understanding o&g-mdso 801 (1st vol)

7/29/2019 Understanding O&G-MDSO 801 (1st Vol)

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MDSO - 801 (Vol. 1)

UNDERSTUNDERSTUNDERSTUNDERSTUNDERSTANDINGANDINGANDINGANDINGANDING

OIL & GAS BUSINESSOIL & GAS BUSINESSOIL & GAS BUSINESSOIL & GAS BUSINESSOIL & GAS BUSINESS

COLLEGE OF MANAGEMENT AND ECONOMIC STUDIES (CMES)

EMBA - Oil & Gas Management


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Course Code: MDSO - 801 (Vol. 1)

Course Name: Understanding Oil & Gas Business

UNIVERSITY OF PETROLEUM & ENERGY STUDIES


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Contents

Unit 1 Basic Concepts ..................................................................................................... 1

Unit 2 The Micro-System .............................................................................................. 28

Unit 3 The Exploration of Oil ....................................................................................... 55

Unit 4 Oilfield Processing............................................................................................. 79


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Unit 1 1Notes

Objectives

After reading this unit, you will be able to:y Understand what is petroleum, what are its

constituents, and their significance.y Know about composition and characteristics of oil and

gas.y Understand what are the main products from oil and

gas and their uses.y Get familiar with some of the common concepts,

definitions and terminologies used with respect to oiland gas.

Introduction

Oil industry is perhaps the most exciting industry in thehistory of civilization. Although the history of oil traces backto seepages of oil as early as 3000 B.C., the real thrill of itstarted with the oil boom in the USA. When Rockefellerwas asked to tell very briefly how people get rich, he repliedSome people find oil, some don't.

It's amazing how much oil and gas has penetrated into ourlives today. The toothbrush we use to start the day, the suitwe wear, the fuel we use in our cars to drive to office, the carinteriors, back home with cozy furniture, tapestry, andmattress of the bed we sleep on - all are petrochemicalsi.e. chemicals from petroleum.

Basic Concepts

Fig. 1.1Petrochemicals in our Lives

PVC Pipes

Polyester Clothing

Acrylic Carpet

Nylon Can


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Notes

Oil business has been responsible for prosperity, war,

intrigues and adventure.

Search of oil and gas leads us to some of the most exotic

forests, deserts, and ocean. Perhaps some of the most

beautiful man made sights in the world are offshore

platform in deep ocean, array of offshore rigs in a remote

desert or jungle or an illuminated petrochemical complex at

night.

Let us understand the importance of oil and gas industry by

looking at its share in the energy supply to the world (Fig.

1.3). More than 60 % of the energy needed in the world is

provided by oil and gas.

Fig. 1.2Offshore Jackup Rig

Fig. 1.3Distribution of Energy Supply

Understanding Oil & Gas Business


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Notes

And it is not really as expensive as it sounds (Fig. 1.4).

To understand oil and gas business, one needs tounderstand a whole spectrum of activities from oil well topetrochemicals.

It is also important to understand the trend and future of the

industry in terms of technology, economics and pricing ofenergy resources. Energy price is very important for theeconomy of any country. As stated earlier, oil and gasprovide over sixty percent of the energy requirement of theworld. Oil had been the dominant component of the mix. Oilprices have been controlled from time to time to a high levelby the petroleum exporting countries (OPEC). But onepositive development is that now natural gas is overtakingoil. During the year 2000, the increase in the energyconsumption of the world was 180 Million Tons of oilequivalent. Out of this, share of oil was 20%, share of gas

was 55% and that of coal was 15%. Its is expected that gaswill replace oil as dominant energy provider in near future.It is cleaner, cheaper and new discoveries and reserves ofgas field are coming up in many parts of the world includingIndia.

Very often the question comes up how long thehydrocarbon resources (oil and gas) will last. Manypredict oil and gas will start depleting in another 20 to 30years.

Fig. 1.4Price Comparison

UNIT 1 Basic Concepts


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Notes

But the world is keeping on adding new hydrocarbon finds

and developing technology to recover more hydrocarbons

from existing oil and gas fields. Also major R&D work is

going on to find how to exploit huge reserves ofMethane

Hydrates i.e. an unstable compound of water and

methane, lying untapped deep below the ocean in many

parts of the world including coastal areas of India.

It is a fact that although the oil and gas industry will

continue to dominate for several decades from now, at

some point of time other forms of energy will take over. Oil

and gas industry generates wealth, and a part of the wealth

is being put into R&D to innovate for the future. We shall

cover the topic in a later section on future trends. Let us notcall the industry just oil and gas industry - it is energy

industry.

Let us start on the path of understanding oil and gas

business. The first step is to understand what is oil and

what is gas, how it originated and what we get out of it.

Unit 1 focuses on getting to understand the basics.



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Activity 1a

What is Petroleum

6

6

6

Petroleum is a word derived from the Latin words Petra(rock) and Oleum (oil). It essentially comprises of naturally

occurring hydrocarbons i.e. compounds made of carbon

and hydrogen atoms. These hydrocarbons are trapped

below the surface of the earth, in porous rocks, in the form

of oil and gas.

From where did the hydrocarbons come? There are

various theories. The most accepted theory is the organic

theory:

Hydrocarbons came from remains of the bodies of pre-historic land based animals, marine organisms

(plankton) and vegetation, which were washed away

and buried below the earth during upheavals on the

earth's surface millions of years ago.

In the course of time the buried organic matters

decomposed and the carbon and hydrogen present in

these reacted under heat and pressure to form various

compounds, generally hydrocarbons.

The hydrocarbons got trapped in the porous rocks and

were covered by hard sedimentary rocks that formed

over it. They acted as cap or seal to prevent

hydrocarbons from escaping.

As explained later, carbon and hydrogen atoms can join

together to form molecules of various sizes and structures.

Hydrocarbons could be a small molecule with combination

of one or a few carbon atoms with hydrogen (e.g. Methane

CH , Ethane - C H ). Or it could be very large molecule by4 2 6combination of dozens of carbon and hydrogen atoms (e.g.

Wax - C H ) or even thousands of carbon and hydrogen20 42atoms (e.g. Polythene).

Petroleum is essentially composed of hydrocarbons with

some other impurities. The words petroleum, oil and

gas and hydrocarbon are all used synonymously in the

oil and gas industry.


What is the differencebetween crude oil andvegetable oil in termsof composition andproperties?


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Notes

Hydrocarbons in petroleum could be in gaseous, liquid

or solid form depending on the type and size of

hydrocarbon molecule:

It can be in gaseous form as natural gas, which can be

associated with oil in an oil field or found free of oil in a

gas field.

It can be in liquid form as crude oil (dark and viscous), or

condensate (clear and volatile like motor gasoline).

The solid and semi-solid forms of petroleum are called

asphalt and tar.

Petroleum as a general term is used for all three mentioned

above.

6

6

6

Reservoir, Well and Well Fluid

Through the burial and decomposition of organic material,

huge amount of hydrocarbons are formed below the

earth's surface. Movements and convulsions below the

earth's surface resulted in different types of geological

formations , where the hydrocarbons are trapped. In these

formations, the hydrocarbons are contained by porous

rocks known as source rock, covered with strata of hardsedimentary rocks known as cap rock which settled over

them.

When huge quantity of recoverable hydrocarbon is trapped

in rock formations below the earth, it is called Reservoir.

Fig. 1.5 depicts a typical formation of a reservoir. The

surface on earth above the reservoir is called oilfield or

gas field or condensate field depending on what it

produces.

Name Formula Phase

Methane CH4 Gas

Hexane C H6 14 Liquid

LiquidOctane C H8 18

Wax C H20 42 Solid

Table 1.1

Light and Heavy Hydrocarbon Molecules



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Notes

It must be noted that the reservoir in an oil field is not like a

pool of liquid or a container filled with gas. It is oil or gas

trapped in pores of porous sedimentary rocks, covered by

impervious cap rock.

To produce oil from the reservoir, wells are drilled through

the surface of the earth. A well is then perforated at right

location from where the oil or gas enters the well pipe and

rushes out because of high pressure.

Formation of reservoir structure is explained in greaterdetail in Unit - 3.

What is Well Fluid?

The fluid that comes out of the well in an oilfield or gas field

is called well fluid.

Well fluid is a mixture of crude oil, natural gas and

saline water along with small amounts of sand and

sludge. The water is called formation waterorproducedwater.

Points to Remember

If the crude oil had been just made of hydrocarbons,

processing to get the final products would have been easy

and at low cost. But a number of undesirable components

come out with the well fluid, which increases the processing

blocks and processing cost.

Fig 1.5Hydrocarbon Formation

Sediments formingimpervious layer calledCap Rock.

Earth movements causefolds in earth crust.

Hydrocarbons trapped bythe Cap Rock, in the poresof sedimentary rock act asa reservoir.

Gas

Oil

Water

Well pipe Earth Surface



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Activity 1 b 6 Other components like sulfur compounds, carbon

dioxide, nitrogen, traces of metals are also present.

Their removal constitutes part of processing.

6 Proportion of oil, water and gas may vary widely from

one field to other. It changes substantially with time

during production.

