing supply capabilities. 3. **GEOPOLITICAL IMPACT**- wars, natural disasters, and economic changes like recessions or booms cause price volatility and market shifts. SEGMENTS OF THE OIL AND GAS SUPPLY CHAIN ======================================== 1. **UPSTREAM SEGMENT** - this includes finding and producing crude oil and natural gas through exploration, drilling, and extraction. It involves contractors and service companies supporting oil and gas operators. 2. **MIDSTREAM SEGMENT** - focuses on processing, storing, and transporting oil and gas commodities. It acts as a link between the upstream and downstream sectors. 3. **DOWNSTREAM SEGMENT** - encompasses refining, distributing, and retailing oil and gas products. This includes the production of gasoline, diesel, and other refined products for end-users. KEY PROCESSES IN THE OIL AND GAS SUPPLY CHAIN ============================================= **EXTRACTION** - involves drilling, extraction, and recovery of crude oil using sophisticated technologies like rotary drilling and EOR techniques. **SHORT-TERM STORAGE** - used to temporarily hold crude oil before being sent to refineries, managing supply fluctuations. **REFINING** - crude oil is transformed into consumable products (e.g., gasoline, diesel) through processes like distillation and catalytic cracking. **PORTS**- critical for importing and exporting crude oil, handling large tankers, and transferring oil to storage or refineries. **DISTRIBUTION** -refined products are transported to end-use locations (e.g., fuel stations, airports) via pipelines, trucks, and ships. The processing involves several steps: 1. **SEPARATION** - the **NATURAL GAS** is separated from other substances like OIL, WATER, and SAND. 2. **REMOVING IMPURITIES** - unwanted elements like **SULFUR** and **CARBON DIOXIDE** are removed to make the gas **CLEANER** and **SAFER**. 3. **SEPARATION OF COMPONENTS** - the valuable parts of NATURAL GAS, like METHANE (for heating and electricity) and PROPANE/BUTANE (for cooking or fuel), are separated for different uses. 1. **DISTRIBUTION OF OIL RESERVES WORLDWIDE** - is highly uneven, with the majority concentrated in a few regions. The Middle East has the largest share, especially in Saudi Arabia, Iran, Iraq, Kuwait, and the UAE. Venezuela and Canada have significant reserves, with Venezuela holding the largest reserves globally, primarily heavy crude. Russia, Africa (notably Nigeria, Libya, and Angola), and Latin America (including Brazil and Mexico) also contribute. The distribution impacts global energy security, pricing, and geopolitics, as oil- rich regions wield significant market influence. 2. **STRATEGIC PETROLEUM RESERVES** (SPRs) - are emergency oil stockpiles maintained by governments to mitigate supply disruptions caused by crises such as wars, natural disasters, or technical failures. Created after the 1973 oil crisis, SPRs provide a backup supply to stabilize markets and prevent price spikes. The U.S. has the largest SPR, and other countries like China, Japan, and EU nations maintain reserves. The International Energy Agency mandates that member countries hold 90 days of net imports in reserve for global security. 3. **KEY OIL-PRODUCING REGIONS AND COUNTRIES** - Global oil production is divided between OECD (developed, high-income countries like the U.S., Canada, and European nations) and non-OECD countries (developing economies like those in the Middle East, Africa, China, and Russia). This distinction highlights economic differences and the varying roles of regions in the global oil market. GLOBAL CRUDE OIL PRODUCTION BY REGION FROM 1971-2020 ==================================================== 1. **OECD Countries** - oil production in the OECD (Organization for Economic Co-operation and Development) remained relatively stable from 1971 to 2020, with a gradual increase in the early 2000s, followed by a more noticeable rise post-2010 due to the boom in U.S. shale oil production. This marked a pivotal shift in global oil markets, as the U.S. became a major player in crude oil production. 2. **MIDDLE EAST** - has been a dominant oil-producing region throughout this period. The region experienced rapid growth in the 1970s, stabilizing in subsequent decades, with incremental increases in production. Its dominance reflects vast oil reserves in countries like Saudi Arabia, Iran, and Iraq. 3. **FORMER SOVIET UNION AND RUSSIA** - oil production in this region grew steadily until the late 1980s, peaking before declining after the collapse of the Soviet Union in the early 1990s. However, production rebounded and stabilized in the years that followed, with Russia emerging as a significant oil exporter. 4. **CHINA** - China\'s oil production began relatively low in the 1970s but saw steady growth, especially from the late 1980s onward. This reflected China\'s focus on boosting domestic production to meet its growing energy needs. By 2020, however, China\'s production plateaued, indicating that its domestic oil output had reached its limits. 5. **AFRICA**: Oil production in Africa grew consistently from the 1970s, with a notable increase in the 2000s due to the development of new oil fields in countries like Nigeria and Angola. However, the pace of growth has slowed in recent years. **OIL SUPPLY** - refer to the various factors and processes that determine the availability of crude oil in global markets. \- crucial for petroleum engineers as they directly influence production strategies, market stability, and long-term planning within the oil industry. OIL RESERVES AND RESOURCES ========================== **RESERVES** - these are quantities of crude oil that can be extracted. They are categorized into three main types based on how certain we are that they can be recovered: PROVEN RESERVES: ================ CERTAINTY: **High certainty** based on detailed studies and existing wells. ECONOMIC VIABILITY: Economically feasible to extract with current technology. PROBABLE RESERVES: ================== POSSIBLE RESERVES: ================== **RESOURCES** - this includes all oil quantities both discovered and undiscovered that might be recoverable but aren\'t currently feasible to extract economically. PRODUCTION RATES AND DECLINE ============================ **OIL PRODUCTION RATES**- show how much oil can be extracted from a reservoir over time. Understanding the production lifecycle is essential for managing resources effectively. This lifecycle generally consists of three main phases: Build-up, Plateau, and Decline. BUILD-UP PHASE: =============== **PRODUCTION**: Rates gradually increase as new wells are drilled and start producing oil. **METHODS**: Natural pressure in the reservoir or artificial methods (like pumping) help bring oil to the surface. **GOAL**: To reach the maximum output capacity of the reservoir. PLATEAU PHASE: ============== **DURATION**: this phase can last a while, depending on the reservoir\'s size and extraction efficiency. **GOAL**: to maintain this stable production as long as possible to maximize total oil recovery. This phase is typically the **most productiv**e. DECLINE PHASE: ============== **CAUSES** - this decline happens due to reduced reservoir pressure as oil is extracted, making it harder to bring oil to the surface. **CHARACTERISTICS** - the decline rate can vary; conventional reservoirs may decline gradually, while unconventional sources (like shale oil) might see a rapid drop. **MITIGATION** - Enhanced Oil Recovery (EOR) techniques, such as injecting water or gas, can help slow the decline and extend the reservoir\'s productive life. OPEC AND NON-OPEC PRODUCTION OPEC (Organization of the Petroleum Exporting Countries): **PURPOSE** - to coordinate the petroleum policies of its member countries, **manage** oil supply, and stabilize prices on the global market. ROLE OF OPEC IN GLOBAL OIL SUPPLY ================================= **PRODUCTION CONTROL** - OPEC sets production quotas for its member countries to balance oil supply and demand. This helps stabilize oil prices and avoid fluctuations that could impact economies. **RESPONSE TO MARKET CONDITIONS** - during low demand, OPEC may reduce production to prevent prices from falling too low. Conversely, it can increase production during high demand to ensure sufficient supply. IMPACT OF NON-OPEC PRODUCERS ============================ **KEY PLAYERS** - Non-OPEC producers, such as the United States, Canada, and Russia, are significant in the global oil market but do not coordinate their production levels like OPEC does. **MARKET FORCES** - these countries\' production is influenced more by market forces and technological advancements, such as the rise of shale oil in the U.S., which has increased global supply and affected oil prices. FACTORS AFFECTING OIL SUPPLY ============================ 1. Innovations like horizontal drilling and hydraulic fracturing allow for extracting oil from difficult reserves, increasing total recoverable oil and stabilizing supply. 2. 3. unrest or changes in government policies in oil-producing regions can disrupt production and affect supply. Regulations, especially environmental ones, can also impact production costs and access to reserves. 4. **OIL DEMAND DYNAMICS** -- refer to the factors and trends that influence the consumption of oil and gas globally. -critical for predicting future market conditions, planning production, and making investment decisions within the energy sector. MAJOR OIL-CONSUMING COUNTRIES ============================= 1. **UNITED STATES** - one of the largest oil consumers due to its vast transportation network, industrial base, and residential energy use. 2. **CHINA** - rapid industrialization and urbanization have made China a top oil consumer. Demand is driven by industrial activity, transportation, and a growing middle class. 3. **INDIA** - similar to China, India\'s demand for oil is rising due to economic growth, expanding transportation networks, and increased industrial activity. 