Blockchain, the underlying technology behind the sensational Bitcoin, could profoundly affect the oil and gas industry by cutting down on operational time and costs while also introducing more transparency to the industry.
The technology recently garnered headlines when a group of seven oil companies, including American giants such as ExxonMobil and Chevron, agreed to form the first industry blockchain consortium. The consortium aims to explore the potential benefits that blockchain technology can deliver to the space.
Interestingly, Industry giants such as ExxonMobil are not alone in exploring the potential use cases of blockchain in the Energy sector, instead, they are partnering startups such as Vakt, which is a digital ecosystem for physical post-trade processing. Startups like Vakt that aim to mitigate some of the problems in the energy sector using blockchain technology have raised a whopping $490 million.
Seven Use Cases for Blockchain Technology in the Oil and Gas Industry
Blockchain technology can help mitigate several of back-office problems as it embeds trust into the very nature of transactions. With blockchain technology, all parties involved could likely use an established, distributed network of computers that keep track of every economic transaction on the network.
Oil and gas companies will likely use a private blockchain network, which is different from the public blockchain networks used in the case of Bitcoin and other cryptocurrencies. In essence, a private blockchain only allows invited parties or nodes to view the data on transactions; the polar opposite of these are public blockchains such as that of Bitcoin where the transactional information can be viewed by literally anyone with an Internet connection. This means that a private blockchain can boost trust among various parties within the industry from suppliers to shippers, while still being secure from outside parties.
Crude Oil Transactions Could Be Digitized
Using blockchain, crude oil transactions can be digitized, ensuring enhanced security, improved transparency, and optimized efficiency. Natixis, a French corporate and investment bank was the first to pioneer a blockchain solution in commodity trade for US crude oil transactions.
Because all trading parties, including buyer and seller along with their respective banks, are on the same distributed ledger, all details pertaining to the transaction are simultaneously visible to everyone, increasing transparency in the process. This step could also reduce the threat of fraud and cybercrime because of the distributed nature of blockchain while reducing overhead costs, cash cycle times, and cost intermediaries.
Improved Trust Among Parties in the Industry
A private blockchain network could safely store the track record of employee and contractor certifications (e.g., H2S training, first aid, welding). On top of boosting trust between companies and contractors/employees, such a blockchain network could also help cut down on hiring costs while ensuring improved job safety and performance.
A Cryptocurrency Pegged Against Oil
With oil being one the more valuable nonrenewable energy sources in the world, a cryptocurrency pegged to it could be a viable replacement to traditional financial transactions. On top of this, such a cryptocurrency could enable direct transfer of value between various parties in the industry without the need for a trusted intermediary like a bank.
Augmented Compliance
The oil and gas industry is among the most heavily regulated in the world with protocols deriving from various regulatory authorities from environmental to taxation. Regulatory authorities will be able to maximize visibility in the industry because all the transactional data is stored on a blockchain network, which can be accessed in real time.
Enhanced Land Record Management
It is critical for oil and gas companies to properly manage land sale records, which represent millions of dollars of investments. The traditional process of maintaining such a record is cumbersome and is prone to forgery and other illicit activities. Such an important piece of documentation could be stored on the blockchain, which can create an immutable record of land ownership, transfer, and value. In Georgia and Ghana, where there are high levels of land ownership disputes, blockchain technology is being explored as a viable solution.
Improved Data Storage for Internet of Things
The Internet of things (IOT) is a system of interconnected computing devices or mechanical machines that are able to transfer data over a network. The oil and gas industry relies heavily on IOT devices to monitor operations and increase their efficiency. But the catch is that current IOT models depend on centralized models of communication such as a server/client model. Despite being in close proximity , these IOT devices have to transfer data over the Internet and heavily rely on centralized storage solutions that could be at risk of cyberattacks.
An elegant solution to this is to introduce blockchain, which can distribute the computational power needed over a network of computers instead of a central computer. Because of the decentralized nature of the network, data stored also will be less likely to succumb to cyberattacks.
Hydrocarbon Tracking
Blockchain technology can be used to track regulated substances effectively at each stage of the supply chain process. This can help improve accountability in the industry.
While blockchain technology could improve the operation efficiency of the oil and gas industry significantly by enhancing trust among parties and enabling more transparent transactions at each stage of the process, it is not a panacea for all of the problems plaguing the industry. But the numerous benefits it could provide are significant enough to assume that integrating blockchain technology into the current oil and gas ecosystem seems like the rational step forward for the industry.