Since the dawn of ancient civilizations, petroleum and natural gas have played an integral role in the development of human society. Starting with the late 19th century, the modern oil and gas industry started its ascension as one of the supporting pillars of the global economy and social progress, acting at the same time as the foundation for the energy sector.
For the past decades, there has been a shift in mentality as the world seems poised to research and develop new energy alternatives that do not rely on fossil fuels.
Even so, studies and reports like the “BP Energy Outlook 2019 edition underline the fact that the oil and gas industry will continue to hold a strong foothold on the global energy market and in the global economy in the next 30 years.
As opposed to other industry sectors, the oil and gas industry has manifested an openness and effervescence towards implementing new technology into every segment of its flow of operations to increase efficiency, safety, and productivity. IoT sensors, 3D modelling and Visualization, Artificial Intelligence, robotics and automation, intelligent drilling technology and intelligent oil and gas fields are only a fraction of the technologies adopted by the sector in its road to digitalization.
Nonetheless, operational friction points and some bottlenecks remain present, especially in the management and data storage department. As an industry based on an intricate web of actors and middlemen spread throughout the globe, the oil and energy industry is in dire need of a framework capable of ensuring collaboration, transparency and more importantly, trust in the data that is processed.
An answer to the issues faced by this multitrillion-dollar sector can be provided by blockchain, a technology that in its early days acted as the backbone for Bitcoin, the first successful iteration of a decentralized cryptocurrency. As blockchain started to grow and mature as a technology, it slowly began to distance itself from its initial role of cryptocurrency enabler, acting as a foundation to a wide array of use cases, that leverage blockchain’s unique array of benefits and functionalities like distribution, decentralization, enhanced security, trust, transparency, consensus, data integrity assurance, immutability, and traceability.
Blockchain’s wide palette of functionality and features has brought the technology into the attention of giants of the tech industry such as IBM, Microsoft, Amazon, and Oracle who are constantly researching and releasing new PoC’s that use this technology to augment existing systems or replace them entirely. At the moment of writing, blockchain is witnessing an unprecedented growth rate, reaching a market of USD 3024.54 million in 2020.
Modex offers a new approach to blockchain adoption
Despite garnering much attention from the tech community and savvy entrepreneurs, blockchain still remains a somewhat elusive proposition. A significant segment of industries, businesses and enterprises are signalling their eagerness to tap into the disruptive benefits of this technology. The problem is that many of them are deterred by the costs, complexities, and hidden technological overhead that a transition to a blockchain infrastructure may entail.
As one of the early promoters of blockchain, Modex carefully analyzed the implementation lifecycle of this technology and in a balancing act, experimented with a multitude of use cases and PoC’s that tried to answer the demands of the market, without compromising the core values of blockchain.
Modex’s response to the blockchain adoption question is its patented Blockchain Database (BCDB) technological solution that connects to existing IT infrastructures with minimal changes to add a blockchain layer that grants access to all the benefits this technology offers. This outside the box approach to the technology makes blockchain’s features accessible to multiple business sectors without requiring companies or any other types of organizations that wish to access its benefits and features to completely change their infrastructure.
With multiple approaches to implementation, the technology developed by Modex can also be used to build new infrastructures from the ground up, so companies can integrate a blockchain layer into their applications and infrastructures even from the design stage.
The innovation of the BCDB solution stems from the fact that it hides all the complexities of blockchain technology behind the familiarity of a traditional database system, to give companies access to all the benefits offered by a blockchain framework like decentralization, distribution, data traceability, integrity assurance, immutability, and transparency, all while retaining the familiarity of working with a classic database system.
In the oil and gas industry, the technology developed by Modex can support and enable certifiable trust, enhanced data protection & secure data sharing, improved data accuracy, data ownership and privacy. Furthermore, the technology layer developed by Modex promotes a new data-sharing model in multi-stakeholder ecosystems, based on interoperability.
Challenges faced by the oil and energy industry
The oil and gas industry is approaching a crossroads, as countries from all over the world are implementing new measures in an effort to reduce the level of carbon emissions, while actively searching for greener alternatives. This change in mentality further puts pressure on an industry that must cope with outdated management infrastructures. Some of the challenges faced by the oil and gas industry are:
- A large amount of paperwork and reconciliation. Energy transactions often involve a wide range of documents and orders such as purchase invoices, shipping documents, bank release funds etc. which adds to the complexity of the process.
