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September 07, 2017
How blockchain could help support provenance and asset quality in oil and gas
By: Pierre Mawet, Richard Meszaros and Matthew Smith

After several years in relative obscurity, blockchain’s profile is becoming more prominent. Adoption is growing in multiple industries, and leading oil and gas organizations are exploring proofs of concepts to assess the potential value.

Blockchain is a distributed transaction-ledger database shared across traditional boundaries. The seamlessness of sharing a constantly updated, single source of the truth is one of the digital technology’s primary strengths. Think of blockchain as providing an ongoing record, whether for an asset (e.g., blowout preventer) or a product (e.g., lube, a unit of energy), from start to finish.

The expanding chain of “blocks” of digital data preserve every follow-on action by parties who have played roles in sourcing, producing, transporting, installing, trading and reselling oil and gas products. After business rules have been encoded, blockchain helps eliminate the need for human intervention to validate and reconcile the data.

Below are three examples of how blockchain can help assure provenance, track asset maintenance and help enable a new business model in the oil and gas industry.

Tracking provenance for authenticity and quality control

As a first example, oil companies frequently contract with third-party blenders to manufacture specialty products. The risk of counterfeits—which can bleed revenue and erode the value of a respected brand—is a concern for manufacturers of premium lubricants. Identifying such issues with traditional siloed ERP systems is complex and costly.

In comparison, a blockchain transaction ledger could track the sourcing and provenance of raw materials and products from suppliers and tollers through blending and first fill, wholesale and retail channels. The ledger could include digital data linked to unique identifiers on labels, using hologram technology, as is done in other industries (e.g., software, consumer products, pharmaceuticals). If the unique code on the label is not traceable to the blockchain data, the product can be assumed to be counterfeit.

When quality problems go detected, having greater knowledge of where the products originated from and then where were sent could avoid having to announce broad and expensive recalls.

Managing the full asset lifecycle

Quality inspectors want to know where asset components came from, using which manufacturing activities and which heat-treating processes. Blockchain has the capability to help track all related components and assets, and to share records among business partners. It provides a framework for registering contractors, tracking performance and reliability.

A blockchain could be used, for example, to track which suppliers produced the components for a blowout preventer. If a certain component breaks down, the operator could consult data in the chain to determine when, where and by which company the component was produced. Manufacturers might examine the data to see if maintenance—frequently outsourced—was performed as recommended.

As an increasing number of assets are computerized, blockchain technology also could help to keep track of software updates to protect Internet of Things devices so as to avert sabotage and potential damage from cyberattacks.

Enabling performance-based contracts

In addition to facilitating asset management throughout the lifecycle, blockchain can also support new business models. The operational performance of a critical asset or equipment can be tracked based not only the cost of the equipment but also the cost of all aspects of the performance lifecycle – including maintenance, operating costs, uptime, downtime, etc.

Once a service-level agreement has been determined and coded in the system, sensors could communicate to the blockchain, and performance factors would determine payment amounts (including bonuses or penalties). Blockchain, in other words, has the capability to help enable a new business model: offering oil and gas-related equipment and maintenance as a service.

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