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DOWNSTREAM
Downstream commonly refers to the sections of the oil industry involved in the refining of crude oil and the distribution, marketing and sales of refinery products.
Downstream also applies to natural gas distribution and retailing.
Oil refineries produce many products other than gasoline or petrol, including liquefied petroleum gas (LPG), diesel, jet fuel and lubricants.
Products derived by refiners from crude oil are further processed in petrochemical plants to create many other products for use by industry and consumers. These include plastics, antifreeze and fertilisers.
One of the main by-products of refining is sulfur, which occurs naturally in most crude oils.
Some downstream companies are among the world’s best-known brand names thanks to their global networks for marketing and retailing gasoline or petrol.
These companies are typically also in the business of exploration and production – the upstream sector. By following a vertically integrated business model, oil companies can create more value for their shareholders.
The downstream industry requires very large capital investments. Profit margins are notoriously volatile, which is creating a trend towards the construction of very large refineries that can utilise their scale to lower production costs.
Capital costs are increasing as a result of tougher environmental standards around the world, which require refiners to cut the percentage of sulfur remaining in their products.
According to the US Government’s Energy Information Administration, the world’s total crude oil refining capacity is about 85 million barrels per day. The US has the most capacity (17.4 million barrels), followed by China (6.3) and Russia (5.3).
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