Blockchain application in the oil and gas sector
Blockchain technology is successfully applied in such areas as jurisprudence, medicine, and real property. By the way, the exploration and production sector has also recently started taking advantage of cryptographic solutions.
Advantages of smart contracts for business and trade
According to TАdviser’s statistics, 25% of IT company customers in 2017 were oil production enterprises. Based upon the figures, the oil and gas industry is one of the most active in terms of the integration of technological solutions on blockchain, including smart contracts.
Beside the major advantages of blockchain (decentralization, protection, transparency, reliability), there is a range of pros for business organization. The main ones are the following: smart contracts deal with a huge amount of input data (price analysis, financial and logistical reports), process them, taking into account the smallest details, as well as draw up a plan of activity and reporting. Moreover, smart contracts are able to synchronize with other apps already used by the enterprise.
Differences between smart contracts and conventional exchange-traded technologies:
- Smart contracts process a great volume of information and transaction characteristics.
- Smart contracts adapt to various demand levels, increase the operation transparency, and allow to assess a size of the market and a company's share there.
- Smart contracts help users to manage their own data locally and to control titles to assets.
- Smart contracts do not require centralized control.
Blockchain integration into the oil and gas sector
Innovative technologies can be applied in all, without exception, segments of the oil and gas market. It refers to analysis and resource extraction, processing, logistics, storage, supplies, and planning. Modern technologies enhance the efficiency of equipment and decrease production expenses.
For instance, due to blockchain, Norway-based Equinor managed to conduct the Johan Sverdrup field development more profitably: the company saved 12.2 billion dollars. Mercuria Trading, a firm processing the oil transaction documentation using blockchain, reduced the required time from forty to seven days.
Royal Dutch Shell, along with Equinor and UK-based BP, has established a consortium engaged in the application of blockchain in oil transactions on the spot market. The concept is as follows: now, prior to reaching the customer, oil can change its owner several times, reducing the transaction time from three hours to thirty minutes.
A joint venture of Shell and Gazprom Neft in Khanty-Mansiysk District could significantly cut down expenses using smart technologies and blockchain. Several dozens of smart boreholes and the Smart Field system optimize processes and decrease expenditures, with the extraction volume growing by 2.5%.
SOCAR Energy Ukraine, a subsidiary of Azerbaijan-based SOCAR, is the second major company participating in the PetroBloq consortium. It allows to apply blockchain in various areas of the oil and gas industry. In particular, the consortium detects logistics challenges as well as encourages the internal and cross-border trade.
Currently, the oil recovery index in the USA ranges between 35% and 43%, in Norway – 46%, and in the Russian Federation – 28%. The introduction of blockchain to the manufacturing, according to Vygon Consulting, improves the business efficiency by 10–15%. It means that Russian oil companies, which pay a 70% tax from each sold barrel, will be able to save up to 200 billion rubles annually using blockchain.