Oil & Gas Logistics Economic Impact

Oil & Gas logistics are a significant economic driver for many areas of our world, producing jobs, businesses, and profits for small, medium, and large corporations. Both of these resources are essential for our modern way of life, thus understanding their commercialization and production process is vital for professionals in this and related fields. In this article, we will examine how each section of the supply chain impacts positively our global economy.

Natural Gas

Production in Gathering in Natural Gas is probably very costly, mainly because of all the exploration that it has to be done before even any extraction starts. Production and Gathering are done with many costs, but there is revenue with a small margin when sold.

For processing and refining there is CAPEX cost of the plants and then the natural gas itself, however, there is revenue with a larger margin when the by-products from the fuel are sold. After processing and refining natural gas becomes marketable.

Transmission requires the CAPEX investment of pipelines inside and across states. There is no significant variable cost, except those from controlling the pipes and inspecting them. It seems like a good business with little comparable revenue but with good margins, especially as time passes by and the payback period is left in the past.

Storage of natural gas requires large CAPEX for facilities and also has the variable cost of buying the asset itself. Storage is however essential for marketers, especially in a fuel like natural gas which is so traded in energy markets and where profit can be made with price fluctuation.

Distribution is where most of the revenue is made, of course, there are some CAPEX with facilities and personnel, and also the variable cost is high for the fuel is purchased after all the previous sectors have made their profit. Nevertheless, in distribution producers reach end-users, therefore, allowing for price control in this segment, which means higher margins, positive cashflows, and voluminous sales.

Crude Oil

As with natural gas, production and gathering requires plenty of costs from facilities CAPEX and also exploration without guarantee costs. After petroleum is found, there is however revenue because it can be sold for processing fuels and other products in the U.S. and overseas. With crude oil, price fluctuation is of utmost importance for production to continue with profits.

Processing and refining require significant investments in facilities and also highly variable costs, but many products can be made for revenue. Profits are made after gasoline, and other products like plastics are produced and then sold. In production and refining stages most of the benefits for the company are made.
Transmission with crude oil is risky due to the vast distances that it has to travel, especially when sold/bought overseas. There is a significant cost of buying all the transportation means necessary, as well as the infrastructure but there is revenue directly related to the amount transported.

Storage for oil is essential because it is a fuel which price fluctuates heavily worldwide. There are massive investments in facilities, but they are critical for companies to make a profit when prices of fuel change in different sectors of the world. This stage is crucial for profit maximization due to price volatility.

Distribution of oil is done worldwide with investments in facilities and personnel, but profit margins are reduced mainly to heavy taxation and high competition.

All Rights Reserved for Roberto Baldizon

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