Lesson 5 Introduction

Overview

The term “logistics” has become more and more popular to define the process whereby goods move from the point of manufacturing and production to the point of sale and consumption. UPS^® and FedEx^® are no longer just in the package shipping business. They now provide a full range of services, from receiving parcels to transporting them via truck, rail, and plane, to storing them in warehouses, and, ultimately, distributing them to their final destinations. All the while, they are tracking packages throughout the entire process, which can also be done by their customers.

The delivery system for energy commodities is no different, as products—either from the wellhead, plant, or refinery—are transported using various methods, stored, and ultimately distributed to places of final consumption. As we explore the ways and methods in which energy commodities are delivered to market, you will see this same basic theme consistently applied.

Additionally, we will learn the “value chain” for energy commodities. That is, what are the costs and revenues along this delivery path?

Figure 1: Overall Energy Commodity Logistics Chart - Crude Oil

Click here for a text alternative of Figure 1

Flow chart in the shape of an arrow.
Production & Gathering (Wellhead Cost, Gathering Fees, Fuel)

Leads to

Processing/Refining (processing fees, refining fees, inputs/outputs)

Leads to

Transmission (levels of service, tariffs, rates & fuel)

Leads to

Storage (levels of service, tariffs, rates of fuel)

Leads to

Distribution (utilities, end-users, residential, retail)

Source: Dutton e-Education Institute

This graphic illustrates the various steps in the "wellhead-to-burnertip" logistical path for oil and natural gas: aggregation (gathering), the "cleaning" of the raw stream and production of valuable natural gas liquids (NGLs) and, the steps for getting crude oil and natural gas from the wells all the way to market. As you can see, there is processing of natural gas or refining of crude, the transportation and storage and, finally, the distribution and retail delivery to the various end-users. As you will see, each step along this "path" will have some costs associated with it, and most will represent an opportunity for generating revenue. These will add to the total profit that can be derived from the initial wellhead production.

Over the years, many industries have been regulated by the federal government. But one by one, they became "deregulated" over time. The banking and airline industries were once heavily regulated, as was the telephone business. In exchange for federally-approved rates of service and a set return on investment, companies were given exclusive franchises, or service territories. Today, the deregulation of formerly regulated businesses has spurred on competition and stimulated new products and services. The natural gas and crude oil businesses followed behind, but eventually became deregulated as well. The chain of events leading up to that, and the current regulatory status of these industries, is presented in this lesson.

Learning Outcomes

At the successful completion of this lesson, students should be able to:

• define the steps in the movement of crude oil from the wellhead to the end-user (“pump-to-pump” path);
• recognize the “value chain” along the path;
• explain the general methods of transporting crude oil from well to refinery;
  • trucks
  • pipeline
  • rail
  • barge
  • tanker
• outline the crude refining processes and their refined products.

What is due for this lesson?

This lesson will take us one week to complete. The following items will be due Sunday, 11:59 p.m. Eastern Time.

• Lesson 5 Quiz
• Lesson 5 activities as assigned in Canvas

Questions?

If you have any questions, please post them to our General Course Questions discussion forum (not email), located under Modules in Canvas. The TA and I will check that discussion forum daily to respond. While you are there, feel free to post your own responses if you, too, are able to help out a classmate.