How blockchain will transform the back office for oil and gas
Economic projections for the Australian oil and gas industry have not been a major source of optimism in recent months. The oil price depression that has lasted since 2014 continues to drag on and a gas supply crisis in the southern states may lead to Australia becoming an LNG importer for the first time. The high stakes on the horizon mean efficiency and collaboration is more important than ever for the oil and gas industry.
As is often the case these days, one of the most compelling solutions to the oil and gas sector’s current needs is rooted in technology.
A blockchain is a decentralised store of data, and the most common type of data stored is transactions. The database is shared across a network of computers and is constantly updated as new sets of information, or ‘blocks’, are added to it.
Each computer that has a copy of the database confirms that the information within a block is authorised and legitimate and links to the previous block, forming a chain. These blocks are irreversible, providing a unified, unalterable record of transactions between parties.
After making waves in the financial sector with its promise of transparent interactions and decentralised banking, energy stands as the next major candidate for blockchain to impact in a big way.
A blockchain platform built by Vakt Global, a consortium venture set up by major firms including Shell and BP, is currently facilitating the trade in crude oil between commodity firms, with the aim of helping trading companies replace paper-based documentation with smart contracts. The term ‘smart contract’ simply describes computer code that can facilitate the exchange of money, content, property, shares, or anything of value.
The problem with data
With the advent of smart sensors, big data and the Internet of Things (IoT), data has gone from an asset to a burden for upstream companies. The need to manage and authenticate information is urgent as oil and gas businesses find themselves inundated by more data than they know what to do with.
Blockchain can help control this flow of information — and much more. On top of the many applications that have yet to be fully explored, blockchain has the potential to:
- Consolidate and increase security for transactions
- Reduce the risk of fraud and error in energy trading
- Help corporations meet reporting requirements
- Monitor complex supply chains
- Transform key processes, such as logistics and asset management
Transportation, for example, is a significant expenditure on any Australian upstream company’s balance sheet. Blockchain can streamline the hundreds or even thousands of freight transactions that oil and gas companies process every week.
It can also be a powerful tool for asset management, whereby all the related components and assets in a supply chain can be tracked, and records can be easily and securely shared with business partners.
A platform for increased interconnection
In addition to its many internal applications, blockchain can provide a critical platform for trust between businesses during joint ventures, mergers and acquisitions.
Joint ventures are already common in oil and gas, and the trend is expected to increase in 2019, with upstream companies Santos and Beach Energy rumored to be on the lookout for acquisitions.
Incorporating blockchain ledgers into inter-business processes could add the peace of mind that companies are looking for in an age of increased worries about cyber security and industry upheaval.
With its open and immutable ledger format, a shared blockchain can serve as common ground for separate organisations to share data, negotiate and execute on “smart contract” terms, track equipment audit trails and more — all without the need to involve third-parties.
Looking ahead at upstream data
Going forward, blockchain could be the revolutionary technology that propels the oil and gas sector’s data transformation.
According to Wade Elofson, founder of Powered, an energy and resource focused business development company, blockchain has the potential to significantly simplify both internal processes and complex business-to-business interactions among upstream companies.
“After years of oil and gas companies focusing their technological innovation more or less exclusively on their core activities in the field, the back office is in desperate need of an overhaul,” Mr Elofson said.
“For this, blockchain has arrived at an ideal time, with the potential to do for operations and admin what emerging technologies such as robotics and new drilling systems have done for the front line.”
For more information, please contact email@example.com or call Wade Elofson on +61 474 128 517.