Canadian government support for cleaner oil and gas is an opportunity the industry cannot afford to waste
On July 8, the Canadian Government announced that as part of its post-Covid-19 recovery plan it would be investing in Alberta’s natural resources sector. In a statement, which you can read here, the government said that it would be focusing on ways to help oil and gas become more sustainable, finding more responsible ways to drive the Canadian economy, reduce environmental impact and create jobs. There is no doubt that change is necessary, but the good news is that many of the tools that the sector needs to improve are already available.
The oil and gas sector had been under pressure for some time even before Covid-19 basically put global economic activity into hibernation at the start of 2020. Complex supply chains, convoluted bureaucratic processes and the increasing possibility of viable alternatives meant that investors were starting to look elsewhere. For the first time in nearly a century, even major natural resources firms were having to actively hunt for investors.
At the same time, price fluctuations have been a constant problem for oil and gas firms of all sizes. Part of this can be seen as cyclical, demand rises and falls and prices change, but oil and gas has struggled to reach and maintain any form of equilibrium. This has been a particularly challenging issue for junior oil and gas exploration and production companies that often know where the natural resources are but can’t extract them without price certainty.
The end of boom and bust?
Technology offers a way to solve many of these issues, but the complexity of the oil and gas sector and as a result the cost of moving to any new system has meant that the sector has tended to be slow to embrace new technologies. Equally, in a world where a firm’s primary role is to bring natural resources and move them to where consumers need them at the lowest possible price, there is a risk that any new technology will be a distraction and end up costing more than it saves.
The blockchain however offers something new. It creates a virtually immutable, global transaction record that works on permissioned access. What this means is that it offers a spreadsheet that can be accessed by people with permission and because it is decentralised and transparent to those with the right authorisation, it is simple to see where and what changes are made, when, and by whom, right across the supply chain. Its main use was to support cryptocurrencies, but the blockchain’s protocol can be applied to virtually any good or service you would care to mention.
A blockchain-based approach could mean several things in practical terms for the oil and gas sector. It can be used to augment existing ways of working, reduce back office costs and broker fees, make it easier to isolate pressure points in the supply chain and as a result move away from the boom and bust, cyclical market. It can also ensure that natural resources are used efficiently, enhancing the oil and gas sector’s reputation. By bringing down costs and making administration more simple, it can make it easier for investors of all sizes to support projects.
It could create a structure that could cover the natural resources sector from upstream, through midstream all the way to the downstream, with information flowing easily between every organisation involved in the process.
With information flowing more easily, pressure points could be spotted and issues resolved more quickly. This in turn could reduce the industry’s reliance on extensive storage facilities because there would be less need to hold as much in reserve in case of delays further up the chain. Simultaneously, wastage, and potentially graft, would be reduced because it would be much easier to see, and figure out why, 100 barrels that came out of the ground became 80 barrels at the refinery gate.
From an environmental perspective this would mean that the industry could prove that it is using the resources that it was bringing out of the ground efficiently.
Making the most of methane
As the Canadian government statement points out, one of the major challenges the sector faces is the release of gas during the extraction process. For many smaller projects, it is uneconomic to pipe the gas that usually accompanies oil deposits to a refinery and so it is often simply wasted, which has a significant environmental cost.
At the same time, technology firms need cheap energy to power artificial intelligence, augmented and virtual reality and cryptocurrency projects.
It is now possible to place a small but very capable server farm in an unobtrusive corner of an oil and gas extraction site and power it using the natural gas that would otherwise be wasted. The units required are about the size of a shipping container and would achieve three things:
1) Convert previously wasted methane into power that could be utilised onsite by technology firms without adding to an oil and gas firms administrative or management costs
2) Reduce the release of methane into the atmosphere by converting it into power
3) Offer oil and gas firms a new revenue stream from the placement of server farms and create income from a previously wasted resource
These projects are already in place and could go a long way to helping the Canadian government achieve its ambition of making the oil and gas sector cleaner, ensuring world-class efficiency and protecting or even building jobs across the economy as it recovers from challenges of Covid-19 .
We recently published a research paper that explains how the blockchain can enhance the oil and gas sector which you can read it here.
PermianChain Technologies is a pioneer member of the Blockchain Research Institute and a start-up member of the Petroleum Technology Alliance Canada. PermianChain is investigating ways to harness the power of blockchain technology, data science and artificial intelligence to digitize, tokenize and monetize proven but undeveloped natural resources, starting with oil and gas. The PermianChain, which already has secured oil and gas reserves to be listed on its platform, intends to unlock liquidity to revolutionise the way that oil and gas reserves are funded, produced, bought and sold on a permissioned-access blockchain.