The past year has seen a host of large corporations in different industries moving towards the use of the blockchain- the distributed ledger technology which is more famous for supporting cryptocurrencies such as Bitcoin. Much of the early development of blockchain technology was focused on the fintech industry, particularly the goal of disrupting payment technologies but there is now a regular stream of new projects that are seeking to bring cost savings, security, and efficiencies to other systems and processes.
The following highlights some recent developments and explores potential use cases for blockchain technology in the energy industry:
Some of the first movers into distributed ledger technology (DLT) were the energy majors with BP, Equinor, and Shell teaming up with banks and commodities trading firms to develop a blockchain trading platform. VAKT was set up as a standalone company, with the initial testing done alongside the companies’ internal systems before opening to a wider market in January this year.
The goal of the platform was to explore the benefits of utilizing blockchain technology to improve speed and security, whilst the ledger allows elements of the back-office settlement to be simplified or removed, meaning reduced paperwork, efficient payments, and less manual delays.
Though the initial launch is limited to trade specifically in BFOET crude oil contracts, VAKT’s ambition is to extend the platform to all physically traded energy commodities.
Supply Chain and Logistics
Supply chain is another area that could benefit from the increased security and efficiencies of ledger technology and once again it has been the majors that have made the initial moves, through their Oil & Gas Blockchain Consortium (OOC) joint venture. The OOC counts Chevron, ConocoPhillips, Exxon Mobil, Equinor and Shell amongst its members and the consortium awarded a contract to a private firm to pilot the technology for water handling services in the Bakken shale field. The goal of the project is to lower administrative costs in field operations and execute automated payments to reduce the potential for payment disputes and fraud.
Outside of the energy industry, the retail giant Walmart has been a key driver in bringing ledger technology to food supply chains. The company has worked with IBM and other food firms to improve their data management processes that are a complex network of farmers, brokers, distributors, processors, retailers, regulators, and consumers. Walmart has piloted a project with leafy vegetables which requires that all suppliers upload real-time data to the company’s blockchain platform.
One benefit has been a huge reduction in tracking infected food by removing manual processes. Before adopting the blockchain it could take 7 days to trace the source of food but the blockchain has reduced this time to 2.2 seconds. This reduction in tracking time has obvious benefits for the energy industry with more efficient logistics operations, smoother invoicing and a lower chance of fraud.
Blockchain would bring obvious benefits to the energy industry through increased tracking security, reduced manual tasks and automated payments to smooth the current supply chain processes. Logistics would be a key area for transformation by ledger technology with the ability to streamline labour-intensive and error-prone systems through the use of component tracking, real-time manufacturing or maintenance records and the use of automated invoices and payments.
Manufacturing & Asset Integrity
Similar to the supply chain efficiencies, ledger technology would bring potential in manufacturing and asset integrity. Quality inspectors could track components and maintenance activities and these records could easily be shared with other departments or business partners. Stakeholders could easily track the suppliers of a blowout preventer or similar component and also have access to maintenance records of components.
In the car industry, German automaker Volkswagen has signed up to a recent joint venture which is focused on tracking cobalt supplies. Cobalt has become a crucial component in consumer products such as cars and smartphones, with two-thirds of global supply coming from the Democratic Republic of Congo. The project will increase transparency to reduce human rights issues and will again cut down on the laborious efforts of third-party audits and manual processes.
Those in the energy industry who currently acquire metals or other commodities would benefit from the increased transparency in product quality or source and would achieve the same efficiencies from reduced manual activities and third-party risks.
IoT and Big Data
Volkswagen is not the only car giant who has been active in the testing of DLT with the likes of Ford, Jaguar, Porsche and Volkswagen teaming up with developers to explore different use cases for bringing vehicles further into the digital age.
Volkswagen worked with an IoT-focused blockchain project to track performance data and ensure vehicle data collection is reliable, secure and more efficient. These types of projects could lead to blockchain-enabled cars becoming mainstream and this would likely see data sharing utilised for insurance purposes and to limit fraud in the sale of used cars.
The energy industry is already making big strides towards big data and connectivity so the blockchain will build on this by linking previously mentioned benefits such as automated payments or performance-related contracts.
The energy industry needs to continue embracing the digital age and blockchain is the next step in this movement to unlock cost savings and efficiencies in areas that have been exhausted. The opportunity to be gained from the removal of time-consuming manual processes through more efficient tracking and the automation of contracts and payments could streamline manufacturing activities, supply chains, and logistics operations. Companies should look at exploring these areas further and bringing blockchain expertise into their organisation sooner, rather than later.