6 Normally, well fluid comes out on its own pressure, which

depletes with time. Artificial methods of recovery are

used in later stages of production.

Crude Oil and Natural Gas

The first processing step in an oilfield is separation

between crude oil, natural gas and produced water.

What is Crude Oil?

Crude oil is a mixture of about 500 organic chemicals,

predominantly hydrocarbons (molecules made of

carbon and hydrogen). It is recovered from underground

reservoirs, normally 1000 - 5000 meters down the earth.

Crude oil can be of wide variety and characteristics. It could

be very fluid, very viscous or semisolid. The colour could be

black, dark brown, amber or light brown.

It is also called Petroleum.

What is Natural Gas?

Natural gas is a mixture of the lightest hydrocarbons like

methane, ethane, propane and butane. It also contains

water to its saturation limit. It may also contain hydrogen

sulphide (H S), carbon dioxide (CO ), nitrogen (N ) and2 2 2occasionally small amounts of helium (He).

When natural gas comes out of the well along with crude

oil, it is called associated gas. Associated gas is produced

along with crude in a field which is essentially an oil

producing field.


Is Helium a usefulchemical? What areits uses?


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Notes

When the well produces mainly gas with very little liquids, it

is called free gas. Free gas production can be shut when

we do not want it.

When acid gases like CO and H S are present in2 2substantial quantity, the gas is called sour gas. Otherwise

it is called sweet gas.

Various Forms of Natural Gas

There often exists a lack of understanding regarding the

various terminologies or nomenclature used in the industry

in describing components or forms of natural gas. The

most commonly used ones are NGL, LPG, LNG, andCNG. Let us understand what are these and how they differ

from natural gas.

NGL: During production or transportation of gas, the

heavy components such as pentane or hexane, condense

due to natural cooling and separate out as liquids. This is

called NGL (Natural Gas Liquids).

As the name suggests, this is not really a gaseous

component, but volatile liquid.

LPG: The propane/ butane component of the natural gas

is liquefied under moderate pressures and is supplied as

cooking gas fuel.

This is called LPG (Liquefied Petroleum Gas)

LNG: Natural gas in bulk is liquefied under very low

(cryogenic) temperature for transportation in large

quantities by marine tankers. This is bulk of the natural gas

in liquefied form and is re-vaporized after receiving it at its

destination from tankers, to be used as natural gas. The

objective of converting the gas to LNG is transportation in

large quantities or export by marine tankers.

This is called LNG (Liquefied Natural Gas).



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Notes

CNG: Natural gas is compressed to high pressures for use

as automotive fuel or for transportation in small quantities.

This is natural gas in highly compressed form but not

liquefied.

It is called CNG (Compressed Natural Gas).

Elementary Concepts on Hydrocarbons

Now that we know crude oil is made of around 500

components, mainly hydrocarbons and natural gas is

mainly light hydrocarbons, it becomes important to

understand a little basic about hydrocarbon molecules.

The whole petroleum and petrochemical industry

revolves around

6 Starting with the hydrocarbon molecules as produced

naturally from the well.

6 Rebuilding them into valuable products by various

types of processing.

What is Hydrocarbon?

Hydrocarbons are compounds made of carbon and

hydrogen. The hydrocarbon molecules are formed by-

6 Bonding of hydrogen atoms to carbon atoms.

6 Bonding of a number of carbon atoms to form chain or

cycle or a combination of chain and cycle.

6 The number of carbon atoms bonded together can be afew or many, in various combinations, creating

numerous chemicals.

6 The bonding of carbon atoms could be in the form of a

straight chain, branched chain or cyclic manner.



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Notes

The phase (solid, liquid or gas) of the hydrocarbon

depends on the number of carbon atoms joined togetherin a chain e.g.

CH (METHANE) : GAS4C H (BENZENE) : LIQUID6 6C H (WAX) : SOLID20 42

Crude oil is made of a mixture of more than 500

components, mainly Hydrocarbons, which are the

desired components. Crude oil contains from light

components as dissolved gases (LPG) , light liquids(Petrol, diesel) to heavy stock like wax, tar and resins.

The more carbon atoms a hydrocarbon molecule has,

6 the "heavier" it is (the higher is its molecular weight).

6 and the higher is its boiling point.

Composition of Crude Oil

Crude oil is predominantly made of hydrocarbons.

It is composed of three main hydrocarbon groups:

6 Paraffins

6 Naphthenes

6Aromatics

It also contains unstable hydrocarbons called olefin.

Paraffins are straight chain compounds, chemically

stable. Lighter ones (CH , C H ) are gas. Heavier4 2 6molecules are liquid (oil) or solid (wax).

Typical hydrocarbon structures are depicted in Fig. 1.6.

Fig. 1.6

Hydrocarbon Structure

H|C|H

H|C|H

H|C|H

H|C|H

H|C|H

H|C|H

Straight Chain Hydrocarbon Cyclic Hydrocarbon

H - - - - - - - H (C H )6 14

H|C|H

H|C|H

H|C|H

H|C|H

H|C|H

H|C|H

H - - - - - - H (C H )6 14

Straight Chain Hydrocarbon Cyclic Hydrocarbon

-

TolueneC H7 8



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Activity 1d

Naphthenes consist of carbon rings, with/without side

chains. Saturated with hydrogen, naphthenes are also

chemically stable. Lighter naphthenes are liquids and

heavier ones could be solid.

Aromatics are compounds having a ring of six carbon

atoms with alternating double and single bonds and six

hydrogen atoms. They are relatively unstable.

Olefins are double bonded hydrocarbon chains, normally

produced during high temperature processing of

petroleum. Olefins are unstable and polymerize easily i.e. a

large number of olefins can combine together easily to form

large gummy or plastic molecules.

Paraffins

Naphthenes

Olefins

Aromatics

MethaneCH4

EthaneC H2 6

PropyleneC H3 6

PropaneC H3 8

Normal ButanenC H4 10 Isobutane

CyclohexaneC H6 12 Dimethyl Cyclopentane

C H7 14

BenzeneC H6 6 Toluene

C H7 8

XyleneC H8 10

Fig. 1.7

Types of Hydrocarbons


Write down structuralformula of sevenhydrocarbons madeof six carbon atoms


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Notes

Some Important Concepts on Crude Oil

Carbon Numbers

The hydrocarbons are often referred in terms of number of

carbon atoms rather than whole formula.

Example:

C1 = Methane

C4 = Mixture of Butane and hydrocarbons with 4

carbon atoms

C7 = Mixture of all hydrocarbons with 7 carbon

atoms.

For further clarity let us put down some of the paraffin

hydrocarbons the symbol (-) indicating carbon to carbon

bonds:

Methane CH CH4 4Ethane C H CH - CH2 6 3 3Propane C H CH CH CH3 8 3 2 3Butane C H CH - CH - CH - CH4 10 3 2 2 3

(normal butane or n-butane)

Butane structure can also bebranched chain type asgiven below:

Both the structures of butane have same number of carbon

atoms and same number of hydrogen atoms i.e. C H .4 10

The only difference is how the carbon atoms are bonded

with each other. This makes them different chemical

entities but with very similar and close physical properties

like boiling point and vapor pressure. The branched chain

hydrocarbons of same carbon numbers, same number of

hydrogen atoms and same chemical formula are called

isomers.

CH - CH - CH3 3

CH3(Isobutane or i-butane)



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Notes

Now let us look at Pentane.

Pentane C H CH - CH - CH - CH - CH5 12 3 2 2 2 3(n-pentane)

Pentane can have quite a few isomers:

Thus one can have more and more isomers as the numberof carbon atoms in the chain increases.

In addition to the numerous isomers, there are other typesof hydrocarbons like olefins (double bonded or triplebonded hydrocarbons). C5 and higher hydrocarbons canhave cyclic structures (naphthenes and aromatics) andthere could be molecules with combination of cyclic andstraight chain hydrocarbons.

For example C6 hydrocarbon can be compounds of -

6 Normal paraffinic chain structure (e.g. normal hexane)

6 Isomers (iso-hexanes)

6 Olefinic structures or structures with double bond(hexenes)

6 Cyclic structure (benzene)

Thus just saying C6 means a number of hydrocarbons withsix carbon atoms put together in various forms.

That explains:

6 How innumerable varieties of hydrocarbon moleculesare possible.

6 How with same number of carbon atoms, say C8,numerous hydrocarbon compounds are possible.

Higher the number of carbon atoms, more numerous is thepossible hydrocarbon compounds.

CH3

CH3

CH2

CH - CH - CH - CH3 2 3 CH - CH - CH3 3



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Activity 1e

Classification of Crude Oil

Various crude oils are often referred by theirAPI Gravity.

API Gravity is expressed as (141.5/ Sp. Gravity - 131.5).

As specific gravity is in the denominator, API Gravity is

higher for lighter crude and lower for heavier crude.

A comparative idea of this gravity unit can be obtained by

comparison with water:

Water: 10 API

Typical API Gravity figures for crude oil are

Mumbai High Crude : 40 API - Light Crude

Arabian Crude : 34 API - Medium Crude

Venezuelan Crude : 15 API - Heavy Crude

There could be sub-categorization as Medium Heavy or

Light Medium.

