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When Blockchain Meets Supply Chain in Oil and Gas

Blockchain is revolutionizing the way people pay for goods and services all around the world, but it is also impacting companies. From placing a purchase order to the delivery of goods, and documentation to payments, blockchain is the newest part of the procurement of goods and services for the energy industry.

 

Blockchain Is the Future

“We have seen a rise in the number and sophistication of engagement around blockchain just within the past six months,” says David L. Shrier, a Massachusetts Institute of Technology (MIT) lecturer. “It's partly driven by more startup companies entering the market with products, and partly awareness about blockchain from more media coverage.” Shrier even goes so far as to parallel the payment technology with artificial intelligence. He says that companies are becoming more aware as they begin to use deep-thinking technologies.

Improved Efficiencies and Less Waste

These holistic approaches translate into real advantages in company operations. “The commodity finance industry is hampered by nature by inefficiencies and outdated procedures,” says Patrick Arnaud, ING’s Managing Director for Trade & Commodity Finance. “By applying blockchain technology, we expect that we can eliminate a lot of these, making the overall process faster and more cost effective.”

The head of BHP Billiton’s blockchain rollout, Tyler Smith, says that his company is using blockchain to document resource samples. Doing so allows them to track resource samples in a single ledger rather than maintain separate email and spreadsheet logs, and this translates into improved efficiency across the supply chain.

Petroteq is pursuing a similar strategy, applying blockchain to its supply chain management platform. It is using the technology to track and monitor its petroleum, from drilling to finished product, so there is less waste and complete transparency in the process.

Complete Integration

The idea is to make the entire supply chain as transparent as possible, and that increases efficiency. Currently, the oil and gas industry is largely run through physical paperwork that takes time to process. When blockchain is applied from order to cash, it streamlines operations in all sectors, whether downstream, midstream or upstream. Verification is automatic and the charting of work is provided through a variety of veritable checkpoints throughout the supply chain. Ultimately, this means that a transaction can be verified more easily than ever before and more accurately -- and all that translates to faster processing.

Accounts Payable

A good example of blockchain integration is accounts payable. Companies in the oil and gas industry have always reported days sales outstanding (DSO) that are significantly higher than other industries. DSO is often over 90 days -- and it is more than an inconvenience. Companies end up suffering from a lack of cash flow. Blockchain can help by eliminating paper-based processes such as field ticketing and digitizing the process. Not only are the transactions completely transparent, but they can also be automated and reduce time to invoice considerably.

Data Security and Reporting

Getting paid isn’t the only benefit. When blockchain meets supply chain, regulatory filings also improve, as well as security. “Regulators are increasingly requiring companies to provide vast amounts of data that can be analyzed to detect non-compliance and other regulatory issues,” says Mark Koeppen, a principal at Deloitte Consulting. “With current technologies and methods, gathering and cleaning up the required data is a huge burden.” Blockchain’s ability to track ownership and validate everything leads to easier reporting, fewer contract disputes, improved cybersecurity and reduced loss, whether of product or data.

Blockchain is going to change everything in the oil and gas industry. While using blockchain might be a step outside of the comfort zone for many companies, it offers a variety of benefits throughout the supply chain that simply cannot be ignored.

 

 


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