The midstream benefits of PermianChain
The oil and gas sector is in an unusual position. It has a preeminent role in the global energy mix, and has a broadly effective supply chain that has evolved with the sector’s requirements over the last century. At the same time however, its position is being challenged by increasingly viable alternatives and the underlying inefficiency of its supply chain is drawing attention from regulators, investors and even consumers. If it is going to maintain its central role within the global economy, the oil and gas sector needs to change.
The positive news is that there are technologies emerging that offer a superb opportunity to augment efficiency and transparency right across the oil and gas sector supply chain, and go some way answering the concerns of regulators, investors and consumers.
PermianChain Technologies has developed a stable platform that could release these benefits, creating a structure that could be implemented across the sector and integrated with existing systems, with relatively little investment in time or effort.
While the platform is initially focused on the upstream section of the oil and gas sector, there are a range of benefits that will become apparent as we move through our development phases.
This set of articles examines how the PermianChain supports the extraction, production, transportation and management of oil and gas. We examined upstream exploration and production (E&P) in the first article, and in this article, we will discuss the potential benefits for the midstream. In the final article we turn our attention to downstream.
Manage supply and anticipate demand
The primary challenge for midstream organisations is managing, transporting and storing oil and gas, a task that would be made considerably easier if there was a clear paper trail that flowed from the point that a barrel of oil or volume of gas was discovered through to the point of consumption.
In the past, the intricate web of third parties that need to be involved in a project has always made a comprehensive paper trail too complicated to manage. As a result, midstream organisations have what could be politely called a sketchy understanding of supply from upstream and demand from downstream.
Obviously after the best part of a century of operating within the current structure, midstream organisations have become relatively adept at anticipating and managing peaks in demand and supply under normal circumstances, but this has tended to be achieved through extensive storage of extracted natural resources rather than true understanding of supply and demand. The risk that this represents became all too clear at the start of 2020 when the Covid-19 pandemic struck the global economy.
The PermianChain approach creates transparency at every stage of the process. Organisations will be able to use PermianChain to get a far greater handle on how demand is evolving and whether there is currently enough supply to match. It will reduce the risk of both shortage and glut, bringing down the costs associated with maintaining extensive storage facilities.
Confidence in bureaucracy
At first glance, confidence in the bureaucracy does not sound like a major challenge for the midstream oil and gas sector, but there is little doubt that regulators are raising eyebrows in the direction of the sector. The industry’s traditional defence that it would be too complicated to make the bureaucracy more comprehensive faces growing scepticism.
The main reason for this is that, as we discussed in this article, the financial services, which, while very different, are both as global and as complex as the oil and gas sector, but they have achieved a considerable amount over the last decade.
This has meant that regulators are looking at the oil and gas sector and its reporting potential in new light: Given what the financial services have achieved, regulatory pressure on natural resources is likely to increase as we move through the 2020s.
PermianChain is based on blockchain technology, which makes it well suited for meeting regulatory requirements. We have created a platform that lets upstream organisations register their confirmed resources and the information that they create then accompanies each barrel as it moves through the process of refinement, transportation and sale. This information can be easily shared with relevant authorities, giving them the confidence that everything is above board. It should also help remove the potential for corruption to stain the reputation of the oil and gas sector.
Part of the challenge for oil and gas organisations at any point in the process is understanding what is in the (literal and figurative) pipeline, how long it is going to take to arrive and, most importantly, when payment will be released.
In many ways this is related to confidence in bureaucracy point discussed above, but the challenge is slightly different. Rather than having the correct information in place to ensure that regulators are satisfied, it is a question of having the correct information in place to ensure that payment is released to the right people, at the right time, in recognition of work completed.
The difficulty in achieving this has been a constant problem for many parts of the oil and gas sector, particularly when it is compounded by the long lead times that many organisations in the up and midstream have to work with.
The PermianChain platform utilises blockchain technology to create a comprehensive, live paper-trail that follows resources as they flow through the phases of a project. Access to the information can be authorised as appropriate and any updates are visible instantly, making it simple to understand where payment is due.
The process of getting oil and gas from the ground to the ultimate consumer can be convoluted. Many organisations, individuals and processes are involved, with paperwork needing to cross and re-cross jurisdictions.
This means that there are many, many points across the supply chain where the process can be be held up. Sometimes these are obvious, but sometimes it is a minor factor that makes the process drag.
The problem is that these issues can have a considerable knock-on effect. It is part of the reason why midstream organisations maintain extensive and costly storage facilities. If a way could be found to discover where the inefficiencies are, alleviate them in the short-term and remedy them in the long-term, then the oil and gas sector would be in a far stronger position. This could be vitally important given many of the challenges that the sector faces as we tentatively begin to move into the post-Covid economy.
The processes that the PermianChain platform offers can help deliver this efficiency. We have designed the system in a way that delivers an unprecedented level of analysis for the oil and gas sector. Using PermianChain, it will quickly become apparent where there are challenges in the supply chain and make it simple to analyse whether they are one-off or endemic issues, which will help make it easier to prioritise and either fix or find a work-around.
This could ultimately lead to a radical change for midstream oil and gas organisations, helping them manage peaks and troughs in supply far more effectively. It would mean more efficiency in the sector and potentially lower running costs, which could be invaluable as investors examine their commitment to the sector.
PermianChain is a proprietary technology platform that brings together the crypto-mining and oil and gas sectors. Using a permissioned access blockchain, PermianChain makes it possible to utilise stranded and wasted energy resources, unlocking liquidity and transforming the way that oil and gas projects are funded, produced, bought and sold. Established in 2018, PermianChain Technologies is a pioneer member of the Blockchain Research Institute (BRI) and start-up member of the Petroleum Technology Alliance Canada (PTAC).