Another common classi f icat ion is based on

Characterization Factor, which depends on API Gravity

and Boiling Point.

The crude oils are also classified in terms of chemical

nature e.g.

6 Paraffinic base

6 Asphaltic base

6 Intermediate base

6 Naphthenic base

Crude oils for which the residue after distillation contains

paraffin wax is called paraffinic. If the residue contains

asphalt, it is called asphaltic base and so on.

Refinery processing scheme and product yields depend

on type of crude in terms of chemical nature and gravity.

It also indicates the type of product it can yield.


Calculate API Gravityof crude oils withspecific gravity of0.8, 0.9 and 0.95


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Notes

As typical example:

6 Paraffinic base crude do not yield good bitumen (road

tar) and is not good for lubricating oil manufacture. But it

is good for diesel.

6 Light crude contains more ofgasoline.

6 Medium crude is good fordiesel production.

6 Heavy crude may give betterbitumen.

6 Naphthenic crudes are good forlubricating oil.

Cut or Fraction

Crude Oil and its products are mixtures of several

components. Each component has a boiling point. It is

interesting to examine what would be the boiling point of

mixture of several liquids.

Q - What is the boiling point of a mixture of two liquids A ando

B mixed 50-50, A and B having a boiling points of 70 C ando

80 C respectively?

Q - What is the boiling point of a mixture of four liquids in

equal parts having boiling points of 100,200,300 ando

400 C?

None of the above mixtures will have a single boiling

point. If you start boiling such a mixture, it will start boiling

close to the boiling point of the lightest component. The

lightest component will start vaporizing faster and as it gets

removed (along with some of heavier components), the

boiling temperature will keep rising. Towards end the last

bits of the heaviest component will be left behind and will

boil at close to its boiling point.

Thus mixtures do not have a single boiling point, it has a

boiling range - from the initial boiling point to the final

boiling point.



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Notes

Cuts, Fractions and Carbon Numbers

Crude oil is a mixture of over 500 components. It has ao

boiling range of around 40-600 C. Each product from

Crude oil is also mixture of several components

(hydrocarbons). The hydrocarbons range from C1 to C65

in terms of carbon numbers.

Product of a particular boiling range taken out of crude is

defined as cut or fractions.

The products are identified as cuts from crude of certain

boiling ranges and carbon numbers.

Petroleum Products

Crude oil (Oil) and natural gas (Gas) mixed along with

water, comes out of the well as well fluid. Crude oil and

natural gas together can be broadly referred as petroleum.

Petroleum is just a raw material. Let us see what products

we get from oil and gas that comes out from well head.

Product / Cut Boiling Range Carbon NumberNatural Gas

o


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Notes

The high calorific value of the petroleum products, its low

cost in the past and its suitability for use as relatively cleanfuel created incentive to consume as fuel. But in the current

economic scenario, valorization to higher value products

has become integral part of oil and gas industry.

It is important to note that besides producing fuel and

automotive products like gasoline or diesel, both crude oil

and natural gas provide feed stock for petrochemicals.

Feed stocks are component of crude oil and natural gas

that are converted into high value petrochemical products

like polythene, polyester, synthetic rubber and syntheticfiber etc. It is apparent from the table above, there is

substantial valorization once the oil or gas is converted to

petrochemicals.

The macro-system from well head to Petrochemicals has

been dealt in detail in the next section. For an initial

understanding of the petroleum products let us have a look

at the simple block diagram given inFig. 1.8.

Well Head to Energy and Petrochemicals

There are two distinct uses of well head oil and natural gas -as fuel and as high value products. Primary use of the

petroleum products in the early days of its exploration has

been as fuel. But later with the development of

petrochemical area (plastics, fibers etc.), emphasis has

shifted to greater valorization of the raw material. Let us

look at the table below to understand this.


Fuel and Products Calorific Value(Kcal/Kg)

PriceUS Dollars/Ton

Coal 6,500

Crude Oil

Fuel Oil

Motor Gasoline

Polythene

Polystyrene

10,000

11,000

Table 1.3Petroleum as Fuel and as Value Products

10,400

Not fuel

Not fuel

150

120

180

500

550

80


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Activity 1f

The various blocks in overall system are:

6 Well fluid is processed at the oilfield first. Oil and gas

are separated, made transportable and despatched to

the Refinery and Gas ProcessingFacility respectively.

6 Refinery produces products like petrol, diesel oil,

lubricating oil etc. It also produces feed stock (Naphtha)

for petrochemical (plastic, fiber etc.) manufacture.

6 Gas Processing Facility purifies the gas from

undesirable components and separates feedstock for

petrochemical production.

6 Petrochemical feed stocks from Gas Processing or

Refinery or both are sent to a Petrochemical Complex

for production of petrochemical.

6 The balance gas is used as fuel for power generation oras industrial fuel.

Each individual block in the above diagram could be a

separate company. And each of these blocks could be

located far away from each other in the same or different

countries.

This makes the oil and gas industry a real global industry.

ReservoirOil field

ProcessingTransportation

Refinery

PetrochemicalComplex

Power

Generation

Power

PetrochemicalProduct

PetrochemicalFeed stockGas

Processing

RefineryProducts

Oil

Oil

Gas

Gas

Gas

Naphtha

(Ethane / Propane)

Fig. 1.8

Petroleum Utilization Blocks


Name five items ofdaily use made frompetrochemical sourceand name the petro-chemical -

e.g. Toothbrush ismade from nylon.


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Notes

Some important terms often used in oil and gas industry

with respect to the block diagram -

Offshore : Oil or gas field situated in the sea / ocean.

Onshore : Land based oil or gas field.

Upstream :The blocks covering reservoir, production,

processing and transportation of oil and gas is referred as

upstream blocks.

Downstream :Gas Process ing , Re f inery and

Petrochemical Facilities are referred as downstream

blocks.

Products from Natural gas

The natural gas is made mainly of the four lightest

hydrocarbons i.e C1 (Methane), C2 (Ethane), C3

(Propane) and C4 (Butane). As gas separates out of the

crude oil, it pulls out a little bit of heavier hydrocarbons like

C5, C6 etc.

Table 1.4 shows the typical composition of gas and use of

various components towards high value product.

Table 1.4

Gas Composition and Utilization

Component CompositionVolume %

Utilization

Methane (C1) 50-96 Fuel, Petrochemicalfeedstock, power generation

Ethane (C2) 2-15 Petrochemical feedstockPropane (C3) 1-12 Petrochemical feedstock,

LPGButane (C4) 0.5-3 Petrochemical feedstock,

LPGHeavies (C5+) (NGL) 0.1-1 Refinery blending stock,

petrochemical feedstockHydrogen Sulfide (H S)2 0-15 Toxic, corrosive and

undesirable componentCarbon Dioxide (CO )2 0-30 No fuel value, corrosive,

undesirable componentNitrogen 0-30 No fuel value, corrosive,

undesirable componentWater Saturated Undesirable componentTotal 100



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Notes

Component(Volume%)

Methane richSweet Gas

Associated gas(mildly sour)

Sour gas Gas with highN2

Methane (C1) 94.5 76.5 71.5 62.5

Ethane (C2) 2.8 12.2 10.2 4.2

Propane (C3) 1.0 6.5 5.7 2.5

Butane (C4) 0.2 1.8 1.0 0.5

Heavies (C5+) (NGL) Traces 1.0 0.5 0.1

Hydrogen Sulfide(H S)2 NilNil 3.5 Nil

Carbon Dioxide 1.5 2.0 7.6 5.4

Nitrogen Nil 300 ppm Nil 24.8

Water Saturated Saturated Saturated Saturated

Total 100.0 100.0 100.0 100.0

The points to note here are that:

6 There is a wide range of gas composition, varying from

field to field and well to well.

6 Only consistent trend is the reducing pattern of the

hydrocarbon constituents from the lightest to the heavier

ones e.g methane followed by ethane and heavier

hydrocarbons.

6 Utilization of gas as fuel is the easiest but lowest in the

value chain.

6 Utilization of gas to make petrochemicals is the highest

in the value chain.

Hence very often the components of the gas are separatedby gas processing to be used for manufacture of

petrochemicals.

While Table 1.4 gives a range for gas composition, typical

gas composition are given in Table 1.5.

Obviously each of these gases will have different

processing techniques and problems in the Gas

Processing Plant. These will be dealt with later. But let uslook at the obvious -

6 The methane rich gas will have very little feedstock for

petrochemicals.

6 The associated gas is rich in petrochemical feedstock

and LPG.

6 The sour gas will need treatment to remove highly toxic

and corrosive Hydrogen Sulfide.

6 The nitrogen rich gas will have low calorific value.

Table 1.5Typical Gas Composition



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Notes

The important petroleum products produced in bulk in a

refinery are presented in Table 1.6. Each of the productshas to meet certain performance specifications. Only one

typical specification is stated in the table for a preliminary

understanding of its significance with respect to the usage.

