How blockchain solves three challenges for the oil and gas industry Part one: Efficiency

The oil and gas sector is in a unique position. On the one hand it has been at the centre of the global energy mix for the best part of a century and has arguably been one of the key factors in the rise of the global economy. At the same time, technologies are starting to evolve that could eventually lead to its replacement. Institutional investors seem somewhat less supportive than they once were and even countries in the Middle East which have been very reliant on natural resources for their economic wellbeing are openly planning for a post-fossil fuel future.

How can the sector respond? In many ways it needs to achieve three things:

  • It needs to prove that it is managing its resources as efficiently as possible
  • It needs to find new sources of investment to replace those that are taking their support elsewhere
  • It needs to find a way to innovate and simplify complicated and highly bureaucratic working practices that have evolved over the last century

At first glance, any one of these could seem daunting. All three means that the sector has an awfully big, perhaps virtually impossible, mountain to climb. On closer examination, it may be that the blockchain offers a solution to all three challenges. In this three-part article, we will examine each in turn.

Proof that resources are being used efficiently

Starting with the need to prove that the sector is using oil and gas resources as efficiently as possible, an efficiently implemented blockchain can make this possible.

Blockchains operate by creating a tamper-resistant global ledger of information that is constantly updated and can be accessed by authorised individuals.

In the case of the oil and gas sector, this could translate into creating a comprehensive multi-party administrative structure. By having a constantly building chain of information that runs from upstream through midstream all the way to downstream organisations, taking in all the supporting third-party contractors, the business of exploring, extracting, transporting, refining and delivering oil and gas would become demonstrably more efficient.

Any hold-ups in the process would quickly become apparent and the system could be set up to communicate challenges to the relevant parties further down the line so that resources could be re-allocated as appropriate. It would quickly become apparent where regular hold-ups were taking place and steps could be taken to ameliorate the issues.

Having a comprehensive administrative system that was managed via the blockchain would also mean that it would quickly become clear where resources were being lost during the process. If a well produced 10,000 barrels of oil as quantified on the blockchain but only 9,000 barrels arrived at the refinery, it would be relatively simple to track the process back and investigate where the loss occurred and understand if something could be changed that reduce the risk of a similar level of wastage in the future. The current administrative structure is so inefficient that a similar investigation is likely to be too expensive to be viable.

In the second part of this article, we will examine how the blockchain can open up the oil and gas sector to new forms of liquidity while the third part will examine how the blockchain can be used to circumvent some of the unwieldy practices that have developed over the last century.

PermianChain Technologies is a pioneer member of the Blockchain Research Institute. PermianChain is investigating ways to harness the power of blockchain technology, data science and artificial intelligence to digitize, tokenize and monetize proven but undeveloped natural resources, starting with oil and gas. The PermianChain, which already has secured oil and gas reserves to be listed on its platform, intends to unlock liquidity to revolutionise the way that oil and gas reserves are funded, produced, bought and sold on a permissioned-access blockchain. The firm is currently in the process of applying to for its regulated digital securities trading and investment platform.

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Ed Yong
Mar 25 · 22 min read


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