Coming Soon: Blockchain OFS

Blockchain in the energy industry is coming. And vendors to oil and gas operators will have to fall in line eventually.

First, this isn’t Dogecoin. “We are not talking about cryptocurrency,” Mike Green, manager of IT partner services for Chesapeake Energy Corp., said in a roundtable at CERAWeek 2023 by S&P Global.

Rather, “we’re talking about a way that we can transact … with counterparties without a middleman,” he said.

Chesapeake is among members of the Blockchain for Energy consortium that is identifying and testing uses of ledger-based transactions in oil and gas. Other members include EQT Corp., Devon Energy Corp., Pioneer Natural Resources Co., Chevron Corp., ConocoPhillips, Exxon Mobil Corp., Repsol and Saudi Aramco.

Raj Rapaka, Exxon Mobil upstream digital transformation advisor, said applications are more than the current, most popular use: cryptocurrency. “Bitcoin is to blockchain what email was to the internet. When the internet started becoming popular, email was the first application.

“And people were blown away. ‘Wow, this is so awesome.’ But if you look at the internet right now—the amount of things you can do—it’s far more than just email.”

The consortium is developing an “enterprise blockchain,” he said. “The runway beyond Bitcoin is really vast and it is as powerful as the internet. The use cases keep piling up the more you think about it.”

One of the most immediate and profitable uses is in carbon offsets, said Raquel Clement, Chevron digital product line deputy manager for facilities and equipment operations. “We’re going to have to trade it with the rest of the world.”

What is available now, “this is not going to work,” Clement said. “It’s going to be easily hacked and it’s not going to be as responsive as we need in this new environment.”

The consortium has two applications (in chemical delivery and saltwater disposal), six programs (ESG, joint-venture management, digital contracts, seismic entitlement, commodity transport and digital identity) and 10 projects running, according to Rebecca Hofmann, consortium president and CEO.

Green said the water-hauling pilot “paints the picture of why blockchain is valuable.”

Today, a vendor goes to the site, creates a ticket, gathers all the tickets, creates an invoice and sends that to Chesapeake. “We have to, then, process it and pay it,” Green said.

The vendor has to track its work and payment as well. It’s all a “very manual, cumbersome, slow process,” Green said.

Instead, blockchain would use SCADA systems, GPS or other “validations that basically said, ‘We can tell that this and this and this occurred.’ So it’s written to the blockchain and we can get to a point where we have automated payment.”

In addition to cost efficiencies, “you’re moving from a process today that goes from potentially 60 days to payment to real time.”

Counter-parties will have to buy in, Green added. “Some of them will take years, [but] I think most vendors want to pay less and get paid faster. So it’s a no-brainer there.”

Rapaka said, “We’re not just giving a small haircut. This is a step-chain business transformation that we’re talking about.”

In blockchain’s use in commodity transport, think of Uber, Clement said. In Uber, there are three middlemen. “Every time we do a transaction, the bank gets a fee, Uber gets a fee, the driver gets a fee and everybody has to pay each other. Uber pays the banks, the banks pay Uber, and there’s a lot of money that is in the middle there,” she said.

“If we can remove at least some of this middle management … we can start saving a lot of money for our companies.”

Eventual standardization will be a climb, Rapaka added. “Standards are like toothbrushes: Everybody has one and I don’t want to use yours, right?”

Working through it is essential, though. “People don’t want to deal with that much fragmentation,” he said. “So there is a tension, [but] we are keeping pace with it.”

Enterprise-resource planning (ERP) vendors, such as SAP, need to get their arms around it too, Green added. The blockchain that the consortium is developing isn’t “completely replacing an ERP,” he added; it would coexist with an ERP.

But “SAP better be looking at the fundamental technology that exists [like how] we are. These will get left in the dust if they don’t.”