From its extraction to how it is supplied to end consumers, crude oil passes through various refining stages. Different kinds of companies operate and specialize in activities at each stage.
Based on the operations and their position in the supply chain, these oil companies are divided into upstream and downstream companies. Let us understand what these terms mean.
Upstream oil companies are involved in the identification/discovery and extraction of crude oil from under the earth’s surface. They are part of the earliest stages in the processing of oil and the farthest from what end-consumers get.
Upstream oil companies conduct research, explore, set up oil wells, do the drilling to get access to crude oil deposits, and actively engage in the extraction of crude. They are also often referred to as exploration & production (E&P) companies.
The members of such companies include geologists, scientists and engineers, seismic experts, and operators.
Note that upstream oil companies may engage in on-shore or off-shore operations. Off-shore is when the oil production happens ‘off the coast’.
Based out of New Delhi, ONGC is a Government-owned Maharatna company that was founded in 1956. The operations of ONGC which is the largest oil company in India are centered around the extraction of crude oil and successfully accounts for 70% of the country’s total oil production.
At present, it owns more than 11,000 kilometers of pipelines in India.
Oil India Ltd. is the second-largest oil company in the country that the Government owns. It was established in 1959 and is headquartered in Assam. It works to produce and explore crude oil. The Ministry of Petroleum and Natural Gas oversees its functioning.
Some of its functions also include producing liquid petroleum gas and transporting crude oil.
An Indian multinational conglomerate, one of the branches of Larsen and Toubro is a leading company in the hydrocarbon engineering space.
It works on various projects that deal with the extraction of oil and its processing. It is structured into offshore and onshore verticals.
Headquartered in London, BP PLC is a British oil and gas company. At present, it operates in 80 countries across the world.
It is among the dominant players in the Indian oil industry. However, the company’s biggest division is located in the United States.
Reliance Petroleum is a subsidiary of Reliance Industries Limited. It is one of the biggest private players in this domain. Reliance Petroleum has two oil rigs in its name. These are DD KG-1 and DD KG-2.
Apart from this, Reliance Industries owns the largest oil refinery in the world. The Jamnagar oil refinery has the capacity to process 1,97,000 cubic meters of crude oil every stream day.
The process of refining, however, comes after the procurement of oil. The companies involved in this process are classified as downstream companies. Let us understand them in detail.
Downstream oil companies are those that deal with the processing and delivery after the procurement of crude. It includes refining the oil and converting it into the final products that are sold to consumers. This could be the gas supplied to us through gas cylinders or pipelines too. Furthermore, petrochemicals, lubricants, and other such materials are also a part of the diverse catalogue of products of.
They source the raw material from upstream companies that operate in the beginning stages of the oil supply chain. They then process it and provide consumable products to the customers. Thus, the downstream oil companies are closer to the point of sale and work closely with the final customer.
They may operate as oil and gas distributors, processing units, retailers, and more. Such oil companies focus on marketing the products as well.
The largest Government-owned oil company in India, IOCL operates throughout the hydrocarbon supply chain. Apart from the exploration of crude oil, it also looks after refining, transportation, research and development, and marketing activities.
It has 11 refineries across the country, approximately 30 pipelines, and 7 foreign subsidies. Not only does it furnish a major chunk of oil requirements, but it also provides employment to thousands of workers in the country.
Bharat Petroleum is also a Government-owned company that operates as the second-largest downstream oil company (Government-owned) in India. It has two massive refineries– one in Kochi and the other in Mumbai.
Apart from this, it also operates from its refineries in Bina and Numaligarh.
Hindustan Petroleum is a subsidiary company of ONGC, making it a company owned by the Government of India.
It operates a refinery in Mumbai and another one in Visakhapatnam. It also produces high-quality lube base oils in its lubricant factory, which is the largest in the country.
It is a major downstream oil company that extends its functions to refining as well as the marketing of oil products. It owns the second-largest oil refinery, which is located in Gujarat. Based in Mumbai, this privately-held oil company operates a network of over 6000 retail fuel outlets in the country.
We hope that with this you have better clarity on what the two kinds of companies are and who the key players are in each domain. Let us now understand how these companies operate in India.
According to reports, the oil demand in India is projected to grow up to 11 million barrels by 2045. The Government has also allowed 100% FDI in upstream and private sector refining projects. This opens up a lot of prospects for the oil companies operating in the country.
To understand the functioning of upstream and downstream companies better, imagine the entire supply chain. The two types of companies operate from either end of it. As the name suggests, the services of the upstream oil companies move up the chain.
The raw material, which is crude oil, is extracted from the surface of the earth by such companies. Their job is limited to drilling this natural resource and giving it over for processing.
The downstream companies handle the processing of the raw oil provided by the upstream companies. Such companies may be on different levels in the supply chain, such as production, marketing, and distribution.
Considering the increasing demand for oil and its products in the country, the Government regularly brings out policies in support of companies engaged in this sector. There are freight subsidy schemes and expansion projects that have increased the scope for India’s upstream and downstream oil companies.
Upstream and downstream oil companies together complete the entire supply chain for crude oil and its products. These individually play a significant role, from the exploration and production of oil to its refinement and distribution.
With robust economic growth on the horizon, India has developed a large market for oil, which is estimated to double in size by 2045.
Disclaimer: This blog is solely for educational purposes. The securities/investments quoted here are not recommendatory.
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Research Analyst - Aakash Baid