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November 21, 2016
Unlocking the potential of blockchain in oil and gas supply chains
By: Pierre Mawet and Michael Insogna

Many industry analysts predict an extended period of price pain, which has caused some producers to go out of business and others to scrutinize costs further to survive in the “new normal.” A digital supply chain is a critical capability for improved performance in oil and gas, and blockchain is another digital disruptor that could help facilitate even greater efficiency.

What is blockchain?

First and foremost, it is a distributed ledger, replicated across many nodes in a peer-to-peer network, thereby minimizing the need for oversight and governance of a single ledger. Each transaction is recorded and added to the previous one, which results in a growing chain of information.

Because no single party is entrusted with all the information, blockchain essentially self-monitors, providing data reliability and eliminating reconciliation. Advanced security can carry a number of key attributes in support of digital supply chains. Consequently, resources previously used to monitor security and provide oversight would gain time for higher-value activities.

The emergence of the cryptocurrency bitcoin and the blockchain platform have provided alternatives to traditional processes. Sensing the competitive threat, banks are investing capital and exploring setting up their own blockchain platforms. Other industries also see vast potential; utilities, for example, is trying to reinvent the energy grid with a peer-to-peer network to exchange energy assets and payments.           

Ways blockchain could benefit oil and gas.

The increasing value of digital supply chains is being enabled by multiple technologies such as the Internet of Things (IoT), wearables, drones and 3D printers. Blockchain solutions could further boost productivity and reduce cost in the following ways:

  • Greater process efficiency. Blockchain improves accuracy in complex processes and helps reduce the need for governance. Smart contracts, for example, can be held in a blockchain transaction with party compliance confirmed through follow-on transactions, reducing third-party supervision and paper-based contracting, thus helping reduce cost and overhead.

  • Compliance. Visibility is essential to improve supply chain performance. The immutable record of transactions can aid in product traceability and asset tracking. The distributed ledger can record product and asset attributes, and allow permissions for specific parties to view. A company could provide, for instance, the origin of raw materials to minimize the chance of introducing conflict minerals. Clearer visibility could also offer more reliable data for insight and better business decisions.

  • Data transfer from IoT sensors. Blockchain could be used to track the unique history of a device, with the distributed ledger recording data transfer from multiple sensors. Data security in devices could be safeguarded by unique blockchain characteristics.

An import/export example of blockchain efficiency.

Order-to-cash and import/export processes provides a good illustration of the potential value of blockchain in oil and gas. Companies often sweat to obtain spare parts for unexpected shutdowns. Considering all of the moving pieces and activities—among exporters, brokers, customs agents, freight forwarders, containers, inspectors and port workers—it is unsurprising the process is slow, cumbersome and unpredictable. Blockchain could boost efficiency by reducing cost and maximizing throughput.

Procedures using blockchain, for example, could promote integrity in shipping documentation as materials move along the value chain. Blockchain also could facilitate automation of import/export records and notifications, include triggers for beneficial tariff programs, and help prevent manual errors and redundant efforts as products are processed.

Improving accuracy in three ways.

Blockchain seeks to facilitate the accuracy of material transactions in three areas:

  1. Documentation, such country of origin, 24-hour manifests and bills of lading
  2. Creation and maintenance of harmonized tariff schedules
  3. Automatic notifications of favorable tariff regimes, including duty drawback programs, temporary import bond-expiration announcements and free-trade zone options.

Reducing manual processes and cost.

The integrity of blockchain supports its use as the document of record throughout the enterprise, and it could foster regulatory compliance during external audits with customs. In addition, fewer manual processes would be needed to record materials moving from input to final production. There are many additional use cases to explore.

Blockchain has the potential to disrupt traditional processes, and supply chain leaders need to be at the forefront of these disruptions to improve operations amid lower-for-longer oil prices.

Contributors: Matthew J. Widdowson and Yei Sung Kim, both with Accenture's North America oil and gas group.

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