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Blockchain in Oil & Gas
Explore use cases and perspectives
Blockchain is outgrowing its adolescent cryptocurrency identity of distributed consensus ledgers to become smart contracts facilitators. Beyond creating efficiencies by removing the legal and financial intermediary in a contractual agreement, blockchain assumes the role of trusted gatekeeper and transparency purveyor. In the emerging “trust economy” in which a company’s assets and reputation are becoming both increasingly valuable and vulnerable, the following use cases illustrate blockchain’s potential in the oil & gas industry to empower and protect.
- Physical commodity trading
- Sensor enabled invoicing
- Contract execution
- Blockchain’s future in oil and gas
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Physical commodity trading
Blockchain can increase security and reduce physical commodity trade time
The current process for conducting physical refined product trades includes numerous manual steps and requires entering the same information into different systems with layers of data reconciliation. Leveraging blockchain’s distributed ledger capabilities can reduce the amount of time spent reconciling price and volume differences among trade participants by making the same data available to all parties at the same time. In addition, the solution can help reduce the transaction security risks associated with emailing documents. Oil & gas companies that leverage blockchain can improve trade accuracy, increase scheduling and back-office (e.g., invoicing and settlements) efficiency, accelerate access to trade data, and shorten the working capital cycle.
Sensor enabled invoicing
Processing plant equipment and pipeline sensors enable immediate invoicing as chemicals are used or produced
The powerful combination of blockchain technology, processing plant equipment, and pipeline sensors can track output and invoice customers in real-time to modernize invoice processing. In this digitalized process, sensors gather data from multiple points to ensure accurate billing based on executed contracts. Blockchain technology (with a cognitive layer built on top) records, tracks, and executes the contracts, and detects fraud instances. Equipment sensors confirm fulfillment of contract terms and, once the agreed-upon amount has been produced, the system executes payment. Oil & gas companies and their customers can benefit from increased transaction speed, accuracy, and security. In addition, sensor-enabled invoicing requires fewer staff resources, allowing employees to focus on more value-added activities.
Shared ledger system provides trustworthy source of information between counterparties
Blockchain can aid contract execution in transactions where the level of counterparty trust is low or where transaction value or complexity are high. Potential areas of opportunity include land transactions (by verifying and eliminating fraudulent land dealings), oil and gas sales (facilitating large transactions), complex sourcing (minimizing transaction inconsistencies), capital projects (adhering to contract terms), and joint ventures (improving cost and revenue-sharing audits). The resulting increase in counterparty trust can help reduce costs and improve productivity. Blockchain also eliminates the need for clearinghouses, confirmation processing, and other back-office administrative tasks that are typical of risk management and accounting activities.
Blockchain’s future in oil and gas: Transformative or transient?
Important advances in technology rarely come with a full embrace at the start. Ground-breaking ideas can yield as many doubters as disciples. It takes time, experience, growth, and eventual acceptance to turn an idea into reality. Will that be the case with blockchain? Careful analysis monitoring of evolving trends will tell if blockchain’s future in oil and gas is transformative or transient.
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