There have been countless seminars and work sessions on the subject over the last handful of years, but the mention of “blockchain” still produces more head scratching than understanding in the industrial space.
Nonetheless, its proponents passionately tout its benefits, particularly in the management of petrochemical, oil and gas supply chains.
Put simply, blockchain is a Cloud-based network that provides a streamlined method for processing and managing transactions. Owners using the technology can better mitigate fraudulent activities, manage data collection, conduct global transactions, save time and organize supply chain operations.
The system is based on peer-to-peer applications, whereby the computers in the network have equal status with no centralized server. That means transactions can be conducted directly between two or more parties in a protected, distributed digital ledger without third-party intervention.
There are some very real benefits for plant operations, and maintenance and turnaround activities, says Peter Dumont, executive advisor at Premier Resources Group and CEO of operating systems developer Prairie Dog in Houston.
“Any commodity transaction that is linear or repetitive is perfectly suited for it, including the buying and selling of diesel fuel, delivery of concrete to a jobsite, installing pipelines, etc.,” Dumont says.
The beauty of the technology, he says, is that a single company can’t control and own the data. Instead, the data is owned by the “population set” participating in the blockchain. “It’s a multiparty, secure data environment that is immutable,” Dumont says. “Once you record transactions on a block chain, they’re viewable by multiple parties that are participating, as long as they have permission. There’s tremendous power around the data and maintaining integrity and trust in the data.”
In the process, it can help efficiently manage transactions, encourage a timelier payment process and rapidly “improve the velocity of money as it flows through the supply chain,” Dumont says.
Oil & Gas Pilot Program
Several large oil and gas producers are paying close attention to blockchain’s potential. Earlier this year, Chevron, ConocoPhillips, Equinor, ExxonMobil, Hess, Marathon, Noble Energy, Pioneer Natural Resources and Repsol Shell launched the Offshore Operators Committee Oil & Gas Blockchain Consortium to study and define blockchain use across the industry value chain.
During its first pilot this June, the consortium tested its potential in the automation of water haulage from five Equinor wells in the Bakken field in North Dakota—from readings in the field to invoice payment. In the process, they hoped to achieve greater cost efficiencies, as hauling water from drilling and production operations is an expensive process.
It was the first industry-wide use of a blockchain network for produced water haulage. In the end, the pilot—in partnership with blockchain network owner Data Gumbo of Houston—achieved real-time data transparency, accuracy and automation of contract payments.
By providing a single record of truth, Data Gumbo’s blockchain network—GumboNet—synchronized data across multiple parties for greater transparency in order to free up working capital, reduce contract leakage and enable real-time cash and financial management.
The OOC Oil & Gas Blockchain Consortium announced the successful completion of its first pilot leveraging blockchain technology. Data Gumbo’s blockchain network was used to automate produced water haulage from field reading to invoice payment.
“The results of this pilot prove that nonmanned volume validations can trigger automated payments to vendors, and showcases the opportunities that exist for blockchain to reduce costs, increase efficiency, provide transparency and eliminate disputes in the oil and gas industry,” says Rebecca Hofmann, chairman of the OOC Oil & Gas Blockchain Consortium, in a press release. “This is just the tip of the iceberg for the potential of blockchain in our industry.”
Ultimately, the pilot reduced process workflow from 90-120 days to 1-7 days and from 16 to seven steps—with zero manual intervention.
“It’s all about companies knowing their operating expense and reducing it,” says Andrew Bruce, CEO and founder of Data Gumbo in the release. “The pilot produced results that show blockchain delivers the ability to know and lower your costs. More importantly, the results show collaboration among field operations and technology experts to create a deployable and scalable solution.”
The consortium next plans to expand blockchain applications to other commodities and services, hoping to transform the way operators work with oilfield suppliers and vendors, and how goods and services can be validated in the field to trigger automatic payments and near-real time expense tracking.
“Blockchain offers a path to navigate previously convoluted and resource-intensive issues around trust, accuracy and the ability to verify data in the field,” says Eivind Lie Kristensen, Bakken operations production leader at Equinor.
Just like a smartphone, Dumont says, the elimination of paperwork, adoption of smart contracts and identification of risk activities are some of the major areas where blockchain could soon show its muscle in the industrial sector.
For now, however, a major market disruption hasn’t occurred. Petrochemical owners continue to allow suppliers to maintain separate ledgers, leading to “inefficient, expensive and vulnerable business transactions,” Dumont says.
While there are some isolated uses of blockchain, “there’s almost no applications yet in the industrial setting. It’s that new.” He compares blockchain in 2020 to the early years of the smart phone. “It’s still in its infancy, but in five to 10 years it will likely be prevalent across many industries.”