By: Laura Marissa Cullell   
Senior Blockchain Consultant

Here at [BlockXLabs](https://www.blockxlabs.com/), we love exploring unique and different uses for Blockchain Technology. Part I of this Series will explore how Blockchain can be implemented in the Oil and Gas Industry. Forthcoming articles will also include uses of blockchains in the music industry, health insurance industries, and in international development.

### Introduction

According to [PetroBloq](https://petrobloq.com/the-problems):

> The oil and gas sector is one of the most dynamic, where companies who operate within its confines face fluctuations in supply and demand a constantly changing geopolitical atmosphere and increasing regulatory oversight. These complexities, in addition to the obvious and underlying difficulty of the exploration and production of oil and gas that companies in this sector are faced with make it a necessity to implement a supply chain management system to help overcome the hurdles.

The supply chain must not stop at the product that a company produces, it must go further into ancillary supply chains that are required to produce their product such as materials, equipment and service providers.

The Harvard Business Review pegs the percentage of purchases and services paid for by oil and gas producers at more than 50% of company expenditures, meaning that even a few percentage points in either direction can make a world of difference on a company’s financials. We are nearly seven years from $120 barrels of oil and with the current prices being less than half that today producers are still feeling the effects of the oil price crash.

### Putting a Value on Digital transformation

The [World Economic Forum](http://reports.weforum.org/digital-transformation/wp-content/blogs.dir/94/mp/files/pages/files/dti-oil-and-gas-industry-white-paper.pdf) assessed the potential for digitalization in the Oil and Gas sector to unlock benefits for the industry, its customers and society more generally over the next decade (2016–2025). Key findings from this analysis include the following:

*   Digital transformation in the Oil and Gas industry could unlock approximately $1.6 trillion of value for the industry, its customers and wider society.
*   This total estimated value from digitalization can further increase to $2.5 trillion if existing organizational/ operational constraints are relaxed, and the impact of “futuristic” technologies, such as cognitive computing, is considered (for which there is insufficient evidence to make a definitive value assessment at this time).
*   Digitalization has the potential to create around $1 trillion of value for Oil and Gas firms. — Digital transformation in the industry could create benefits worth about $640 billion for wider society. This includes approximately $170 billion of savings for customers, roughly $10 billion of productivity improvements, $30 billion from reducing water usage and $430 billion from lowering emissions.
*   Environmental benefits include reducing CO2 -equivalent (CO2 e) emissions by approximately 1,300 million tonnes, saving about 800 million gallons of water, and avoiding oil spills equivalent to about 230,000 barrels of oil.

### Benefits of using Blockchain Technology

[Mark Koeppen et al](https://www2.deloitte.com/content/dam/Deloitte/de/Documents/energy-resources/gx-blockchain-report-future-in-oil-and-gas.pdf), from Deloitte believe that one element of this new technology that can bind skeptics and true believers is the potential of blockchain as a means of simplifying processes that can lead to enhanced efficiency and cost reductions.

They further state that blockchain can offer transactional verification instantly across a network without relying on a central authority — potentially reducing operating costs, more securely storing and managing data and improving the speed of transaction processing

### Use Cases of Blockchain Technology

[Pierre Mawet et al.](https://www.accenture.com/us-en/blogs/blogs-blockchain-in-oil-and-gas-sector) state that the following are just some use cases of blockchain technology:

1.  **Track provenance for authenticity and quality control**

*   A blockchain transaction ledger could track the sourcing and provenance of raw materials and products from suppliers and toll-ers through blending and first fill, wholesale and retail channels.
*   The ledger could include digital data linked to unique identifiers on labels, using hologram technology, as is done in other industries (e.g., software, consumer products, pharmaceuticals).
*   If the unique code on the label is not traceable to the blockchain data, the product can be assumed to be counterfeit.
*   When quality problems go detected, having greater knowledge of where the products originated from and then where they were sent could avoid having to announce broad and expensive recalls.

**2\. Managing full asset lifecycle**

*   A blockchain could be used, for example, to track which suppliers produced the components for a blowout preventer.
*   If a certain component breaks down, the operator could consult data in the chain to determine when, where and by which company the component was produced.
*   Manufacturers might examine the data to see if maintenance — frequently outsourced — was performed as recommended.
*   As an increasing number of assets are computerized, blockchain technology also could help to keep track of software updates to protect Internet of Things devices so as to avert sabotage and potential damage from cyberattacks.

**3\. Enabling performance-based contracts**

*   Blockchain can also support new business models.
*   The operational performance of a critical asset or equipment can be tracked based not only the cost of the equipment but also the cost of all aspects of the performance lifecycle — including maintenance, operating costs, uptime, downtime, etc.
*   Once a service-level agreement has been determined and coded in the system, sensors could communicate to the blockchain, and performance factors would determine payment amounts (including bonuses or penalties).
*   Blockchain, in other words, has the capability to help enable a new business model: offering oil and gas-related equipment and maintenance as a service.

**4\. Trading and third party impacts**

*   Blockchain technologies are beginning to disrupt and open energy trading markets. By trading physical commodities on a blockchain solution, commodity traders could benefit from increased speed of exchange, improved availability of data, and enhanced reliability and audit-ability as records are verified in near real-time.

### Conclusion

The oil and gas industry has a lot of potential to evolve using Blockchain technology. Through improvements in transparency, trading, and supporting new business models, Blockchain technology can provide an efficient, money saving solution which would bring this industry into the future.

Do you have any questions regarding blockchain in the Oil and Gas industry? Let us know in the comments below or contact BlockX Labs resident Blockchain Consultant Laura Marissa Cullell at lcullell@blockxlabs.com.

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