Blockchain Stretches Into the Oil Patch
Blockchain technology may have gotten its start by keeping cryptocurrency traders honest, but its usefulness is expanding. And the oil and gas industry is taking advantage.
Bitcoin, the first cryptocurrency, came on the scene in 2008, and blockchain made it possible by keeping a growing, time-stamped record of transactions that is inherently resistant to modifications. Companies, including oil and gas firms, are now looking for new ways to use this form of immutable record-keeping in business.
The Abu Dhabi National Oil Company (ADNOC) recently announced that it is partnering with IBM to integrate blockchain throughout its value chain as a way to automate and execute transactions between its operating companies.
“Blockchain is a game-changer,” said Abdul Nasser Al Mughairbi, ADNOC’s Digital Unit manager. “It will substantially reduce our operating costs by eliminating time-consuming and labor-intensive processes, strengthen the marketing and trading of our products, and create long-term sustainable value.”
An example of ADNOC’s use of blockchain is the tracking of crude oil as it makes its way from the production well to the refinery or export terminal. As the oil is transferred, blockhain is used to account for all of it on a daily basis along with associated monetary values.
Zahid Habib, IBM’s vice president for chemicals and petroleum solutions, said that this blockchain pilot, “in its simplest terms, enables the ability to track irrefutably, every molecule of oil, and its value, from well to customer. This unlocks the potential to digitally reinvent ADNOC’s hydrocarbon value chain.”
Beyond managing internal transactions, blockchain is also seeing use in the industry for external exchanges of data. Well testing and data collection within a basin is conducted by many companies. This dispersal of data has led to what data scientist Lewis Matthews calls one of the data dark ages of the petroleum industry. Matthews is a data scientist with CrownQuest Operating and spoke at a recent luncheon held by the Professional Petroleum Data Management Association. There, he defined a data dark age as “When you have a clear operational need for an effective model but lack the data/theory to build an effective model.”
The current data dark age, he said, was preceded by the second shale revolution and the success of enhanced-oil recovery-techniques, which generated vast amounts of data. How to equitably share and use those data seems to be a problem fairly addressed by blockchain.
With the easy oil all gone and the basins in the US already mapped, collaboration has become increasingly important for oil producers to be successful. “You can look at this as a portfolio-optimization problem in the sense that, of all of the acreage leased in West Texas, exploration is not going on in the core of the basin,” he said. “We know where all of the oil is. We’re just trying to figure out now the best method to get it out. And we’re all trying to do this manufacturing-like process together with these tiny siloed data sets.”
Finding the best method to extract the oil means companies need to talk to one another. Companies of all sizes are scrambling, but, without careful monitoring, the exchange of information among them can become lopsided.
This is where blockchain can come in handy. Referring to a pool of well data shared among companies, Lewis said, “If I have 50 wells of a certain type, I put them in the pool. But I don’t want to be putting 50 wells of a certain type into this pool and other people are only putting in 10.” Blockhain’s impenetrable record-keeping can ensure that the trades are equitable.
Another advantage of the technology is its speed. Lewis presented the example of data exchange in the Permian Basin. “Right now in the Permain Basin, and I’m sure in other basins as well, there is an underground market for trading data,” he said. “It’s an analog system. Somebody at one company picks up the phone and tries to reach somebody at another company who has the data and wants to trade wells. It’s a long process. The typical data trade could take something like 6 to 12 months. We’ve had one take as long as 3 years. We’ll use blockchain technologies to digitize this whole process and speed this whole thing up.”
Automation also makes blockchain effective at rapidly and securely exchanging data. Once all users agree to the rules, blockchain can run without intervention. The exchanges are then “decentralized, peer to peer,” Lewis said, “so no one else knows. One operator is talking to another operator.”
In the Permian Basin, one company has created a format for holding the rights of potential but undeveloped oil and gas reserves. PermianChain Technologies introduced Permian Token, which the company expects will speed up the transfer of these rights and eliminate layers of bureaucracy, reducing broker and administrative fees.
“Many private oil and gas opportunities are structured with an upfront fee due to their exclusivity and inaccessibility,” said Mohamed El-Masri, cofounder of PermianChain Technologies. “Advisors and brokers take a proportion of the profit simply for placing investors’ money in the deal, which means charging higher investment costs to cover administrative and brokerage tasks, rather than helping the project itself. It also means that the offering company’s incentive is often to fill the deal quickly to protect their balance sheets in the short term. There are currently over 1.6 trillion bbl of potential oil reserves globally. The Permian Token helps public organizations and private sector oil companies use them more efficiently.”
Approximately 250 million bbl of potential oil and gas reserves are planned to be listed on the PermianChain network, and the company has formed partnerships with a string of organizations, including the Gulf Energy Corporation, Battiest Energy, and Kaspian Innovations.
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19 May 2020
15 May 2020