The future of the vast oil and gas industry depends on blockchain
The age of digital transformation has arrived, leading traditional industries to adopt new technologies to accommodate a fully digital future. As such, it shouldn’t come as a surprise that the trillion dollar oil and gas industry has quietly started to leverage blockchain technology for business success.
Douglas Heintzman, chief catalyst at the Blockchain Research Institute, told Cointelegraph that the oil and gas sector is particularly ripe for blockchain development due to its uniquely positioned supply chain: “There are many participants in downstream and upstream operations within the oil and gas industry.” He added further:
“The industry must now look at all the processes built and developed over the last 80 years and ask themselves how to drive radical amounts of productivity and efficiency into the system.”
While there are a number of ways that blockchain can be applied to an industry like oil and gas, the technology specifically provides a single source of truth within a complex sector containing multiple participants.
Raj Rapaka, digital innovation adviser with ExxonMobil and board member of Blockchain for Energy — —a consortium of energy companies focused on bringing blockchain-based solutions to the sector — told Cointelegraph that the oil and gas industry primarily recognizes blockchain as an important technology used to reduce friction when interacting with external parties: “There are many suppliers, vendors, contractors and other parties involved in the oil and gas sector. Blockchain provides a single source of truth, along with other features that make the technology appealing.”
According to Rapaka, these specific characteristics are being pushed within the oil and gas industry to ensure recognition that the technology will help the sector become more efficient moving forward.
Smart contracts automate manual processes
To put this in perspective, Rapaka mentioned that Blockchain for Energy recently helped oil giant Equinor leverage smart contracts to confirm various transactions.
Rebecca Hofmann, president and CEO of Blockchain for Energy, told Cointelegraph that the consortium initially piloted a solution with blockchain company Data Gumbo back in 2019 and 2020. The pilot combined industry operators — along with their customers, suppliers and vendors — and incorporated real-time sensors to gather data to validate transactions across a blockchain network.
According to Hofmann, the “Commodity Transport smart contract” solution was first piloted with produced water to prove that the technology was capable of helping with end-to-end automation:
“We call this ‘extreme automation’ because everything is touchless. Connected IoT sensors gather the data, which then gets written to a blockchain ledger for validation. These invoices are then approved by smart contracts, which create invoices for automatic payments.”
Given the success of the trial, Hofmann explained that Blockchain for Energy helped automate an extremely manual process within the oil and gas industry supply chain. “There are about 23 manual touches that take place between all major oil and gas companies within the supply chain. We now have this number down to four.”
Andrew Bruce, founder and CEO of Data Gumbo, told Cointelegraph that following Blockchain for Energy’s pilot, Equinor has been able to expand its blockchain use cases, resulting in millions of dollars worth of savings:
“Equinor and other global oil and gas companies use field sensors to transmit near real-time data monitoring and encode onto the private, permissioned smart contract network. GumboNet effectively creates an auditable, immutable, and shared source of truth for Equinor and other operators, and their suppliers.”
In turn, Bruce remarked that smart contracts build trust to significantly reduce the cost and resources necessary to execute commercial transactions automatically. “A smart contract on Data Gumbo’s GumboNet for example can be programmed to trigger payments to a contractor when a sensor indicates a specific milestone is reached, like when a drill bit has reached a certain depth,” he said. In other words, a lengthy process involving invoicing and payments is reduced to just a few days, resulting in substantial savings, financial transparency and improvements in efficiency.
While Equinor may be an early adopter of smart contracts, Paul Brody, global blockchain leader at EY, further told Cointelegraph that smart contracts appear to work quite well for the oil and gas sector:
“The industry itself is very complicated. There are layers and layers of contractors, sub-contractors, and complex distributions of rights and assets and income streams. These are hard to administer manually, but it turns out, they work really well as smart contracts.”
Brody added that since the oil and gas industry’s output is highly standardized, the sector is a perfect candidate for managing digital tokens: “You can easily represent these assets and deploy them into more complex DeFi and smart-contracting ecosystems.”
While tokenization for the oil and gas industry is still a developing concept, Hofmann explained that Blockchain for Energy is currently piloting a solution with a blockchain company, BlockApps, to tokenize the seismic entitlement processes. “Seismic entitlement involves large amounts of data that must be kept for over 60 years,” she said. According to Hofmann, tokenization is needed to help track the rights and obligations of those seismic assets to facilitate the purchase, sale and lease of those assets and even monetize the unwanted data.
Blockchain for a greener future
It’s also important to point out that the oil and gas industry is using blockchain to ensure a greener future. While there are a number of ways that this can be applied, Brody believes that an area likely to take off is the use of different blockchains to measure carbon outputs and offsets: “We envision marketplaces that allow Fortune 1000 companies that have pledged to be climate neutral to use smart contracts to track their carbon usage and automatically purchase offsets against them.”
While this is still an emerging concept, some companies have begun to use blockchain to raise awareness regarding energy consumption. For example, the energy supplier Restart Energy One recently launched a blockchain-based platform that allows companies to acquire sustainability certificates in the form of nonfungible tokens, or NFTs. In addition, Global investment firm SkyBridge Capital recently partnered with carbon credit provider Moss to purchase digital tokens representing carbon offsets.
Moreover, Alexis Pappas, chief innovation officer of GuildOne — a Canadian blockchain and digital finance firm specializing in energy sector transaction and data automation — told Cointelegraph that GuildOne has developed its ESG1 platform, which applies smart contract software and blockchain applications to solve one of the oil and gas industry’s biggest challenges — creating verified value from emissions reductions.
According to Pappas, “ESG1 ingests data from IoT sensors to provide proof-of-provenance for sequestered carbon, and automatically generates carbon credits as tokens using the Corda and Cardano blockchain platforms.”
Will oil and gas companies slowly, but surely, adopt blockchain concepts?
While it’s clear that blockchain technology can help the oil and gas industry digitize business processes, the legacy technology and ideals that the sector is built upon may create challenges in terms of speedy adoption.
For instance, Brody pointed out that oil and gas is not only an old industry with a lot of legacy technology but that it’s also highly cyclical. “The feast-famine ups and downs make it hard sometimes for companies to sustain long-term investment programs that aren’t directly related to things like drilling and exploration.”
However, Brody believes that the cost savings and operational efficiencies of blockchain will drive adoption. “It won’t be as fast as for consumers, but as legacy systems age out, their replacements are more and more likely to be blockchain-related.”
Rapaka added that education is still an issue that must be addressed. He further pointed out that this isn’t just about addressing how blockchain works in a technology stack but rather about educating business leaders on how the technology can be applied to make processes more efficient and valuable.
Heintzman also believes that there is a clear lack of literacy on the topic: “Not enough people understand this new underlying platform technology. There is also a cultural issue in terms of adopting a new technology within an industry that has operated in a certain way for years.” He went on to add: “These challenges are not distinctive to this sector, but it certainly is more magnified.”Source