Could blockchain revolutionise the energy supply chain?
In some of the world's more dynamic industries, like the oil and gas sector, companies face huge challenges on a minute-to-minute basis. Intraday fluctuations in supply and demand, paired with geopolitical changes accompanied by regulatory complexities, and the overriding need for a management system that tracks purchases and services in a volatile market, are industry-wide issues facing oil and gas producers. Just a few percentage points in one direction or the other can significantly move the needle on a company's bottom line. Companies determined to make a difference in their own earnings through the use of innovative, problem-solving ideas include Petroteq Energy, Wipro Limited, BP, Advanced Micro Devices, Inc. and Riot Blockchain, Inc.
To that end, if there were a way to steady the financial needle and make that bottom line less susceptible to large-scale surprises, problem-solvers throughout the global oil and gas industry could find a greater sense of security about their supply chain needs. What if the supply chain were intelligent, transparent and able to adapt to market conditions or geopolitical pressures that affect a company's bottom line in real time?
Technological innovations are often found in the oil and gas industry, although most of those improvements have been found out in the field. There's one innovation, however, that is still finding its way into the oil and gas sector: blockchain technology . This decentralized, open-distributed ledger is replicated across many nodes in a peer-to-peer network, using cryptography to minimize the need for oversight, which mitigates the risk of fraud or disputes between the network's partners.
Bitcoin is the most well-known user of blockchain technology, but this is only one of many uses. Blockchain technology is particularly compelling when it comes to the industries that trade in huge economies of scale coupled with an extremely complex web of suppliers, shippers and contractors. According to a recent Deloitte industry report titled, "Blockchain: Overview of the Potential Applications for the Oil and Gas Markets and the Related Taxation,", the potential uses for blockchain are growing and could have significant implications for those energy exploration industries. Since the pace at which blockchain will be adopted and will consequently disrupt markets is unclear, the report suggests companies will either need to either work together to drive innovation and next-generation solutions or wait for the market to be disrupted by others.
Petroteq Energy is one oil and gas exploration company that refuses to wait and see what others might do, choosing instead to embrace what it sees as the many benefits of blockchain technology. On November 6, Petroteq Energy and First Bitcoin Capital Corp. announced a co-development agreement to create a new supply chain management platform based on blockchain technology that is specifically geared for the oil and gas industry.
Petroteq Energy is a Canadian-registered holding company engaged in the development and implementation of proprietary technologies for the environmentally safe extraction of heavy oils from oil sands, oil shale deposits, and shallow oil deposits. As part of the agreement, the two companies will share industry experience and financial and technological resources with the intention of developing and operating an enterprise-grade, blockchain-based platform that will enable oil and gas companies globally to conduct transactions.
"As a company focused on the development and implementation of proprietary technologies for the environmentally safe extraction of heavy oils, we understand the importance of developing new technologies, especially blockchain-based innovations, to help companies in our industry to get competitive advantage and cost efficiency," Petroteq CEO Alex Blyumkin said in the news release announcing the development agreement.
Appropriately, Petroteq has launched a new website dedicated to the joint venture - https://petrobloq.com/ - where problems facing the oil and gas industry are outlined and corresponding solutions are offered. PetroBloq will be the first blockchain-based platform developed "exclusively for the supply chain needs of the oil and gas sector," providing each of the individual companies involved with cost and time savings, increased transparency, and the ability to effectively mitigate the risk of fraud and disputes amid the constantly evolving geopolitical atmosphere and subsequent market fluctuations.
First Bitcoin Capital CEO Greg Rubin, an international energy products investor with vast experience in the oil and gas industries, says the challenges facing many companies require a new way of thinking.
