The oil and gas industry plays a crucial role in contemporary civilization, especially given the rising global demand for energy. Despite its sustained success, this industry’s management practices—which are riddled with inefficiencies and exorbitant costs—remain outdated.
The Increasing Significance of Oil and Natural Gas Resources
Petroleum and gas resources are being exploited at a rate that has never been seen before, which is significantly responsible for the growth of global economy and society. The “BP Statistical Review of World Energy” was released in June 2018. It claims that a substantial 57% of the energy used worldwide is derived from natural gas and oil combined. This incredible use of hydrocarbons highlights how vital hydrocarbons are to providing the world’s energy needs.
Furthermore, data from recent years indicates that the world’s oil consumption has been rising, surpassing an average growth rate of 1.2% for three years in a row. Not only has natural gas consumption increased by 96 billion cubic metres, but it has also grown at its quickest rate since 2010.
According to forecasts from the “BP Energy Outlook 2019 edition,” even with continuous efforts to support the development of new and renewable energy sources, oil and gas will still account for a substantial 50% of global energy consumption by 2040.
Specifically, the liquified natural gas (LNG) market is expected to grow significantly, accounting for 15% of the world’s natural gas consumption by 2040. As such, for the foreseeable future, oil and natural gas are expected to continue to dominate the world energy market.
The Oil and Gas Industry Needs Modernization
The oil and gas industry itself is confronting enormous obstacles, despite the fact that the world’s capacity to create energy is mostly dependent on these resources. Notwithstanding scientific and technological breakthroughs, the industry’s management practices are still deeply ingrained in outdated, usually ineffectual methods. Change is imminent for the industry’s operating model, which is characterised by excessive costs, protracted project delays, and increased hazards.
The three major segments that comprise the oil and gas industry are upstream, midstream, and downstream. The upstream industry focuses on exploration and development, while the midstream industry manages the flow of gas and oil. Last but not least, the downstream sector includes activities related to sales and storage.
Rapid technical developments have occurred in the oil and gas business in recent years, especially in areas like intelligent drilling technology, intelligent oil and gas fields, and marine digital platforms.
These changes highlight how the sector is gradually becoming more automated, digitised, and intellectualised. But the industry’s management procedures have fallen behind, with antiquated techniques that stifle productivity and drive up expenses.
Blockchain’s Importance for the Oil and Gas Sector
The oil and gas industry may find that blockchain technology offers a workable solution to these management challenges.
Three distinct phases of development have occurred in blockchain technology since its initial emergence in 2008, thanks to Bitcoin: the blockchain 1.0 era, typified by Bitcoin; the blockchain 2.0 era, typified by Ethereum and smart contracts; and the blockchain 3.0 era, centred on broader applications in the social sphere.
Although blockchain technology has found applications across various industries, the oil and gas sector initially adopted a cautious approach. It wasn’t until 2017 that British Petroleum (BP) initiated blockchain testing, marking the industry’s first steps towards embracing this transformative technology.
Blockchain in the Gas and Oil Sector
Important Management Concerns in the Gas and Oil Sector
Even though the oil and gas sector is essential to supplying the world’s energy needs, it faces a number of managerial obstacles that reduce productivity, drive up expenses, and raise risks. Among the well-known problems are:
1.Ample Paperwork and Reconciliation: Due to the industry’s complexity, there is a great deal of paperwork and reconciliation work, which raises the time and money expenses of transactions.
2.High Transaction Risks and Multi-Party Transactions: Operations in the oil and gas sector frequently involve several parties, which raises the risk of fraud, mistakes, and inefficiencies in transactions.
3.Third-Party Management expenses: The industry has difficulties due to high third-party management expenses, ineffective trade negotiation procedures, and delayed data sharing.
4.Cybersecurity concerns: The industry’s reliance on digital systems makes it susceptible to cyberattacks, putting critical data at risk.
Blockchain’s Potential to Help with LNG Industry Issues
The oil and gas industry’s management problems may have a promising solution in blockchain technology.
Transparency, security, and decentralization—three of its fundamental characteristics—offer special benefits for optimising business processes. The numerous ways that blockchain technology can simplify the liquid natural gas sector are listed below:
1. Transaction Efficiency and Smart Contracts: A significant amount of paperwork can be removed, processes can be made easier, and total costs can be reduced by putting smart contracts on blockchain. Smart contract security and design must be carefully considered in order to prevent vulnerabilities.
2. Transparency and Reduced Fraud Risk: The transparent ledger architecture of blockchain technology enables real-time and historical data access for all parties involved in a transaction, thereby reducing the likelihood of fraud and enhancing transaction success.
3.Cross-Border Payments: Blockchain-based cryptocurrencies like Bitcoin and Ether can lower cross-border payment costs, expedite fund verification and settlement, and improve transaction efficiency in the global oil and gas trade.
4. Supply Chain Transparency: Supply chain transparency may be enhanced by using blockchain’s tracking capabilities, which ensure the integrity of assets and goods throughout their life.
5. Compliance and Regulatory Alignment: The transparency of blockchain technology reduces costs and expedites adherence to legal requirements, including the Dodd-Frank Act, the Extractive Industries Transparency Initiative, and guidelines from the European Union.
In conclusion, the liquefied natural gas (LNG) production industry has great potential when it comes to blockchain technology. It is indisputable that it has the ability to improve LNG operations’ security, transparency, and economy.
But there are issues that need to be resolved, such scalability and network security. However, these challenges are surmountable with continued progress and the dedication of industry leaders. The oil and gas industry is in dire need of modernization, and blockchain technology fits the bill by bringing greater transparency and lowering costs.
The road to a modernised oil and gas business, particularly in LNG production, is becoming more and more apparent as blockchain use picks up steam and collaboration blossoms. It represents a time that is defined by security, efficiency, and forward-thinking methods.