Downstream: Refining and Marketing

The downstream sector covers refining and marketing.

While refining is a complex process, the goal is straightforward: to take crude oil, which is virtually unusable in its natural state, and transform it into petroleum products used for a variety of purposes such as heating homes, fueling vehicles and making petrochemical plastics.

A number of processes are involved in refining depending on the wanted end product. Hydrotreating is used to remove unwanted elements, such as sulphur and nitrogen from hydrocarbons; cracking breaks molecules into smaller fragments to produce gasoline and other lighter hydrocarbons. The gasses produced by cracking are used to create other products like synthetic rubber and plastics. When making gasoline, refiners need high octane numbers to prevent engine knocking. Despite knowing the dangers of lead, tetraethyl lead was added to gasoline in the United States in the 1920s in order to increase the octane. Since the U.S. government banned lead in vehicle gasoline in 1996 as part of the U.S. Clean Air Act, refineries use alkylation and reforming to develop high-octane gasoline.

Refineries are usually located near population centers to facilitate marketing and distribution of final products.

Marketing is the wholesale and retail distribution of refined petroleum products to business, industry, government, and public consumers. Generally crude oil and petroleum products flow to the markets that provide the highest value to the supplier, which usually means the nearest market first because of lower transportation cost and higher net revenue for the supplier. In practice, however, the trade flow may not follow this pattern due to other factors, such as refining configurations, product demand mix, and product quality specifications.

Gasoline service stations handle the bulk of public consumer sales and oil companies sell their petroleum products directly to factories, power plants, and transportation-related industries. Natural gas sales are almost evenly divided between industrial consumers, electrical providers, and residential and commercial heating.

Because gasoline is a commodity that is more or less the same, competition for customers required creative marketing tactics. Retail gasoline stations offered free services like maps, car washing, and dinnerware. Oil company brands offered credit cards starting in the 1950s to ensure customer loyalty. Radio, billboard, and television ads promoted catchy slogans, additives, and adjectives like “premium” and “high performance” to attract drivers. Advertorials, or sponsored op-eds, were used by Mobil in the New York Times to publish pro-oil industry commentary. Today, social media gives companies a platform to promote various energy initiatives and mitigate negative news.