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"Oil and gas companies could benefit from blockchain technology for a range of applications, from optimizing efficiency to transparency in business transactions to securely storing inventory data on the blockchain. In the last few years, the industry has struggled with price volatility and production levels, which has led to cost-cutting efforts, reduced outputs and layoffs," notes Rubin. "These challenges have prompted many companies to rethink how they operate and to identify new ways to optimize supply chain management and transaction processing. As such, blockchain is gaining traction and broader acceptance by oil and gas industry for its potential to fundamentally change the way certain transactions are conducted."
The nature of blockchain technology makes it ideal for any kind of records management activity, including land transactions, sales of oil and gas, service contracts, sourcing contracts that often are complex and multi-jurisdictional, or joint ventures. Since all transactions are managed on a blockchain - which are, by definition, chained together and immutable - the management of a specific operation is verifiable and protective for all involved.
Wipro Limited, a leading global information technology, consulting and business process services company, recently announced it has joined with Hyperledger to design and develop open source-based blockchain solutions for enterprise-grade blockchain deployments. Hyperledger is a global open source, collaborative effort created to advance cross-industry blockchain technologies across sectors such as finance, banking, Internet of Things, supply chain, manufacturing and technology.
Another industry heavyweight with an eye on blockchain is BP, an integrated global oil and gas company that explores for, produces and refines oil around the world. The company operates in more than 70 countries worldwide and moves energy around the globe, serving more than 12,000 customers and is constantly using market intelligence to analyze supply and demand for its commodities. BP management also recognizes that blockchain technology provides opportunities and challenges for the energy sector, noting blockchains could transform whole industries.
Advanced Micro Devices designs and produces microprocessors and low-power processor solutions for the computer, communications, and consumer electronics industries, including cutting-edge research facilities around the world. Its high-performance computing, graphics and visualization technologies are used as the building blocks for gaming, immersive platforms, and data centers. AMD graphics chips, or 'GPUs,' are considered to be an important source of growth for the company's GPU business as the commercial use of blockchain creates "long term opportunities that are interesting," said AMD CEO Lisa Su in a Barron's article.
Riot Blockchain is a strategic investor and operator in the blockchain ecosystem with a primary focus on the bitcoin and Ethereum blockchains. According to the company's website, it is a first mover on the NASDAQ as a pure play focused on blockchain technology. Formerly called Bioptix, Inc., Riot Blockchain leverages its expertise and network to build and support blockchain technology companies. It is establishing a cryptocurrency mining operation and an advisory board with technical experience intending to become a leading authority and supporter of blockchain, while providing investment exposure to the rapidly growing blockchain ecosystem.
Transportation companies like United Parcel Service are also among the numerous industries that have announced support of the blockchain technology. In joining the blockchain in Trucking Alliance (BiTA), a UPS spokeswoman said blockchain technology "has the potential to increase transparency and efficiency among shippers, carriers, brokers, consumers, vendors and other supply chain stakeholders."
The management team at Petroteq agrees, advising on PetroBloq that technology executives in oil and gas companies should consider several key areas in determining whether and how blockchain technology could be of benefit to them:
- Transparency and compliance - blockchain by design should enable greater transparency and efficiency. Sharing digital blockchain information in joint-operating agreements could reduce, if not eliminate, the need for reconciliations between companies and for data hubs controlled by third parties.
- Smart contracts - The sheer size and volume of contracts and transactions necessary to execute capital projects in oil and gas have historically caused significant reconciliation and tracing issues among contractors, subcontractors and suppliers, in addition to significant challenges in managing logistics for supplies, tracking orders and deploying inventory.
- Trading and third-party impacts - Blockchain technologies are beginning to disrupt and open energy trading markets. By trading physical commodities on a blockchain solution, commodity traders could benefit from increased speed of exchange, improved availability of data, and enhanced reliability and auditability as records are verified in near real-time.
The oil and gas industry's global reach is a complex one with a dizzying array of national regulations and restrictions. Simplifying and improving the supply chain is a high priority for any company centered on profitability. Exploring the benefits of blockchain technology makes not only business sense, but common sense for an industry that must constantly seek a competitive advantage in today's ever changing economic environment.