It must be remembered that besides performance

specifications, there are strict specifications to meet

environment and emission norms. These are related to

polluting components like sulfur, aromatics etc.

Product Use Key Specifications

LPG Domestic fuel,Petrochemicalfeedstock

Vapor Pressure

Naphtha

Petrochemicalfeedstock

Boiling range,composition

Motor gasoline Automotive fuel Octane number

Kerosene

Domestic fuel,lighting

Smoke point

Aviation Turbine

Fuel

Aero plane fuel Freezing point

Diesel oil

Automotive fuel

Cetane number

Fuel oil

Industrial fuel

Viscosity

Lubricating oil

Industrial lubricants

Viscosity

Bitumen (asphalt) Road tar Penetration Index

Paraffin Wax Medicine, cosmetics Pharmaceutical specs.

Table 1.6Products from Crude Oil Refining

Products from Crude Oil

The five hundred odd components mostly hydrocarbon

ranging from C1 to C65 gives wider range of products.

Each of the product by itself is a composite of numerous

hydrocarbons. The crude oil is processed in the refinery to

separate the base stock (raw products) by distillation into

'cuts'. Then the various product base stocks are processed

and treated to meet specifications.



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23

Activity 1a

Types Bulk Petrochemicals

Use

Plastics PolythenePolypropylenePolystyrenePVCPolycarbonate

Bags, laminates, boxes,shoes, fibers, toys, electronicgoods, engineering items,numerous items of daily use

Fabric, clothing, bags,ropes, carpets, andnumerousother irtems

Fibers PolyestersPolypropyleneNylonPolyurethaneCellulosePolyacrylonitrile

Petrochemical Products / Petrochemicals

What are petrochemicals? Petrochemicals are usually

plastic products and chemicals that are derived from

petroleum and natural gas and are made on a large scale

(approximately >10,000 tons per annum upwards). As

indicated in the earlier sections, certain components from

gas processing plants and refinery are used as feedstock

for manufacture of petrochemicals (e.g ethane, propane,

naphtha).

Petroleum products from refinery and natural gas, supply

over 50% of the feedstock for the entire chemical industry

and more than 50% of organic chemicals.

As you can see in the next table, petrochemical products

have permeated into every facet of our lives.

A vast majority of them are polymers, whose molecules are

tailored by reaction process to suit specific characteristics

or properties.

Units Specifically Used in Oil and Gas Industry

Oil industry uses certain specific units for production ratesand volumes which will be bused frequently in our text. Dueto past history of oil and gas industry which ispredominantly the history of exploitation of hydrocarbonresources by the companies of American origin, theAmerican units are more often used in the industry ratherthan Metric Units. Here are some important unitscommonly used with which one must get familiar.

Table 1.7

Petrochemicals



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24

Notes

6 Crude-oil volume is usually measured in barrels.

6 One barrel holds 42 gallons (159 liters).

6 Weight or mass of crude in India is in metric tons(tonne).

6 A barrel of average crude oil weighs 0.150 ton, as athumb rule. It must be remembered that it depends onthe density of the crude oil.

6 Million Barrels of Oil Equivalent (MBOE) meansamount of gas or any other fuel whose calorific value orheating value is equivalent of one million barrels of

crude oil.

6 Oil production capacity or refinery capacity are oftenexpressed in Barrels Per Day (BPD) or Barrels PerStandard Day (BPSD). Roughly 20,000 BPSD isequivalent to 1 Million Tons per year of crude, taking anaverage density of crude. [Note: It obviously will dependon density of crude oil.]

6 Some typical conversion figures used in the oil industryare given in Table 1.8.

Table 1.8Commonly Used Measurement

Units in Petroleum Industry

Unit Weight or Volume Conversion Factor

1 Metric Ton (Tonne) = 7.33 Barrels= 1.165 Cubic Meters

1 Barrel (Bbl) = 0.136 Tonnes = 0.159 Cubic metres

1 Cubic Meter (CuM)= 1 Kilo Liter (KL)= 0.858 Tonnes = 6.289 Barrels

1 Million Tonne of Crude = 1.111 Billion CuM of Natural Gas = 39.2 Billion Cubic Feet Natural Gas= 0.805 Million Tonnes LNG

1 Billion CuM of natural gas= 0.90 Million Tonnes Crude Oil = 0.73 Million Tonnes LNG

1 Million Tonne of LNG = 1.38 Billion CuM of Natural Gas= 1.23 Million Tonnes Crude Oil

1 Million Tons Per Year ofcrude

= 20,000 Barrels per standard day ofcrude



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25

Notes

Summary

In this section we talked about the origin of petroleum (oil

and natural gas) and its composition. Oil and gas are made

mainly of hydrocarbons that originated from decomposed

organic material buried under earth's surface. Elementary

chemistry was touched upon to clearly define what is

hydrocarbon.

We defined the various forms in which gas is used like

LPG, LNG, NGL or CNG. Also the various products from

oil and gas were identified. Petrochemical products were

defined and how oil and gas provides the feedstock for

manufacturing valuable petrochemical products wasexplained.

We learnt the definition and concepts regarding:

Reservoir Reservoir Rock Cap Rock Trap

Well Fluid Crude Oil Natural Gas Produced Water

Associated Gas Free Gas Sweet Gas Sour Gas

NGL LNG LPG CNG

Boiling Range Cuts Fractions

Offshore Onshore Platform FPSO

Besides common terminologies, commonly used units for

measurement of weight and volume of petroleum was

explained.

Questions

Since this section explains elementary concepts about

crude oil and defines certain basic terminologies used in

the industry, an objective type questionnaire or quiz is the

best way to judge the competence attained by the

participants.

Objective type questions

Please circle the correct answer or answers. Each

question has one or more correct answers.



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26

Notes

No. Question Answer

1 Total number of chemicalcomponents in crude oil is-

(a) 100(b) 500

(c) 2502 The predominant components in

crude oil are known as(a) Paraffin(b) Aromatics(c) Hydrocarbon

3 Reservoir or hydrocarbon depositsbelow the earth surface are found ashuge lakes or sea of oil.

(a) True(b) False(c) Partly true

4 LPG is made of (a) Propane and Ethane(b) Propane and Butane(c) Butane

5 The largest constituent of natural gasis

(a) LPG(b) Ethane(c) Methane

6 FPSO is preferred for use in (a) Marshy lands(b) Shallow waters(c) Deep waters

7 Octane number of petrol used in carsin India is (a) Above 100(b) Between 85 and 95(c) Below 85

8 FPSO stands for (a) Floating ProcessSystem Offshore

(b) Floating Productionand Storage Offshore

(c) Floating Production &Storage Offloading

9 Arrange the following in decreasingdensity i.e from heaviest downwards.

(a) LPG(b) CNG(c) NGL

10 Oil and gas are contained in (a) Reservoir Rock(b) Cap Rock

11 5 Million Tons per year of crudemeans

(a) 20,000 Barrels perday

(b) 100,000 Barrels perday(c) 75,000 Barrels per

day12 Which of the following is used as

feedstock to make Petrochemicals(a) Naphtha(b) Kerosene(c) LPG(d) Ethane(e) All of above

13 Which of these items can not bemade from Petrochemicals

(a) Insulating Material forfurnaces

(b) Optical Lens(c) Pressure Vessels(d) Gas Turbine blades

14 Crude oil price during the currentyear has been in the range -

(a) 15 to 35 US$/Barrel(b) 22 to 35 US$/Barrel(c) 15 to 25 US$/Barrel(d) 15 to 22 US$/Barrel

15 Conversion of Gas to LNG is madefor

(a) Making Petrochemical(b) Transportation of Gas(c) To generate power

16 Which are the products from aPetroleum Refinery

(a) Motor Gasoline(b) Ethylene(c) Naphtha(d) Propylene(e) Lube Oil(f) Polypropylene

17 To transport gas from Qatar toJapan, use is made of

(a) Transcontinentalpipeline

(b) Marine Tankers(c) CNG



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27

Notes

18 Naphthenes are (a) Hydrocarbons(b) Straight Chain

Hydrocarbons(c) Non-hydrocarbons(d) Hydrocarbons with

cyclic structure19 MTOE means (a) Million Tons of Oil

Export(b) Metric Tons of Oil

Equivalent(c) Million Tons of Oil

Equivalent20 The most predominant component of

natural gas is(a) Methane(b) Ethane(c) Propane(d) Butane

21 Which of the following gases isheavier than air

(a) Nitrogen(b) Ethane(c) Butane

22 LPG contains mainly (a) Methane(b) Butane

23 Which of the following is heavier (a) 1 cubic Meter of gasat 2 bar and 30 deg C

(b) 0.2 cubic Meter ofsame gas at 20 barand 30 deg. C

24 LPG is used as domestic fuelbecause

(a) It is liquid atatmospheric pressure

(b) It is gas at lowpressure

(c) It is liquid at moderatepressure

25 Which is the heaviest crude of thethree

(a) 45 API(b) 35 API

(c) 37 API



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Unit 2 28Notes

Objectives

After reading this unit, you will be able to:y Understand the oil and gas chain from oil well down to

the petrochemical industry.y Get an overview of business environment in each

block of the chain.y Get an overview of the major players in the chain.