- Lack of transparency. Industry giants need to make sure that all the documents are in place and accessible to all stakeholders, which is a time-intensive process. These documents can include compliant documents, audits, and associated paperwork. The industry currently lacks a cohesive system capable of ensuring that each actor involved gets the same version of the information in a timely manner.
- The supply chain network for large oil companies is incredibly complex, involving various parties such as shippers, suppliers, and customers on a global scale. This complex network of actors often creates large administrative overheads that lead to bottlenecks and friction points.
- Oil and gas contracts often involve cross-border payments, which makes the payment structure complex as cross-border payments are time-intensive and incur additional costs.
- The third-party management costs in the oil and gas trade are relatively high, the trade negotiation process is inefficient, and the exchange of critical data is slow.
- Important business data resides in siloed data centres that are vulnerable to cyberattacks.
What blockchain brings to the oil and gas industry
The oil and gas industry needs a framework capable of ensuring collaboration, transparency and more importantly, trust in the data that is processed. With its unique set of characteristics, blockchain can answer some of the pain points present in the oil and gas industry, while also ensuring trust and collaboration between all the actors involved in this sector:
- distribution – due to its design, blockchain promotes a new working model that operates based on collaboration. After verification, data is distributed to every member of the network, so that every participant has a copy of the information. This design choice renders data silos obsolete, while also removing the need for reconciliation between parties.
- consensus – blockchain is a technology built to facilitate cooperation. Every decision made in a blockchain network requires the consent of the majority of its members.
- transparency – as every member of the network has access to the data, the blockchain records are easily verifiable by every participant.
- permission based-access – private blockchain is owned by a private entity or a consortium of companies. External entities can join the network only if they receive permission from the owner to join.
- decentralization – because the data is distributed to every participant of the network, verification and network maintenance does not rely on a single centralized authority. This means that blockchain is immune to the dangers found in centralized systems.
- enhanced data security – once data has been introduced in a blockchain network, its integrity is ensured by the complex inner workings of blockchain. Data cannot be altered without compromising the entire data chain. Any data discrepancies are automatically detected by the system, which allows companies to pinpoint in real-time any tampering attempts.
- traceability and record history – blockchain is an append-only structure. This means that it does not follow the traditional CRUD paradigm of standard database systems. Information is never deleted. When a record suffers a modification, a new entry is created and appended to the system. This means that a complete history of every version of the data is maintained in the system.
- streamlined auditing – as an append-only structure, blockchain provides an indisputable record history of all the data that has been introduced in the network.
- data immutability – by combining cryptography with hashing algorithms, blockchain ensures data immutability. In turn, immutability provides data integrity which drastically simplifies audit processes, while providing proof to stakeholders that the information has not been altered.
- encryption – encryption ensures that network members see only information that is relevant to them, and that data is secure, authenticated and verifiable.
- smart contracts – self-executing code that runs on top of the blockchain. Smart contracts trigger when pre-defined criteria are met to execute a set of business logic agreed by the participants involved. Smart contracts can be utilized to automate the execution of automatic contracts or agreements.
Blockchain is already getting traction in the oil and gas sector
Blockchain’s potential to streamline operations across the oil and gas value chain hasn’t gone unnoticed by big players from the industry.
2018 saw the formation of VAKT, a blockchain initiative formed via a consortium composed of oil companies and banks. Its members include BP, Gunvor, ABN-AMRO, Equinor, Koch, ING, Shell, Mercuria and Societe Generale. The goal of the consortium is to solve industry-specific problems and to collaborate on identifying a common set of issues such as data quality and counterparty disputes that can be resolved with blockchain technology.
Commenting on the initiative, Andrew Smith, EVP Trading & Supply, Shell International Trading and Shipping Company Limited, commented that “Collaboration with our peers and some of the industry’s key players is the best way to combine market expertise and achieve the scale necessary to launch a digital transaction platform that could transform the way we all do business. Ultimately the aim is improved speed and security, which benefits everyone along the supply chain from market participants to customers.”
A similar initiative took place in 2019, with the formation of the Offshore Operators Committee (OOC) Oil & Gas Blockchain Consortium. The consortium is composed of big names from the oil and gas industry like: Chevron, ConocoPhillips, Equinor, ExxonMobil, Hess, Marathon, Noble Energy, Pioneer Natural Resources, Repsol and Shell who are working together to study and define blockchain use cases across the industry value chain.
