Ondiflo: A Roadmap for the Future
Oil & gas…and beyond. Ondiflo will help power blockchain-based oil and gas future. But how will it get there, and what does it need?
By Everett Muzzy, ConsenSys
This is the tenth in a series of posts by Ondiflo, a blockchain-based ticketing solution platform exploring ways to integrate blockchain technology into the oil and gas industry. Previous posts:
The History of Disruption in the Energy Industry
A Recent History of Innovation
The Past, Present, and Future of Sharing
Blockchain Technology and the Oil & Gas Industry
Blockchain Use Cases & Benefits for Upstream Oil & Gas
Blockchain Use Cases & Benefits for Downstream Oil & Gas
Blockchain Use Cases & Benefits for Midstream Oil & Gas
The Biggest Challenge to Enterprise Ethereum Isn’t Tech
Ondiflo: Blockchain for Oil and Gas
Ondiflo: A Roadmap for the Future
The Ondiflo Blockchain platform has processed over 10,144 water hauls as of the morning of July…
Imagine it is 1995. Amazon.com has just announced its intention to sell books online — everyone thinks it’s useful but a bit unsustainable. JavaScript has emerged as a crucial development tool. Internet Explorer is at the top if its game, considered indispensable to the average internet user. Where does the Internet go from here. It develops; it iterates; it eventually arrives at what we recognize today as an infinitely-scalable, possibility-ripe ecosystem of economy, community, and transaction.
Today, Ondiflo — and blockchain technology — is at the 1995 stages of its development. Its proof of concept is young, its utility impressive but limited…and its possibilities endless. So where will Ondiflo be? In 5 years — in 10? And how will it get there?
The Utility of Ondiflo
Ondiflo seeks to integrate blockchain technology in the oil and gas industry wherever possible. Currently, Ondiflo is focusing on ticketing services and consortium building. Blockchain technology, however, has the ability to impact oil and gas in myriad of ways:
Reconciliation: Use of smart contracts to eliminate or significantly reduce the cost of reconciling books.
Trust: A transaction record can be secure, reliable, and entirely immutable.
Settlement: Consortium-based transaction validation and transparency increases payment settlement.
Efficiency: Across the supply chain, efficiency is optimized by shared data and clear transaction history.
Compliance: Rapid, immutable verifications of transactions and related information ensures compliance to regulation.
Claims: More equitable and faster resolution outcomes with immutable records, clear data history, and immutable record of transactions.
Transaction Costs: Accompanying back-office costs of today’s legacy reconciliation processes are eliminated.
The possibilities for oil and gas integration of blockchain technology are diverse. The immediate goal is to tie together operational and commercial facts to paint a clear and legally enforceable picture of industry events in real time. Short term, the value proposition is in knowing exactly what happened, where, when, and among who. In other words, to know how much was spent or made at each step each day. Longer term, Ondiflo aims to bring about these solutions along a 5 to 10 year roadmap, as outlined below:
Performance Based Contracts
The ability to enact performance-based contracts (PBCs) is the “holy grail.” PBCs align the incentives and the objectives of various participants in each sector of oil and gas: upstream, downstream and midstream. The roadmap to get to PBCs starts with measurement and feedback for adjustments in operational and commercial arrangements. As more of the processes and parties involved are linked together by Ondiflo’s blockchain platform, transparency and interconnectedness become the source of competitive advantage (as opposed to data asymmetry and trade secrets). Cooperation (“coopetition”) will enable better reactions to unexpected circumstances, as each event is visible as an opportunity or threat to all the parties involved.
The balance between computation power and industry intelligence, as well as deciding between distributed or centralized structures depending on responsibilities and liabilities will create the foundation for future PBCs. Each portion of the workflow will contain a foundation of smart contracts, on top of which short, medium, and long-term incentives for each party will exist. For example, consider a field development plan in the E&P space. At the “foundation” are smart contracts that measure typical short-term incentives, such as use of water, sand, chemicals, pipe, equipment, and services. To align all separate stakeholders on the internal rate of return (IRR) and the long-term recovery from the field, performance-based smart contracts could be layered on top of those short-term incentives. These longer-term incentives could penalize for delays, non-productive time, and other losses that impact IRR.
