New and emerging approaches to blockchain technology are widely seen as having novel applications for the oil and gas industry, as the technology offers traceability, immutability, transparency and audit features in a decentralised, trusted, and secure way.
Blockchain technology can be customised for a wide range of use cases across exploration, production, and supply chain and logistics operations, such as tracking compliance throughout supply chains, controlling waste, enhancing downstream pipeline inspections, and using smart contracts to pay environmental taxes.
It can also be used for data management, as its protected distributed ledger technology can give secure and transparent access to important corporate data, making it less vulnerable to cyber attacks.
Using blockchain technology as a smart contracts facilitator enables it to assume the role of a trusted and transparent gatekeeper that can provide efficiencies by removing the legal and financial intermediary in a contractual agreement.
In the emerging ‘trust economy’, according to Deloitte, where a company’s assets and reputation are becoming both increasingly valuable and vulnerable, blockchain has applications that will empower and protect the oil and gas industry.
This includes increasing security and reducing physical commodity trade time, sensor-enabled invoicing as chemicals are used or produced, and providing a trustworthy source of information through a shared ledger system for contract execution.
An investigation of blockchain in the oil and gas industry published in the journal Technology in Society noted that today’s systems, approaches, and technologies leveraged for managing oil and gas supply chain operations fell short of providing operational transparency, traceability, audit, security, and trusted data provenance features.
It also pointed out that a large portion of existing systems were centralised, manual, and highly disintegrated, making them vulnerable to manipulation and the ‘single point of failure’ problem.
The authors said: “Blockchain is a decentralised technology that is capable of addressing trust, security, and cost issues in existing systems.
“It uses digital assets that are encrypted using state-of-the-art cryptographic hashing functions to adequately protect the tokens from external attacks, fully control digital token creation, and verify the transfer of digital tokens.
“By design, blockchain follows a distributed peer-to-peer architecture to store and process the data and transactions.
“The distributed storage and processing lead to a highly secure, reliable, and available system that satisfactorily safeguards the data from a single point of failure problem.
“Blockchain technology collects data and transactions in the form of blocks that are interlinked and assures data integrity.”
BP has successfully piloted blockchain technology in its production system to track oil and gas assets, and was the first to use it to sell fuel at a retail station.
Shell has gone a bit further and created a platform that allows users to pool data, build smart contracts, and visualise activity on the network.
Shell uses blockchain software to simplify business processes between stakeholders, including their supply chain, trading partners, and financial system.
As a result of the blockchain implementation, Shell has seen improved logistics as well as cost savings, reduction in administration overheads, and reduction in batch sizes.
In particular, blockchain technology is seen by Shell to drive supply chain efficiency across an end-to-end process, where a digital audit trail for equipment is generated through the blockchain.
Shell aims to enhance and optimise this process by introducing a digital solution that tracks equipment right through the procurement cycle, from initial design and manufacturing to inspection and installation.
With a blockchain-based decentralised digital passport, a unique digital identity is created for every piece of equipment and records any digitally verified state changes to that digital asset.
This digital asset, and its immutable history, provides a single transparent source of truth throughout the equipment’s lifecycle, and it enables all parties to record key data, approvals, and certifications for the equipment.
Shell is also piloting blockchain for its fleet maintenance program to help improve logistics and efficiency.
In the areas of sustainability and the energy transition, Shell is exploring the potential for blockchain to encourage wider adoption of sustainable fuels in the transport sector, and as a way to ensure the validity of carbon credit programs.
By tracking the progress and effectiveness of nature-based solutions for carbon capture or avoided emissions, blockchain can identify and avoid double counting of carbon credits and help maintain the quality of reforestation or conservation projects.
Non-fungible tokens (NFT) are non-interchangeable units of data stored on a blockchain, and are usually associated with a particular digital or physical asset, more widely known in their representation of art and popular culture.
However, NFTs can also be used to represent carbon removal or carbon reduction, which comes with a public certificate of authenticity or proof of ownership and can be used as an offset against emissions generated by the NFT holder.
Shell Chief Climate Change Advisor David Hone explained that carbon markets – be they regulatory or voluntary – require a mechanism of some description to track creation, ownership, and surrender of emission reduction units, credits, and trading system allowances.