Is blockchain ready for prime time in the oil and gas industry? Is it hype—or a genuine agent of change? The jury is out. Some executives recognize its potential for reshaping their business. 

Right now, the world is also grappling with the coronavirus outbreak, and the latest survey from McKinsey’s is a sobering read. When asked about their home economies’ prospects, the deepest concerns came from respondents in the Asia–Pacific region—not surprising given the timing and spread of the outbreak.

The above graphic from the McKinsey’s report really does drive home the fact that most businesses need to transform from within to ensure they can still meet commercial goals, objectives and aspirations. A recent Accenture study on finance organizations’ adoption of digital technologies shows that 82 percent of CFOs are realizing measurable ROI from investments in digital finance initiatives. Accordingly, the intersection of finance and digital amid industry commodity price volatility, have led CFOs to embrace technology as a strategic enabler and value lever.

Blockchain Comes Into Play

Blockchain addresses these realities by enabling a shared source of verified data associated with financial transactions that are agreed to by the appropriate parties. The ability to automate processing and create tamper-proof audit trails are a few of the features that promise to eliminate friction among the numerous external business partners and vendors involved in the life-cycle of a well. Today, all parties involved in a joint arrangement must independently account for and verify all transactions making reconciliation processes cumbersome and time consuming. Blockchain ecosystems built conceptually around capital intensive assets, such as a well site, would enable real-time visibility and allocation of expenditures to all parties in a secure environment.

How IoT Can Redefine The Marketplace

By integrating blockchain with internet-of-things (IoT) sensor technology to accurately track and timestamp production volumes and market prices, participants will have the ability to reduce dependence on estimation models saving time and costs associated with reconciliation, disputes and auditing activities. Over time, these networks will grow to enable portfolio-level management of capital projects and joint operations by enforcing boundaries between specific projects and business partners. It should be noted that a survey of 800 executives, featured in Klaus Schwab’s book, ‘The Fourth Industrial Revolution’, stated that 58 percent of them believe that up to 10 percent of the global GDP will be stored using blockchain technology. The overall market size of blockchain is estimated to be around US$ 2.3 billion by 2021.

It’s already happening

Back in 2019, a group of oil and gas companies had agreed to begin testing blockchain, in a bid to lower administrative costs in their field operations while also reducing payment disputes and chances for fraud. Led by the the OOC Oil & Gas Blockchain Consortium, whose members include Chevron Corp, ConocoPhillips, Exxon Mobil Corp, Equinor and Royal Dutch Shell, they awarded a contract to Data Gumbo to pilot the technology for water handling services in the Bakken shale field in North Dakota. In the pilot, Data Gumbo’s blockchain technology will be used to automate payments, which are typically handled manually and through third-party reporting that increases costs. The technology could generate about $3.7 billion annually in cost savings for the oil and gas water business, Data Gumbo Chief Executive Andrew Bruce said.

Sources: Deloitte, McKinsey & Company, Accenture, Infosys and Reuters

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About the author

Anil Prabha

Editor In Chief

Anil started his career in journalism all the way back in 2003. After traversing the sphere of editorial, corporate communications and advertising, he has now come full circle and is back in the world of journalism. He believes in the power of the written word, and its ability to enthrall, delight and inform the reader.