Midstream Energy Services and Their Impact on the Industry

The entirety of the US natural gas and energy industries today consists of a complex web of interconnected components that work in harmony to power our lives. From the extraction of our nation’s natural resources to the delivery of electricity to our doorsteps across the country, each phase of the process is critical. However, one segment often overlooked, and yet instrumental in the smooth functioning of the natural gas and energy industries today, is the midstream sector. Bridging the gap between the upstream exploration and production sector, and the downstream manufacturing, power generation, and local distribution company sectors, the midstream energy services sector plays a pivotal role in ensuring the reliability and efficiency of natural gas supply chains.

In this article, we will delve into the various facets of the midstream energy services sector, exploring its unique role, the economic impact it has on the US natural gas and energy industries, and how it aligns with today’s demands for energy security and environmental stewardship. You’ll gain insights into how midstream services are more than just a link between upstream and downstream—they are the unsung heroes that fortify our energy infrastructure and sustain economic growth.

By understanding the midstream sector, industry professionals, customers, and stakeholders interested in responsible energy solutions may appreciate the full scope of its contributions, not just in terms of operational efficiency, but also in driving innovative solutions for a more sustainable future.

What are Midstream Energy Services?

When discussing midstream energy services, we’re essentially focusing on the “middle” phase of the energy value chain: post-production and pre-consumption. The midstream sector serves as the vital link that connects upstream activities like exploration and production to downstream processes such as industrial manufacturing, power generation, and distribution. This “middle” portion of the energy value chain encompasses a broad range of activities, including:

• Pipeline Transportation: Moving crude oil, natural gas, or refined products from the production site to refineries, industrial manufacturing, refining, processing, power generation plants, and/or distribution points.
• Storage: Maintaining strategic reserves or operational storage of crude oil, natural gas, and refined products to manage supply and demand dynamics, and operational flexibility needs effectively.
• Processing and Treatment: Converting raw natural gas into commercial quality dry natural gas and separating natural gas liquids (NGLs) for other uses.
• Wholesale Marketing: Facilitating the buying and selling of bulk energy products, often via commodity trading platforms.
• Midstream Infrastructure Development : The construction and maintenance of the above pipelines, storage, processing, and treatment facilities for meeting growing market needs.

Why is Midstream Different from Upstream and Downstream?

Midstream has a distinct role as the bridge between upstream and downstream operations. The upstream sector is primarily concerned with the exploration and extraction of energy resources, whereas downstream is about a wide variety of processes, from refining these resources into consumable products, to manufacturing of petrochemicals, to power generation, to the distribution of natural gas and other hydrocarbons to end-users. Midstream operates in between these two segments, focusing on the efficient and safe transition of raw or semi-processed energy commodities.

To put it simply, without midstream, upstream products could not reach downstream markets. The sector’s efficiency, therefore, has a cascading impact on the energy industry’s overall performance, reliability, and ultimately the consumers’ cost of energy commodities.

The Economic Impact of Midstream Energy Services

The economic influence of the midstream sector is vast and growing. The US oil and gas midstream market is projected to grow at a Compound Annual Growth Rate (CAGR) of more than 4.15% during 2022-2027. Factors such as increasing investments in pipelines and rising production and consumption of oil and gas, along with upcoming liquefied natural gas terminal projects, are expected to drive this growth. These services underpin the energy industry’s contribution to GDP, fueling not only vehicles, businesses, and homes, but also economic development.

Job Creation and Employment

Midstream services have a significant ripple effect on employment across various sectors. There are 211,606 oil and gas pipeline construction employees in the US in 2023, representing an increase of 2.2% from 2022. These numbers do not incorporate all of the indirect jobs that these projects crea in support services, such as welding and steel manufacturing.

According to a report from the Congressional Research Service, the United States is projected to require an additional 26,000 miles of natural gas transmission infrastructure between 2018 and 2035, representing more than $150 billion in investment. Consider this staggering statistic: for every mile of new transmission pipeline built, there are 58 jobs created. With the new infrastructure being created over the coming years, there are many new jobs to be found for professionals in direct and indirect roles.

