Many may know that the energy infrastructure industry is involved with moving around crude oil and natural gas across America, but these companies are also involved in a much larger portion of the total energy value chain.

According to Alerian, hydrocarbons need to be gathered and, in the case of natural gas, processed, which involves connecting wells to major pipelines through a series of smaller pipelines. These gathering pipelines transfer crude oil or natural gas from the wellhead. Processing is required for natural gas and involves the removal of potential contaminants and separation of natural gas liquids.

Throughout the gathering and processing stage, energy infrastructure companies can obtain fee-based revenues by charging upstream companies a set fee for every million British Thermal Units of natural gas or barrel of oil gathered or processed. The contracts can include a minimum commitment, which provides further cash flow stability. Additionally, some will have different compensation, which includes payment in the form of keep-whole contracts that allow them to keep the extracted NGLs and sell them to third parties at market prices.

Next, at a fractionation facility, NGLs are separated into their usable components of ethane, propane, butane, isobutane, and natural gasoline. The fractionation process is also largely done on a fee-for-service basis, which is based on the amount of volumes fractionated. The high cost of NGL handling, storage, and transportation additionally factors into the volumes of NGLs that will be fractionated.

The transportation companies take up the lion’s share of the energy infrastructure sector. The fee-based midstream business model is the most well-known and most frequently referenced, since it is one of the simplest to understand. The midstream company will collect a fee per unit of hydrocarbon transported.

Lastly, the midstream space also covers energy storage. For example, natural gas that is not immediately required for electricity generation or heating is stored until required, along with crude oil waiting to be refined and refined products (such as gasoline, diesel, and jet fuel) waiting to be consumed. These storage facilities also operate on a fee-based business model like renting a storage space to house the raw materials.

For more news, information, and strategy, visit the Energy Infrastructure Channel.