The midstream sector solves a logistics problem: oil and gas are produced at thousands of scattered wells, but refineries and consumers are far away. Midstream companies build and operate the infrastructure that collects, conditions, moves and stores hydrocarbons between the upstream wellhead and the downstream refinery.
Midstream covers four core functions — gathering, processing, transportation and storage. Much of it earns steady, fee-based revenue (a toll per barrel or per Mcf moved), which makes it less exposed to commodity price swings than upstream.
The four midstream functions
Gathering
Small-diameter gathering lines collect raw oil and gas from many individual wells and feed them to a central tank battery or processing facility. This is the first step off the wellsite.
Processing
Raw production is not ready for a long-distance pipeline. Gas processing plants separate raw gas into pipeline-quality methane and valuable natural gas liquids (NGLs) such as ethane, propane and butane. Crude is stabilized to remove dissolved light gases so it can be transported safely.
Transportation
Large-diameter trunk pipelines carry conditioned crude, gas and NGLs across regions. Where pipelines don't reach, the industry uses tankers, rail and barges.
Storage
Tank farms, underground salt caverns and depleted reservoirs hold crude, products and gas to balance supply and demand. LNG (liquefied natural gas) terminals chill gas to a liquid for ocean export.
Natural gas liquids — ethane, propane, butane and natural gasoline — separated from raw natural gas at a processing plant and sold as separate, higher-value products.
How midstream makes money
Most midstream operators charge fees for the volume they move, process or store rather than taking ownership of the commodity. Because revenue is tied to throughput rather than the oil price itself, midstream cash flows tend to be steadier than upstream. Many midstream assets are held in master limited partnerships (MLPs) built for predictable, fee-based income.
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Frequently asked
Gathering uses small pipelines to collect raw production from many individual wells and bring it to a central point. Transportation uses large trunk pipelines (and tankers and rail) to move conditioned product over long distances.
Gas processing removes water, acid gases and impurities from raw natural gas and separates out natural gas liquids, leaving clean, pipeline-quality methane.
Generally, yes. Midstream often earns fee-based revenue tied to the volume of product moved rather than the commodity price, so its cash flows are usually steadier than upstream E&P.