The potential power of blockchain technology
Originally posted by Christophe Bourdeau @ gastoday.com.au
Yet another step into the digital age is upon the oil and gas sector, this time in the form of the revolutionary blockchain technology.
The domestic upstream oil and gas industry is amongst the most promising and innovative globally, having contributed more than $300 billion to our local economy and continually playing an important part in the growth and future of Australia.
With LNG set to become the second biggest Australian resources export by dollar value in 2019, the stakes are high for oil and gas players as they face intense pressures to reduce cost and improve productivity.
In an environment of volatile oil prices, sustained bottom-line pressure and changing energy portfolios, upstream oil and gas operators are increasingly looking to innovate and simplify operations with standard processes and automation.
The industry has already embraced a range of new technologies that have created new efficiencies in exploration and production, such as artificial intelligence, big data and the cloud.
These have mostly been focused on the core operations, but what about the back office?
As a supply chain intensive industry, the prevalence of siloed databases and infrastructures still presents significant challenges, impacting overall performance.
A new technology which is being increasingly explored, tested and adopted is blockchain technology, which has the potential to revolutionise the complexities of the supply chain for oil and gas companies in Australia, bringing transparency and security to the industry.
Blockchain, the underlying technology of cryptocurrencies such as Bitcoin, is being applied across a wide range of industries, where it is recognised for its transformative ability to safely and securely store data across multiple stakeholders.
A new form of database, blockchain, or ‘distributed ledger technology’, fundamentally changes how data is managed.
With blockchain, every party along the supply chain can work together to streamline and integrate processes in a controlled and secure way.
For the oil and gas industry, blockchain can create efficiencies, minimise error, modernise trade and transform processes, including logistics, provenance, asset management and quality, procurement, joint ventures, mergers and acquisitions.
There are mounting cases across the globe pointing to the advantages of blockchain technology.
In September 2018, a new blockchain platform, komgo SA, was launched to facilitate oil and gas deals, backed by Shell, BP, Equinor and banking giant Citi.
Pemex, the Mexican state-owned petroleum company, has also announced it plans to use a blockchain platform to manage its oil and gas supply chain.
Accenture’s research found that 70 percent of upstream leaders planned to spend significantly more over the next five years on digital technologies, including blockchain.
This desire for digital technologies is reflected in blockchain’s projected growth, as the global blockchain technology market size is expected to reach $7.59 billion by 2024, according to Grand View research.
Accenture sees blockchain revolutionising business operations in the Australian oil and gas industry in the following three ways.
Blockchain is particularly useful for Australian oil and gas companies that have substantial transportation expenditures, processing thousands of freight transactions each day.
This technology allows for secure transactions to be made and shipment invoices to be authenticated immediately.
Complex supply chains can be monitored and appropriately measured without need for intermediation from a central authority.
Overall, this significantly reduces process costs associated with logistic-heavy supply chains in an ever-globalised market.
With many vulnerable business transactions at stake, blockchain has the capability to help oil and gas companies track all related components and assets, and to share records among business partners.
It provides a framework for oil and gas companies to register contractors, helping them to track performance, quality and reliability.
Oil and gas companies frequently contract with third-party blenders to manufacture specialty products.
The risk of counterfeits, which can bleed revenue and erode the value of a respected brand, is a concern for manufacturers.
With blockchain, oil and gas companies can provide an immutable audit trail of the equipment used across its lifecycle.
As an example, mining giant BHP is running a proof-of-concept, called Project Rai Stones, to use blockchain to track well-bored samples, which are ordinarily tracked using spreadsheets and email.
Well-bored samples are expensive to acquire and can result in high penalties as well as loss of reputation if lost or damaged.
Having an accurate trail of equipment provides greater transparency and allows BHP to better understand any issues and improve any tools accordingly.
Improving productivity and quality
Blockchain can also support new business models in the oil and gas industry and support critical operations such as trading.
As an example, crude oil is one of Australia’s most traded commodities across the globe.
The aforementioned komgo SA is a new trading platform that uses blockchain to deliver real-time tracking and certification technology to manage physical oil and gas transactions from trade entry, shipping, to final settlement without the need for third-party interaction.
As well as removing added costs of paperwork and human error, this platform also provides greater transparency of commodity movements.
Additionally, the implementation of smart performance-based contracts on a shared blockchain can enact and improve interaction between companies to optimise communication, reconciliation, and data management that is necessary for all cooperative stages of oil and gas production.
The blockchan benefit
Blockchain is set to transform the Australian oil and gas industry, and companies should act now to unlock trapped value.
Oil and gas operators and oil field service companies such as BP, Shell, ENI, and Petrotec are already investing in blockchain, and as one of the strongest resource market globally, Australian oil and gas companies are well positioned to harness this innovative technology.
The existing siloed supply chain and complex business models of the oil and gas industry presents a multitude of opportunities for blockchain technology to drive transformative change in the Australian market, which must be swiftly realised for the industry to deliver meaningful value for every participant in the supply chain network.