Efficiency must be the future of the energy industry (Part two)

The oil and gas sector’s unique position of prominence in the global economy is starting to be challenged. Major energy producing nations and companies are looking to a future beyond oil and gas and viable alternative sources of energy are starting to gain momentum. The industry needs to focus on efficiency to ensure that it continues to hold its central economic position.

In the last article we discussed the paradox at the centre of the oil and gas sector, and explained what the blockchain is. In this second article, we will look at how the blockchain could enhance efficiency across the discovery, extraction and distribution phases of an oil and gas project.

What does the blockchain mean for the oil and gas sector?

The oil and gas sector has become very good at producing energy and turning it into power that can be consumed by people all over the world. But its success has brought with it an element of complacency: marginal enhancements are rightly applauded, but it has been some time since there has been a significant change in the way that energy and power is traded.

In the same way that artificial intelligence is increasingly embraced as a way of helping us discover viable deposits, we need to start using the blockchain to make trading more efficient at every stage for the discovery, extraction, production and distribution process.

How would it work?

If the oil and gas sector tokenized deposits as soon as they were discovered, they would be able to assign value to digital assets representing oil and gas campaigns, or even value per barrel of oil equivalent (BOE) in proven reserve. This would enhance efficiency in two ways:

(1) it would support the industry at every stage of the process of taking energy and converting it into power

(2) it would also deliver new trading avenues that would create new opportunities to attract further investment

Primarily, given complete blockchain integration, it would mean that the phases of an extraction project would be tracked efficiently, with activities assigned automatically to appropriate third-party suppliers and operators. These suppliers could mark their activities as completed instantly, and payment could be processed as soon as the completion is verified. This would be a massive enhancement to the cashflow of the project itself and change the position for third-party suppliers who often lack payment certainty and struggle with cash-flow under the current structure.

With full integration, production companies could manage their supply chains more efficiently with a better understanding of what stage a project has reached and when reserves are going to reach the pipeline. This could lead to a smoother production cycle that could flatten some of the peaks and troughs in pricing that have challenged the industry over the last five decades.

The addition of tokenization to an oil and gas sector would make it significantly easier to prove provenance of energy, reducing smuggling and helping nation states make the most of their natural resources.

In the final part of this set of linked articles, we will turn our attention to how the blockchain could be used to create new revenue for the oil and gas sector. You can read it here.

PermianChain Technologies is a pioneer member of the Blockchain Research Institute. 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. The firm is currently in the process of applying to for its regulated digital securities trading and investment platform.

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