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Unlocking the Potential of Blockchain in the Oil and Gas Industry

Blockchain

Industry analysts have predicted that blockchain technology could soon majorly disrupt the oil and gas
industry, facilitating greater efficiency in the supply chains. Blockchain is a distributed ledger that is
replicated across many computers (or nodes) as part of a peer-to- peer network. As each transaction is
recorded and added to the ledger, it is recorded in a ‘block’, which is added to previous blocks to create
a chain of immutable records that is practically untamperable.

Because no single party is responsible for the blockchain, it does not require monitoring, which means
that the data can be relied upon and does not require reconciliation across the network. Many
industries are just beginning to understand the full effect of this technology, with many financial
institutions pouring money into research and development and creating their own blockchain platforms.
However, the potential of the technology is also being considered by other industries, such as the
energy industry, to consider whether energy assets and payments could be transacted on the
blockchain, thereby removing intermediary suppliers from the supply chain.

Benefits of Blockchain to Oil and Gas Industry

Digital supply chains are being considered in greater detail as a result of multiple technologies, such as
the Internet of Things (IoT), drones and wearables. Combining these technologies with blockchain could
boost productivity and reduce costs in the energy industry as a result of the following benefits:
Efficiency: By utilising smart contracts that are recorded on the blockchain, the technology has
the potential to improve accuracy in complex transactions. In the energy industry, the use of
smart contracts has the potential to reduce the requirement for third-party supervision and
paper records of transactions that will reduce costs and time spent on transactions.
Compliance: Due to the immutability and transparency associated with blockchain technology,
transactions and assets can be tracked throughout the transaction, allowing for increased
product traceability. For example, using the blockchain, a company could evidence the origin of
their raw materials to minimize the likelihood of conflict materials being utilized. In addition,
this transparency allows for more reliable data to be obtained, resulting in better decisions
being able to be made in respect of the business.
Data transfer from IoT sensors: By utilizing the IoT, devices involved in the industry could be
tracked on the blockchain, recording large amounts of data that can provide information about
the efficiency of the devices as well as an overall picture of the industry. Devices could also be
secured using the blockchain’s unique security characteristics.

A good example of blockchain’s capability in the oil and gas industry is in the order-to- cash
and import/export processes. A major issue that arises in the event of an unexpected shutdown is the speed at which
it takes to source spare parts, often as a result of the number of intermediaries in the supply chain. By utilising
blockchain, however, much of the intermediaries can be cut out of the supply chain, reducing cost and increasing
efficiency.

Shipping documentation could also be completed through the blockchain as materials move along the
supply chain. By putting import/export records on the blockchain (including information on beneficial
tariff programs), the potential for human error is reduced exponentially. The accuracy of material
transactions could be recorded and improved in the following ways:
a) The recording of documentation, such as country of origin, 24-hour manifests and bills of lading;
b) The drafting and maintaining of harmonized tariff schedules;
c) Setting up automatic notifications of favourable tariff regimes, such as free-trade zone options.
Due to its integrity, blockchain can be utilised as the document of record throughout the supply chain,
and can also be utilised to record compliance during external audits with customs. In addition, less
human input would be required to record materials from input to final production.
This is just some of the potential uses that the blockchain could have on the oil and gas industry. It is
important that supply chain leaders be aware of these innovations in order to improve efficiency of
operations, especially at times where there are lower-for- longer oil prices.

About the author

Jason Manolopoulos co-founded Dromeus Capital Group in April 2008 and is the co-CIO of the firm. Jason leads the firm's investment activities is a member of the Firm's Executive and...

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