The age of digital transformation has arrived, leading traditional industries to adopt new technologies to accommodate a fully digital future. As s
The age of digital transformation has arrived, leading traditional industries to adopt new technologies to accommodate a fully digital future. As such, it shouldn’t come as a surprise that the trillion dollar oil and gas industry has quietly started to leverage blockchain technology for business success.
Douglas Heintzman, chief catalyst at the Blockchain Research Institute, told Cointelegraph that the oil and gas sector is particularly ripe for blockchain development due to its uniquely positioned supply chain: “There are many participants in downstream and upstream operations within the oil and gas industry.” He added further:
“The industry must now look at all the processes built and developed over the last 80 years and ask themselves how to drive radical amounts of productivity and efficiency into the system.”
While there are a number of ways that blockchain can be applied to an industry like oil and gas, the technology specifically provides a single source of truth within a complex sector containing multiple participants.
Raj Rapaka, digital innovation adviser with ExxonMobil and board member of Blockchain for Energy — —a consortium of energy companies focused on bringing blockchain-based solutions to the sector — told Cointelegraph that the oil and gas industry primarily recognizes blockchain as an important technology used to reduce friction when interacting with external parties: “There are many suppliers, vendors, contractors and other parties involved in the oil and gas sector. Blockchain provides a single source of truth, along with other features that make the technology appealing.”
According to Rapaka, these specific characteristics are being pushed within the oil and gas industry to ensure recognition that the technology will help the sector become more efficient moving forward.
Smart contracts automate manual processes
To put this in perspective, Rapaka mentioned that Blockchain for Energy recently helped oil giant Equinor leverage smart contracts to confirm various transactions.
Rebecca Hofmann, president and CEO of Blockchain for Energy, told Cointelegraph that the consortium initially piloted a solution with blockchain company Data Gumbo back in 2019 and 2020. The pilot combined industry operators — along with their customers, suppliers and vendors — and incorporated real-time sensors to gather data to validate transactions across a blockchain network.
According to Hofmann, the “Commodity Transport smart contract” solution was first piloted with produced water to prove that the technology was capable of helping with end-to-end automation:
“We call this ‘extreme automation’ because everything is touchless. Connected IoT sensors gather the data, which then gets written to a blockchain ledger for validation. These invoices are then approved by smart contracts, which create invoices for automatic payments.”
Given the success of the trial, Hofmann explained that Blockchain for Energy helped automate an extremely manual process within the oil and gas industry supply chain. “There are about 23 manual touches that take place between all major oil and gas companies within the supply chain. We now have this number down to four.”
Andrew Bruce, founder and CEO of Data Gumbo, told Cointelegraph that following Blockchain for Energy’s pilot, Equinor has been able to expand its blockchain use cases, resulting in millions of dollars worth of savings:
“Equinor and other global oil and gas companies use field sensors to transmit near real-time data monitoring and encode onto the private, permissioned smart contract network. GumboNet effectively creates an auditable, immutable, and shared source of truth for Equinor and other operators, and their suppliers.”
In turn, Bruce remarked that smart contracts build trust to significantly reduce the cost and resources necessary to execute commercial transactions automatically. “A smart contract on Data Gumbo’s GumboNet for example can be programmed to trigger payments to a contractor when a sensor indicates a specific milestone is reached, like when a drill bit has reached a certain depth,” he said. In other words, a lengthy process involving invoicing and payments is reduced to just a few days, resulting in substantial savings, financial transparency and improvements in efficiency.
While Equinor may be an early adopter of smart contracts, Paul Brody, global blockchain leader at EY, further told Cointelegraph that smart contracts appear to work quite well for the oil and gas sector:
“The industry itself is very complicated. There are layers and layers of contractors, sub-contractors, and complex distributions of rights and assets and income streams. These are hard to administer manually, but it turns out, they work really well as smart contracts.”
Brody added that since the oil and gas industry’s output is highly standardized, the sector is a perfect candidate for managing digital tokens: “You can easily…
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