The future of the petrochemical industry depends on blockchain technology

The age of digital transformation has dawned, leading traditional industries to adopt new technologies to adapt to a fully digital future. It should come as no surprise, then, that the trillion dollar petrochemical industry has tacitly begun using blockchain technology to drive its business.

Douglas Heinzmann, Head of Catalysts at the Blockchain Research Institute told Cointelegraph that the petrochemical sector is particularly ripe for blockchain development because of its single-position supply chain: “In the oil and gas industry, there are many players downstream and upstream.” He further added:

“Industry now needs to look at all of the processes that have been built and developed over the past 80 years and wonder how radical productivity and efficiency can be brought into the system.”

Although there are several ways to apply blockchain petrochemical technology, in particular, it offers a single source of truth within a complex, multi-party sector.

The future of the petrochemical industry depends on blockchain technology
The future of the petrochemical industry depends on blockchain technology

Raj Rapaka, ExxonMobil’s digital innovation advisor and member of the board of directors of Blockchain for Energy (a consortium of energy companies focused on bringing blockchain-based solutions to the sector) told Cointelegraph that the petrochemical industry sees blockchain primarily as a Important technology used recognizes when interacting with external parts: “In the oil and gas sector, there are many suppliers, vendors, contractors, and other parties. Blockchain offers a single source of truth, along with other features that make the technology attractive.”

According to Rapaka, these specific properties are being promoted in the petrochemical industry to ensure that the technology will make the sector more efficient in the future.

Smart contracts automate manual processes

To put this in perspective, Rapaka mentioned this Blockchain for Energy recently helped oil giant Equinor use smart contracts to confirm various transactions.

Rebecca Hofmann, Blockchain for Energy’s president and CEO told Cointelegraph that The consortium initially piloted a solution with the blockchain company Data Gumbo in 2019 and 2020. The pilot combined industry operators (along with their customers, suppliers and vendors) and integrated real-time sensors to collect data to validate transactions over a blockchain network.

According to Hofmann, the solution is “Smart Contract for Goods Transport” It was first tested with produced water to show that the technology is capable of supporting end-to-end automation:

We call it “extreme automation” because everything is non-contact. Connected IoT sensors collect the data, which is then written to a blockchain ledger for validation. These invoices are then approved by smart contracts that generate invoices for automatic payments. “

Given the success of the test, Hofmann stated that Blockchain for Energy has helped automate an extremely manual process within the supply chain of the oil and gas industry. “There are around 23 hand contacts that take place between the large petrochemical companies in the supply chain. We have now reduced this number to four. “

Andrew Bruce, Data Gumbo founder and CEO told Cointelegraph that Following the Blockchain for Energy pilot, Equinor was able to expand its blockchain use cases. which leads to savings in the millions:

“Equinor and other global oil and gas companies use field sensors to transmit near real-time surveillance data and encrypt it on the private and licensed smart contract network. GumboNet effectively creates a verifiable, immutable, and shared source of truth for Equinor and other operators. and their suppliers ”.

In turn, Bruce found that smart contracts build trust to significantly reduce the costs and resources required to automatically execute business transactions. “For example, a smart contract in Data Gumbo’s GumboNet can be programmed to trigger payments to a contractor when a sensor indicates that a certain milestone has been reached, such as when a bit has reached a certain depth. called. In other words, a lengthy billing and payment process is reduced to a few days, resulting in significant savings, financial transparency and improved efficiency.

Although Equinor may be one of the early adopters of smart contracts, Paul Brody, Global blockchain leader at EY, Cointelegraph further said that Smart contracts seem to work pretty well for the industry Petrochemicals:

“The industry itself is very complicated. There are layers and layers of contractors, subcontractors and complex distributions of rights and assets and sources of income. They are difficult to manage manually, but it turns out that they work very well as smart contracts. “

Brody added that the sector is a perfect candidate for managing digital tokens as the production of the oil and gas industry is highly standardized: “These assets can easily be represented and made available in more complex DeFi and smart contract ecosystems.”

While tokenization for the oil and gas industry is still a concept in development, Hofmann explained that Blockchain for Energy is currently testing a solution with a blockchain company, BlockApps, to tokenize seismic rights processes. “Seismic law involves large amounts of data that must be retained for more than 60 years,” he said. According to Hofmann, tokenization is necessary in order to keep track of the rights and obligations of these seismic assets, make it easier to buy, sell and rent these assets, and even monetize unwanted data.

Blockchain for a greener future

It’s also important to note that the oil and gas industry is using blockchain to ensure a greener future. While there are several ways to apply this, Brody believes one area that is likely to take off is using various blockchains to measure carbon outflows and offsets: “We envisioned markets that would be Fortune 1000 companies would make it possible to commit to climate-neutral use of smart contracts to track your CO2 consumption and automatically buy offsets for it.

While it’s still an emerging concept, some companies have started using blockchain technology to raise awareness about energy consumption. For example, the utility Restart Energy One recently launched a blockchain-based platform that enables companies to purchase sustainability certificates in the form of non-fungible tokens or NFTs. It is also the global investment company SkyBridge Capital recently teamed up with carbon credits provider Moss to buy digital tokens that represent carbon offsets.

On the other hand, Alexis Pappas, Chief Innovation Officer at GuildOne (a Canadian blockchain and digital finance company specializing in data and transaction automation in the energy sector) told Cointelegraph that he sThe company has developed its ESG1 platform, which uses smart contract software and blockchain applications to solve one of the biggest challenges in the petrochemical industry: creating verified value by reducing emissions.

According to Pappas, “ESG1 takes data from IoT sensors to provide evidence of bound carbon and automatically generates carbon credits as tokens using the Corda and Cardano blockchain platforms.”

Are oil and gas companies slowly but surely adopting the concepts of Blockchain technology?

While it is clear that blockchain technology can help the petrochemical industry digitize business processes, legacy technology and the ideals on which the industry is built can pose challenges for rapid adoption.

For example, Brody noted that oil and gas is not only an old industry with a lot of legacy technology, it is also very cyclical. “The ups and downs of famine sometimes make it difficult for companies to sustain long-term investment programs that are not directly related to things like drilling and exploration.”

However, Brody believes the cost savings and operational efficiencies of blockchain will drive its adoption. “It won’t be as fast as it will be for consumers, but as legacy systems get older, the more likely it is that their replacement will be blockchain-related.”

Rapaka added that education remains an issue that needs to be addressed. Additionally, he noted that it’s not just about covering how to operate blockchain in a technology stack, but also training business leaders on how technology can be used to make processes more efficient and valuable.

Heintzman also believes that there is a clear lack of knowledge on this topic: “Not enough people understand this new underlying platform technology. There is also a cultural problem related to the introduction of a new technology in a sector that has worked in a certain way for years.. And he added: “These challenges are not unique in this sector, but they are sure to get bigger.”

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