From Wellhead to Petrochemicals

A block diagram representation of the entire industry isgiven in Fig. 2.1.

The first step in the block is oilfield processing. The wellfluid is processed in or in the vicinity of the oilfield. Theprocessing steps here are:

Separation of crude oil, natural gas and water whichcomes as mixture in the form of well fluid.

Oil and gas are treated to meet specifications fortransportation and any customer specification. Oil isnormally treated to remove water, and then it is pumpedand metered before putting it through pipeline.

Similarly gas is dehydrated, compressed and meteredbefore putting it through pipeline. Separated water(called produced water) is treated to meet environmentspecifications for discharging it.

Sometimes the produced water is re-injected into thereservoir. In such case it is treated to meet reservoirquality specifications.

Separated gas is sent by pipeline to the gas processingplant, which may be located away from the field.

Transportation of oil and gas, which are raw material, isdone by pipeline, marine tankers or rail/road tankers.Transportation by itself is a huge business sector.

6

6

6

6

The Macro-system


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29

Notes

The gas is first treated to remove impurities like sulfur.Then cryogenic (low temperature) processing is carried outto liquefy and separate by distillation, the components likeethane, propane and LPG. The separated components areutilized to make higher value products:

6 Methane,which is bulk of the gas, is a good raw materialfor manufacture of urea fertilizer, chemicals likemethanol or can be used as fuel to generate power.

6 Ethane and propane are sent to the petrochemicalp lants as feedstock to crack them in toethylene/propylene, which are polymerized into

plastics (polythene, polypropylene).

6 LPG (propane and butane mix) is bottled in cylindersand sent for domestic consumption.

6 The heavier hydrocarbons (C5+), which are present inthe gas condenses as Natural Gas Liquids (NGL).NGL is sent to the refinery to be processed as blendingstock for gasoline or it is sent to a petrochemicalcomplex as feedstock.

6 If the gas is to be transported to another country bymarine tankers, it is liquefied as LNG.

The oil from the oilfield processing block is pumped (ortaken by tanker) to the refinery. Oil refining is a compositeof several processing steps. The first step is separation ofraw products by distillation. There are subsequent processsteps to meet certain specification of the products. Thenthere are processing to meet environment relatedspecifications. Also there is processing to crack the heavy

part of the crude into lighter products like gasoline,kerosene and diesel. The finished products that we getfrom the refinery are summarized in Fig. 2.1.

Each of the blocks of gas processing and processing of oilin the refinery generates feedstock for PetrochemicalComplex.



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Notes

OIL/

GAS

WELL

OILFIELD

PROCESSING

WELLFLUID

T

REATED

WATER

OIL(C5+) O

IL

GAS

GAS

PR

OCESSING

REFINERY

PETRO-

CHEMICAL

COMPLEX

Kerosene/ATF

Diesel

Lubeoils

Wax

Fueloil

Bitumen

Detergents

Chemicals

LPG

Gasoline

PolymerPlastic

Rubber,Foam

Fiber&Yarn

LPG

IndustrialFuel

POW

ER

PLANT

FERTILIZER

PLANT

Power

Urea

Re

-injection

DISPOSAL

NGL

C2,C3

NAPHTHA

C1,C2,C3,C4,C5+

C3,C4

C1

NGL

NGL

(C5+)

Fig.2.1

TheOilandGasChain

.

30

UNIT 2 The Macro-system


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31

Notes

Naphtha is the main feedstock for petrochemicalmanufacture generated in the refinery. Even the keroseneand gas oil (raw diesel cut) can be used as feedstock.Methane, ethane, propane, butane and the NGLcomponent of the gas can be used as feedstock.

Most of the petrochemical processes are conversion of themolecules of feedstock by:

6 Cracking the feedstock i.e. breaking bigger moleculesinto smaller molecules. In Petrochemical Processescracking of feedstock like ethane, propane or naphtha isdone to generate smaller olefin molecules like ethylene

or propylene.

6 Polymerization of the olefins i.e. joining together of theolefin molecules several thousand fold producing largemolecules which are called polymers. Olefins tend topolymerize easily making resinous or plastic material likepolythene or polypropylene.

Very often a non-hydrocarbon or inorganic component canbe brought into the reaction process to generate other

petrochemical products. For example nitrogen becomes anessential raw material besides methane as feedstock, forsynthesis of urea fertilizer.

Similarly for making PVC (polyvinyl chloride), vinyl chlorideis first formed by reaction of chlorine with ethylene.

With any of the feedstock mentioned, numerouspetrochemical products are made. Starting with ethane asfeedstock, configuration of a typical petrochemicalcomplex is shown in Fig. 2.2. Ethylene is made by cracking

ethane. Vinyl chloride is made by reaction of ethane withchlorine. Plastic end products like Polythene and PVC aremade by polymerization of ethylene and vinyl chloride.

Part of the ethylene undergoes processing with benzene(originating from naphtha as feedstock) and producespolystyrene as end product.

Fig. 2.3 shows a typical petrochemical complex.



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32

Notes

TheEthyleneChain

Etha

ne

Steam

Cracking

Et

hylene

Polymeri-

zation

Polyme

ri-

zation

Polyme

ri-

zation

Polythene

Alkylation

Dehrodro-

genation

Ox-chlorination

PVC

Napht

ha

Aroma

tics

Recov

ery

Benzene

Styrene

Polystyrene

Viny

lChl.

Mon

omer

HCl,O

2

TheEthyleneChain

Etha

ne

Steam

Cracking

Et

hylene

Polymeri-

zation

Polyme

ri-

zation

Polyme

ri-

zation

Polythene

Alkylation

Dehrodro-

genationO

xy-chlorination

PVC

Napht

ha

Aroma

tics

Recov

ery

Benzene

Styrene

Polystyrene

Viny

lChl.

Mon

omer

HCl,O

2

Fig.2.2

Petrochemica

lBuildingBlocks



37/114

33

Notes

Fig.2.3

View

ofaPetro

chemicalComplex



38/114

34

Notes

Upstream and Downstream

These two terms are very frequently used in the petroleumindustry. Let us look in to the broad category of processingblocks we described -

6 Oilfield Processing

6 Transportation of oil and gas

6 Gas Processing

6 Refinery

6 Petrochemicals

6 Power Plants and other gas based industries

Of course another large industry not mentioned earlier isthe storage, transportation and logistics of numerousproducts that come out of processing of oil and gas.

The first two businesses i.e. oilfield processing and

transportation activities are known as Upstream. Theothers are referred as Downstream.Now we shall touch upon brief history of development of oiland gas industry. Then the Indian oil and gas industrywith reference to the macro-system, upstream and

downstream will be described.

History of Oil and Gas Industry

Oil and Gas from Seepages and Brine Wells

Use of petroleum dates back to more than threethousands years BC. But it was sourced from natural oilseepages that occurred on the earth's surface. Asphaltfrom natural oil seeps is known to have been used around3000 BC in Mesopotamia They used it for construction ofroads. Egyptian mummies were known to be wrapped inasphalt-soaked clothing. Application of asphalt was alsomade for the construction of pyramids.



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35

Notes

Natural gas seeps were known in the Baku region ofAzerbaijan, Iran, India and other countries. Some of themcaught fire and burnt for thousands of years. Use ofpetroleum as medicine was made in China.

The first effort for production of petroleum by digging wellswere reported in China in the year 600 BC. Crude oil isreported to have been produced during digging of brinewells.

Those days the technique for search of oil was limited tolooking for oil or gas seeps and trying to locate an adequatesource nearby. The search for oil and gas today is much

more complicated.

Industrial Revolution and the Search for Oil

During the eighteenth century, the industrial revolutioncreated the demand of lighting, fuel and lubricating oilsfor the machineries. This intensified the search for oil(exploration) and it resulted in the development of thetechnology foroil exploration.

In the middle of the nineteenth century oil from coal(named kerosene) was being used to satisfy the demand oflighting oils lamps. Whale oil and coal oil were also used forlubrication of the machines. Kerosene from the petroleumproduced from natural seepage started shortly afterwards.During the period 1850 to 1870, drilling of wells to produceoil started the oil boom in the USA. Those days often oilwas found at depths of 30 to 100 meters. Today the depth ofoil wells are a few thousand meters to several Kilometers.Development of the exploration and drilling technologymoved faster with the companies getting cash rich with the

oil boom. Some of the largest and financially strong oilcompanies emerged in the USA. The landmark events inthe history of oil and gas industry are:

In 1870, John D. Rockefeller founded the Standard OilCompany, which soon gained a near monopoly on oilproduction and became one of the largest companies in theworld.



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36

Activity 2 a

Till 1900, fuel oil, kerosene and lubricating oils were themain products from petroleum. Then came the advent ofcars and the demand for gasoline. During the early partof the twentieth century, gasoline-fueled cars becamepopular; locomotive and ship engines were converted fromcoal to oil; and the airplanes using aviation gasoline startedflying. The demand for gasoline went up and with theadvent of electric power, the demand for kerosene forlighting went down, bringing change in refinery technology.

