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July 31, 2018

he recent turbulence in cryptocurrencies such as Bitcoin and Ethereum has brought blockchain implementation into the public eye. At the same time, CXOs across industries are increasingly recognizing the potential value that blockchain can deliver.  In his book, ‘The Fourth Industrial Revolution’, Founder and Executive Director of World Economic Forum, Klaus Schwab, features a survey of 800 executives. 58% of respondents believe that 10% of global GDP will be stored in blockchain by 2021. This sentiment is echoed in a Deloitte Report  – 55% of oil and gas executives agreed blockchain is a must to retain a competitive advantage while 47% acknowledge its disruptive behavior.

O&G – blockchain is finding its feet  

One of the compelling reasons for the growing interest in blockchain is its potential to simplify existing business processes through its unique capability of enabling trust in complex processes. It is therefore only logical that the O&G industry’s initial forays into the technology have been in the area of transaction-based processes that require complex trust mechanisms. A secure system that mitigates risk, increases transparency, provides an audit trail, and speeds up transactions at reduced costs can create significant value for the upstream O&G industry. The initial target application areas include:

  • Energy Trading

Crude and gas trading, a core activity of integrated oil & gas companies, involves trading of several units of crude and gas between companies multiple times, underpinned by a complex set of legal and commercial processes. Blockchain, in combination with smart contracts, can provide a reliable and efficient platform to execute and record such transactions. In late 2017, BP, Shell, and Equinor announced a joint development to create a new trading system based on blockchain, expected to be operational by the end of 2018. In addition, BP and ENI tested an industry-agnostic blockchain platform Interbit, and are now running the system alongside existing systems to evaluate performance.

  • Supply Chain and Equipment Tracking

Knowing where a piece of equipment or a part originated from and its maintenance history is becoming increasingly critical to better understand failures and improve equipment/facility reliability. Blockchain can provide an immutable audit trail of the equipment across its lifecycle. BHP Billiton is running a proof of concept on its Project Rai Stones to track well-bored samples with the use of blockchain that are currently tracked using spreadsheets and email. Well-bored samples are expensive to acquire and can result in high penalties as well as loss of reputation, if lost or damaged.

  • Joint Venture and Land Management

Millions of dollars in investments and profits depend on the ability of O&G companies to maintain accurate and detailed records of all transactions related to land ownership and fulfillment of commitments specific to joint venture contracts. Blockchain can provide a distributed ledger with immutable records of any activity related to a piece of land or a joint venture agreement, preventing fraud and providing transparency to shareholders. It can also automate processes like information and financial sharing using smart contracts. Georgia and Ghana are two countries where blockchain use cases and smart contracts are being used to manage land ownership and usage.

What is stopping enterprises from adopting blockchain?

Despite the optimism around blockchain, three major potential roadblocks need to be addressed to further grow its adoption in the O&G industry.

  • Scalability and security concerns: Currently, there are no large commercial enterprise grade deployments in oil & gas. So the most important question for CXOs is: will blockchain be able to scale to enterprise level data volumes?
  • Lack of standards: Currently, more than 120 companies are involved in developing blockchain solutions. In the absence of standards, this could cause issues around interoperability and ease of deployment. Efforts are underway in the private sector through forums such as Hyperledger Consortia, comprising a technology board consisting of 21 companies In addition, the International Organization for Standardization (ISO)  has started an initiative to create standards for blockchain.
  • Lack of educational initiatives: Absence of awareness aimed at promoting blockchain’s value is yet another hurdle to widespread adoption among O&G companies.

So how should O&G companies move forward with blockchain? 

To counter the limiting factors and enhance the technology’s commercial viability in an enterprise setting, blockchain solutions need to be scalable and open sourced, enabling mutual learning and increasing interoperability with other solutions and existing infrastructure. Oil and gas operators and oil field service companies such as BP, Shell, ENI, and Petrotec are already investing in the technology.

Forward looking O&G companies have two options in terms of the path forward: set up or join working groups to explore blockchain and its potential applications or start small by launching a pilot with the support of an expert partner to test blockchain’s value for specific use cases.

Jan Erik Johansson is currently the Advisor, Upstream COE, at Tata Consultancy Services’ Global Oil & Gas Practice.  Formerly, he worked as Operations Manager, Senior Consultant and Practice Manager for the world largest Oilfield Service Company Schlumberger based in multiple countries across the world. He is an active member of the Society of Petroleum Engineers (SPE), American Association of Petroleum Geologists (AAPG) and American Association of Mechanical Engineering (AIMEE). Jan Erik Johansson carries over 40 years of experience in Upstream operations management including budgeting, day to day operation of business operation and have started up both technical and business consulting practices.. In his current consulting and advisory role for Global customers , he conducts workshops and mentors teams on projects and front ended proposals for Data Management, Analytics and Business Process Transformation


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