Oil and gas firms have been using blockchain technology and working with digital start-ups to modernise and improve efficiency across operations at an increasing rate. As blockchain booms, will it soon be a vital component of oil and gas operations?
As the oil and gas industry turns towards blockchain firms to digitalise their systems to boost security, increase transparency across the company and improve operational efficiency, the incorporation of the new technology is slowly becoming the norm rather than the exception.
The widespread uptake of blockchain technologies was propelled following the establishment of the first industry blockchain consortium in the United States, founded under the Offshore Operators Committee (OOC), in 2019. Chevron, ConocoPhillips, Equinor, ExxonMobil, Hess, Pioneer Natural Resources and Repsol form the board of the consortium, with Marathon Oil and Noble Energy also participating.
Rebecca Hofmann, chairman of the board of directors of the consortium stated of its creation, “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.
The aim of the consortium was to establish blockchain standards, frameworks, and capabilities for work in the oil and gas industry. And since its development, hundreds more oil and gas firms around the world have integrated blockchain technology into their operations.
Some of the principal attractions of blockchain include the ability to keep information such as certifications in one digital space, to enhance trust between companies, clients and employees as well as improving safety standards; enhanced transparency through the centralisation of all company transactions; the ability for companies to use cryptocurrency for immediate transactions; and cutting the need for the middleman because of its centralised record-keeping system.
This incorporation of this technology is growing increasingly necessary due to the globalisation of the oil and gas industry meaning that companies have made significant losses due to failures in communication, complicated transactions, and in operational areas - particularly due to the prevalence of hiring external contractors for work on oil and gas operations. It is also an integral part of cryptocurrency use, an increasingly common way of conducting payments in the industry.
Just this month in blockchain’s U.S. hub of Houston, 200 oil executives from Texas, California, Colorado, Louisiana, Pennsylvania, New York, Australia, and the U.K. met to discuss the potential for Bitcoin in the energy industry. Parker Lewis, an executive at Unchained Capital told media sources, “I just knew Houston would be prime to explode because of the energy connection to mining – if we organized a good meetup.” “It’s also key to Texas being the bitcoin capital of the world,” he explained.
Texas has become a hotspot for blockchain firms and bitcoin miners thanks to cryptocurrency support from politicians, its deregulated power grid, and its low-cost power sources. In addition, it offers something different to Silicon Valley, the home of many tech companies, thanks to its close connection to oil and gas making it an economic hub, as well as Houston’s openness to new technologies – particularly those that could enhance the energy industry.
What was once the epicentre of U.S. oil and gas has become so much more than just energy over the past five years, particularly during the Covid-19 pandemic when tech start-ups started flocking to the city. In addition, the Texas House has passed laws in support of Texas becoming the world leader in cryptocurrency, further encouraging the use of these technologies in other industries.
Cryptocurrencies such as Bitcoin have also been an integral part of oil majors’ aims to reduce gas flaring in line with national policies and the objective of decarbonisation. Cryptocurrency requires a significant amount of electricity to create, but data centres are small and transportable, meaning that can easily be integrated into existing energy sites. Therefore, excess gas from oil production can be used to power crypto farms, using the energy in an economical way while also reducing environmentally damaging gas flares.
The attraction to bitcoin is not surprising since its value increased exponentially by 224 percent throughout 2020, then reaching a peak of $64,000 on April 14, 2021, at a time when other currencies and commodities – particularly oil – were losing value due to Covid-19 restrictions and uncertainty. Bitcoin is not the only digital currency to have boomed in recent years, as cryptocurrencies in general have a market cap of over $1 trillion.
For oil and gas, crypto payments take borders and conversion rates away from transactions, which can hinder payments with traditional currencies, driving the majority of oil and gas firms to use cryptocurrencies and employ blockchain technology as a means of cutting costs and modernising alongside competitors.
As the use of blockchain technology and cryptocurrencies becomes the norm rather than the exception, any oil and gas company not to adapt to this modern machinery will likely end up stuck in the past, unable to contend with competitors more willing to modernise.
By Felicity Bradstock for Oilprice.com
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