Bringing Blockchain into the Oil and Gas Industry
Australia is set to become the world’s largest gas exporter by 2020, and the industry faces an increasingly challenging environment of low crude oil prices, ageing infrastructure, machinery and equipment, and rising cost.
These challenges can be tackled and likely reduced by a greater efficiency and transparency in the industry. To get there, the industry will need to consider pivoting from outdated trading platforms and insecure systems to modern technology, including blockchain technology.
Blockchain is already becoming essential across many industries, through securing and simplifying energy trading, billing and payment, managing unwieldy, complex supply chains, and addressing strict regulatory measures requiring massive documentation.
Oil and gas companies have focused most of their technology innovation on core front-line operations, including augmented reality to help train workers and updated drilling technology. Blockchain can achieve for the back-office what other emerging technologies have done for the coalface.
For example, blockchain enables a superior and secure trail of documentation to verify contractors, employees and expert credentials for contracting and reducing or eliminating reconciliation in joint ventures (where a considerable percentage of the deal is lost to dispute costs).
“Smart contracts,” enabled by blockchain, are event-driven computer algorithms that facilitate, verify, or enforce the negotiation or performance of a transaction agreement. These blockchain-enabled transactions aim to supplement security and enforcement to traditional contract agreements and reduce the transaction costs associated with contracting. Such blockchain-enabled transactions can enhance the future of procuring, tracking, and paying for products and services in the oil and gas industry.
Some considerations for oil and gas companies when conducting blockchain-enabled transactions should include:
Using existing systems for identification of employees / contractors and consultants (systems for credentials are still emerging);
Finding a strategic supplier that is willing to participate in a proof-of-concept and collaborate on standardized systems;
Thinking holistically about how to structure the business case for blockchain-enabled transactions (including all current procurement assets, such as systems, people, workflows and processes);
Developing an interface to streamline smart contracts algorithms that enable financial transaction reporting. The robustness of the smart contract code is paramount, as this is where the potential for things to go wrong is the highest, be cautious; and
Contemplating potential integration challenges between the blockchain and legacy systems.