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Published:Monday, June 03, 2019 3:16 PM

Leveraging Blockchain Technology in Oil & Gas Industry

Leveraging Blockchain Technology in Oil & Gas Industry

The oil & gas industry has usually been a moderate adopter of new advancements especially technological advancements. Regardless of whether it is robotics or Big Data analytics, the industry's revolution inactivity can be attributed to an inherent shield from change and the worries emerging out of fear of failed investments. Oil & gas industry being highly capital intensive, most organizations have kept up business as usual for extended timeframes and grabbed just real disruption, rather than regular enhancements. Lately, the industry is understanding the cons ignoring technological advancements; encouraging officials to concentrate on quickening responsiveness and guaranteeing prompt satisfaction of consumer demands. As Industry 4.0 gains thrust in the oil & gas business, blockchain is one of the technological advances ready to drive wide-spread digital change.
The industry is well-versed with technological innovation on the operations side. Extracting resources out of the ground through hydraulic fracturing, 3-D seismic and other extraction processes is a hallmark of the industry’s growth. Although, the managerial functions are still done in a somewhat old-style way. The Blockchain technology can help the industry become more effective by restructuring these old-style methods.
How Block Chain Works?
Let’s look at various point of interventions across the hydrocarbon value chain, where Blockchain technology can be exploited to reap its benefits. Hydrocarbon value chain consist of upstream, mid-stream, downstream sectors. Companies operate in any one of the sectors or combination of sectors.
Given the widespread and multifaceted nature of the hydrocarbon value chains, information security issues and risks can arise at numerous intervention points across the chain, resulting in losses for the company.
Let’s look at the hydrocarbon value chain and issues across intervention points.
Benefits of using Block Chain against intervention points
Benefits of using Block Chain Technology
Data Leakage
Not processed effectively
Partial Data may lead to wrong decision making
Prevents data leakage with respect to source, Controls quality to prevent further data loss
Data Management & Duplication
may be caused by the duplication of contracts by different parties
Increase operational cost, delayed transaction, error
Provides clarity and transparency,eliminate the costs and time involved in third party settlements
Integrity & Security
make the value chain vulnerable to attacks
Fraud, cyberattacks, increased cost of authentication
Enables efficient performance lifecycle management.
Table 1: Efficacy of block chain in tackling major issues across the hydrocarbon value chain
Some of the challenges that the Oil & Gas industry is facing:
§   Oil & gas transactions often involve documentation like purchase order, shipping documents, insurance, bank release funds etc.  which makes the overall process complex.
§     Making all such documents like compliant document, audits, accompanying paperwork accessible to stakeholders is a laborious process.
§    Oil & gas supply chain is huge network of various parties like transporters, contractors, clienteles on worldwide scale.
§    Oil & gas contracts may involve cross-border payments, which make payment structure intricate as cross-border payments are time-intensive and incur additional costs.
Blockchain technology can help ease several of these problems as it implants trust into the very nature of transactions. With blockchain technology, all parties involved could likely use a well-known, distributed network of computers that keep record of every economic transaction on the network. Private blockchain network different from public blockchain network used by cryptocurrencies could be used by oil & gas companies. Private blockchain network allows only invited parties or nodes to view the data on transaction which will secure it from outside parties. Transactional information can be viewed by anyone on public blockchain network.
The potential use-cases and benefits blockchain technology could deliver to the oil & gas industry
1.    Digitalization of transactions
Using blockchain, transactions can be digitized that ensures improved security, enhanced transparency and augmented efficiency. As all trading parties including purchaser and supplier along with their individual banks are on the same block chain. All details relating to the transaction is simultaneously visible to everyone which increases transparency in the process. This step could also lessen the threat due to scam and cybercrime because of the distributed nature of blockchain while at the same time reducing overhead costs, cash cycle times and cost intermediaries.
2.    Transaction in Cryptocurrency
With oil being one the most valuable conventional energy sources in the world, a cryptocurrency attached to it could be a viable replacement to old-style 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 intermediate like a bank.
3.    Increased compliance–
The oil & gas industry is among the most strictly regulated in the world with various regulatory authorities from environmental to taxation. Regulatory authorities will be able to maximize visibility in the industry as all the transactional data is stored on a blockchain network which can be accessed in real time.
4.    Improved data storage for IoT- 
IoT is a system of interconnected computing devices that can transfer data over a network. The oil and gas industry depend intensely on IoT to screen activities and increment their productivity. But the current IoT models depend on centralized models of communication like a server/ client model. Regardless of being in close proximity, these IoT gadgets need to exchange information over the web and intensely relies upon brought together capacity arrangements which could be in danger of cyberattacks. An exquisite solution to this is to introduce blockchain, which can distribute the computational power needed over a network of computers instead of a central computer. Due to the decentralized nature of the network, data stored will also be less likely to succumb to cyberattacks.
5.    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.
Energy companies using blockchain technology for the following purposes:
1.    Hydrocarbon Tracking
2.    Handling letter of credit/indemnity
3.    For monitoring and tracking fleet
4.    Retail B2C payments in cryptocurrency
5.    Commodity trading
6.    Joint venture accounting and procurement
7.    Intragroup billing between business
Key take-aways
Given its multiple advantages, blockchain is set to become the technology that will fuel the next boom in the oil & gas industry, which is in need of a significant renovation. As transparency, scalability, efficiency, and security become imperative to success for new-age O&G businesses, blockchain can act as the harbinger of quality, efficiency, and agility. Blockchain-enabled smart contracts, certifications, and compliance are already driving automation of O&G processes, in turn, improving transparency, operational efficiencies, and reducing costs. In the future, intelligent and agile blockchain-enabled O&G networks will morph into AI enabled cognitive networks, helping companies drive even greater value from their assets. Although, it is not the solution for all the problems dogging the industry. But the numerous benefits it could provide are noteworthy enough to adopt integrating blockchain technology into the current oil & gas ecosystem and take a rational step forward for the industry.

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