Blockchain allows independent entities with shared pain points and related interests to form a consortium. The typical the goal is to improve operational performance by sharing reliable data with rapid visibility. What about the blockchain in Oil & Gas?
Starting in 2014, the oil and gas industry experienced volatile and difficult times with lower oil prices. This has led proprietary operators and service companies to increase automation, adopt new technologies and integrate their IT / OT environments. Blockchain can help by ensuring the integrity, traceability and providence of data exchanged between independent entities.
Tata Consultancy Services (TCS) recently informed ARC Advisory Group of its experience and ability with blockchain and how it can be leveraged to allow oil and gas companies to make operational improvements.
What is Blockchain?
Blockchain has recently gained notoriety as the software infrastructure that enables cryptocurrencies. It has proven effective as a means of managing ownership among independent entities without a central authority that uses a distributed peer-to-peer network. Industrial applications have started to emerge for autonomous business processes that extend through a consortium of interested parties.
Blockchain is a secure distributed ledger that provides visibility, a control trail and faster transactions at reduced costs. Blockchain strengthens confidence in complex processes such as those that often occur in oil and gas transactions, helps automate existing business processes, removes intermediaries, prevents fraud and provides transparency. Blockchain uses a combination of cryptography, distributed database and application logic for data integrity and secure transactions. Trust is decentralized and depends on the blockchain protocol without a central authority or an intermediary, such as a government or a bank.
Key features of Blockchain
Blockchain offers several key features that make it a valuable technology for oil and gas companies. These include:
- Real-time registration of transactions and visibility among participants, removal of friction and risk reduction
- Multiple levels of encryption, a distributed database and logic provide data security and self-management for peer-to-peer (P2P) transactions
- Data integrity avoids double spending, fraud and manipulation
- A blockchain transaction can initiate predefined business steps to perform legal business transactions to create smart contracts
Pilot programs for Blockchain in Oil & Gas
In the second half of 2018, some pilot programs have started using blockchains in the oil and gas industry. The common themes in these pilot programs include:
- Collaboration between independent entities with shared pain points and related interests leads them to form a consortium
- Improved operational performance by sharing reliable data with fast visibility
- Have leaders, but all invest and all members of the consortium benefit from it
ARC has reviewed several pilot programs underway in the oil & gas sector. Let's summarize these below.
VAKT Consortium for the trading of crude oil
The VAKT Consortium is piloting a trading platform for crude oil contracts. Replaces a manual system based on paper using FAX, e-mail or electronically registered mail. The documents include letters of credit, invoices and certificates of inspection. The pilot project started in November 2018 and a larger version is expected at the beginning of 2019. Participants include:
- Oil companies: BP, Equinor and Royal Dutch Shell
- Dealers: Gunvor, Mercuria and Koch Supply and Trading
- Banks: ABN Amro ING and Societe Generale
ADNOC platform for Blockchain in oil and gas production
ADNOC is piloting a secure, blockchain-enabled platform to track, validate and execute crude oil transactions from the production well to the customer. The pilot project focuses on the operating companies of ADNOC to automate accounting processes, reduce execution times and improve reliability. It includes 14 specialized subsidiaries and joint ventures for oil and gas exploration and production. The program was announced in December 2018.
Diamond offshore Blockchain perforation service
Diamond offers software to manage the construction of wells. The application of blockchain focuses on the coordination of the construction of wells between operators and subcontractors. Diamond Offshore launched the inclusion of blockchain in June 2018.
Features and Benefits of Blockchain In Oil & Gas
- Secure distributed ledger containing documents and transactions
- End-to-end genealogy with the block data structure
- Payment and invoice balance
- Monitoring of equipment with real-time position for maintenance
Blockchain technology can help oil and gas companies improve their operations in different areas. These include:
- Monitoring of equipment throughout the entire life cycle: from assembly to field operations for the management of inventory and the use of assets
- Maintain the genealogy at the component level to monitor the provenance of materials and equipment, or verify real-time authenticity to reduce fraud or counterfeit parts that cause security problems or unplanned downtime
- Enable smart contracts that automate business processes that involve the acquisition of equipment, the chain of custody for products and supply chain access controls
- It transforms the manual paper and the preservation of digital mail messages with improved visibility, verifiability and immutability. Paper documents are archived and difficult to access during the term of the contract, making it difficult to track change orders and production or revenue sharing contracts
TCS functionality with Blockchain in Oil & Gas
As a well-known global service provider, Tata Consultancy Services (TCS) offers technology services, consulting and business solutions. The company is part of the Tata group, one of India's largest industrial conglomerates. TCS was founded in 1968 as a division and in 1995 was incorporated as a separate entity.
TCS offers a broad portfolio of solutions, services and domain expertise required in nine leading blockchain platforms. This experience can help oil and gas companies to distribute blockchain and achieve corporate value. The adoption of blockchain requires a wide range of technical skills and application knowledge. TCS involvement should speed up the time needed to benefit from reduced risks. The areas in which TCS typically engages include:
- Articulate the blockchain strategy and roadmap
- Validate and develop details of relevant use cases
- Accelerators for blockchain architectures framework and checklists
- Lead PoCs and pilots on a simple and ready-to-use platform
- Take advantage of partnerships and hands-on experience with market platforms
- Implement projects with business integration
Operators, independent exploration and production companies (E & P) and industry stakeholders should increase their level of awareness and understanding of the blockchain. As shown in the current pilot projects, the blockchain is applied to the oil trade, to the construction of wells and to the extraction of crude oil in E & P.
Blockchain allows independent entities with shared pain points and related interests to form a consortium. The goal is to improve operational performance by sharing reliable data with rapid visibility.
The oil and gas industry is operating in difficult times with compressed margins; reduced resources and funding; and a pressing need to find, extract, produce and refine the hydrocarbons in a more economical way.
To implement and exploit digital technologies such as blockchain in the most effective way, operating companies should consider the idea of entering into technology partnerships with companies like TCS that have both sophisticated technical systems and deep expertise in the oil & gas industry that they are essential for achieving operational excellence.
Appropriate technology partnerships can also help ensure implementation, long-term implementation and success at low cost.
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Keywords: Blockchain, Asset Tracking, Digital Transformation, Oil & Gas, Supply Chain Optimization, Tata Consultancy Services (TCS), ARC Advisory Group.