4. **EUROPEAN UNION** - demand is driven by transportation, industry, and residential energy needs, although growth is slower compared to developing economies due to improvements in energy efficiency and alternative energy adoption. 1. **TRANSPORTATION** - the largest consumer of oil, accounting for nearly half of global demand. It includes gasoline, diesel, and jet fuel for cars, trucks, airplanes, and ships. Demand here is closely linked to economic activity, population growth, and transportation infrastructure. 2. **INDUSTRY** - uses oil as a feedstock for petrochemical production and fuel for manufacturing processes. Demand in this sector is driven by economic growth, especially in manufacturing-heavy economies. 3. **RESIDENTIAL SECTOR** - consumes oil mainly for heating, particularly in colder climates. Demand can fluctuate based on seasonal weather patterns and improvements in energy efficiency. FACTORS AFFECTING OIL DEMAND ============================ 1. **ECONOMIC GROWTH AND INDUSTRIAL ACTIVITY** - economic expansion increases energy needs, driving up oil consumption, especially in rapidly growing economies like China and India. Conversely, economic slowdowns can reduce demand. 2. **ENERGY EFFICIENCY IMPROVEMENTS** - advances in energy efficiency, such as better vehicle fuel efficiency and industrial processes, can reduce oil consumption while maintaining economic activity. This can result from technological innovation and regulatory standards. 3. **ALTERNATIVE ENERGY SOURCES** - the growth of renewable energy sources (e.g., solar, wind) and electric vehicles (EVs) provides alternatives to oil, potentially reducing demand. Government policies and market conditions influence the pace of this transition. WORLD OIL PLAYERS ================= 1. **INTERNATIONAL OIL COMPANIES** (IOCs) - large, privately-owned companies operating across multiple countries, focusing on maximizing profits and shareholder value. They engage in exploration, production, refining, and distribution. Major IOCs include: 1. 2. BP (UNITED KINGDOM) =================== 3. 4. 5. 2. **NATIONAL OIL COMPANIES** (NOCS) - state-owned companies that control oil resources within their countries. Their priorities may differ from IOCs, often focusing on national interests and energy security. 1. 2. 3. 4. 5. 1. **OIL TRADERS** - individuals or companies that BUY AND SELL OIL in global markets. Engage in two main types of trading: **PHYSICAL TRADING** - involves the actual buying and selling of barrels of oil. Traders purchase oil from producers and sell it to refiners or other buyers, profiting from price differences (known as (**ARBITRAGE**). **FINANCIAL TRADING** - involves trading oil-related financial instruments like **FUTURES CONTRACTS**, which are agreements to buy or sell oil at a specified price on a future date. Traders speculate on future price movements, aiming to profit from changes in oil prices. 2. **GLENCORE**, and **TRAFIGURA**. They operate on a global scale, handling large volumes of oil and engaging in both physical and financial trading. 3. **OIL BROKERS** - act as **INTERMEDIARIES** between buyers and sellers, helping them connect and finalize transactions without taking ownership of the oil. They earn a commission for their services. \- provide **MARKET INTELLIGENCE** and help smooth out the logistics of oil trading, ensuring efficient transactions. INFLUENCE OF FINANCIAL MARKETS ON OIL PRICING ============================================= 1. **FINANCIAL MARKETS** - facilitate the trading of various financial instruments, such as oil **FUTURES**, **OPTIONS**, and **DERIVATIVES**. These allow participants to manage risks, speculate on price movements, and invest in oil without handling the physical commodity. 2. TYPES OF PARTICIPANTS: ====================== **SPECULATORS** - Trade oil futures to profit from price changes, often without intending to receive or deliver oil. Their trading can lead to significant price movements. **HEDGERS** - use oil futures to protect against price fluctuations. For example, airlines might buy futures to secure stable fuel prices. 3. **BENCHMARKS** - standard types of crude oil used as reference points for pricing, with **WEST TEXAS INTERMEDIATE** (WTI) and **BRENT CRUDE** being the most commonly used benchmarks. Prices for these benchmarks are influenced by global supply and demand, geopolitical events, and trading activities in financial markets. IMPACT OF OIL PRICES ON THE GLOBAL ECONOMY ========================================== 1. **ECONOMIC ROLE** - oil prices significantly impact the global economy, affecting inflation, trade balances, and overall economic stability. \- price fluctuations can have wide-ranging consequences for both oil-producing and oil-consuming countries. 2. **UNDERSTANDING VOLATILITY** - recognizing the factors that determine oil prices and the economic impacts of their volatility is essential for those involved in the petroleum industry. Changes in oil prices can influence economic growth and stability globally. ECONOMIC IMPACT OF OIL PRICE FLUCTUATIONS ========================================= 1. **INFLATION AND CURRENCY EXCHANGE RATES** - rising oil prices typically lead to higher inflation rates, as the cost of energy increases for both businesses and consumers. - this increase in costs reduces purchasing power, slows economic growth, and can weaken the currencies of oil-importing countries, which need more funds to purchase oil. - in contrast, oil-exporting countries may see their currencies appreciate due to increased revenues from higher oil prices. 2. **IMPACT ON BUSINESSES AND CONSUMERS** - higher oil prices result in increased energy and transportation costs, which can squeeze profit margins for businesses and lead to higher prices for goods and services. - for consumers, increased energy costs lower disposable income, limiting spending on non-essential items and adversely affecting overall economic demand. IMPACT ON TRADE BALANCES AND FISCAL POLICIES ============================================ 1. **TRADE BALANCES** - fluctuations in oil prices have significant effects on a country\'s trade balance. - oil-importing countries often experience a deterioration in their trade balance when oil prices rise, as they face higher costs for oil imports, leading to increased trade deficits. - conversely, oil-exporting countries benefit from elevated oil prices, which enhance their trade balance due to increased export revenues. 2. **FISCAL POLICIES** - rising oil prices can prompt oil-importing countries to adjust their fiscal policies to address the resulting trade deficits. - For example, during the 2014-2016 oil price crash, Nigeria, as a major oil exporter, experienced a decline in oil revenues, worsening its trade deficit and economic instability. - to manage this economic downturn, the Nigerian government had to implement fiscal adjustments such as reducing public spending, increasing taxes, and diversifying revenue sources. - these adjustments are crucial for maintaining economic stability and mitigating the challenges posed by volatile oil prices. EXPLORATION AND DRILLING ======================== **EXPLORATION** - involves using geological surveys and seismic imaging to locate potential hydrocarbon reserves **DRILLING** - employs advanced rigs to bore into the Earth, accessing these reserves. Techniques like rotary and directional drilling, along with drilling fluids for stability and pressure control, are crucial for efficiently extracting resources and assessing their viability. EXPLORATION METHODS =================== AERIAL SURVEYING ================ **OVERVIEW**: Aerial surveying involves using an airplane equipped with a wide- angled camera to fly over a specific area, capturing overlapping photographs. PROCESS: ======== 1. The photographs are analyzed stereoscopically to create accurate topographical and geological maps that depict surface features. 2. These maps aid in planning ground surveys and enable geologists to target areas of greatest interest. BENEFITS: ========= - - SATELLITE SURVEYING =================== **OVERVIEW** - Satellite surveying employs satellites to obtain extensive, large- scale observations of the Earth\'s surface. CAPABILITIES: ============= - detects geological formations, monitors environmental changes, and identifies potential exploration targets based on surface conditions. - analyzes magnetic anomalies to understand sedimentary layer depth, detect faults, and map subsurface features related to hydrocarbon deposits. BENEFITS: ========= - offers valuable preliminary data for exploration by highlighting areas that require further investigation. GEOPHYSICAL SURVEYS =================== a. **OVERVIEW**: Gravimetric surveys measure variations in gravity at the Earth\'s surface to detect subsurface rock densities. PROCESS: ======== 1. Gravity variations, influenced by the density of underlying rocks, provide insights into geological structures. 2. Dense rocks (e.g., basalt or granite) produce a stronger gravitational pull, while less dense rocks (e.g., sandstone) create a weaker pull. BENEFITS: ========= - helps identify subsurface features such as faults and salt domes that may indicate hydrocarbon presence. - provides essential data for mapping geological formations and directing further exploration efforts. b. PROCESS: ======== 1. Controlled seismic waves (typically sound waves) are generated and sent into the ground or seabed. 2. 3. Data collected from these reflected waves allow geologists to create detailed maps of subsurface formations, indicating potential hydrocarbon reservoirs. **HOW SEISMIC SURVEYING WORKS**: 1. Compressed air is released to create sound waves, which penetrate the subsurface and reflect off various rock layers. 