Search and production of oil became more technologyoriented since early twentieth century. Rotary drills wereused to dig wells for oil. The first offshore wells were drilled

in California in 1896. In 1948 the first platform was usedto drill an offshore well in Louisiana.

In the first half of the twentieth century, the discovery oflarge oilfields spread to the other parts of the world. Newfields were discovered in erstwhile USSR, the Middle Eastand other locations. USSR became a major producer of oilunder state ownership of the various oil reservoirs. With theparticipation in major discoveries and ownershipworldwide, some of the pioneering American companies

like Standard Oil, Texaco, Mobil became giants.

In India, the oilfield in Digboi was discovered during thelater part of nineteenth century. Till 1970, oilfields in Assamand Gujarat were the major producers. In the seventies,Mumbai High was developed into a major producer.

TheMiddle East came into the picture in the 1930s. In1932, the first crude oildiscovery in Bahrain was made byStandard Oil. In 1936, Standard Oil of California joinedwith other American majors to form Arabian American Oil

Company (ARAMCO). Aramco made a major oildiscovery in Saudi Arabia in 1938.

North Sea oil field were discovered and developed duringthe late sixties and seventies. During the eighties andnineties, some of the Latin American countries (Mexico,

Venezuela) made major oil field discoveries anddevelopment. During the nineties, Asia Pacific countrieslike China and Indonesia became major producers.


Find out which fuelsare used in automobileengines besidesgasoline.


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37

NotesOil Scenario Worldwide

The regions having the largest proven oil reserves today

are given in Fig. 2.4 below.

It is important to know that India's proven reserves are

meager compared to the size and potential of the

country.

The oil producing countries are divided into two groupsthose who are members of Organization of Petroleum

Exporting Countries (OPEC) and those who are not. Thesignificance of OPEC will be explained later. The top oilproducing countries of the world are presented in Table 2.1

No. Country ProductionMillionBbl/Day

ProductionMillion TPY

OPECMembership

1 USA 9.0 No

2 Saudi Arabia 8.7 Yes

3 Russia 7.3 No

4 Iran 3.8 Yes

5 Mexico 3.6 No

6 Norway 3.4 No

7

China

3.3

No

8

Venezuela

3.1

Yes9

Canada

2.8

No

10 United Kingdom 2.6 No

0

200

400

600

800

1000

1200 1,100

600

450

190 175

30

160

EstablishedReserves(BBOE)

TheMiddle

East

Russiaand CIS

Countries

USACanada

AsiaPacific

SouthAmerica

Europe SouthAsia

Regions

Table 2.1

Top Ten Oil Producing Countries (Year 2001)[Source: The World Oil Market -Mohan G. Francis]

Fig. 2.4Region-wise Hydrocarbon Reserves



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38

Activity 2 b

These top ten are closely followed by Iraq, Nigeria, Kuwaitand U.A.E, all of whom are OPEC members.

Some important features of OPEC and non-OPEC

countries are:

6 Proven crude reserves are concentrated in OPECcountries. Out of the world's 1.0 trillion barrels of provenreserves, 80% is held by OPEC.

6 80 to 90% of the oil produced by them are exported.

6 There is very little internal consumption indicating theeconomy to be oil export dependant.

6 OPEC countries have very high spare capacity forproduction. Non-OPEC countries hold approximately acombined 500,000 barrels per day (bbl/d) of spare oilproduction capacity, while OPEC spare productioncapacity is estimated to be as high as 8 million bbl/d.

6 The petroleum resources of OPEC countries are mostlyowned by the State whereas in non-OPEC countries theownership is generally in private hands.

6 Greater OPEC production as a proportion of worldproduction will be seen in the future.

With this kind of profile of OPEC countries, it is apparentthat they are in a position to control the oil prices in theworld, whenever they are united.

There are a few important points to note in the globalproduction and consumption pattern. There is not a singleOPEC country in the top ten oil-consuming countries. This

indicates that in terms of industrial development other thanoil production, the OPEC countries are lagging behind. Theonly developing countries in the top ten oil consumers areChina, Brazil and India. This indicates a growth of industryand infrastructure driven by oil and gas as sources ofenergy.


Make a list of allcountries who aremembers of OPEC.


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39

Notes

No. Company Annual TurnoverUS$ Billion

World rank

1 Exxon - Mobil 192 2

2 BP/Amoco/Arco 174 4

3 Royal Dutch Shell 135 8

4 Chevron Texaco 100 14

5 Total Fina Elf 94 15

Table 2.2The Largest Oil Companies

[Source: FORTUNE, July 22, 2002 Data for 2001; Figures in US $ billions]


Major Oil Companies

Major oil companies are very large transnationalcorporations. They rank among the largest corporations inthe world. There has been a number of mergers recently tomeet the crisis created by slowing down of the economysince the late nineties. As per survey done by Fortunemagazine, five oil companies feature among the top fifteencompanies in the world in terms of revenues (see Table2.2).

There has been a spate of mergers between major oilcompanies in the recent times. As apparent from the above

table, some of the largest companies are result of merger ofmajor oil companies of the world. The merger of Exxon andMobil, and that of BP, Amoco and Arco happened duringthe last few years. Some more mergers are in the offing.

The result has been detrimental to the consumers. USAhas seen a rise in gasoline prices as a result of the mergerswhich has lessened competition.

The cartel created by OPEC which is keeping oil prices

around 28 to 30 Dollars per barrel and the recent mergersof oil majors has created a situation detrimental to thegrowth of oil importing countries.


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40

Notes

The Indian Perspective - Upstream

Oil exploration and production industry in India dates

back to the late nineteenth century. The first commercialoilfield was struck at Digboi in North-Eastern India in theyear 1890. Till the 1970s, petroleum production wasmainly from oilfields in the North-Eastern region andGujarat.

The government owned companies known as PublicSector Units (PSU) earlier dominated the upstream oil andgas industry. The two companies - Oil and Natural GasCorporation Ltd (ONGC) and Oil India Ltd (OIL) were themain players. They were responsible for exploration andproduction. Bombay High (now known as Mumbai High)was discovered in the 1970s and was one of the largestfinds in the world at that point of time (albeit not enough for alarge country like India). The government felt the need forliberalizing participation of foreign companies forexploration and production. In 1991 various offshore blockswere offered for licensing. The government policy nowallows joint as well as private sectors to participate in thissector.The government has leased a number of blocks ofpotential fields to both Indian and multinational companies.

As a result of these measures the number of players in theupstream industry has gone up substantially. ReliancePetroleum became owner of a few major oilfields in theMumbai High region. A number of Indian and overseasprivate operators explored and produced oil from newlydeveloped fields in Krishna Godavari and Kaveri basin.ONGC is still the biggest player upstream due to historicalreasons. The proven oil and gas resources are still meagerfor Indias size and requirement.

Oil and Gas Field

Fig. 2.5 shows the producing and proven oil and gasreservoirs in India.

The locations of the various reservoirs is only indicative.They do not show the map and size of the fields. Some ofthe major gas and oil pipelines are also shown in Fig. 2.5.



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41

Notes

Fig. 2.5Location of Producing and Proven Reservoirs

MumbaiHigh

Hazira

Uran

Haldia

Barauni

Naharkatiya

Digboi

KrishnaGodavary

Basin

CauaveryBasin

Cambay

NorthGujarat

Delhi

Mathura

Jagdishpur

Bijaipur

Technomanage

Oil PipelineGas PipelineOil / Gas Field

Let us understand the oil and gas infrastructure of India bylooking into a few of the systems with the macro-systemblock diagram ofFig. 2.1 in mind.

Mumbai High is the largest oil and gas producer in India. Itis located offshore about 200 Km. away from the coast offMumbai. As seen in the map an oil pipeline and a gaspipeline are laid below the sea reaching landfall point at aplace called Uran south of Mumbai. Up to this point, it canbe called the upstream and is owned by ONGC. The oil isdistributed to the refineries (BPCL) near Mumbai. LPG isextracted out of gas at Uran. Also ethane and propane areextracted out of gas in the gas processing facility locatedat Uran. The balance gas goes to nearby power plant andfertilizer plants at Thal (Maharashtra). The ethane andpropane extracted from gas at Uran goes to petrochemicalcomplex at Nagothane (Maharashtra).



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42

Activity 1c

Another major pipeline originating from Mumbai High areais a gas pipeline laid below the sea up to landfall point at aplace called Hazira. Bulk of the gas comes from a gas field

offshore near Mumbai High called South Bassein Field.This gas is sour gas (Hydrogen sulphide bearing).

A major gas processing complex is located at Hazira wheresweetening (removal of sulfur from gas) and recovery ofLPG are carried out. Hazira is the originating point ofIndias longest gas pipeline network called HBJ Pipeline(Hazira Bijaipur Jagdishpur pipeline).

HBJ Pipeline is a network of over 2000 Km. of pipelineextending from Hazira to northern part of India. It provides

feedstock to numerous fertilizer plants, power plants andpetrochemical plants on its route. In addition the balancegas provides fuel to the industries. From Hazira onwardsownership of the pipeline and gas distribution facilitieschanges from ONGC to Gas Authority of India Ltd.(GAIL).

