28 Sep Blockchain’s Value Depends On How You Do The Math
Not only does blockchain play well with other oil and gas technologies, it helps others deliver more value. One plus one really does equal three, but it depends on who is doing the math, and how.
Recently, I chaired a panel discussion by the Energy Conference Network on convergence possibilities between blockchain and other technologies in oil and gas. The panelists were drawn from across the oil and gas industrial landscape, including David Price, CTO of Black and Veatch (a highly regarded oil and gas advisor), Rana Basu, co-founder and COO of Ondiflo (a blockchain company), and Harald Wesenberg, an IT specialist with Equinor (a Norwegian oil and gas company).
Blockchain innovators are already highlighting the merits of working closely with other technologies (such as the internet of things). Convergence in this sense (close collaboration or even mutual co-dependence with other technologies), raises a number of issues for the oil and gas company interested in blockchain possibilities.
- What exactly is “convergence” and is it a material consideration?
- How does blockchain actually interact with other technologies?
- Where is the evidence of this convergence in oil and gas?
- What possibilities could be unleashed because of convergence?
- What are some of the challenges that need to be overcome because of convergence?
Convergence is a good term to describe the reality of blockchain in oil and gas. Convergence refers to ideas such as two parallel lines that meet at a point and they converge. Or two or more peoples from different cultures meet and create a new culture (like a melting pot). Or independent species develop similar characteristics or features in response to environmental pressures.
Blockchain solutions are meeting with legacy or innovative technologies at a point (an application or a business solution), and creating something new.
At the same time, these various solutions (blockchain, machine learning, robotics, additive manufacturing) continue to develop along their own advancement pathways, assuring that they will be, for the time being, independent of each other.
To be open to convergence becomes a key feature of both the blockchain technology and the other relevant technologies. Put another way, the technology architecture for a suite of digital technologies, and the legacy technologies, places priority on integration, interoperability, openness, and transparency. I find that newer and modern technologies take for granted that they will need to play well with others, but many legacy technologies never anticipated this need.
I had three related concerns about convergence. First, would blockchain technology find itself in the kill zone? The notion of the industrial kill zone is relevant here (where a nascent technology is simply absorbed by category leaders). The panel did not subscribe to the observation that blockchain ultimately disappears into the fabric of companies like SAP in the short to medium term. Perhaps in the long run.
Second, would blockchain solutions lose their independence by becoming blended with other industrial technologies? Again, the panel dismissed this notion, with convergence coming to mean “working together at points” rather than “blending together to create something new”.
Finally, it takes two to tango, or in this case a dozen. Multiple technologies need to converge, suppliers of same need to converge, and finally customers need to converge their needs with supplier abilities. Would this happen at scale? So far, no, but signs are positive.
Convergence in Practice
The mechanical question of how blockchain converges with other technologies provides insight into the plausible use cases and futures for blockchain. How does blockchain integrate or interact with other technologies, exponential or legacy?
In part this is a mechanical question. The challenges of data alone are daunting. Data is almost impossibly non-standardized in oil and gas. Very frequently, the sheer volume of measurements taken by gauges and other devices can be overwhelming. The variety of data, from neat tabular numerics, to messy charts, to hand-annotated PDFs, is like a candy store for the data designer.
But there are many other challenges can impede or outright block convergence, because rarely are there just two technologies converging. Take, for example, a blockchain solution that records some bit of useful data captured from the field. Many things have to go right in this scenario:
- The data source itself, its technical innards, and its reliability in the field
- The power supply to the data capture device and its reliability
- The behaviour of data capture in response to variability in power quality
- The integrity of the data captured and its resistance to compromise
- The integrity of the telecoms network that moves the data from point of capture to cloud
- The reliability of the cloud environment where the blockchain solution resides
- The technical competence of the blockchain designer
- The reliability of a computation based on the captured data
It turns out that blockchain is already converging with a huge range of other technologies, both exponential and legacy, including:
- Newer internet of things sensors
- Legacy SCADA data
- Algorithms, recipes, and designs
- Robots and autonomous technologies
- Classic enterprise data such as purchases and sales
Some enterprise systems, such as SAP and Oracle, may have the upper hand relative to other legacy systems because they were designed from the start to be easy to integrate with.
Sensor quality has repeatedly surfaced as a concern (I’ve heard this before from early adopters in Calgary). There may need to be a step change in the manufacture and design of sensors to improve data quality.
Use Cases for Convergence
There are objectively too many immediate opportunities to apply blockchain solutions in oil and gas—tracking products through the supply chain, managing royalty payments, handling water and waste water, contracting off shore vessel services, contracting for field services, recording usage cycles for field equipment. Blockchain is now being used to track precisely how many times a downloaded instruction set for a 3D printer is actually executed so that the customer doesn’t print an unlimited number of copies of a valuable part.
As oil and gas gains more experience with these early use cases, the industry is likely to open up dramatically bigger and more transformative possibilities. For example, the industry today dismisses the possibility of tracking molecules of hydrocarbons because of the blending issue. Blockchain coupled with sensors and other technologies solve this problem, creating the potential for branding oil as, say, terror free or environmentally sustainable.
Similarly, electricity providers cannot state that a specific electron is from a renewable source, only that a proportion of the total power in their feedstock is from renewable sources. That’s kind of like a grocery store flogging a bin of tomatoes as organic where just 10% of the fruit is truly green. Consumers are slowly being taught not to buy such claims.
Blockchain creates the potential to track an electron from source to disposition, from a hydrocarbon source to a power generator and into a car battery, to be eventually wheeled back to a customer in the form of a dishwasher run. The building blocks are falling into place.
The immediate draw is more prosaic. A trusted business process enabled by blockchain requires much less human supervision, far less problem resolution, and limited inspection. Cost reduction is the unromantic prize, even though technology heavy processes require more human handlers.
Key Challenges for the Convergers
As with any new-ish technology, blockchain has a litany of challenges to be muscled into submission, but I note that none of these individually, nor the list in total, justifies sending blockchain projects to the penalty box.
- Sensor quality needs to improve.
- Data standards would be an accelerant.
- Adoption costs need to come down.
- Industrial collaboration needs to become an industrial priority.
- Cyber threats need constant attention.
- Telecom networks need broader field presence and resilience.
- Capital markets need more confidence to invest.
- Talent shortages need to abate.
- Business models need to evolve to drive supply push, demand pull and capital flow.
All of these are in addition to dealing with the pandemic.
Of these, the biggest move industry could make is on the industrial collaboration front. By working more cooperatively, oil and gas can accelerate progress on many of these hurdles. Sensor quality, talent development, telecoms and capital markets respond more quickly to price signals from the combined voices of a large industrial cooperative effort. Cyber problems are more easily shared with working partners that are co-dependent. Data standards can be more quickly agreed at the margin on a specific project basis.
One plus one does equal three. Blockchain plus internet of things are bigger and better together than separately. To do this math, oil and gas companies need to make industrial collaboration on blockchain a priority. When they do, it opens up whole new possibilities.
Much thanks to Symon Rubens for inviting me to participate in this panel discussion, and to David, Rana and Harald for a great discussion.
Check out my book, ‘Bits, Bytes, and Barrels: The Digital Transformation of Oil and Gas’, available on Amazon and other on-line bookshops.
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