What Is the Oil and Gas Industry?

Jeremy Laukkonen

The oil and gas industry, also referred to as the petroleum industry, consists of all the various worldwide efforts to extract hydrocarbons from the earth, and process them into useful substances. This industry can be divided into a number of basic categories, such as extraction, processing, and transportation. Oil and gas extraction can take place on land or at sea, and there are hydrocarbon deposits of various forms spread out across the entire world. The processing component of the oil and gas industry is responsible for making the gasoline and diesel fuels that are necessary to run automobiles, but also contributes to the production of plastics, fertilizers, and many other substances. Oil and gas industry distribution includes pipelines, tanker ships, and other means of conveying raw materials to processing facilities and refined materials to end users and other industries.

The fuel used in the overwhelming majority of automobiles is supplied by the oil industry.
The fuel used in the overwhelming majority of automobiles is supplied by the oil industry.

Unrefined oil products have been used by humans since prehistoric times, though the oil and gas industry is relatively new. Industrial extraction and processing of oil did not begin until the 19th century, and natural oils and coal continued to be major sources of heat and power until the 20th century. Early hydrocarbon exploration and extraction efforts took place in Pennsylvania in the United States, and also other locations such as Russia. The first modern refineries were constructed in the 1850s, and the first oil tanker was used to transport raw materials in 1878.

A pumpjack oil well.
A pumpjack oil well.

There are two main categories that make up the oil and gas industry, which are referred to as upstream and downstream. Upstream operations are often referred to as the exploration and production (E&P) component of the petroleum industry. These operations include looking for new petroleum reserves, drilling exploratory wells, and drawing hydrocarbons to the surface.

An oil well.
An oil well.

The upstream component of the petroleum industry is also responsible for separating out the different hydrocarbons, typically into crude oil and natural gas. Many hydrocarbon deposits contain both of these products, though not all recovery operations are designed to capture both. Some drilling operations simply burn off the natural gas or inject it back into the earth.

Vertically integrated oil companies may own or lease their own oil tankers.
Vertically integrated oil companies may own or lease their own oil tankers.

Processing and transportation are the main downstream operations of the oil and gas industry. Natural gas and crude oil are often transported overland by pipelines, though large tanker ships can also carry hydrocarbons over the water. The processing sector of the oil and gas industry consists mainly of refineries, which are used to turn crude oil into a variety of useful products. This is primarily accomplished through fractional distillation, though different types of cracking can also be used to achieve specific kinds of hydrocarbons.

Crude oil is separated into products like gasoline and kerosene in cracking towers at oil refineries.
Crude oil is separated into products like gasoline and kerosene in cracking towers at oil refineries.
Oil and gas can both be transported using pipelines.
Oil and gas can both be transported using pipelines.

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