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Can this Digital Ledger Technology address the immediate concerns of the Oil and Gas Companies?
Blockchain has evolved tremendously from its Bitcoin origins and realms of cryptocurrencies. It has proved to be a promising disruptive technology transforming every industry. The fruition of blockchain technology presents a unique set of opportunities to create shared benefits for stakeholders by reducing the need for human verification and reconciliation. According to Gartner, in the timeline of 2017-2030, the value-add of Blockchain is estimated to grow to more than US$176 billion by 2025 and to exceed US$3.1 trillion by 2030. At present, this technology is already being applied in such areas as finance, insurance, media and entertainment, logistics, among many others. Meanwhile, there is one industry that has not participated much in the digitalization race: the oil and gas industry. This is because this industrial sector has a dynamic environment, and faces constant fluctuations in the supply and demand market, along with stress due to varying geopolitical atmosphere and regulatory oversight. Now thanks to the Internet of Things (IoT), Blockchain can form a pipeline carrying this industry towards transformation. Through its digital ledger technology (DLT), it offers the oil and gas industry new opportunities to resolve issues like cross-border transportation, large volumes of transactions, data transparency, open energy trading, asset management, and so on.
Current Scenario
Last year in February, the first Blockchain Oil and Gas Consortium was created in the United States which included industry leaders like Chevron, ConocoPhillips, Equinor, ExxonMobil, Hess, Pioneer Natural Resources and Repsol. Rebecca Hofmann, chairman of the board of directors of the consortium, said in an official statement that the “Oil & Gas Blockchain Consortium is a significant step towards establishing key blockchain standards, frameworks, and capabilities for the oil and gas industry.” She also mentioned that blockchain technology is a catalyst for reimagining the way we do business and the consortium represented a collaborative effort to explore the technology’s potential and leverage learnings to drive industry adoption.
A 2018 Deloitte survey revealed that 72 percent of oil and gas executives expect Blockchain to interrupt the industry. Earlier, the oil and gas industry relied on paper-based transaction processing that is error-prone and bound to create inefficiencies leading to operational losses. Besides, it was less efficient and more prone to contributing a huge portion of expenses to the overall costs, especially when it involved multiple stakeholders in the different time zones. Blockchain helps here by augmenting the efficiency by standardizing regulatory reporting requirements and data formats across various organizations. Along with that, it reduces the number of intercessors and aided players to move products from one checkpoint to the next. Thus, it also helped foster interoperability and transparency.
Types of Oil and Gas Industry
The Oil and Gas Industry is currently divided into three main sectors that compose the complete supply chain in the industry, i.e. Upstream, Midstream, and Downstream companies. According to TATA, the main challenges in each sector are, upstream: data leakage, midstream: data handling and replication, and downstream: integrity and data security. While the upstream companies typically face issues in heavy investment and cooperation among multiple parties, the other two sectors often have to deal with ownership changes, transactions, and information exchanges taking place across multiple companies. Together, they make an ideal candidate for blockchain application. Each of them is adopting blockchain technology to suit its business workflow requirements to improve efficiency at lower operational costs.
Advantages:
Blockchain helps oil and gas industries as follows:
- It helps to record employee track records automatically, and contractor certifications, and other sensitive information on a shared platform, when he boards the rig. This data is transparent and immutable to all who have data access.
- It can improve the accountability of the oil and gas industries by tracking regulated substances effectively at each stage of the supply chain process.
- It minimizes field capture errors
- It reduces overall costs by implementing projects that streamline procedures and reduce the number of intermediaries and improve supply chain management.
- It prevents data leakage by linking varied forms of digital data and controlling quality
- Its DLT databases can allow the automation of several processes associated with maintenance operations. Plus, all oil field maintenance can be managed using mobile apps and cloud-based blockchain platforms.
- It solves the land rights issues by storing the data in the cloud, where these rights can be sold or traded as commodities. E.g. In Georgia and Ghana, blockchain technology is being explored as a viable solution to address high levels of land ownership disputes. Even in nations like India, Sweden, Columbia, and Georgia research is being carried on blockchain technology to create platforms that will store sale and land titles records and create an immutable audit trail of property ownership. This data can be accessed in real-time to clarify disputes and give tax authorities accurate land titles when requested.
- It has the potential to save oil and gas companies at least five percent in freight expenses through improved invoice accuracy, reduction of overpayment, and disintermediation of third-party vendors, says Accenture.
- It can address reconciliation issues by reducing or removing fractional costs that make current transactions slower and more expensive. By having Blockchain-based smart contracts, manual transactions and third-party involvement will be will eliminate by making all transactions automatic. Natixis, IBM, and Trafigura built a DLT platform on the Linux Hyperledger Fabric. They launched it in 2017, as the first blockchain solution in commodity trade finance for U.S. crude oil transactions. This DLT helps buyers, sellers, and their respective banks transact on the same ledger and simultaneously view and share data.
- It shall form the platforms by which IoT data is collected, stored, and shared within the energy sector.
- It enables real-time data sharing and transparency with regulatory authorities. This can help enhance compliance and resolve convoluted issues in a matter of days.
To surmise, Blockchain does present plenty of solutions for the Oil and gas industry. Though this revolution is in the nascent stage, companies can still benefit from the potentials. Now when the industry majors in all sectors upstream, midstream and downstream, are collaborating for researching on this DLT technology it implies that the excitement behind Blockchain is real and it is the panacea to the industry challenges. Besides optimization and transparency, it also boosts efficiency and cuts unnecessary costs.