Strategic Importance in Energy Security

Role in Energy Transportation and Storage

The midstream sector’s contribution to energy security cannot be overstated. A prime example involves the role of pipelines, which have emerged as the backbone of modern energy infrastructure. For instance, in regions like the Permian production basin, upstream growth is critically dependent on available pipeline infrastructure.

As an example of potential impacts without adequate infrastructure, in October 2018 at the Permian basin, shale producers had 300,000 barrels per day ready to ship but faced limitations due to insufficient pipeline capacity. The shale boom in the United States has seen an increased reliance on midstream services as well. Without reliable midstream services, the continuous supply of energy—vital for both industrial and residential needs—would be severely disrupted.

Beyond pipeline transportation, midstream companies manage strategic reserves and the required operational storage of oil, natural gas liquids, and natural gas, to guard against potential supply disruptions.

Environmental, Safety, Security, and Sustainability Considerations

Midstream infrastructure also provides the safest, most reliable, and environmentally friendly mode of commodity transportation.  Pipeline infrastructure is located underground, providing a safe and silent mode of transportation of commodities, as compared to the alternative modes of commodity transportation of thousands of trucks added to the US highway and roads system, and thousands of rail cars added to the US railway system.

In addition, natural gas pipelines are a critical element in reducing greenhouse gas emissions on a grand scale. According to the US Energy Information Administration, compared to coal, natural gas consumption by US power plants emits about 50% less CO2, making it a more environmentally sound option in helping reduce overall emissions, while simultaneously providing about one-third of all total energy needs in the United States.  This would not be available as a practical solution for US power generation, without a reliable, safe, and secure US natural gas pipeline transmission system.

Increasingly, the midstream sector has been investing in the development of Carbon Capture and Sequestration (CCS) infrastructure, which captures CO2 from emissions sources around the US, and safely transports it by pipeline, and sequesters it underground in deep depleted production reservoirs.

Sustainability Measures

Recognizing the importance of environmental stewardship, the midstream sector has been adopting various technologies and practices aimed at sustainability. These measures include:

• Leak Detection Systems: Advanced sensor technology to quickly identify and address pipeline leaks.
• Energy-Efficient Operations: Employing cutting-edge technologies to reduce energy consumption in storage and transportation processes.
• Recycling and Waste Management: Comprehensive programs to minimize waste production and promote recycling.

The midstream sector is far more than just a logistical bridge between upstream and downstream activities. Its role is transformational, shaping the energy industry’s economic landscape, fortifying energy security, and providing for environmental sustainability as the US transitions from high carbon emission sources such as coal and fuel oil, to natural gas by pipeline. By investing in innovative solutions and technologies, midstream companies not only increase their operational efficiency by continuous improvement programs, but also help lay the groundwork for a more sustainable and secure energy future.

In a world where energy demand is on the rise and the call for environmental responsibility grows louder by the day, understanding the crucial role of midstream services becomes increasingly important. For industry professionals, customers, and stakeholders committed to responsible energy solutions, the midstream sector represents a pivotal area for growth, innovation, sustainability, and a bridge for our nation’s plans for reduction in carbon emissions.

Frequently Asked Questions

What are midstream energy services?

Midstream energy services serve as the critical link between the upstream and downstream sectors of the energy industry. Midstream is responsible for the transportation, storage, and marketing of energy resources such as oil, natural gas, natural gas liquids, and other commodities.

How do midstream services impact the economy?

The economic impact of midstream services is profound. They contribute significantly to the GDP through large-scale infrastructure projects, logistical solutions, and job creation. For instance, the midstream energy services industry is expected to grow at a CAGR of 4.7% from 2022 to 2027. Additionally, the oil and gas pipeline construction industry employs more than 211,000 employees.

What role do midstream companies play in energy security?

Midstream companies play a crucial role in ensuring energy security by facilitating the smooth flow of energy resources from production sites to end-users. Midstream manages strategic reserves to safeguard against supply disruptions and contribute to energy stability on a national and global scale. The lack of adequate midstream infrastructure can severely hamper the energy supply chain, affecting both the economy and national security.