“Creating the OOC Oil & Gas Blockchain Consortium is a significant step toward establishing key blockchain standards, frameworks and capabilities for the oil and gas industry,” said Rebecca Hofmann, chairman of the OOC Oil & Gas Blockchain Consortium. “Blockchain technology is a catalyst for reimagining the way we do business, and this consortium represents a collaborative effort to explore the technology’s potential and leverage learnings to drive industry adoption.”
In 2020 the OOC Oil & Gas Blockchain Consortium successfully concluded its first blockchain pilot in the oil and gas industry. The results of the pilot showcase the potential of blockchain technology to streamline operations and increase efficiency in the sector:
- reduced process workflow from 90-120 days to 1-7 days and from 16 to 7 steps, requiring zero manual intervention.
- 85% of all volume measurements were automatically validated against data from multiple parties, with the potential for near 100% auto validation with future enhancements.
- validations automatically trigger the execution of related invoice transactions, which reduces financial risk by giving assurance that payments coincide with field activity.
- delivering a potential of 25% – 35% reallocation of resources versus current business process for operator and trucking companies.
Modex Blockchain Database delivers a suite of disruptive functionalities and features to the oil and gas industry
Modex BCDB is a middleware software solution that combines the functionality and familiarity of traditional database systems with blockchain, a technology designed to facilitate unparalleled levels of data integrity. Bundled as an Infrastructure as a Service offering, Modex BCDB is devised to act as a building block that companies can use to build an infrastructure tailored to their specific business requirements. What makes the Modex technological layer stand out is the fact that it incorporates a blockchain component that unlocks a series of powerful features:
Complete Data Ownership – companies that store their data on the BCDB platform are in complete control and the indisputable owners of the data they add into the platform. As such, they can decide who, when, and how their data can be accessed within the ecosystem.
Customized permissions – each member organization is linked to an authorized user account. Through the user account interface, companies store data, configure preferences, and request access to the data owned by other members of the ecosystem based on their permission. After permission has been granted by the data owner, the authorized user can decrypt the data permanently or for a limited time frame.
Data integrity and immutability – when a data set is recorded in the blockchain component, it cannot be tampered with by any party without alerting all the other members, regardless of the permission levels they may have.
Monitoring – when confirming a request for accessing another party’s stored data, the data owner can track all the logs generated by the user who was granted access.
Disruptive benefits for the oil and gas industry
With a unique set of characteristics and features, the technology developed by Modex delivers a set of data-related benefits that extend not only to the beneficiary of the Modex technological layer but also to their end customers and business partners.
Certifiable trust – Modex BCDB elevates the concept of trust to a whole new dimension. Trust no longer requires people to place their faith in the ability of companies to safeguard their valuable data. With the Blockchain Database solution, trust is guaranteed by technology.
Enhanced data protection & secure data sharing – with blockchain technology at its core, Modex BCDB creates a highly secure ecosystem for sharing and storing data. Security is further strengthened by the complex layer of encryption offered by the Modex platform. The flexibility of the encryption system enables beneficiaries to encrypt all the data entries or only certain fields from a table. As an append-only structure, data cannot be deleted once it has been passed to the blockchain, making it immutable.
Improved data accuracy – Every member of the blockchain network holds a copy of the stored information. Therefore, only one version of the information is shared between participants. This means that conflicting documents and records become a thing of the past.
Efficient data reconciliation and audit – integrating multiple database systems and software applications with a blockchain backend facilitates a better flow of information and a higher degree of transparency and trust in data. Transparency generates traceability and accountability, while data trust is guaranteed by the complex technological layer facilitated by the BCDB solution. These two features consolidate and streamline a clients’ internal operational flow. In a multi-party system, trust and transparency creates cohesion and improve cooperation on data.
Data privacy – trust is a fundamental value guaranteed by the technology developed by Modex. Paired together with the access control mechanisms built in the Modex BCDB solution, the newly created ecosystem ensures that data can be accessed only by authorized users.
Fast document verification – through Modex BCDB, oil and gas actors have access to a distributed ledger of data that holds all the necessary documentation in an easily accessible medium that is available 24/7. As such, document verification is performed almost instantly with the hit of a button.