2. Sensors capture the returning seismic signals, and geoscientists analyze the time taken for waves to return and their intensity to determine the depth and type of rock layers. 3. This method typically involves surveying at speeds of 4.5 to 5 knots (\~65 mph) with sound waves emitted at regular intervals, ensuring minimal environmental impact. 2\. **SUBSURFACE EXPLORATION METHODS** - are crucial for obtaining detailed insights into geological formations and potential hydrocarbon reservoirs during drilling. \- involve direct examination of subsurface conditions and include the analysis of rock cuttings, core samples, reservoir fluid samples, and mud logs. ROCK CUTTINGS ============= **OVERVIEW**: As drilling progresses, rock fragments, known as cuttings, are brought to the surface by circulating drilling fluid. PROCESS: ======== 1. 2. \- Rock cuttings serve as immediate indicators of subsurface geology and are continuously monitored throughout the drilling process. CORE SAMPLES ============ OVERVIEW: Core samples are cylindrical sections of rock extracted from the wellbore using a specialized coring tool. PROCESS: ======== - Unlike rock cuttings, core samples remain intact and provide a continuous section of the subsurface rock layers. - This method allows for detailed analysis of the rock\'s physical properties, including porosity, permeability, and lithology. IMPORTANCE: =========== - Core samples offer a comprehensive understanding of the reservoir\'s characteristics, such as its ability to store and transmit fluids, which is vital for evaluating the reservoir's potential productivity. - Cores are shipped to laboratories for further analysis to uncover reservoir characteristics that may not be visible through downhole logging alone. TYPES OF CORING TECHNIQUES ========================== 1. **CONVENTIONAL CORING** - involves extracting continuous rock sections during drilling operations. - A hollow coring bit captures a solid cylinder of rock, which is then brought to the surface for analysis. - 2. **SIDEWALL CORING** (SWC) - involves cutting small rock plugs from the wellbore wall after drilling using wireline tools. - SWC is less costly and faster than conventional coring, offering data on formation properties when full core retrieval is not feasible. - While smaller, sidewall cores still provide valuable information about the formation. - RESERVOIR FLUID SAMPLES ======================= **OVERVIEW**: During drilling, fluids from the reservoir (oil, gas, and water) are collected for analysis. PROCESS: ======== 1. Reservoir fluid samples are essential for determining the composition, viscosity, and other properties of the fluids present in subsurface formations. **SIGNIFICANCE**: - Analyzing these samples helps assess the quality of hydrocarbons and estimate the volume of recoverable resources. - Understanding fluid properties also guides decisions on the best extraction and processing methods for the hydrocarbons. - **WELL LOGS** -- involves using specialized instruments to measure various properties within the wellbore. Data collected includes porosity, permeability, resistivity, and other factors that are essential for evaluating the subsurface formations and determining their hydrocarbon potential. **EXPLORATION DRILLING** - is a critical process in the oil and gas industry, involving the use of drilling rigs to access subsurface formations identified through geological surveys and seismic imaging. - this method is essential for confirming the presence of hydrocarbons and evaluating the viability of resources. TECHNIQUES EMPLOYED IN EXPLORATION DRILLING =========================================== 1. **ROTARY DRILLING** - this method uses a rotating drill bit to bore into the earth. The rotation allows for effective penetration of various rock types, making it a common technique for exploration drilling. 2. **DIRECTIONAL DRILLING** - this technique enables the drill to deviate from a vertical path to access reservoirs that are not directly beneath the drilling rig. \- allows for drilling at various angles and trajectories, facilitating access to reserves located horizontally or at an angle from the drill site. It is particularly useful for reaching multiple targets from a single location or navigating around obstacles. **DRILLING FLUIDS** - also known as drilling muds, are essential for maintaining wellbore stability and controlling subsurface pressures during the drilling process. These fluids help cool the drill bit, carry rock cuttings to the surface, and prevent the inflow of water or other fluids from surrounding formations. TYPES OF WELLS ============== - 1. **ONSHORE WELLS** - these wells are drilled on land to access hydrocarbon reserves located beneath the Earth\'s surface. a. **VERTICAL WELLS** - drill straight down into the earth, following a vertical path to reach the target reservoir. - commonly used in straightforward geological settings where the reservoir is directly beneath the drilling site. b. **DIRECTIONAL WELLS** - deviate from the vertical path to access reservoirs that are not directly below the drilling rig. - allow for drilling at various angles, enabling access to reserves located horizontally or at an angle from the drill site. - useful for reaching multiple targets from a single location or navigating around obstacles. 2. **OFFSHORE WELLS** - these wells are drilled in marine environments and are categorized based on the type of platform used: c. **FIXED PLATFORMS** - anchored directly to the seabed and used for drilling and production operations in relatively shallow waters. \- Stable and designed for long-term use in one location, typically constructed from steel or concrete, supported by pilings or legs extending from the seabed to the platform. d. **FLOATING PLATFORMS** - mobile units that float on the water\'s surface, used for drilling and production in deeper waters. TYPES OF FLOATING PLATFORMS INCLUDE: ==================================== 1. **SEMI-SUBMERSIBLES** - partially submerged and held in place by anchored mooring lines, offering stability in rough seas and suitability for deep water drilling. 2. **SPAR PLATFORMS** - anchored to the seabed by long vertical shafts, floating on the water\'s surface. Spar platforms are designed to operate in very deep water, anchored by a series of anchors and chains. - BASED ON PURPOSE ================ 1. **PURPOSE**: Exploration wells are drilled to locate and evaluate new hydrocarbon reserves. **FUNCTION**: They provide initial data on the presence, quantity, and quality of subsurface reservoirs. **IMPORTANCE**: These wells are essential for identifying potential reserves and assessing their commercial viability, which helps determine whether further development is warranted. APPRAISAL WELLS =============== **PURPOSE**: Appraisal wells are drilled after the exploration phase to further assess the extent and viability of identified hydrocarbon reserves. **FUNCTION**: They provide detailed data on the size, quality, and commercial potential of the reservoir. TASKS INVOLVED: =============== - Using seismic data and information from exploration wells to accurately map the reservoir\'s size and position. - Conducting reservoir simulation to model behavior, predicting production rates and recovery efficiency. - Drilling additional wells at varying distances from the initial discovery to gather more data about the reservoir\'s extent and fluid properties. **SIGNIFICANCE**: This stage carries significant financial risk, as it determines the field\'s commercial viability and involves multidisciplinary teams to analyze data, simulate development scenarios, and evaluate economic feasibility. PRODUCTION WELLS ================ **PURPOSE** - Production wells are designed for the extraction of hydrocarbons from proven reserves. **FUNCTION** - These wells are optimized for maximum recovery and efficiency, equipped with technologies to manage flow rates, pressures, and enhance extraction processes. **DEVELOPMENT PHASE** - involves drilling production wells and installing surface facilities such as pipelines, storage tanks, and processing units. \- Once the infrastructure is in place, continuous extraction operations commence, utilizing reservoir management techniques to optimize recovery through methods like water flooding or gas injection. **IMPORTANCE** - Production wells are crucial for sustained hydrocarbon output from established fields, and reservoir engineers continuously monitor and adjust operations to maximize recovery factors. INJECTION WELLS =============== PURPOSE- Injection wells are used to inject fluids into a reservoir to improve hydrocarbon recovery. **FUNCTION** - They support secondary recovery methods, such as water injection, and tertiary methods like gas injection to maintain reservoir pressure and enhance extraction of remaining hydrocarbons. STRATIGRAPHIC WELLS =================== **PURPOSE** - Stratigraphic wells are drilled to collect geological data and assess rock properties rather than to access specific hydrocarbon reserves. **FUNCTION** - These wells provide information on the stratigraphy and reservoir characteristics, helping to understand subsurface geology and inform exploration and development decisions. **IMPORTANCE** - They are used for detailed subsurface mapping and evaluating the geological context of potential reservoirs. **RESERVOIR MANAGEMENT** - optimizes hydrocarbon extraction by utilizing detailed information on the reservoir and its fluids. **DATA UTILIZATION** - information on formation fluids, planned production rates, expected total production, well placement, and work over frequency. **PETROPHYSICAL ANALYSIS** - evaluates reservoir rock properties like porosity and permeability, which influence hydrocarbon saturation and recovery. **PVT TESTING** - Conducted to understand the physical and thermodynamic properties of formation fluids, guiding production method selection. **WELL TESTING** - involves downhole pressure measurements to assess fluid characteristics and formation permeability, determining optimal production rates. - BASED ON GEOLOGICAL FORMATION ============================= 1. **CONVENTIONAL RESERVOIRS** - feature hydrocarbons trapped in porous and permeable rock formations (e.g., sandstone, limestone). - Allow for efficient extraction using standard drilling methods due to favorable pressure and flow properties. 