The oil and gas industry is constantly challenged by the need to manage increasing volumes of data and provide transparency of supply chain information. For example, new contracts are constantly being negotiated, governments continually raise concerns about energy security, terrorist threats increase, environmental impact legislation expands, and technology evolves.
Blockchain application in blockchain or distributed ledger technology (DLT) can help with these challenges; however, users must resolve many issues before this technology is widely adopted in the oil and gas industry. The below-mentioned portion explores why blockchain is so important to the oil and gas industry and how other industries like banking are starting to explore DLT. You can further explore at this site so you can get an automated trading experience by accessing the best-in-class trading bots and strategies.
Why does DLT matter to the oil and gas industry?
Blockchain is an essential technology for the oil and gas industry because it provides transparency in a digital platform. Companies can use it for recording all transactions, including generating an audit trail, tracking parts, creating smart contracts, and recording licenses. These transactions support multiple business models like third-party verification of data, payment settlement, transferring ownership, and managing information. In short, blockchain allows non-repudiation of transactions which is very important in regulatory environments that need to be policed.
Oil and gas companies are already starting to use blockchain technology on a small scale but are cautious because early adopters have reported several issues. Most of these issues have been due to a lack of understanding of the technology, security, and regulatory requirements. Therefore, it is essential for companies to fully understand the technology before starting any blockchain platform.
Oil companies could use blockchain to manage public data like E&P CO2 reports and make them available to sites like Carbon Tracker. A pilot project by BP shows that companies can use blockchain to manage complex calculations required to be environmentally friendly. Users could also use it to find new oil reserves through crowdsourcing data from the Internet of Things (IoT). Similarly, it could monitor wells in real-time, leading to better supply chain management. The oil and gas industry is highly centralized, but there are many decentralized applications (DApps) that can help unlock value from the information.
The application of blockchain could help improve the relationship between operators, suppliers, and customers by allowing payment settlement within a specific time frame. Another important application would be tracking parts across the supply chain to help manage contracts and increase accountability. Eventually, companies can implement a blockchain platform to manage infrastructure across different countries.
What are the challenges of using blockchain in the oil and gas industry?
Blockchain adoption will be challenging because it is not easy to avoid fraud, control system failures, or disruptions during transactions that could lead to inaccurate data being recorded on a distributed ledger. As a result, companies must resolve several issues before blockchain is widely adopted in the oil and gas industry.
Some of these are shown below:
Blockchain projects will fail if companies do not understand the intricacies of this technology. Designing a blockchain platform with all the right features requires expertise which most companies lack.
Secondly, creating a user-friendly system cannot be easy because it is a complex system. Before deploying a DLT-based platform, many factors are involved, like obtaining buy-in from all partners, integrating with other systems like ERP, etc. Currently, the blockchain of Bitcoin and Ethereum is extremely easy to use and can potentially help the oil and gas industry to an exceeding extent.
However, these platforms are for general data distribution, not heavy data in the oil and gas industry. Blockchain use cases in the oil and gas industry resolve issues like scalability, mining algorithms, and privacy tools.
Blockchain is designed to be decentralized, and all participants have equal rights to the ledger, which can cause issues when determining which user owns a particular asset. It could potentially lead to a sudden decrease in tampering or fraud if a malicious user tries to change the entry in the ledger, thus creating conflicting records. Another benefit of using blockchain is security, as it reduces the power of centralized control over data and access controls, making data less vulnerable to hackers.
Creating blockchain applications that comply with existing regulatory frameworks can be challenging. Still, if the industry incurs a proper understanding of bitcoin blockchain technology, it would be elementary to deploy blockchain technology in the oil and gas industry.
Blockchain will increase transaction visibility:
Blockchain implementation can help increase transparency and traceability by compiling records onto a distributed ledger. Each time an entry is made in the blockchain, it is linked to previous blocks and becomes part of a chain of records. It makes it easy to audit the data because no one can change it without the entire network knowing about it once the data is entered. In addition, blockchain technology works because the previous transaction will be validated by users each time a new transaction takes place.
The main benefit of using blockchain in the oil and gas industry is tracking upstream and downstream transactions and eliminating latency due to multiple stakeholders involved in each step of production and distribution.