The era of digital transformation has arrived, leading traditional industries to adopt new technologies to adapt to a fully digital future. So it should come as no surprise that the trillion dollar petrochemical industry has quietly begun to leverage Blockchain technology for its business success.
Douglas Heintzman, Head of Catalysts at the Blockchain Research Institute, told Cointelegraph that the petrochemical sector is particularly ripe for blockchain development due to its single position supply chain: “There are many players in downstream and upstream operations within the oil and gas industry.” He further added:
“Industry must now look at all the processes built and developed in the last 80 years and ask how to drive radical amounts of productivity and efficiency into the system.”
Although there are several ways to apply Petrochemical Blockchain technology, it specifically provides a single source of truth within a complex sector that contains multiple participants.
Raj Rapaka, ExxonMobil digital innovation advisor and member of the board of directors of Blockchain for Energy (a consortium of energy companies focused on bringing blockchain-based solutions to the sector) told Cointelegraph that the petrochemical industry primarily recognizes blockchain as an important technology used to reduce friction when interacting with external parts: “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 characteristics that make the technology attractive.”
According to Rapaka, these specific characteristics are being pushed within the petrochemical industry to ensure recognition that the technology will help the sector to be more efficient in the future.
Smart contracts automate manual processes
To put this in perspective, Rapaka mentioned that Blockchain for Energy recently helped oil giant Equinor take advantage of 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 collect data to validate transactions across a blockchain network.
According to Hofmann, the solution “Commodity Transport smart contract” was first tested with produced water to show that the technology was capable of assisting in end-to-end automation:
We call it “extreme automation” because everything is done without contact. Connected IoT sensors collect the data, which is then 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 test, 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 the major petrochemical companies within the supply chain. We have now reduced this number to four. “
Andrew Bruce, Founder and CEO of Data Gumbo, told Cointelegraph that Following the Blockchain for Energy pilot, Equinor was able to expand its blockchain use cases, resulting in millions of dollars in savings:
“Equinor and other global oil and gas companies use field sensors to transmit monitoring data in near real time and encode it on the private and licensed 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 noted that smart contracts build trust to significantly reduce the cost and resources required to execute business 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 that a specific milestone has been reached, such as when a bit has reached a certain depth. ” said. In other words, a lengthy billing and payment process takes just a few days, which translates into substantial savings, financial transparency, and improved efficiency.
While Equinor may be one of the early adopters of smart contracts, Paul Brody, global blockchain leader at EY, further told Cointelegraph that smart contracts seem to work quite well for the industry petrochemical:
“The industry itself is very complicated. There are layers and layers of contractors, subcontractors and complex distributions of rights and assets and revenue streams. They are difficult to manage manually, but it turns out that they work very well as smart contracts.”
Brody added that since the oil and gas industry’s production is highly standardized, the sector is a perfect candidate for managing digital tokens: “These assets can easily be represented and deployed in more complex smart contract and DeFi ecosystems.”
While tokenization for the oil and gas industry is still a developing concept, Hofmann explained that Blockchain for Energy is currently testing a solution with a blockchain company, BlockApps, to tokenize seismic rights processes. “Seismic law involves large amounts of data that must be kept for more than 60 years,” he said. According to Hofmann, tokenization is necessary to help track the rights and obligations of those seismic assets to facilitate the purchase, sale and lease of those assets and even monetize unwanted data.
Blockchain for a greener future
It is also important to note that the oil and gas industry is using blockchain to ensure a greener future. Although there are several ways to apply this, Brody believes that one area that is likely to take off is the use of different blockchains to measure carbon outflows and offsets: “We envision markets that allow Fortune 1000 companies that pledged to be neutral. on climate use smart contracts to track your carbon usage and automatically buy offsets against them. “
Although it is still an emerging concept, some companies have started to use Blockchain technology to raise awareness about energy consumption. For example, energy provider Restart Energy One recently launched a blockchain-based platform that allows companies to acquire sustainability certificates in the form of non-fungible tokens, or NFTs. In addition, the global investment firm SkyBridge Capital recently partnered with carbon credit provider Moss to purchase digital tokens that represent carbon offsets.
On the other hand, Alexis Pappas, Chief Innovation Officer at GuildOne (a Canadian blockchain and digital finance company specializing in energy sector data and transaction automation) told Cointelegraph that su company has developed its ESG1 platform, which uses smart contract software and blockchain applications to solve one of the biggest challenges in the petrochemical industry: the creation of verified value from the reduction of emissions.
According to Pappas, “ESG1 ingests data from IoT sensors to provide proof of evidence of sequestered carbon, and automatically generates carbon credits as tokens using the Corda and Cardano blockchain platforms.”
Will oil and gas companies slowly but surely embrace the concepts of Blockchain technology?
Although it is clear that blockchain technology can help the petrochemical industry to digitize business processes, legacy technology and the ideals on which the sector is built can create challenges in terms of rapid adoption.
For example, Brody noted that oil and gas is not only an old industry with a lot of legacy technology, it is also highly cyclical. “The ups and downs of the famine make it sometimes difficult for companies to maintain long-term investment programs that are not directly related to things like drilling and exploration.”
However, Brody believes that blockchain’s cost savings and operational efficiency will drive its adoption. “It won’t be as fast as it is for consumers, but as legacy systems age, their replacements are increasingly likely to be blockchain-related.”
Rapaka added that education remains an issue that must be addressed. In addition, he noted that it is not just about addressing the operation of blockchain in a technology stack, but about educating business leaders on how technology can be applied to make processes more efficient and valuable.
Heintzman also believes that there is a clear lack of knowledge on the subject: “Not enough people understand this new underlying platform technology. There is also a cultural problem in terms of adopting a new technology within a sector that has worked in a certain way for years. “. And he added: “These challenges are not unique to this sector, but they are certainly more magnified.”
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