2. **UNCONVENTIONAL RESERVOIRS** - include tight, shale, and coal bed methane reservoirs, where hydrocarbons are stored in low-permeability rocks or adsorbed onto the rock matrix. - require specialized techniques like hydraulic fracturing or horizontal drilling to create pathways for hydrocarbons to flow to the wellbore. - BASED ON FLUID CONTENT ====================== 1. **OIL RESERVOIRS** - primarily contain crude oil, which may be associated with natural gas. \- Reservoirs are assessed based on the quality and recoverability of the oil. 2. **GAS RESERVOIRS** - primarily consist of natural gas, which can be in the form of dry gas (methane) or heavier hydrocarbons such as ethane, propane, and butane. 3. **CONDENSATE RESERVOIRS** - contain natural gas that exists as a gas under reservoir conditions but condenses into liquid hydrocarbons when brought to the surface due to pressure and temperature changes. - BASED ON RESERVOIR DRIVE MECHANISM ================================== 1. **DRIVE RESERVOIRS** - rely on pressure from an underlying or adjacent water aquifer to mobilize hydrocarbons during production. 2. **GAS CAP DRIVE RESERVOIRS** - utilize pressure from a gas cap situated above the oil column to support oil production. 3. **SOLUTION GAS DRIVE RESERVOIRS** - depend on gas dissolved in the oil, which comes out of solution as the pressure decreases during production. - BASED ON PERMEABILITY ===================== 1. **HIGH-PERMEABILITY RESERVOIRS** - feature rock with high permeability, allowing hydrocarbons to flow easily to the wellbore. 2. **LOW-PERMEABILITY RESERVOIRS** - comprise rock with lower permeability, necessitating enhanced recovery techniques (e.g., hydraulic fracturing) to efficiently produce hydrocarbons. 3. **CONVENTIONAL RESERVOIRS** - consist of porous and permeable rock formations, such as sandstone or limestone, where hydrocarbons accumulate. They are typically trapped by structural or stratigraphic barriers, such as cap rocks or faults. The recovery mechanisms and extraction techniques used depend significantly on the characteristics of these reservoirs. **RECOVERY MECHANISMS**- Reservoir engineers evaluate potential production rates, field lifespan, and the number and types of wells needed based on field characteristics and fluid properties. They develop production plans in collaboration with petroleum engineers, but initial stages may lack complete information for finalizing production strategies. PRIMARY RECOVERY ================ DEFINITION: Primary recovery is the initial phase of extracting oil and gas from a reservoir, utilizing the natural pressure and energy within the reservoir. **MECHANISM** - Hydrocarbons are moved to the wellbore and brought to the surface by the reservoir\'s internal pressure, often derived from gas expansion or the original pressure of the reservoir. This pressure differential drives oil and gas through the rock's pores and fractures toward the wellbore. **EFFICIENCY** - primary recovery typically extracts only a portion of the total hydrocarbons present in the reservoir. As reservoir pressure decreases over time, production rates diminish, making primary recovery alone often insufficient for substantial extraction. **ENHANCED RECOVERY** - to improve recovery rates when primary recovery is inadequate, additional methods are employed, classified into secondary and tertiary (or enhanced) recovery. **SECONDARY RECOVERY** - involves techniques aimed at maintaining reservoir pressure and increasing oil production. COMMON METHODS INCLUDE: ======================= **WATER INJECTION** - drilling new injection wells or converting existing production wells into injection wells. Water is introduced under pressure to replace extracted oil and push remaining oil toward production wells. **GAS INJECTION** - utilizes natural gas, nitrogen, or flue gases to drive oil towards production wells, following a similar principle as water injection. - is a set of advanced methods used to increase the extraction of oil from reservoirs beyond what is achievable through primary and secondary recovery methods. - are designed to enhance the movement of oil within the reservoir, making it more feasible to extract additional oil resources. KEY EOR TECHNIQUES ================== 1. **CHEMICAL METHODS** - involve injecting chemicals into the reservoir to alter the fluid properties. - Chemicals can enhance oil mobility, reduce interfacial tension, or decrease capillary forces, thereby facilitating the flow of oil toward production wells. - 2. **THERMAL METHODS** - utilize heat to lower the viscosity of oil, making it easier to extract. a. **STEAM INJECTION** - One of the most common thermal methods, where steam is injected into the reservoir to heat the oil and reduce its viscosity. This allows the oil to flow more freely. - These methods can recover an additional 5-10% of the total oil resources in the field. CONTINUOUS MONITORING ===================== - During the production phase, continuous monitoring and analysis of fluid behavior are essential to optimize recovery processes. This involves assessing the effectiveness of the EOR techniques and making adjustments as needed to maximize output. DECOMMISSIONING =============== - After approximately 15-30 years, when economic recovery limits are reached, production facilities are decommissioned, and the site is restored. This process ensures that the environment is protected and that any impact from oil extraction activities is mitigated. **DEVELOPMENT DRILLING** - is a critical phase in hydrocarbon extraction, focusing on efficiently accessing and exploiting identified reservoirs. This process builds on exploration drilling and utilizes specialized techniques tailored to specific operational and geological challenges. KEY TECHNIQUES IN DEVELOPMENT DRILLING ====================================== 1. **DIRECTIONAL DRILLING** - this technique involves deviating the wellbore from the vertical to follow a planned path (which can resemble a J-shape or S- shape). - is particularly useful in scenarios where surface location constraints exist, allowing drilling from remote or less obstructive sites. - reduces the need for multiple surface installations, particularly in offshore environments, minimizing the number of platforms required. 2. **HORIZONTAL DRILLING** - A specific form of directional drilling, horizontal drilling orients the wellbore horizontally within the reservoir. - is employed when the production zone is located far from the surface drilling site, allowing access to resources beneath the seabed from onshore locations. This avoids the complexities and costs associated with offshore infrastructure. - enhances hydrocarbon recovery by maximizing the wellbore\'s length within the reservoir, improving flow rates and extraction efficiency. It is especially effective in reservoirs with limited thickness or low permeability, as it increases the contact area with hydrocarbon-bearing formations. **MULTIDRAIN WELLS** - these wells are designed to access multiple reservoir zones through a single wellbore, allowing for simultaneous production from various parts of a reservoir. - are versatile and can be employed throughout the life of a reservoir, from exploration and appraisal to full-scale production. - During exploration, multidrain wells can be sidetracked to delineate a field or access additional zones without the need for new surface drilling locations, thus reducing costs and operational risks. OIL LOGISTICS AND TRANSPORTATION ================================ **OIL LOGISTICS** - involves moving crude oil from production sites to refineries and distributing refined products to customers. The main methods of transport are **PIPELINES** for domestic routes, **OIL TANKERS** for international trade, and **TRUCKS** and **RAILCARS** for shorter distances or areas without pipelines. **PIPELINES** - are primarily used for domestic transport, moving large amounts of oil over long distances. Crude oil is sent to refineries, and refined products are delivered to major clients and distributors. Factors like oil volume, pipe diameter, and oil quality affect the energy needed for pipeline transport. 1. **ONSHORE PIPELINES** - Located on land, these pipelines are constructed from steel or plastic and vary in diameter, typically from 508 to 1,420 millimeters. They are covered with protective coatings like concrete and high-density polyethylene to guard against corrosion and mechanical damage. 