Unleashing Innovation in Oil & Gas Industry With Blockchain: 11 Top Use Cases & Benefits
Energy and Resources | 10 min READ
    
Blockchain is increasingly becoming too compelling a technology that can be ignored for the oil & gas sector as it can offer new approaches to services contracts, price discovery, and the entire transaction life cycle, which results in potential cost savings and process efficiencies. Besides, the benefits of Blockchain in oil and gas industry also reflect in the form of improved transparency, efficiency, and data security.
Todd Wolfe
Todd Wolfe

Director

OT, Energy & Utilities Vertical

Birlasoft

 
Blockchain Technology in Oil and Gas Industry
Globally, Blockchain has been registering unparalleled growth recently owing to the increasing demand for cryptocurrency and growing digitalization, making it a US$3024.54 million market in the year 2020. The COVID-19 pandemic has further heightened the digital transformation in almost all industry verticals due to supply chain disruptions, lockdowns, and many physical restrictions. It is no wonder that Blockchain has been increasingly finding acceptance in the oil & gas sector as well, owing to the multitude of applications and areas that it can influence and impact in the O&G industry.
With the industry deploying sensor technology to its fullest, Blockchain aids in storing transactions and accounting data directly on these devices. By connecting assets directly to services contracts, Blockchain dramatically reduces process time and ultimately transforms contracting by offering a secured collaboration. While the adoption is still in its infancy, the potential of Blockchain in the oil & gas sector is set to reach greater heights once companies realize its true potential.
Blockchain Oil and Gas Use Cases
Blockchain in the oil & gas industry offers many advantages to companies, first & foremost being the near-real-time recording of transactions and visibility among participants, eventually leading to reduced risks. Data integration helps in eliminating any chances of double spending, fraud, or manipulation. Let’s talk of a couple of Oil and gas companies using blockchain to its fullest potential. BHP Billiton and Petroteq have implemented Blockchain to enhance operational efficiency by tracking, monitoring, and controlling their diverse resources. In short, Blockchain applications in oil and gas industry are on the rise and it’s opening up newer avenues for increased quality & efficiency.
  1. Digitalization of Crude Oil Transactions
  2. Blockchain Network
  3. Regulatory Compliance
  4. Data Storage & Management
  5. Supply Chain Transparency
  6. Commodity Trading
  7. Smart Contracts
  8. Land Record Management
  9. Financial Reconciliation
  10. Wells and Equipment Maintenance
  11. Waste Management & Recycling
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#1 Digitalization of Crude Oil Transactions
The complex nature of the oil & gas industry involves multiple stakeholders and partners throughout the value chain, and each of the suppliers maintains their ledger in compliance with their policies and procedures. This makes most business transactions inefficient because of the duplication of a single contract by each participant in the supply chain. It is expensive because the duplication of effort and the need for third-party validation of transactions escalates the administrative cost of doing business and makes it vulnerable to cyberattacks because suppliers maintain their records.
Blockchain facilitates embedding the contract in the transaction database for asset transfer. The contract is executed only once it is validated and deployed by all the parties. All ledger transactions require consensus across the network, where the origin of the information is not subject to ambiguity and accessible to all participants, making transactions immutable. Blockchain offers an easy way to transfer information and automatically tracks each transaction. It enables some accounting, finance, and compliance tasks to be automated, reducing operating expenses and the frequency of transactional errors. Commodity markets also benefit significantly by shifting to Blockchain payments and reducing the cost of payment transactions.
#2 Blockchain Network
Major oil & gas industry players are employing Blockchain networks to drive forward unprecedented efficiencies with smart contracts, reduced market friction, and eliminating the need for intermediaries to carry out operations seamlessly. Each node in the Blockchain network contains the same information, implying that once a transaction is committed on that network, it is practically impossible to change the history of that transaction, as all parties in the network would need to agree to make the change, confirming every historical record is the golden copy.
#3 Regulatory Compliance
One among the most heavily regulated globally with protocols deriving from various regulatory authorities from environmental to taxation, oil & gas companies have to comply with many stringent norms. Through Blockchain, regulatory authorities are better equipped to maximize visibility in the industry because the Blockchain network stores all the transactional data, which can be accessed in real-time.
When it comes to regulatory supervision, with its increased transparency and better reporting streams, blockchain technology complies with all three reporting frameworks: the Extractive Industries Transparency Initiative, the European Union directives, and the Dodd-Frank Act. Additionally, sharing certificates, attestations, and reports on a Blockchain can relieve companies from compliance hardships.
Unleashing Innovation in Oil & Gas Industry With Blockchain: 11 Top Use Cases & Benefits
#4 Data Storage & Management
The complex nature of the oil & gas industry makes it a daunting task for companies to collect effectively, record, and coordinate data on an oilfield or well and between all involved stakeholders. Blockchain technology facilitates data storage and maintenance by providing a single repository of all information, determined and managed by a consortium of stakeholders. The application of smart contracts automatically structures that data into a digestible format, eliminating manual re-organization.
Blockchain Technology in Oil and Gas Industry
Blockchain Technology in Oil and Gas Industry

