The energy industry consists of three separate but interdependent sectors, arranged like a vertical three-ring chain, with each section linked to another in descending order. The chain link at the very top of the chain is called the upstream sector; the link in the middle is called the midstream sector; and the bottom link is called the downstream sector. In the energy industry, this three-section chain is called the energy value chain, and it represents a series of activities that occur to ultimately deliver a valuable product or service to end users – the part that is most visible to us.
Beginning at the source
The energy value chain begins in the upstream segment of the energy sector, which focuses on the extraction of hydrocarbons such as crude oil and natural gas from underground reservoirs. Businesses in the upstream sector are involved primarily with exploration and production. These companies search for underground or underwater sources of crude oil and natural gas, drill exploratory wells and then drill and operate commercially viable wells.
Ancillary businesses that support the upstream sector include drilling companies, most of which are contractors hired by the oil and gas producers for a specified period of time, as well as service firms that provide exploration and drilling technologies, data management systems and field services firms that manufacture, repair and maintain equipment used in oil and natural gas drilling and extraction, and even pump manufacturers, which make the myriad pumps used in oil and natural gas extraction.