2. **OFFSHORE PIPELINES** - Also known as **SUBSEA PIPELINES**, these are installed on the seabed to transport hydrocarbons from underwater production facilities to onshore plants. They are laid using specialized pipe-laying vessels and are protected against corrosion by various coatings. **TRUNK LINE SYSTEMS** - These are used for long-distance transportation of crude oil, refined products, and liquefied natural gas (LNG) across countries or regions. They operate at pressures of 1.2 to 10 MPa. **FEED LINES** - Connect production areas or distributors to the main trunk line. **OIL PUMPING STATIONS** - Facilities that maintain the flow of oil through the trunk line, boosting pressure when necessary. These stations are placed at intervals and handle tasks such as loading and unloading oil from nearby storage tanks. **TERMINAL POINT** - the endpoint of the trunk line where oil is processed, refined, or transferred to other distribution systems. **RAIL TRANSPORT** - uses cargo trains equipped with specialized tanker cars to move oil, particularly in areas lacking pipelines. Railcars transport both crude oil and refined products to refineries and distribution points. Though more cars are required to move large quantities of oil, rail remains a cost-effective solution for regions without pipelines. TRUCKS ====== **TANKER TRUCKS** - are used for shorter distances, transporting smaller quantities of oil or refined petroleum products like gasoline. Trucks offer more flexibility than rail transport since they can access roads that railcars cannot. This makes trucks particularly useful for final-mile deliveries to distribution centers like gas stations. NATURAL GAS LOGISTICS AND TRANSPORTATION ======================================== **NATURAL GAS** - is transported via **PIPELINES** when moved over short to medium distances in its gaseous state. For long distances, it is converted into LNG (Liquefied Natural Gas), which is natural gas cooled to -162°C (-260°F) to reduce its volume by 600 times, making it easier to transport by sea. **LIQUEFACTION** -At liquefaction facilities, natural gas is cooled using a multi- stage refrigeration process to convert it into its liquid form. **TRANSPORTATION** - LNG is moved using specialized vessels known as LNG Carriers or LNG Tankers. These ships are equipped with spherical tanks to handle the low temperatures required for LNG. **REGASIFICATION** - At the destination, LNG is converted back into its gaseous state and distributed via pipelines to end users. **OIL STORAGE** - is crucial for balancing supply and demand and ensuring security in supply. Storage tanks vary based on the type of oil and the storage needs: 1. **FIXED-ROOF TANKS** - these tanks have a permanent roof structure and are used to store crude oil and refined petroleum products, protecting them from environmental contaminants. 2. **FLOATING-ROOF TANKS** - are constructed with a roof that floats directly on the surface of the stored liquid. This design is ideal for volatile liquids such as gasoline and light crude oils. The roof rises and falls with the liquid level, minimizing vapor space and reducing vapor losses. This system also helps prevent the formation of explosive vapor mixtures, enhancing safety by ensuring a tight seal between the liquid and the atmosphere. 3. **HORIZONTAL TANKS** - are cylindrical vessels oriented horizontally, supported by concrete pads or structural supports. Typically used for smaller storage volumes, they are found in industrial, commercial, and residential settings. Their horizontal design allows for efficient use of space and easy installation in confined areas. 4. **UNDERGROUND TANKS** - are installed below ground level to protect stored oil from environmental conditions like temperature fluctuations and physical damage. Commonly used for smaller volumes, they are made from corrosion- resistant materials and are designed to prevent leaks, thus safeguarding surrounding soil and groundwater. 5. **BLADDER TANKS -** are flexible, collapsible containers made from synthetic rubber or reinforced fabric, used for temporary or portable storage. They are ideal for emergency situations, construction projects, or remote areas where traditional storage tanks are impractical. Bladder tanks can be rapidly deployed when needed. STRATEGIC STORAGE FACILITIES ============================ 1. **STRATEGIC PETROLEUM RESERVES** (SPR) - Government-controlled reserves stored in underground caverns or depleted oil fields, providing a buffer against supply disruptions and protected from natural disasters. 2. **TANK FARMS** - Large-scale facilities with multiple storage tanks used for bulk storage of crude oil and refined products. They are strategically located near refineries, shipping terminals, or distribution hubs. 3. **OIL DEPOTS** - Distribution centers for refined oil products, equipped with infrastructure for loading and unloading oil from pipelines, tankers, and trucks. 4. **UNDERGROUND STORAGE FACILITIES** - These use underground caverns or salt domes to securely store large volumes of oil, offering protection from surface hazards and a stable environment for long-term storage. **NATURAL GAS STORAGE SYSTEMS** - are crucial for balancing supply and demand, ensuring a stable gas supply year-round, and managing price fluctuations. - these systems store excess gas during periods of low consumption and release it during peak demand, helping to stabilize prices and ensure supply. 1. **UNDERGROUND STORAGE** - involves storing natural gas in subsurface formations, with the following types: a. **DEPLETED OIL AND GAS FIELDS** - These are former production sites repurposed for gas storage. They use existing infrastructure and geological formations suited for gas containment, making them an economical and practical storage option. b. **AQUIFERS** - These are porous rock formations saturated with water that serve as storage sites for natural gas. The gas fills the pore spaces within the rock, and impermeable layers prevent gas leakage. c. **SALT CAVERNS** - These are artificial caverns created by dissolving salt deposits with water. The caverns are valued for their structural integrity and capacity to store large volumes of gas. Salt caverns are often used because of their excellent containment properties. ABOVE-GROUND STORAGE ==================== **FACILITIES** - are designed for immediate and flexible gas storage. They include: d. **LIQUEFIED NATURAL GAS (LNG) TANKS** - These insulated tanks store natural gas in its liquid form at cryogenic temperatures (approximately -162°C or -260°F). LNG tanks can be horizontal or vertical and are used to manage fluctuations in supply and demand. e. **CRYOGENIC TANKS** - Similar to LNG tanks, cryogenic tanks store natural gas at very low temperatures to allow for efficient storage and transport. They are used in various applications requiring temperature-controlled storage. f. **COMPRESSED NATURAL GAS (CNG) STORAGE** - In this method, natural gas is compressed to high pressures (typically 200--250 bar or 2,900--3,600 psi) and stored in high-pressure cylinders. CNG storage is used for smaller-scale applications, such as fueling stations and local distribution networks. g. **STRATEGIC STORAGE** - reserves of natural gas or oil maintained for energy security and emergency situations. These reserves ensure a consistent supply during disruptions or periods of reduced demand and are managed by governments or large energy firms. OIL AND GAS TARIFFS =================== **TARIFFS** - Fees charged for the use of oil and gas transportation infrastructure, such as pipelines and terminals. These fees cover transportation costs, maintenance, and service provision, influencing overall pricing and market dynamics. **MIDSTREAM FACILITIES** - Infrastructure used for the transportation, storage, and wholesale marketing of oil and natural gas, including pipelines and terminals. **ENERGY SECURITY** - The availability of reliable and affordable energy supplies, ensured by maintaining reserves such as strategic storage during periods of disruption or high demand. **TRANSPORTATION COSTS** - Expenses related to moving oil and gas from production sites to refineries and end consumers, impacted by tariffs and influencing the overall price of energy products. **CHAPTER 4** **INTRODUCTION TO DOWNSTREAM OIL AND GAS** The **downstream** industry involves the refining, distribution, and marketing of crude oil and natural gas products. This segment of the oil and gas value chain processes raw hydrocarbons into refined products and delivers them to end-users. It begins where the upstream segment ends, taking crude oil and natural gas and converting them into products such as gasoline, diesel, jet fuel, and petrochemicals. The downstream industry is essential for ensuring the availability of these products for transportation, industrial, and other uses, Its operations are critical for meeting consumer demand, stabilizing energy markets, and supporting economic activities across various sectors. **Refining** is the process of transforming crude oil into usable products through various chemical and physical methods. The refining process involves several key stages, including distillation, cracking, reforming, and treating. Distillation separates crude oil into different components based on boiling points. Cracking breaks down larger molecules into smaller, more valuable ones. Reforming modifies the chemical structure of hydrocarbons to enhance product quality, and treating removes impurities. **Refineries** can be categorized into two main types **simple and complex.** Simple refineries primarily use distillation to produce basic products like gasoline and diesel. They are designed to process crude oil with minimal processing beyond separation. In contrast, complex refineries employ advanced techniques such as catalytic cracking and hydrocracking to produce a wider range of products and improve the yield of high-value products. These refineries can produce additional products such as jet fuel and petrochemicals. **Dewatering and Desalting** - The first step in petroleum processing, even before the crude oil enters the refinery, occurs at the wellhead (Abdel-Aal et al., 2016). It is at this stage that fluids from the well are separated into crude oil, natural gas, and water phases using a gas-oil separator. Even after this type of separation and before separation of petroleum into its various constituents can proceed, there is the need to clean the petroleum. This is often referred to as desalting and dewatering in which the goal is to remove water and the constituents of the brine that accompany the crude oil from the reservoir to the wellhead during recovery operations. - If the petroleum from the separators contains water and dirt, water washing can remove much of the water-soluble minerals and entrained solids. If these crude oil contaminants are not removed, they can cause operating problems during refinery processing, such as equipment plugging and corrosion as well as catalyst deactivation. Atmospheric distillation Vacuum distillation Light ends recovery (gas processing) 2\. **Petroleum conversion processes** Cracking (thermal and catalytic) Reforming Alkylation Polymerization Isomerization Coking Visbreaking 3.