By: Kent Bernhard, Contributor
The oil and gas industry has seen huge advances in the extraction of resources, thanks to cutting edge technologies like fracking. But it hasn’t exactly been a leader when it comes to digital adoption.
That could change, at least when it comes to the blockchain, the distributed ledger technology behind cryptocurrency bitcoin. Though they are slower to adopt the technology than those experimenting with it in finance and tech, some oil and gas industry players are exploring ways the technology could be used for everything from commodities trading to tracking flows coming from oil and gas fields.
“I’m aware of companies that are looking at blockchain technology in the oil field,” said Dan Nossa, an attorney with Steptoe & Johnson’s Houston office.
Nossa has been following the development of blockchain technology closely.
Blockchain technology can best be understood as a giant ledger that automatically tracks every transaction without the need for a central clearinghouse. It’s encrypted so it’s only accessible to various users of a given blockchain. Nossa and others say the technology has real potential to change the way business is done across various industries. Already, financial industry players are exploring how blockchain technology could be applied to trading in derivatives and other areas. Successful tests in finance could have a domino effect.
“I think if it succeeds in the financial space, there could be adoption in the oil and gas space,” Nossa said.
One big change could come through a melding of two hot technologies — the Internet of Things and blockchain. The smart sensors that make up the Internet of Things can help energy companies monitor and track oil and gas from the field to end users. But, as a report from Deloitte points out, the Internet of Things is vulnerable to hackers. Blockchain technology can lessen that vulnerability. Researchers at MIT and in other spheres are using blockchain to build stronger encryption technology than is currently available.
Blockchain technology could be the bridge between the digital world and the very physical commodities involved in the industry. “On the oil and gas side I think the sensor technology will be critical,” Nossa said.
The technology could also reduce costs and improve transparency in the industry.
Oil & Gas IQ points out that in the oil and gas futures market, where the commodities are transferred from the paper or digital market to the real world, bridging that gap is laborious and expensive. A distributed ledger that simplifies and automates transactions could make it much less laborious.
Those factors make a case for blockchain technology as potentially important in the oil and gas industry. But that importance may not emerge for some time, and as Mark Koeppen, David Shrier, and Morgan Bazilian of Deloitte point out, there are major questions the industry will have to answer before widespread adoption. They write:
“The pivot point for oil and gas will be where potential and practicality intersect. Questions persist. Oil companies for years have been open to collaboration and creating successful partnerships with one another on joint ventures; how will they collaborate in the development of blockchain networks? Will regulators take a dim view of distributed technology and the partnerships and agreements it will need to succeed?”
To learn more about blockchain technology can impact your business, contact Daniel Nossa.
Steptoe & Johnson PLLC is a U.S. law firm with core strengths in energy, labor and employment, litigation and transactional law, serving clients from its 13 strategic locations across the nation. In 2013, Steptoe & Johnson celebrated 100 years of helping clients reach their goals.
Kent Bernhard is a free-lance writer for The Business Journals.