Blockchain

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Blockchain refers to a type of data structure that enables identifying and tracking transactions digitally and sharing this information across a distributed network of computers, creating in a sense a distributed trust network. The distributed ledger technology offered by blockchain provides a transparent and secure means for tracking the ownership and transfer of assets.

History and Hype Factor

While blockchain itself was made popular by the Bitcoin cryptocurrency, the explosion of interest in blockchain in Oil & Gas started in 2017.

According to several analysts, including Gartner, the high level of interest in blockchain does not yet indicate that everyone understands it well, or that there are many real projects that have turned the promise into reality. Indeed, in most blockchain conferences (which have been numerous since 2017), much time is spent "demystifying" the concept. For most people, blockchain is still synonymous with Bitcoin and other cryptocurrencies.

Criteria for Blockchain Adoption

In order for blockchain to be the right technology to apply to a given business problems, examples of which will be listed below, several requirements should be present:

• Encryption - the data is confidential and must be stored in a secure, tamper-proof way
• Distribution - in the absence of a single trusted custodian, multiple copies of the data must be kept
• Non-repudiation - one must be able to verify that a transaction (a block) has taken place, without full access to database (the chain)

In the absence of those requirements, simpler technologies (encrypted databases using PKI may be sufficient. Even if some form of transaction chaining is required, there may be suitable alternatives to blockchain technology, which consumes large amounts of computing resources. All those technologies are generically called Distributed Ledger Technology (DLT).

Applications of Blockchain in Oil & Gas

Contracts and Orders

Storing contract information, service orders, quotes, field tickets, invoices, etc. in a blockchain can facilitate:

• establishing trust and confidentiality in an order-to-cash process
• creating a paperless trail, reducing data entry workload and errors
• automating the creation of invoices that no longer need field tickets to be attached to them in order to allow the client to validate the invoice

A particular case in point is royalty payments by operators to landowners. Since royalties are a percentage of the production, recording daily production in a blockchain ensures that the transactions can be validated. It also means that royalty statements and no longer need extensive attachments as justification. NAL Resources, a Canadian operator, reported at the "Blockchain, IoT and Machine Learning - Canada" conference in February 2018 that they eliminated most of their Accounts Payable department; they now handle 5,000 royalty payments in two days per month with with just two people.

Logistics

Transactions between logistics companies and operators are also a good use case for blockchain, assuming that invoices are based on a volume of activity that needs to be validated. Such applications of blockchain ofren go hand-in-hand with an IoT component to measure the activity or optimize the workflow.

For example, Amalto's Ondiflo solution allows the automation and business process optimization of water hauling from separator tanks to water treatment facilities. The solution is two-fold:

• sensors measure the water level in the tanks and send the measurements through a low-power, low-bandwidth network, which allows the optimization of the truck routes;
• the water hauling trips are logged into a blockchain, against which the hauling company's invoices can be verified.

There have also been investigations into the tracking and logging of hydrocarbon cargoes, which are often sold and re-rerouted while in transit.

Cryptocurrencies

While blockchain is not only about cryptocurrencies, this application also touches the Oil & Gas sector. In March 2018, Wellsite launched the CrudeCoin currency.

Alternatives to Blockchain

There are other technologies that offer some level of security and non-repudiation, and are less compute-intensive than blockchain. The main ones are Hashgraph and tangles:

• the Hedera Hashgraph uses a criterion called "proof of stake" (POS) insted of blockchain's "proof of work" (POW) to make the computation faster
• the IOTA Foundation's tangles use a directed acyclic graph (DAG) structure to store transactions; instead of POS or POW, transactions get stored when their submitter validates two previous transactions, selected at random, in the graph. The new transaction then gets added to the graph, pointing to the two transactions it validated, and waits in turn to be validated by a new entrant.

Key Actors

Some of the blockchain technology suppliers that have been active in the Oil & Gas space are:

• GuildOne
• CG Blockchain
• BCT (the Blockchain Terminal)
• Access Blockchain
• ShipChain

Organizations that are researching or advocate blockchain use include:

• the Government Blockchain Association (GBA) in the U.S.
• the Blockchain Association of Canada
• the University of Calgary
• York University