**Petroleum treating processes** Hydrodesulfurization Hydrotreating Chemical sweetening Acid gas removal Deasphalting **Separation Process** - Distillation is a technique used to separate different components of a liquid mixture based on their boiling points. The process begins by heating the liquid mixture in a distillation column. As the mixture heats up, the component with the lowest boiling point turns into vapor and rises through the column. This vapor then reaches a cooler area, where it condenses back into a liquid. The resulting liquid, known as the distillate, is collected separately. The process continues, separating components based on their boiling points. - The products of distillation include several fractions Light ends are the components that evaporate first, such as gases and light liquids. Naphtha, which is collected next, is used as a feedstock for producing gasoline and petrochemicals. Kerosene, obtained from the middle section of the column, is used mainly as jet fuel and in heating oils. Diesel, which boils at a higher temperature, is used as engine fuel. Finally, the heaviest components, which have the highest boiling points, remain as a residue. This includes materials like asphalt, used in road construction, 6. **Light Ends (e.g., Propane and Butane)** Light ends, such as propane and butane, have boiling points below 0°C (32°F). These hydrocarbons are primarily used as fuels for heating and cooking. Propane is also widely utilized in refrigeration processes and as a feedstock in petrochemical production. Their low boiling points make them easily vaporized, which is advantageous for applications requiring quick ignition and combustion 7. **Naphtha** Naphtha boils between 30 -- 200 deg \* C (86-392°F) and serves as a crucial feedstock in the production of gasoline and petrochemicals. Its versatility also extends to its use as a solvent in various industrial applications, where it helps dissolve or dilute other substances. Naphtha's broad boiling range allows it to be separated into different fractions, each suitable for specific uses. 3. **Kerosene** With a boiling range of 150 -- 300 deg \* C (302-572°F), kerosene is mainly used as jet fuel in aviation and as heating employed in some cleaning and degreasing products due to its ability to dissolve oily substances. Its moderate boiling point makes it suitable for use in engines and burners where a stable fuel is required. 4. **Diesel** Diesel fuel, which boils between 250 -- 350 deg \* C (482-662°F), is primarily used in diesel engines found in vehicles, trucks, industrial machinery. Additionally, diesel serves as a heating oil and as a feedstock in petrochemical production. Its high boiling point ensures efficient combustion in high-pressure engines, making it suitable for heavy- duty applications. 5. **Gas Oil (Light and Heavy)** Gas oil, with boiling points ranging from 300 -- 400 deg \* C (572-752°F), includes both light and heavy varieties. Light gas oil is used in the production of diesel and as a feedstock for further refining processes. Heavy gas oil, on the other hand, is employed in the production of lubricating oils and as a feedstock for creating diesel and other products. Its high boiling point makes it effective for producing various valuable refinery products. 6. **Residual Fuel Oil** Residual fuel oil, which boils above 350 deg \* C (662 deg \* F) is mainly used in marine engines and power plants for generating electricity. It also utilized in some industrial heating applications due to its high energy content. The high boiling point of residual fuel oil allows it to be used in applications requiring stable, long-lasting fuel. 7. **Asphalt** Asphalt, which remains solid at room temperature and does not have a typical boiling point, is primarily used in road construction and roofing materials. Its properties make it ideal for creating durable surfaces and for waterproofing applications. The stability and adhesive qualities of asphalt contribute to its effectiveness in these uses. 8. **Petroleum Coke** Petroleum coke, like asphalt, is solid at room temperature and does not have a typical boiling point. It is used as a fuel in power plants and in the production of aluminum, steel, and other industrial processes. Petroleum coke's solid form and high carbon content make it suitable for applications requiring a dense, energy-rich material. **Crude Distillation Unit** The unit comprising of an atmospheric distillation column, side strippers, heat exchanger network, feed de-salter and furnace as main process technologies enables the separation of the crude into its various products, Usually, five products are generated from the CDU namely gas + naphtha, kerosene, light gas oil, heavy gas oil and atmospheric residue. In some refinery configurations, terminologies such as gasoline, jet fuel and diesel are used to represent the CDU products which are usually fractions emanating as portions of naphtha, kerosene and gas oil. **Vacuum Distillation Unit (VDU)** The atmospheric residue when processed at lower pressures does not allow decomposition of the atmospheric residue and therefore yields LVGO, HVGO and vacuum residue. The LVGO and HVGO are eventually subjected to cracking to yield even lighter products. The VDU consists of a main vacuum distillation column supported with side strippers to produce the desired products. Therefore, VDU is also a physical process to obtain the desired products **Conversion Processes** To meet the demands for high-octane gasoline, jet fuel, and diesel fuel, components such as residual oils, fuel oils, and light ends are converted to gasolines and other light fractions. Cracking, coking, and visbreaking processes are used to break large petroleum molecules into smaller ones. Polymerization and alkylation processes are used to combine small petroleum molecules into larger ones. Isomerization and reforming processes are applied to rearrange the structure of petroleum molecules to produce higher-value molecules of a similar molecular size. **Thermal Cracking** Thermal cracking involves breaking down large hydrocarbon molecules into smaller ones through heat. This process generates products like naphtha, gas, gas oil, and thermal cracked residue. It utilizes high temperatures to drive the chemical reactions necessary for molecular breakdown. **Catalytic Cracking** Similar to thermal cracking, catalytic cracking uses a catalyst to facilitate the breaking of large molecules into smaller ones. The catalyst helps direct the reactions to produce more valuable, higher-octane hydrocarbons. Catalytic cracking products compared to thermal cracking. **Hydrocracking** Hydrocracking combines catalytic cracking with hydrogenation, where hydrogen is added to convert heavy feedstocks into lighter products. This process is particularly useful for upgrading feedstocks with high sulfur or nitrogen content, such as cycle oils, thermal gas oils, and heavy naphtha. Hydrocracking is versatile and can process a range of feedstocks, producing high-quality products. **Reformer** The reforming process upgrades heavy naphtha, which has a low octane number, into high- octane reformate. This unit also produces light ends and reformer gas (hydrogen). Reforming is crucial for producing premium-grade gasoline by enhancing the octane number of naphtha. **Isomerization** Isomerization improves the octane number of light naphtha fractions and reduces benzene content. It complements catalytic reforming by upgrading the octane number of naphtha streams. Offering a cost-effective solution for enhancing fuel quality. The isomerization process produces isomerate, which is low in sulfur and enhances the performance of gasoline. **Polymerization** Polymerization combines small molecules like propene and butene to create larger, high- octane components for gasoline. This process uses a catalyst and high pressure to form these larger molecules, improving the gasoline's performance. It is a cost-effective alternative to alkylation, but the feed must be free of sulfur, basic materials, and oxygen. **Visbreaking** Visbreaking uses moderate heat to lower the viscosity of heavy oils, making them easier to process. It produces lighter products like naphtha and gas oil and helps meet fuel quality standards. This process breaks down long hydrocarbon chains, reducing the thickness of the residue. **Coking** Coking heats heavy residues to produce lighter, valuable products like gasoline and diesel. It also creates petroleum coke, a solid carbon byproduct used as fuel if it has low sulfur content. Coking is essential for converting heavy, low-value materials into more useful products. **Treating Processes** Petroleum treating processes are crucial in refining to ensure that the final products meet quality standards and are free from undesirable elements. **Hydrodesulfurization** This process removes sulfur compounds from crude oil and petroleum products. In hydrodesulfurization, hydrogen is used to react with sulfur atoms bound to hydrocarbons. This reaction occurs over a catalyst at high temperatures and pressures, converting sulfur into hydrogen sulfide (H₂S), which is then removed. This process is essential for reducing sulfur content, which helps in meeting environmental regulations and improving the quality of fuels. **Hydrotreating** Similar to hydrodesulfurization, hydrotreating removes a broader range of impurities. Including sulfur, nitrogen, and oxygen, from various petroleum fractions. It also upgrades the quality of