There are numerous ways that the oil and gas industry can benefit from the use of blockchain technology, especially with a more effective data management technique, and the security of highly-sensitive data. The oil and gas industry has been at the frontline in technological advancement, witnessing innovations such as 3D seismic mapping, fracking, and a host of other advancements.
However, it has also received criticism since most of the innovation has been directed at the operations side of the business. Consequently, the backend functions that deal with the administrative processes of the oil and gas sector have suffered.
Limited adoption of blockchain in the industry
Over the past few years, many industries have adopted, or at least have been piloting, the decentralized ledger system of facilitating transactions (that is, blockchain) but the oil and gas industry is still skeptical, and it has been left out of this exciting revolution in the technology space.
Many industry experts are aware of the powerful benefits blockchain technology has to offer, which will improve operational effectiveness, and lessen transaction fees when data is moved around.
On the flip side, some industry stakeholders have concerns about the risks involved in putting sensitive information in a decentralized database, and the large investment it would take to implement the technology.
Over the last few years, the industry has faced numerous challenges including price fluctuations and high production output levels, which have resulted in cost-cutting measures, layoffs, and reduction in exploration efforts.
Companies in this sector have to constantly innovate as well as re-calibrate their operational processes, the methods they employ, and even how transactions are carried out to make sure they remain competitive. And as it stands, blockchain technology is the best candidate to help the industry overcome its current challenges.
Benefits of blockchain in oil and gas
Experts and stakeholders in the oil and gas industry should look at the following areas to determine how their companies could benefit from blockchain technology.
- Transparency and compliance: One of the major features of blockchain technology is the transparency it offers to any industry that utilizes its technology. Data sharing facilitated by third parties will be eliminated.This transparency feature can greatly benefit key industry processes such as the selection of partners for new projects, the reporting of revenues accrued from production, and joint interest billing. Blockchain technology could also bring down compliance cost to the bare minimum, and improve the speed of decision making if companies start utilizing tools that enables safe data sharing on the blockchain network.Additionally, blockchain technology will help companies provide a more transparent reporting of their production revenues to the US Department of the Interior’s Office of Natural Resources Revenue which would reduce their risk of being charged hefty fines for misreporting operational revenues.
- Cyberthreat and security: Blockchain technology will offer considerable benefits to the existing security challenges that the oil and gas industry is facing. For instance, the growing use of vulnerable smart sensors that collect critical and sensitive operation information make companies increasingly exposed to cyberattacks and industrial espionage.But blockchain companies like IOTA can ensure that information stored on the Internet-of-Things (IoT) are safe while platform such as Enigma, an MIT’s open source blockchain project, would allow businesses to store and encrypt their critical information including biometric identity.The native decentralized feature of blockchain to store information in hundreds of servers makes it a more secure and resilient solution for data storage.
- Smart contracts: The massive volume of transactions and paperwork needed to execute oil and gas projects have always caused setbacks and tracking issues among contractors, suppliers, and subcontractors.This also brings up challenges in the management of logistics, inventory deployment, and tracking of operational costs. Blockchain smart contract feature can solve all these issues by changing the way transactions is carried out. Smart contract creates a more efficient, automated supply chain and improves project expenditure analytics.
- Trading and third-party impacts: Blockchain technology has already started disrupting the energy trading market by reducing transaction backlogs, and overall cost of operation. Even the clean energy sector is looking at blockchain to redefine energy trading. Blockchain applications can help decrease third party brokers fee, and reduce trading fraud and error which ultimately limit credit risk.By trading oil products on the blockchain network, traders can benefit from the increased speed of transactions, enhanced auditing ability, and improved reliability, as the records are verified instantly.