Fig. 2.5 also shows a few major oil pipelines. From theNorth-Eastern oil fields of India, the first major crosscountry pipeline was laid starting from Nahorkatiya in

Assam to Barauni and Haldia. This pipeline feeds oil to allmajor refineries in the North-Eastern and eastern India

including Barauni refinery and Haldia refinery (see Fig. 2.6for refinery locations).

Major Player Upstream

The major player of upstream are given in Table 2.3.

Table 2.3Major Players Upstream

No. Company Exploration & Production Areas Other activities

1 Oil & Natural Gas Corpn.Bombay High, South Bassein, Heera

and other western offshore Oilfields,

KG basin, Assam, Gujarat, Rajasthan

Oil and Gas Pipeline

2 Reliance India Ltd.Neelam, Panna, Krishna Godavari

Basin

Downstream refineries &

petrochemicals, Pipeline

3 Oil India ltd. Assam, Rajasthan

4 Cairn Energy India Cauvery Basin

5 Essar Oil Ratna Oilfield Development Downstream Refinery

6 Gas Authority of India Oil Exploration, Gas Pipeline Petrochemicals

7 Hindustan Oil Exploration Co. KG Basin (PY3), Cambay Basin

8 Videocon Petroleum KG Basin (Ravva Offshore)

9 Niko Resources Cambay Basin


In a photocopy of theblock diagram, startwith Mumbai HighField and put down thenames of var iouscompanies util izingthe oil and gas inthe various processingblocks shown


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43

Notes

The domestic oil production and consumption arepresented in Table 2.4. It can be seen that we are grosslyinsufficient in our hydrocarbon resources and

dependant on imports of oil and gas.

Natural Gas

The production of natural gas in the country during 2001-2002 has been around 80 million standard cubic metersper day (SCMD).

The demand of gas has been projected by variousestimates depending on assumed user pattern at figuresbetween 150 to 200 million SCMD. Major consumption ofNatural Gas in India will be in the Power and Fertilizersectors. Natural Gas consumption in other industries, suchas petrochemicals, town gas, or as Compressed NaturalGas (CNG) in the automobile sector, are also considered inthe projections.

This leaves a wide gap in the supply demand balance

for Natural Gas in the country. The India HydrocarbonVision 2025 * has projected that the demand for NaturalGas will go up to about 230 million standard cubic metersper day by 2007, to more than 310 million standard cubicmeters per day by 2011, finally reaching a level of 390million standard cubic meters per day by 2025. In the longterm policy statement, the Government of India hasvisualized Hydrate reserves and coal bed methane, aspotential indigenous resources.

Item 1999 - 2000 2000 - 2001 2001 - 2002 2003 - 2004

Crude OilProduction

32 32.4

32.0 32.0

Crude OilConsumption

100.0 103.5 107.3 110.0

DomesticProduction as %of Consumption

32.0 31.529.9 29.1

Table 2.4

Oil production & consumption in India

(Million tons per year)[Source: Indian Economic Survey 2000-2001 /

Centre for Monitoring Indian Economyhttp://petroleum.nic.in/oil.htm]



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Activity 2 d

Earlier plan was to meet the future gas requirements byimport of LNG. Recent hydrocarbon discoveries ofReliance and ONGC are expected to bridge the gap to acertain extent.

Future Perspective

The per capita energy consumption in India is very low atthe level of 226 Kg of Oil Equivalent compared to 7759 KgOil Equivalent in the USA. With a low base, the energysupply in India has been growing @ 6% annuallycompared to an average of 1.5% worldwide. It is projectedthat the growth rate of Indian economy may go up to 7-8%

in the near future. This will further increase the energyrequirement for the future.

Obviously the future energy needs has to be plannedkeeping hydrocarbon, coal, hydroelectric power, nuclearenergy and unconventional sources of energy intoconsideration. The hydrocarbon resources are expected tobe enhanced in the following manners.

A comprehensive energy study and planning with aboveresources and other resources like coal, hydro-electric,,nuclear and non-conventional energy is needed for longterm planning of energy needs.

6 Increased search of hydrocarbon resources in India by

the policy of liberalization and leasing out prospectivehydrocarbon basins.

6 Prospecting for hydrocarbons overseas by Indiancompanies (e.g. ONGC investing in Vietnam and otherprospective regions).

6 Import and distribution of LNG. Petronet, a public sectorLNG distribution company was set up for this activity.

6 Linking hydrocarbon resources from countries likeBangladesh, Iran by cross country pipeline to India.

6 Exploitation of hydrate resources in coastal sea bed.

6 Exploitation of coal bed methane reserves.


Make a list of existingand proposed LNGprojects in India.


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45

Notes

India nationalized the refining and product marketingsector in 1976. Regulatory regime was introduced on

production, distribution and pricing of crude oil andpetroleum products. State owned companies such asIndian Oil Corporation , Bharat Petroleum and HindustanPetroleum were the largest companies in the refinerysector.

The Administered Pricing Mechanism implemented inthe seventies subsidized prices for products like keroseneand LPG. Charging higher prices for other products likegasoline and aviation fuel generated part of the subsidy.

Diesel prices were kept neutral. The Administered PricingMechanism was based on fixed 12% post-tax return on networth deployed for refining, distribution and marketing.

The Refining Industry

India has one of the largest and fastest expandingPetroleum Refinery industry in Asia with over 110 Milliontons per year installed capacity. During the year 2001-02,the installed capacity is around 114 Million tons peryear. The petroleum products' demand is expected to be

150 Million tons per year by the year 2006-07. The stresswill be on revamp, expansion and de-bottlenecking as wellas new refineries.

The installed capacity of the refineries in India during 2001is reported in the Table 2.5. The location of variousrefineries is shown in the Fig.2.6. Additional refiningcapacity of 70 - 80 MMT per annum will be required by theyear 2010 for domestic consumption alone.


The Indian Perspective - Downstream

The refinery industry also dates back to over onehundred years. India's first refinery was built at Digboi in1901 by BritishPetroleum. In the late '50s and early '60smultinational oil companies such as Shell, Caltex andEsso invested in refineries in India. Indian Refineries Ltd.,the first state owned (public sector) refinery was built inGuwahati in the early sixties. Later it became Indian OilCorporation.


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46

Notes

[Source: Annual Reports & Industry Data, Oil Company Websites]

Table 2.5

Oil Refining Companies in India (2002)

Name of the Oil company

PrincipalShareholders

Location ofrefineries

Capacity

(million

tons/year)

Bharat Petroleum Govt. of India Mahul 6.9

Bongaigaon Refineries Indian Oil Corp. Bongaigaon 2.4

Chennai Petroleum Indian Oil Corp. Chennai 6.5

Chennai Petroleum Indian Oil Corp. Narimanam 0.5

Hindustan Petroleum Govt. of India Vizag 7.5

Hindustan Petroleum Govt. of India Mahul 5.5

Indian Oil Govt. of India Vadodara 13.5

Indian Oil Govt. of India Mathura 8.0

Indian Oil Govt. of India Panipat 6.0

Indian Oil Govt. of India Barauni 4.2

Indian Oil Govt. of India Haldia 4.6

Indian Oil Govt. of India Guwahati 1.0

Indian Oil Govt. of India Digboi 0.7

Kochi Refineries Bharat Petroleum Kochi 7.5

Mangalore Refineries and

Petrochemicals Limited

Hindustan Petroleum

/Aditya Birla Group Mangalore 9.6

Numaligarh Refineries Bharat Petroleum Numaligarh 3.0

Reliance Petroleum

Reliance Industries,

its subsidiaries and

associates

Jamnagar 27.0

Total 114.4


With the de-regulation of the oil economy initiated in the

early nineties, a number of private players emerged. TheReliance refinery at Jamnagar became the biggest refineryin India and one of the biggest in the world. Other playerslike Mangalore Refineries and Petrochemicals Ltdemerged in the private sector. Privatization of some of thepublic sector refineries are also on the cards but presentlyheld up in the legalities.


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48

Notes

petrochemical complex in India, which are also among

the largest in the world.

The Petrochemical Industry

In the Petrochemical sectoralso, the initial big playerswere the multinational companies in the private sector.National Organic Chemical Industries Ltd. (NOCIL) andUnion Carbide plant at Mumbai were the first two majorpetrochemical plants in India. The Indian PetrochemicalCorporation Ltd. (IPCL) at Vadodara was the first majorpetrochemical complex set up under state ownership in themid '70s. This was followed by another major

petrochemical complex at Nagothane in Maharashtraunder IPCL.

India has also a large and growing Petrochemical industrywith one of the largest integrated petrochemicalcomplexes in the world and several other petrochemicalcomplexes. India has the second largest fertilizerproduction capacity in the world.

There is abundance of small and medium size

petrochemical and chemical plants badly needingimprovements through revamp for increasing theirefficiencies. Many of them are old and revamp of the plantspose a challenging opportunity.