fuels by converting reactive olefins and diolefins into stable paraffins, which helps in reducing gum formation and improving stability. This process is performed using hydrogen and a catalyst and is typically done before other processes like catalytic reforming and hydrocracking to avoid catalyst poisoning and ensure optimal performance. **Chemical Sweetening** This process targets the removal or modification of sulfur, nitrogen, or oxygen compounds that affect the quality of petroleum products. Chemical sweetening involves two main methods \[extraction and ovication) **Extraction** Used to remove sulfur from lighter fractions like propane and butane. For example, Merox extraction is a technique that removes mercaptans (organic sulfur compounds) from these streams. **Oxidation (Sweetening)** Applied to heavier fractions such as gasoline and middle distillates to reduce sulfur content. This method involves treating the petroleum with oxidizing agents to convert sulfur compounds into less objectionable forms. **Acid Gas Removal** This process focuses on removing acidic gases like hydrogen sulfide (H.S) and carbon dioxide (CO₂) from hydrocarbon streams. These gases are corrosive and can degrade equipment and affect product quality. Acid gas removal helps in reducing the corrosiveness of the streams and improves the overall quality of the petroleum products. CHAPTER 5 OIL AND GAS FISCAL SYSTEM The oil and gas fiscal regime refers to the financial and legal framework governing the economic aspects of oil and gas exploration and production activities. This regime includes various forms of taxation, royalties, fees, and profit-sharing mechanisms applied to oil and gas operations. Its primary purpose is to ensure that governments and host countries receive a fair share of the revenues generated from their natural resources while providing a stable and predictable environment for investors and operators. In the oil and gas industry, the fiscal regime is crucial because it directly influences the economic viability of exploration and production projects. A well-structured fiscal regime balances the interests of both the host country and the operating companies, affecting investment decisions, project profitability, and government revenue. By defining how revenues are split and how costs are recovered, the fiscal regime impacts the attractiveness of a country as an investment destination, the sustainability of the resource base, and the overall economic development associated with oil and gas activities. **Classifications of Petroleum Fiscal System** The petroleum fiscal system is a framework that governs financial arrangements between governments and oil and gas companies involved in exploration and production activities. This system outlines how revenues from oil and gas resources are allocated and managed, influencing the financial returns for governments and the profitability of oil companies. By establishing various fiscal regimes, the petroleum fiscal system ensures that the economic benefits of resource extraction are shared and that the financial risks and rewards are distributed. Understanding these frameworks is essential for understanding how the oil and gas industry operates and how governments and companies navigate the financial landscape of resource management. **Concessionary System** The concessionary system is a fiscal arrangement in which a government grants a company the exclusive rights to explore, develop, and produce oil and gas within a specific geographic area for a set duration. In this system, the company assumes full responsibility for the costs associated with exploration, drilling, and production. Once the oil or gas is extracted, the company retains ownership and sells the resources at prevailing market prices. **Ownership Rights** Under the concessionary system, the company holds ownership rights to the hydrocarbons produced within the concession area. This means the company can control the sale of the extracted oil and gas, benefiting from market prices. These ownership rights are a significant incentive for companies to invest in exploration and production, as they have the potential to eam substantial profits if their investments are successful, **Revenue Sharing** While the company retains the majority of the revenues from the sale of hydrocarbons, the government still receives a portion of the revenue through royalties and taxes. Royalties are typically calculated as a percentage of the gross revenue or production volume, while taxes are applied to the company's profits. This revenue-sharing model ensures that the government benefits from the resource extraction, even though the company covers all operational costs. **Examples**: The concessionary system has been employed by various countries, including the United States and the United Kingdom. In these countries, the government sets a royalty rate and imposes corporate taxes on the revenues and profits of oil companies. This model provides a steady stream of revenue to the government while allowing companies to operate with significant autonomy. **Advantages** One of the primary benefits of the concessionary system is that it offers companies greater Bexibility in managing their operations. Companies are incentivized to invest in exploration and development, knowing that they will retain a substantial share of the revenues. This system can encourage technological advancements and efficient resource management, as companies are motivated to maximize their returns. **Disadvantages** Despite its advantages, the concessionary system has some drawbacks. The government's revenue may be relatively lower compared to other fiscal regimes, as the company retains a significant portion of the revenue. Additionally, the system can lead to challenges if the company faces high operational costs, as these costs can impact the overall profitability and. Consequently, the revenue share that the government receives through taxes. Furthermore, the system may not always align the interests of the government and the company, potentially leading to disputes over resource management and revenue distribution. **Contractual System** The contractual system is a fiscal framework where a government enters into an agreement with an oil and gas company to carry out specific exploration and production activities. Unlike the concessionary system, the government does not grant ownership rights to the hydrocarbons; instead, it contracts the company to perform certain services or to operate within a specific area under defined terms. **Service Agreement** In the contractual system, the company operates under a contract that outlines its obligations and the terms of its compensation. The company typically undertakes exploration and production activities on behalf of the government, but does not own the extracted hydrocarbons. Instead, it is compensated through fees or other forms of remuneration specified in the contract. **Revenue Sharing** The government retains ownership of the hydrocarbons and receives the revenue from their sale. The company's compensation is fixed or variable, depending on the terms of the contract. This often includes a fee for services provided or a percentage of the production value, but it does not include ownership rights to the oil and gas. **Examples**: The contractual system is commonly used in countries with less developed oil and gas sectors or where the government prefers to retain ownership and control over the resources. For instance, some Middle Eastern countries use service contracts to engage companies for exploration and production activities while keeping control over resource ownership and revenues. **Advantages** The contractual system allows the government to maintain control over the resources and revenue, as the company is paid for its services rather than receiving a share of the production. This can be beneficial in ensuring that the government captures a larger portion of the revenue from resource extraction. Additionally, it provides the government with a clear understanding of the company's remuneration and performance under the contract terms. **Disadvantages** The main drawback of the contractual system is that it may not incentivize companies to invest heavily in exploration and production, as they do not have ownership rights or a direct share in the revenue. This could lead to reduced investment in technology and efficiency. Additionally. The government assumes more risk related to resource management and operational performance, as the company is only compensated for its services rather than its success in resource extraction. **Types of Concessionary System** In the oil and gas industry, different types of contracts determine how govemments and companies work together for exploration and production. These contracts outline how resources are managed, how costs are covered, and how revenues are shared. Each contract type offers a different way to balance the interests of the government and the oil company. Understanding these contracts is important for knowing how oil and gas projects are financed and operated, and how the benefits from resource extraction are shared. 1. **Service Contracts** Service contracts involve a company being hired to perform specific exploration, development, or production tasks for a fixed fee or remuneration. The company does not have ownership rights to the extracted hydrocarbons; it is compensated solely for its services. The contract specifies the tasks to be performed and the payment structure, which is typically a pre-determined fee. In some countries with emerging oil and gas sectors, service contracts are used to bring in technical expertise. For instance, in countries like Kazakhstan, service contracts are used to engage companies to operate fields and perform production tasks, while the government retains ownership of the resources. Service contracts ensure that the government maintains control over resource ownership and revenue. They provide clear terms for compensation, making budgeting and financial planning straightforward. These contracts can also help the government access the expertise and technology needed for efficient resource development. The primary drawback is that companies may have less incentive to invest in exploration and production, as they do not own the resources. This could lead to less commitment to improving efficiency or investing in advanced technologies. The government also bears the risk of resource management and operational performance. 