No more conflicting documentation – the oil and gas industry involves a wide range of actors that need to collaborate seamlessly especially on documentation. Often than not information gets disjointed and disparate when so many actors are involved. Modex BCDB removes the need for costly and time-consuming documentation reconciliation because it ensures that every party involved has the same version of the data.
Blockchain use cases in the oil and gas industry
Digitizing crude oil transactions
In 2017, Natixis, a French corporate and investment bank was the first private entity to pioneer a blockchain solution in commodity trade for US crude oil transactions. Built on the Linux Hyperledger, the platform digitizes crude oil transactions with blockchain, which reduces friction costs while adding an additional layer of transparency and security.
In crude oil transactions, blockchain brings all the trading parties, namely the buyer and seller along with their respective banks on the same digital ledger. The advantage of this type of structure is that it brings forth unparalleled levels of transparency to a previously opaque industry, as all the details and documentation pertaining to a transaction become visible to everyone.
Besides revitalizing the record-keeping mechanism, the distributed nature of the blockchain platform as well as the immutability of the data introduced in the network act as a barrier against fraud, external tampering, and cybercrime. A platform shared across multiple organizations can be a huge step towards the standardization of data formats, which increases efficiency exponentially as it enables data interoperability and process integrity.
Improve trust between parties
Distribution, decentralization, transparency, and data immutability makes blockchain an ideal environment for storing transaction data, employee track records, contractor certifications and sensitive information. Trust is ensured by the system, as there is only a single version of the truth that can be accessed at any given moment by every member of the network.
Quick and easy access to information means that any eventual dispute can be resolved in a matter of minutes, not days with minimal costs. A private blockchain network can safely store the track record of employee and contractor certifications. Besides improving trust between companies, a blockchain network can also help cut down on hiring costs while ensuring improved job safety and performance.
A Cryptocurrency Pegged Against Oil
Oil is one of the most valuable nonrenewable energy sources in the world, a cryptocurrency pegged to oil could be a viable replacement to traditional financial transactions that rely heavily on third parties for their operations. A cryptocurrency pegged against oil enables direct transfer of value between industry actors without the need for trusted intermediaries like banks.
The oil and gas industry is subjected to rigorous regulation with protocols deriving from various regulatory authorities. This intense verification process often spans a period of months due to the complicated paperwork involved. A blockchain platform can enable real-time data sharing and transparency with regulatory authorities to help resolve convoluted issues in a matter of days.
Streamline land record management
It’s imperative for oil and gas companies to properly manage land records, as millions of dollars worth of investments and profits rest on these documents. Traditionally, the process is straightforward, once the terms of the sale are agreed upon, the records change hands along with the money. But there are cases when ambiguous records make it difficult to determine who owns the property, not to mention that forgery is a real issue faced by the real estate industry.
Countries such as India, Sweden, Columbia, and Georgia are researching blockchain technology to create platforms that can store records of sale and land titles and create an immutable audit trail of property ownership which can be accessed in real-time to clarify disputes and give tax authorities accurate land titles when requested.
Enhanced data storage
The oil and gas industry relies on the Internet of Things (IoT) to store equipment history records, monitor operations, and increase efficiency. IoT sensors function as an interconnected network of devices that communicate with each other over the internet.
The problem is that the current IoT systems rely on a centralized model of communication similar to a legacy server-client system. A centralized structure creates a single point of vulnerability that can be exploited by malicious individuals or become the subject of corporate espionage.
This vulnerability can be easily mitigated by storing equipment history records on a blockchain network. Once stored on the blockchain, the information is distributed to every member of the network. This design choice mitigates the vulnerabilities of a centralized model while ensuring that data dependency, immutability, and cryptography makes the system impervious to external tampering and cybersecurity threats.
The oil and gas industry is a multifaceted sector that encompasses a wide range of intricate processes and diverse actors who need to collaborate and exchange industry sensitive data. The current management and data storing mechanisms employed by the industry are unable to adequately respond to the needs of an increasingly dynamic and interconnected industry.
Blockchain presents itself as an ideal data framework capable of ensuring the storage, trust and collaboration demands of the oil and gas industry, all while preserving privacy. Furthermore, blockchain seems capable to streamline oil and gas operations by reducing workflow processes and removing middlemen from the flow.