The upstream benefits of PermianChain
Over the last 50 years a complex system has evolved to support the delivery of oil and gas. The problem is that complexity increases cost, and we have reached a point where the sector is under pressure from investors, regulators and even consumers. Technology may well offer an elegant, simple and cost-effective solution.
In this set of three articles, we will examine the challenges that face the oil and gas sector from three perspectives: upstream, midstream and downstream. In this article, we will explain how the first iteration of the PermianChain can help improve the sector’s efficiency and transparency without adding costs. We will also look at some of the enhancements that we have in mind as we grow.
Matching supply to demand
One of the oil and gas sector’s biggest challenges is what to do with stranded gas, particularly on smaller projects where it is not viable to pipe it to a refinery. As we discussed in this article, most of the time, it is either pushed back into the ground, released directly into the atmosphere or flared off. All of these approaches are a waste of resources and the latter two have serious environmental implications that damage the oil and gas sector’s reputation.
While this gas is being wasted, the crypto sector needs a way to economically power its data centres. So on the one hand we have a natural resources sector with too much energy and on the other a crypto sector with a considerable and growing demand for power.
One of the PermianChain’s foundation blocks allows upstream oil and gas companies to monetize their wasted and stranded gas by selling it as power to crypto mining data centres. We adopt this business model onsite at an oil and gas project so there are no transportation costs, and we manage all relevant hardware, mining pool software and mining pay-outs to relevant parties.
Creating value earlier
As we have seen during the Covid-19 pandemic, the volatile nature of pricing in the oil and gas sector can be catastrophic for exploration and production (E&P) firms. The process of looking for natural resources can be expensive, and even when firms find potential assets, the amount of time and money that has been spent looking for oil and gas coupled with the fluctuating market prices mean that there is no guarantee that a deposit will be economically viable to extract.
Even when a deposit is viable, there can be a considerable time between it being discovered and the natural resources extracted. This often puts a great deal of pressure on the bottom line of an E&P firm.
PermianChain offers upstream oil and gas firms the chance to create value from their reserves at a far earlier point in the process. By associating an amount and value to a reserve as soon as it is confirmed, there is the potential for it to be traded, which could help make balance sheets more stable.
Clarity in the process
One related challenge that has bedevilled firms across the oil and gas ecosystem is understanding what is happening in other parts of the process. An oil and gas project can be very convoluted and many third parties rely on the completion of actions beyond their remit before they are paid.
Moving to the PermianChain platform will bring more stability simply because there will be more clarity on what stage a process has reached. There are a lot of benefits to knowing what is happening when, not least of which is making it it more clear when a third party can expect to be paid.
Managing the boom and bust
The volatility of prices in the oil and gas sector has always made it difficult for firms that operate upstream, which can be suddenly caught out by changing prices causing sudden increases or slackening in demand.
Failure to anticipate an increase in demand means that a firm potentially misses out on an opportunity to make profits that can help support it through the lean times. At the same time, assuming that high prices will still be in place once the equipment and expertise has been sourced, moved to a project location and a functioning well established, can be equally as deadly to the survival of an oil and gas firm.
The PermianChain will help smooth the demand for oil and gas. The transparent nature of trading on the platform gives organisations at all stages of the process the opportunity to see how the demand is evolving. It enables firms to make decisions based on far more accurate data than is currently the case, helping deliver a level of stability that has tended to elude the upstream sector in the past.
Attracting a wider spectrum of investors
Related to the ability to create value earlier in the process, projects sometimes struggle to attract funding because they fail to convince institutional investors that they have a valid strategy. The high costs of investing in oil and gas have traditionally meant that projects only really become viable when they attract the support of larger investment houses.
PermianChain’s blockchain structure makes it possible to offer oil and gas as an investment opportunity to a far wider investor base. This does not necessarily mean less sophisticated investor, it simply means that PermianChain streamlines the investment process and does all the heavy-lifting for broker-dealers and transaction agents, significantly reducing underlying investment costs.
The platform’s structure means that this process can also be managed automatically, so there is no need for an oil and gas organisation to invest in its back-office to manage the investment process. They can simply continue to focus on their project and let the system do the heavy-lifting.
With several oil and gas projects around the world suggesting that they were finding it more difficult to attract support from traditional sources of investment even before the economic uncertainty caused by Covid-19, we believe that there is an increasing necessity to attract investment from multiple sources. This needs to be achieved without adding back-office costs.
Making the most of AI
Looking further ahead, exploration and production in the oil and gas sector look set to be radically enhanced by artificial intelligence (AI) and the advanced data analysis potential it creates.
AI’s speed of analysis and ability to spot patterns has the potential to enhance many industries, but oil and gas could be one of the more notable beneficiaries. A fascinating article by EY discusses some of the opportunities and hurdles that AI can help the oil and gas sector overcome, but warns that the true value will only be realised if the sector evolves away from siloed data.
The PermianChain platform has the potential to play a major role in this process, having a significant impact on data silos by default. During upstream activities, the system can help organisations and the industry maintain a consistent ledger of what has been investigated in a way that will help AI learn and then deliver a store of actionable information. This will help the industry respond more flexibly to fluctuating prices without increasing consumer costs.
In the future, stranded data could become as big an issue for the sector as stranded gas, but moving to a platform such as the PermianChain would reduce this risk.
Given the challenges that oil and gas sector has endured over the last few months and looks set to face over the next few decades, moving to a platform that has the ability to help cut costs and enhance efficiency can only be a positive.
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).