2. **Production Sharing Contracts (PSCs)** PSCs are agreements where the company and the government share the production of oil and gas based on a negotiated formula. The company typically recovers its exploration and production costs before splitting the remaining production with the govemment. The formula for sharing is pre-agreed and can vary based on factors such as production levels and costs. Countries like Nigeria and Indonesia use PSCs to manage their oil and gas resources. In Indonesia, the government and oil companies share production based on a formula that allows the company to recover its costs before the remaining production is Divided according to an agreed percentage. It aligns the interests of the govemment and the company, as both parties benefit from higher production. The company is incentivized to invest in exploration and Development to increase production and recover its costs. The government benefits from a share of the production and has the potential to earn more as production increases. Although it can be complex to negotiate and manage due to the need to agree on cost recovery and profit-sharing formulas. If production costs are high, the government's share of the production may be lower. Additionally, disputes over cost recovery and profit- sharing can arise, potentially leading to conflicts between the government and the company. 3. **Pure Service Contracts** These contracts are a type of service contract where the company is compensated based on its performance and adherence to contract terms. They may include additional incentives tied to operational success, such as achieving certain production targets or efficiency improvements. In some regions, like parts of the Middle East, pure service contracts are used to motivate companies to perform at high standards. Companies might receive performance bonuses or additional compensation for exceeding production targets or achieving cost- saving measures. Pure service contracts incentivize companies to optimize their operations and improve performance, as compensation is linked to their success. This can lead to higher efficiency and better outcomes for the government. The government maintains control over the resources while ensuring that companies are motivated to perform well. The complexity of performance-based incentives can make these contracts harder to negotiate and administer. There is also the risk that companies may focus on short-term gains to meet performance targets rather than long-term sustainability and efficiency. 4. **Risk Service Contracts** In risk service contracts, the company assumes the exploration risk and is compensated based on the success of its efforts. If exploration is successful, the company may receive a higher share of the production or profit. The company bears the financial risk of unsuccessful exploration but benefits from higher rewards if successful. Risk service contracts are often used in countries with unexplored or high-risk fields. For example, in some parts of South America, companies enter into risk service contracts where they bear the cost of exploration and receive a share of the production if their efforts are successful. Risk service contracts align the interests of the company and the government, as the company is incentivized to succeed in exploration to gain a higher share of the production. This can lead to increased investment in high-risk areas and potentially higher returns for both parties. The main drawback is that the government may receive less revenue if exploration efforts are unsuccessful, as the company bears the risk. There is also a risk that companies may focus on areas with higher potential returns rather than areas that are strategically important for the government. In addition to the concessionary and contractual systems, which are two commonly used frameworks, there are other variations that offer different approaches to managing oil and gas resources. Joint Ventures involves a partnership between a national oil company and an international contractor company. Both parties share the responsibilities, risks, and benefits of exploration and production. Joint ventures can be structured within either concessionary or contractual systems. In a joint venture, the national company and the contractor contribute resources and expertise, and profits are shared based on their agreed stakes. Technical Assistance Contracts (TACs) are used in specific situations such as Enhanced oil recovery (EOR) projects or the redevelopment of existing fields. Under TACs, a company provides technical expertise and support to improve the production of an oil field. This type of contract often complements a production sharing agreement or a concessionary system, where the company may receive additional compensation or a share of the enhanced production results from its technical contributions. Differences Between Concessionary and Contractual System In terms of revenue structure, the concessionary system primarily generates government revenue through royalties and taxes, while companies retain most of the revenue from oil and gas sales after covering their operational costs. In contrast, a contractual system allocates revenue according to specific agreements. Service contracts provide fixed fees to the company, whereas Production Sharing Contracts (PSCs) and risk service contracts involve sharing production or profits based on pre-negotiated formulas. Regarding ownership and rights, the concessionary system allows the company to own the rights to the hydrocarbons produced and maintain control over operations within the concession area. Conversely, in a contractual system, the government retains ownership of the resources. The company is compensated through fixed fees, a share of production, or performance-based rewards, depending on the type of contract. When it comes to risk and investment, the concessionary system places most of the exploration and production risks on the company, which must also manage high operational costs. In a contractual system, service contracts typically involve minimal risk for the company, as it is paid a fixed fee. PSCs and risk service contracts may expose the company to exploration risks but offer cost recovery or profit-sharing based on production results. The concessionary system offers companies greater flexibility in managing the operations and investments, promoting efficient production. On the other hand, flexibility in contractual system can vary. Service contracts limit the company's operational control, while PSCs and risk service contracts may offer more flexibility but are often tied to performance and cost recovery conditions. Philippine Petroleum Fiscal System In the Philippine Risk Service Contract, the fiscal framework closely resembles the structure of Production Sharing Contracts but includes unique elements aimed at promoting local involvement and ensuring financial stability. A key feature of this contract is the Filipino Participation Incentive Allowance, which is designed to encourage Filipino participation in oil and gas projects. This incentive operates similarly to a royalty but is allocated to the contractor group. Fostering the inclusion of local entities in the project. For onshore operations, if Filipino participation reaches 30% or more, the project can benefit from an Incentive Allowance of up to 7.5%. This higher percentage encourages the integration of local businesses and workforce into the project, thereby contributing to economic growth within the country. In contrast, offshore operations require a higher threshold of 15% Filipino participation to qualify for this Incentive Allowance, reflecting the increased complexity and risk associated with offshore projects and underscoring the government's commitment to local involvement in high-stakes ventures. The Risk Service Contract also establishes a cap on cost recovery at 70%, which means that the contractor can recover up to 70% of its costs from the gross revenue generated by the project. This cap aims to balance financial risk between the government and the contractor, ensuring that the remaining revenue is allocated fairly. Once the contractor has recovered its costs, the remaining revenue is divided according to a profit-sharing arrangement, which is a fundamental aspect of the contract's financial structure. Under this profit-sharing structure, the government receives 60% of the profit, while the contractor retains 40%. This distribution ensures that the government receives a significant portion of the financial returns from resource extraction, reflecting its role in managing and regulating the sector. At the same time, the contractor is incentivized to invest in and develop the project, knowing that it will receive a substantial share of the profits. A distinctive feature of the Risk Service Contract is its approach to taxation. The contractor's share of the profits is not subject to direct taxation. Instead, the contractor's tax obligations are covered by the government's share of the profit oil. This arrangement effectively shields the contractor's net profit from being diminished by income taxes, as these are deducte from the government's portion of the profit. By ab