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#5 Supply Chain Transparency
Oil & gas operations are highly complex due to their vast supply chain spread across the globe, involving physical side suppliers, producers, and distributors. The logistics chain requires support streams for invoicing, documentation, and regulatory requirements. This enormous supply chain footprint can ultimately slow down the operations, such as transaction approval, as it involves multiple stakeholders operating in different time zones. These challenges have triggered companies to identify ways to optimize supply chain and transaction processing.
Blockchain and smart contracts, along with IoT devices, can change the traditional supply chain for oil & gas with the benefits of transparency and immutability. Transparency is achieved by the distributed storage and the embedded smart contracts, enabling Blockchain to govern the entire business process management (BPM). Blockchain takes the supply chain of oil & gas companies to the next level by providing a secured system for recording data and implementing and running smart contracts. With the power of smart contracts and IoT devices, the oil supply chain can have the ability of provenance and security.
For instance, Shell has initiated a pilot project to create a decentralized digital passport system to authenticate equipment, parts, and products. With the help of Blockchain technology, it creates a digital passport for each asset/equipment, thereby creating a system that enables data to be disclosed and exchanged between certain parties in a supply chain. In turn, this allows Shell to enhance tracking and management of safety-critical process equipment or products throughout their life cycles. Through deploying these technology tools, Shell is eying to reduce costs, increase productivity and help ensure safer operations for every party within the ecosystem.
#6 Commodity Trading
Oil & gas commodity trading is tricky, with crude oil being one of the most globally traded commodities in today's economy. Companies currently use proprietary systems to track, manage, and record data to perform these trades. To track commodity trading, oil & gas companies maintain several complicated and siloed ledgers.
These decentralized systems are difficult and expensive to maintain and are often prone to manipulation & hacking. Blockchain technologies are fast disrupting the trading in energy markets. By trading physical commodities on a Blockchain solution, commodity traders get rewarded with enhanced reliability and auditability, improved access to data, and increased speed of exchange.
Distributed ledger technologies and smart contracts permit a generating unit to directly trade with a consumer or a retail energy supplier via autonomous trading agents. The agent searches for the best deal in the marketplace basis the consumer's demand. The agreement gets safely recorded in the Blockchain and automatically executed at the specified time of delivery.
Payments occur automatically at the time of delivery as specified in the agreed contract. Through the distributed ledger, the transaction data is made available to all parties and the system operator. To capture the expanse of Blockchain, BP is already working on a platform for energy commodity trading.
#7 Smart Contracts
Oil & gas is a highly complex industry, sitting on the business of millions of barrels of oil and cubic meters of gas being bought and sold on international markets every day. Such humungous volume entails lengthy and complicated contracts between the trading parties. To manage such a complex network and facilitate the global distribution of oil & gas, the cross-border oil & gas transaction parties have actively started implementing Blockchain platforms and smart contracts. A smart contract can significantly decrease paperwork, streamline the process, enhance efficiency, and save costs.
Running in the Ethereum Virtual Machine, the smart contracts receive transaction requests and events from outside and generate new transactions and events by initiating the running code logic in advance. The results of the smart contract then continuously update the status of the ledger on the Ethereum network, and these modifications cannot be forged or manipulated once confirmed. Additionally, it doesn't require a third-party intervention, which makes it secure.
#8 Land Record Management
The most critical aspect for oil and gas companies has been systematically managing land sale records, which are worth millions of dollars in investments. Earlier, maintaining such records used to be cumbersome and was prone to forgery and other illegal actions. With the incorporation of Blockchain, such critically important data can be stored most safely, creating an immutable record of land ownership, transfer and value.
For instance, Georgia and Ghana have had a history of reporting high levels of land ownership disputes. To improvise the situation, these two countries are exploring Blockchain technology as a feasible solution.
#9 Financial Reconciliation
As with traditional auditing, confirmation of transactions and balances on firms' accounting ledgers only happens at the end of the reporting period. When Blockchain enters the financial territory, auditors can immediately receive the immutable record of transactions, enabling continuous auditing for companies.
Additionally, Blockchain eliminates the need to enter accounting information into multiple databases and potentially removes the need for auditors to reconcile disparate ledgers, thanks to its distributed ledger technology (DLT). This saves substantial amounts of time and reduces the risk of human error. In short, the real-time availability of accounting data augurs well for accounting data reconciliation.
#10 Wells and Equipment Maintenance
In September 2020, a Netherlands oil & gas company, Nederlandse Aardolie Maatschappij (NAM), was fined 125,000 euros by the state services, the reason being not taking adequate measures to prevent leakages of hazardous substances. Besides, the company was also made to pay for the damage and clean-up costs, which added up to more than 1.3 million euros. Such incidents reflect the critical importance of timely equipment maintenance, and a Blockchain-powered system helps manage such complex tasks by providing real-time and easily accessible status data.
Blockchain is one of the most effective and cost-efficient methods for dealing with risks and minimizing casualties. Oil & Gas companies can utilize a decentralized network of IoT devices through Blockchain that triggers alerts and immediately notifies corresponding personnel. Sensing the emergency alert and quickly attending to the potential mishaps and equipment breakdown scenarios allow companies to improve fail-proof techniques and prevent future incidents.
#11 Waste Management & Recycling
It's a known fact that industries at large are struggling to ensure proper waste management protocols. The problem exacerbates when it comes to the oil & gas industry, which deals with wastes that can be dangerously harmful to the environment and the people. Through Performance-based Contracts (PBC), which work through a series of smart contracts, companies can code waste management and resource optimization into daily operations.
In such a way, the optimization of waste products gets aligned with other economic incentives and promotes recycling. PBCs help companies align their short- and long-term goals among all stakeholders to support a more profitable, safer, and more efficient well.
Future of Blockchain In Oil and Gas
Blockchain, fondly known as the 'Trust Platform,' has become a favorite of many global energy companies due to its superior advantages over others. With transparency, scalability, efficiency, and security driving the success of new-age O&G businesses, Blockchain will find increased acceptance in the industry to enhance quality, efficiency, and agility.
In the future, intelligent and responsive Blockchain-enabled O&G networks will transform into AI-enabled cognitive networks, facilitating companies to garner greater value from their assets.
 
 
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