As trust increases in the utility of operational smart contracts and blockchain-based automation, these performance smart contracts could continue to be layered on top. Keys to getting adoption on this next layer will be finding the right business models that blockchain technology enables. These new blockchain-based business models will address the needs of the various parties in terms of short term and long term cash flows, profitability, and risk to reward profiles. Success in these efforts will require smart contracts that assign clear accountabilities, responsibilities, liabilities, and decision rights so that governance is agreed upon across each party in a transaction
Ondiflo in 5 Years
In five years, Ondiflo’s progress will align with the technical developments of blockchain technology from where it now stands. Though much improvement in the core infrastructure will occur in the next few years, the greatest opportunity for advancement exists in areas like tokenization and environmental credits .
Tokenization
Tokenization on the Ethereum blockchain platform is one of the most immediate use cases for the technology. The emergence of deep liquid markets — especially of previously illiquid assets — will likely prove uniquely useful for enterprise entities involved in the commodities industry.
Tokenization provides the opportunity for micro-financing — low-cost, high-trust investment by a number of stakeholders in the transaction of any energy commodity and its logistics from source to consumption. Moreover, tokenization from reserves, production, and tolling agreements allows for industrial, commercial, and retail customers to consume these reserves through discounted pre-payments. Such pre-payments are supported by radical payment transparency, allowing stakeholders to borrow money at lower risk. Lastly, with deep liquid markets across the energy industry, broader energy tokens with no defined source mix can become long-term investment vehicles for funds and indexes.
In the next five years, Ondiflo aims to support these tokenization efforts by developing enterprise protocols on the Ethereum blockchain. By representing energy units in the form of tokens — a relatively technologically easy feat — Ondiflo will be able to ensure radical liquidity and token transferability between energy assets and energy stakeholders.
Environmental Impact Value
One of the greatest barriers to environmental compliance in today’s oil and gas industry is the lack of data completeness. Because 100% of data cannot be confirmed, environmental regulation must provide enterprises a margin of error, which allows for potential environmental detriment, regulatory fines, and high liability costs for potential disasters. Blockchain “track-and-trace” solutions like Viant can be connected to Ondiflo to track energy commodities from origin to eventual consumption, simultaneously recording environmental credits along the hydrocarbon supply chain.
With the data security and immutability provided by a blockchain system like Ethereum, Ondiflo will be able to provide stakeholders with 100% confidence in their regulatory data. By collecting “airtight” data, companies can begin ensuring zero-emission barrels and carbon-neutral barrels — eventually leading to zero-emission flights, school busses, food delivery trucks, and everything in between. This creates the ability to offer premium products by differentiating from similar commodities when considering the environmental impact of the sourcing. In the next five years, Ondiflo aims to provide oil and gas companies with a data platform to store and track all regulatory information, allowing them to better adhere to growing environmental and safety compliance measures.
With the interest shown by regulators and audit agencies in the potential for blockchain, we can conceive a future where environmental audits are constantly ongoing and aligned with human measurements and device readings along a supply chain. Applying machine learning algorithms over time would help analyze anomalies and prevent waste, fraud, and abuse. The very acts of conducting business would confirm the compliance with regulations in this future state, eliminating the additional step and liability of reporting separately.
Ondiflo in 10 Years
Beyond the initial, 5 year benefits of Ondiflo and blockchain technology, the oil and gas industry has a bit of room to breathe and imagine. What could a decentralized economic future bring to the energy industry? What opportunities could radical trust and data confidence bring for legacy companies in the oil and gas ecosystem?
Sensitive data such as pricing, reservoir data, reserves, inventories, and pricing would be released onto blockchain-backed systems. Even though these systems might be shared between competing companies, controlled visibility would ensure only authorized entities would see relevant data. With provided data, oracles for providing price indexes, inventory levels, valuations, and predictive services would run as smart contracts on the Ethereum blockchain, providing a degree of previously-unseen automation to a legacy industry such as oil and gas.
