What is the Blockchain and what is its impact on the oil sector?

Introduction

Originally conceived as a foundation for cryptocurrencies, blockchain technology has become a bridge to the digital transformation of various industries, including oil. This is largely due to its ability to offer transparency, immutability and efficiency through smart contracts, offering the opportunity to improve the efficiency of traditional transactions by eliminating legal and financial intermediaries.

The use of blockchain in the oil sector, characterized by its complexity and the need for secure and efficient operations, plans to optimize supply chain management, logistics and exploration and production operations. The adoption of this technology not only increases operational transparency and data traceability, but also strengthens the security and auditability of transactions.

As we have increasingly trusted economic models, where a company’s assets and reputation are valuable characteristics, blockchain’s potential to empower and protect becomes unquestionable. The following article raises the opportunities and potential applications of blockchain in the oil sector and how operations are managed, from exploration to the end consumer.

What is Blockchain?

Blockchain technology acts as a distributed database among the nodes of an existing computer network. This innovative concept is recognized for maintaining a secure and decentralized record of ^{transactions1}. Although its application was focused on cryptocurrencies, this technology was extended to various sectors where it ensures that the data is immutable, i.e., impossible to alter once it has been recorded. This key feature of blockchain eliminates the need for intermediaries such as auditors by significantly reducing associated costs and minimizing human error.

This database has the capacity to record and track not only transactions, but also assets of any nature, whether tangible or ^intangible2. This platform allows almost any item of value to be traded securely and transparently on a network, promoting a reduction of risks and costs for all parties involved.

This innovative approach to data and asset management is based on the trust generated by the technology itself, where the veracity of the information entered is the only thing that needs to be verified, thus radically transforming traditional methods of transaction and tracking in the business environment and beyond.

Advantages of blockchain technology in the oil sector

• Optimizing transactional efficiency: Traditionally, transactions involve numerous steps and repetitive insertion of the same information into different systems manually, which is not only time consuming, but can also lead to human error. Blockchain technology allows simultaneous access to the data necessary for a negotiation, thus optimizing its reconciliation and reducing the time spent on price and volume verification.
• Improved security: Simultaneous access to information contributes significantly to the reduction of risks related to the exchange of documents by traditional means, such as e-mail. Those companies in the sector that adopt blockchain will also be able to implement security parameters such as authentication methods, high levels of encryption and data immutability, raising their security standards.
• Data traceability: Thanks to the interconnection of this technology, different types of data can be mapped, located and visualized quickly and easily, simplifying the development of auditing and regulatory/compliance processes. The use of this innovative concept allows the optimization of data management and at the same time generates confidence among potential traders thanks to the transparency and access to the captured data.

Blockchain applications in the oil industry

Supply chain tracking

Blockchain technology enables the monitoring of the oil journey, from its extraction to its commercialization. Through the agility of critical information exchange between the different stages of the value chain, risks associated with operations, such as human error, fraud, data loss and transactional discrepancies, can be ^mitigated3.

By eliminating inefficiencies and providing a reliable, real-time source of data, more effective management is facilitated, enabling oil companies to respond more quickly and accurately to market demands and operational challenges. This innovative approach redefines operational efficiency and strengthens work dynamics in the sector, promoting a safer and more reliable environment for all parties involved.

Equipment and production monitoring by means of sensors

Integrating blockchain technology with IoT sensors in the oil sector has led to improvements in the monitoring and management of equipment and its production in industrial facilities. This combination enables real-time, highly accurate data collection from multiple points on processing plant equipment and pipeline systems; as a result, accurate and contractually compliant billing is ensured. This application facilitates the execution of contractual agreements by confirming compliance with important terms such as quantities produced.

Monitoring significantly reduces the opportunities for fraud and ^human error4 , increasing operational efficiency by minimizing the need for manual interventions at the time of billing. This form of implementation not only speeds up the invoicing process, but also frees up human resources and focuses them on other value-adding tasks, thus improving productivity and the overall efficiency of the sector.

Smart contracts

They are the result of the digitization and automation of industrial processes; smart contracts are computer programs that are automatically executed when pre-established conditions are met,⁵ eliminating the need for intermediaries and significantly reducing the likelihood of errors and disputes. The application of this blockchain technology in the oil sector offers a new approach to the process involved in the management of agreements, impacting both the buying/selling stage of crude oil and refined products, as well as the management of logistics and supply operations.

Smart contracts can encode different terms to carry out an agreement; price, volume, and delivery terms are some of the main parameters considered during the design and preparation of these contracts. Once the agreed parameters are verified by reliable data sources such as IoT sensors, the smart contract is automatically activated, facilitating billing and financial settlements, without any manual intervention.

Implementing smart contracts increases operational efficiency by eliminating manual steps and speeding up access to business data, all while imposing improvements in transactional security by relying on the immutability and transparency of blockchain technology. In short, smart contracts are enshrined as one of the best applications of blockchain in the oil industry, marking a milestone in the digitization and automation of the sector.

How does Blockchain technology impact the oil sector?

The integration of blockchain in the oil sector represents a series of changes due to its characteristics. These qualities make it possible to restructure the management and trade of the energy resources found in this industry. The way in which this technology makes it happen is by effectively addressing different processes and stages of the value chain, such as labor, data management and communication between the two negotiating parties.

This innovative concept makes it possible to reduce and optimize the number of activities and channels required to carry out transactions in this monopoly. Therefore, organizations that adopt this new technological model will be able to experience considerable reductions in costs and in the time required to finalize contractual ^agreements6.

In short, blockchain adoption in the oil industry offers the opportunity to optimize operational efficiency and reduce costs throughout the value chain, demonstrating that it can improve processes ranging from crude oil extraction to the marketing of refined products.

Conclusions

Blockchain technology projects an evolution in the management and trading of resources, energy resources. This is because it not only offers transparency and security through its decentralized infrastructure, but also boosts operational efficiency by eliminating intermediary processes and agents, optimizing the supply chain.

Transforming the processes for recording and managing transactions generates greater confidence in the exchange of assets, setting new standards for the industry. Its impact goes beyond process improvement; it also promotes innovation by facilitating inter-agency collaboration and fostering the creation of customized solutions.

To conclude, the integration of blockchain in the oil sector should not be seen as a simple technological innovation, but as a necessary tool to drive sustainability, efficiency and competitiveness in a market that is constantly changing.

References

1. Hayes, A. (2023, December 15). Blockchain Facts: What Is It, How It Works, and How It Can Be Used. Retrieved March 11, 2024, from https://www.investopedia.com/terms/b/blockchain.asp.
2. IBM. (sf). What is blockchain? Retrieved March 11, 2024, from https://www.ibm.com/topics/blockchain
3. Dilmegani, C. (2024, January 11). Blockchain in Supply Chain: Benefits & Top Use Cases in 2024. Retrieved March 12, 2024, from https://research.aimultiple.com/blockchain-in-supply-chain/
4. Deloitte. (sf). Blockchain in Oil & Gas. Retrieved March 12, 2024, from https://www2.deloitte.com/us/en/pages/consulting/articles/blockchain-digital-oil-and-gas.html
5. IBM. (sf). What are smart contracts on blockchain? Retrieved March 13, 2024, from https://www.ibm.com/topics/smart-contracts.
6. Consensys. (sf). Blockchain in Energy and Sustainability. Retrieved March 13, 2024, from https://consensys.io/blockchain-use-cases/energy-and-sustainability.