In the Petrochemical Sector, the major players are:

6 Reliance Industries Ltd (RIL)6 Reliance Industries Ltd (RIL)6 National Organic Chemical Industries Ltd (NOCIL)6 Indian Petrochemical Corporation Ltd. (IPCL)

now acquired by Reliance6 Haldia Petrochemicals Ltd. (HPL)6 Gas Authority India Ltd. (GAIL)



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Notes

Except GAIL, which is Government owned company(PSU), the rest are private holdings listed in the stockexchange. HPL is held jointly by Government and Privateentities.

Transportation Infrastructure

India has major ports for handling of oil and products(export and import) at Jamnagar, Mumbai, Mangalore,Cochin, Chennai, Vizag and Haldia. Inland transportationof crude from the production sites or ports is primarilyundertaken via pipelines.Transportation of refined products is carried out through

multiple options - pipelines, the rail system, road tankersand coastal shipping using marine tankers. A very broadand approximate distribution of load on various modes oftransportation of petroleum products is:

Thus railways carry almost as much load as pipelines as faras product transportation is concerned. With greaterinvestments coming in pipeline, in future the balance willbe in favor of pipeline.

Pipelines

A few of the major pipeline systems in the country is shownin Fig. 2.5.A vast network of oil, gas, LPG and petroleumproduct pipelines exist all over the country.

Rail system

About 40 Million tons of petroleum products are movedfrom refineries to storage terminals or depots in othervarious cities and towns by the railway network.

6 Pipelines: 42 %

6 Marine transportation: 10 % .

6 Rail transportation: 38 %

6 Road transportation: 10 %



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Activity 2 e

Future Vision for Indian Oil and Gas Industry

While the large gas finds in the Eastern Coast alleviatesthe shortage of petroleum resources in India, a long termvision is needed to attain self-sufficiency in the energysector.

ONGC is aggressively going ahead with investment inexploration and production overseas. It has alreadyinvestment and production sharing arrangement inVietnam offshore. It is acquiring exploration and productionrights in counties like Sudan, CIS countries. Thegovernment has created a Hydrocarbon Vision 2025 policy

document to achieve growth and self sufficiency in thissector.

Hydrocarbon Vision 2025 -

Agenda For Implementation

6 Achievement of 100% coverage of unexplored basins ina time bound manner to enhance domestic availability ofoil and gas.

6 Secure acreages** in identified countries having highattractiveness for ensuring sustainable long termsupplies.

6 Pursue projects to meet the deficit in demand and supplyof natural gas, and facilitate availability of LNG.

6 Maintain adequate levels of self-sufficiency in refining(90% of consumption of middle distillates).

6 Establish adequate strategic storage of crude andpetroleum products in different locations.

6 Create additional infrastructure for distribution andmarketing of oil and gas.

6 Open up the hydrocarbon markets so that there is freeand fair competition between public sector enterprises,private companies and other international players.


Prepare a list of majoroil, gas, LPG andproduct pipelines inIndia.


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Notes

6 Create a policy framework for cleaner and greener fuels.6 Have a rational tariff and pricing policy, which would

ensure the consumer getting the petroleum products atthe most reasonable prices and requisite quality,eliminating adulteration.

6 Announce a long-term fiscal policy to attract requiredinvestment in the hydrocarbon sector.

6 Restructure the oil sector PSUs with the objective ofenhancing shareholder value and disinvest in a phasedmanner in all the oil sector PSUs.

6 To develop regulatory and legislative framework forproviding oil/gas security for the country.

The Opportunities

The picture of growth in demand and investments coupledwith economic liberalization offers tremendousopportunities. To highlight the opportunities [Source:Petrotech 1999] the hydrocarbon sector offers-

6 India is looking for large and sustained investments ofUS $ 100 billion in upstream, downstream andinfrastructure development in the next ten years.

6 Exploration, production, refining and marketing sectorshave been opened up to the private and foreigncompanies. With economic liberalization, the foreigninvestment is expected to go up substantially.

6 Indian oil and gas industry offers one of the highest growth

rates in the world.



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Notes

Summary

In this section, the total macro-system from oil well to

petrochemicals was explained in the form of block diagram.Flow of various components of gas and oil in to themanufacturing blocks of refinery and petrochemicalsleading to final products was highlighted.

Indications were given how at each step of processing theoil and gas get valorized in to higher priced products.

Having explained the macro-system, a brief history of oiland gas industry was presented. Major players in the worldand specifically in India were identified. Hydrocarbon

infrastructure in India was presented with maps. The highgrowth potential of oil and gas business and futureopportunities were highlighted.

Review Questions

(1) Draw a block diagram showing the flow of gas andits components from a gas field offshore to furtherprocessing and generation of ethylene basedpetrochemicals.

(2) Name three of the largest oil companies in the world.

(3) In a blank map of India, mark the location of majoroilfields and major refineries.

(4) Name three of the upstream oil companies in India.

(5) Name four major refining companies in India withapproximate refining capacity owned by them.

Group Tasks

(1) Starting with Mumbai High oilfield, trace in the form o fa block diagram the following:

6 How oil and gas are transported to shore

6 Where do the sub-sea oil and gas pipelines terminate

6 To which refineries the oil is transported by pipeline



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Notes

6 What happens to the gas after it reaches shore

6 How is the gas distributed

6 What are the Petrochemical Complexes and fertilizerplants based on Mumbai High Gas

(2) Carry out a similar exercise for the oil, gas, refineryand petrochemical facilities of Reliance Petroleum.

Quizzes

Circle the correct answer or answers. Each question hasone or more correct answers.

No. Question Answer

1 The materials that goesas feedstock formanufacture ofpetrochemicals are

(a) Ethane(b) Propane(c) Jet Fuel(d) Naphtha(e) Motor gasoline(f) NGL

2 LPG is produced as oneof the products in

(a) Refinery(b) Gas Processing Plant(c) Offshore Platform

3 It is techno-economicallymost attractive to use oiland gas as industrialfuel.

(a) True(b) False(c) Partly true

4 Which of these are notpetrochemical products?

(a) Polythene(b) Synthetic Rubber(c) Diesel Oil(d) Nylon(e) Ethane

5 Identify the countrieswhich are not membersof OPEC

(a) Russia(b) Venezuela(d) Saudi Arabia(e) U.K.(f) Iran(g) UAE

6 The number of refineriesin India are

(a) 5-10(b) 10-15(c) 15-20(d) 20-25

7 The major oil producingcompanies in India are

(a) BPCL(b) ONGC(c) Reliance(d) IOCL



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Notes

8 The largest refinery inIndia is owned by

(a) IOCL(b) Reliance(c) HPCL

9 The highest refiningcapacity in India is with

(a) IOCL(b) HPCL(c) MRPL(d) Reliance

10 Which of these industrysegments is referred asupstream ?

(a) Refineries(b) Petrochemical Plant(c) Oilfield processing

11 Total oil production inIndia in terms of MillionTons per year is between

(a) 10-25(b) 20-25(c) 25-35(d) 35-40

12 Total refining capacity inIndia in terms of MillionTons per year is between

(a) 30-40(b) 40-70(c) 70-100(d) 100-120

13 Major oil and gas fields inIndian lie in

(a) U.P.(b) Gujarat(c) Karnataka(d) Assam(e) Andhra Pradesh



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Unit 3 55Notes

Objectives

After reading this unit, you will be able to:y Understand how hydrocarbons (oil and gas) were

formed and trapped below the surface of the earth.y Understand how hydrocarbons are explored, located

and assessed for commercial viabilityy Get an overview of primary production methods and

enhanced oil recovery methods.

Formation of Oil Traps

It is important to have an elementary understanding on howhydrocarbon is formed and trapped in the rocks below theearth. It was explained in Unit-1 that according to the widelyaccepted organic theory, oil and gas were originated fromhuge masses of organisms, animals and vegetation thatgot buried under the earth and were covered bysedimentary rocks. Layers of rock formed over it and theformation and trapping of the hydrocarbons took place inthe following stages over millions of years.

Formation of Hydrocarbons : The hydrocarbonformation took place by decomposition in various layers ofrock called source rock. The decomposition took place

0under high pressure and temperatures between 50 C and

0170 C at depths between 1500 meters and 6000 meters.

At lower temperatures (normally at lower depths) heavieroil was formed and higher temperatures lighter oil wasformed.

Migration of Hydrocarbons: Due to lighter gravity of

hydrocarbon formed compared to water which is alwayspresent below earth's surface and due to high pressuresbelow the earth, oil and gas migrated slowly through thegaps in subsurface rocks with high permeability. During themigration, the oil and gas got into densely packedsedimentary rocks of very high porosity known asreservoir rocks. Sandstone and limestone are commonreservoir rocks. Fig 3.1 shows typical indicative sketch ofpermeable rocks and Fig 3.2 shows an indicative sketch ofporous reservoir rocks.

The Exploration of Oil


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Notes

Fig.

3.1

Migrationo

fHydrocarbonsThrough

Rocks

HavingPermeability

Technomanage



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Notes

Fig.

3.2

Poro

usReservoirRocks

m

T e c

h n o

a n a g e

understanding o&g-mdso 801 (1st vol)

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