The chain of custody of energy assets would improve dramatically as supply chain information is rendered absolute and immutable. Insurance and liability costs would reduce dramatically and related costs of proper allocation would improve as assets were more appropriately optimized towards individual markets.
Smart Contract integration in the growing realm of Internet of Things would see the installation of smart devices on many oil and gas hardware systems. The shared blockchain-based system would consistently share data, and a predetermined set of smart contracts would ensure the use of machinery and equipment adhered to government and safety regulation.
Radical automation and allocation will occur on the heels of data transparency and optimization. Resources will be more effectively allocated to markets in need, processes will be become more automatic with the integration of smart contracts, and the day-to-day costs of operation will reduce with a shared system of data tracking and management shared between oil and gas stakeholders.
Partnerships to Get There
Will my company run on 100s of blockchains? How many nodes will we need to run? Do we even need to run nodes? What happens if we join a consortium…and what if we want to exit? If we can fork a chain when we disagree, can we do the opposite to spoon multiple chains together to expand markets? These — and myriad of other questions — are raised every day. The answers will continue to evolve in the future. In order to bring the value to the industry and beyond, we need to partner well. There will be partnerships with system integrators to bring forward the investments in controls that companies have made in their ERP and other enterprise systems. There will be change management and transformation roles supported by consulting firms to augment companies large and small in their individual journeys to adoption. Regulators and auditors will need to partner with their constituents and clients locally and internationally to provide the frameworks to ensure fairness and desired social incentives.
We are embarking on the journey with small ecosystems of few companies in each use case, but with the stated goal of creating consortia and standards for universal adoption. We seek to partner with those who are working with the same values in creating the next generation of business models and market structures to deliver the promise of these emerging technologies
The Future Ahead
Ondiflo is but one solution in a growing ecosystem of Ethereum-based enterprise solutions.
The initiative is bringing together oil and gas operators, oil field service companies, trucking companies, refineries, pipelines, banks, brokers, exchanges, and systems companies to create the standards for sharing and governance in the industry. With the backing of ConsenSys, who is deeply involved in creating blockchain-based ecosystems, and Amalto, with integral understandings of the fundamentals of industry operations, this may be a template for other industries and other supply chains to bring sharing and its benefits to the industrial masses. It’s a true win-win scenario, as we are empowering our future clients to participate actively in the governance of our product by sharing and collaborating with peers.
If you are part of a company in the oil and gas industry and are interested in the Ondiflo Consortium, email here. If you are looking for more information, visit here.
Rana Basu, Ondiflo
To learn more visit our other articles in this series:
The History of Disruption in the Energy Industry
A Recent History of Innovation
The Past, Present, and Future of Sharing
Blockchain Technology and the Oil & Gas Industry
Blockchain Use Cases & Benefits for Upstream Oil & Gas
Blockchain Use Cases & Benefits for Downstream Oil & Gas
Blockchain Use Cases & Benefits for Midstream Oil & Gas
The Biggest Challenge to Enterprise Ethereum Isn’t Tech
Ondiflo: Blockchain for Oil and Gas
Ondiflo: A Roadmap for the Future
The Ondiflo Blockchain platform has processed over 10,144 water hauls as of the morning of July…
Ondiflo is a B2B blockchain-based ticketing solution for the oil and gas industry. The solution creates a verifiable and trusted trail of events and attestations for field services logistics, enabling agreement on facts between counterparties so vendors are paid soon after delivering products and services, leading to even more cost savings and benefits. Ondiflo is working with a group of oil and gas companies to assist in the development of the Ondiflo platform as well as learn and strategize about the further implementation of blockchain technology into O&G. Key-players include Producers, Midstream Companies, Refiners, Distributors, Service Providers, Financial Institutions, and Electronic Data Exchange Providers. Learn more about the Ondiflo group here and email here if you are interested in joining.
