Blockchain Applications in the Energy Industry
By James W. Vick, SVP Business Information Services, Southwestern Energy
New technologies being born out of necessity, futuristic thinking or simply intelligent innovation, are a constant in any line of business. As a CIO, my job is to shed a critical eye on the horizon ahead and envision what is possible with these new technologies and their applicability to our operations while living in the reality of a very margin-conscious operating model in the oil and gas industry. Every new deployment of any technology solution is scrutinized and assessed as to the economic impact or benefit that will be realized in the operations of our organizations.
Effectively working with regulators, contractors, vendors and a multitude of other external parties beyond our own organizational borders has been, for some time, table stakes and, quite frankly, expected. How well we work with and how seamlessly we can integrate with these external entities to create efficiency in our business and value for our shareholders is a material way any IT group can make an impact on the bottom line of the organization.
"Marketing produced gas is an area where the application aligns closely with existing financial transaction utilizations of blockchain"
In a perpetual pursuit to improve our relationship with the ecosystem in the oil and gas industry we are constantly looking to further streamline the process of data exchange and workflow tracking. Whether we are dealing with land owners, regulatory agencies, service providers, material providers or any one of a number of other external resources, being able to quickly and efficiently integrate these organizations in to our work flow process is top of mind in any of our efforts. Over the past few years, blockchain has begun to mature to the point that components of our “Vision 2020” statement are built around the potential that a new business operating model is emerging based entirely on the capabilities of this technology. Blockchain, defined as a continuously growing list of records linked and secured using cryptography, is not expected to be a silver bullet. In fact, we are very aware that deployment of these solutions will require a concerted effort and coordination with a large number of individuals and organizations, both internally and externally. It is our expectation that we will truly disrupt business as we know it today in a variety of functions.
In our operational use cases, we are exploring leveraging blockchain to impact a number of our workflow processes and financial transactions. The biggest challenge we face is finding the use case that allows us to begin testing our thinking. Marketing produced gas is an area where the application aligns closely with existing financial transaction utilizations of blockchain. The missing dependency for the deployment of this type of solution for our Marketing function is an exchange model that is readily available and accepted that uses blockchain as a settlement currency for the gas sales transactions as they occur. Leveraging smart contracts, the commitment and settlement process will follow a previously agreed upon set of volume and pricing conditions that are automatically executed when the conditions of the transaction are met. We are not unique in our thinking in this area and are seeing momentum that leads us to believe that this model will materialize in the not too distant future.
Regulatory reporting and permitting efforts can be laborious and time consuming. Using a blockchain model we believe that this solution can have beneficial impact to Southwestern Energy and to the agencies we deal with. That said, this is not an easy conversion and will require validation that this solution will work across a number of governmental organizations. Some of these groups have proactively reached out to explore blockchain uses and we are encouraged by the potential adoption of a solution that will allow for the submission of regulatory required reporting information in a manner that can be automated along with the validations required for submission.
Oil and gas companies must comply with a number of regulations that require disclosure of the contents of fluids that are used in the drilling process. We are exploring attaching the contents of these fluids to a blockchain transaction that ultimately allows the regulatory agencies access to vital information related to the contents of the fluids, the manufacturer, date manufactured and other information as required. In doing so there is a heightened transparency in the information, a security and validation of the contents and, ultimately, an improved efficiency in the processing of the information throughout the workflow and the reporting process oil and gas companies are required to perform by regulation.
The concept of blockchain use, of how contracts work within a blockchain environment and gaining a level of comfort in a world where agreements can be maintained in a decentralized manner will not be an easy transition in our industry. While it is not entirely clear where this will end up, we are sure that it will have a material impact on the way we interact with those we do business with and those who depend on information that we provide in the ongoing process of exploring for and producing natural gas for our country.