By Geoffrey Cann
I had the great privilege to attend the 6th annual Blockchain in Oil and Gas conference in Houston last week, and thought I’d offer my key takeaways for your consideration.
This year marked the sixth anniversary of the Blockchain in Oil and Gas conference, an important forum for oil and gas companies to converge to discuss the landscape of blockchain developments and deployments in oil and gas. Ledger technology features very prominently in my work because of its ability to disrupt long-standing practices in oil and gas, and I monitor developments in this field with considerable scrutiny.
The conference provides a forum for:
- Oil and gas companies (upstream, midstream and downstream) to learn about developments of interest
- Various initiatives currently under development in the industry to provide updates on their progress
- Technology suppliers to present their offerings
- Other industries to showcase how they are also embracing ledger tools
Here are a handful of key observations that I’ve drawn from my notes and discussions at the event.
It’s still confusing.
Adoption is the elephant.
The quickest win is in the waste.
It’s Still Confusing
Despite the fact that the conference itself is in its 6th year, there’s still plenty of confusion about distributed ledger technology, or blockchain, amazingly at a forum where the attendees are arguably in the know. Key terms like tokenization, public chain, private chain, portability, interoperability, and mining still demand explanation in language that non-insiders can grasp. Those who are deeply into this field are often unaware that the terminology is still opaque to those who only pay infrequent attention to the field, and it’s distressingly easy to get lost while trying to follow along with the presentations.
Adding to the challenge, many business leaders and executives have by now had some exposure to some aspect of ledger technology (a session on Bitcoin, or a pitch to invest in NFTs, or an article on the energy cost of public blockchain mining), and they routinely hold a flawed point of view that needs to be unwound.
If you’re from the energy sector and planning to attend a forum like this in the future, I strongly encourage you to take in a handful of the many free YouTube videos that attempt to clarify these key terms and how they are used. You’ll be more efficient taking in the content. And you’ll benefit from finding ways to assist with the reeducation of misinformed executives.
For those presenting at such events, I would spend a little time up front in your presentation making sure the audience has a grasp of the key terms in your presentation.
I suspect terminology is a barrier for the many other energy conferences that deal with digital innovations (such as the internet of things, digital twin and metaverse, machine learning and artificial intelligence). Point taken.
The key sponsor of the event is the Blockchain for Energy consortium, a not-for-profit organization whose members include energy companies (oil, gas, power) and their suppliers (technology firms, consultants, engineering companies). The consortium is driving the development of a handful of solutions on behalf of the members of the consortium, including:
- Integrated joint venture (Exxon)
- Commodity transport (Pioneer)
- Seismic entitlements (Repsol)
- Procure to pay (Worley and Chevron)
- ESG (a broad working group)
A number of these look to be progressing out of their proof of concept stage and into the pilot stage, which is a good thing. Value is only released when solutions such as these enter widespread use (or, to use digital terms, an enterprise roll out).
On the other hand, I was surprised to see how many of the solution steering teams concluded that the underlying technology framework from the proof of concept stage was deemed not suitable for the pilot stage. The proof of concept should be testing the viability of the digital technology before committing to a broader deployment, but it’s definitely a win if the proof also transitions directly into the pilot without a replatforming step.
The take away is that companies embarking on a blockchain trial should be selecting technology frameworks that at least offer an acceptable pathway to broader deployment. Choosing frameworks that offer low cost off ramps, such as easy migration to other frameworks without data loss, is also an advantage. Meanwhile, technology providers should be planning immediately on launch of the proof of concept work precisely how the proof transitions into a pilot.
And finally, the level of re-platforming underscores that many of the available blockchain technology solutions are still not quite up to meet the demands of the energy industry, and innovation is going to be welcome.
Adoption Is The Elephant
To quote Hend Ezzeddine, CEO of Humantech and a presenter on the human challenges of adopting new technology, “The amount of creativity we put into resisting new technology outweighs our will power to adopt”. Getting these solutions into production is still plagued with adoption concerns as the potential technology users struggle with things like:
- Their availability bias – the opinion or judgement held about a topic is informed most heavily by the most recent information obtained about that topic (‘blockchain consumes a lot of energy’)
- Their sense of impending loss – the view that the new solution will trigger a loss of power, of flexibility, of authority, of value (‘bitcoin lost a lot of value’); and,
- Their overemphasis on their sunk costs — the view of a process owner that there is investment in the existing process that has yet to pay off (‘we just finished installing SAP!’)
I also had many confidential sidebar conversations about adoption issues, and it appears to me that while some blockchain technology can pose its own challenges (lack of portability, lack of interoperability, high cost), the technology is actually the easier problem to solve. It’s about people. Tellingly, one presenter asked for a show of hands of how many people in the room even have crypto wallets, and almost no hands went up (and this in a room with more than a few blockchain enthusiasts).
Those who are confronted with some technology-driven change inevitably view it through a short term, me-centered lens—what will this do to me in my role or job? In this context it should be unsurprising that people will resist changing what they do. Some ground work by business leaders is going to be necessary, and that includes:
- Stating clearly what the technology is intended to help achieve strategically. Absent such a vision and strategy, those who are resistant can feel confident that someone more powerful will help defend the status quo.
- Emphasising how a deployment that targets a discrete business problem is also contributing to unlocking a new business model.
- Highlighting how the organization is committed to a long term relationship with ledger technologies. Clearly stated long term commitments, in the form of funding, resources, targets and organization, help employees grasp the seriousness of the change agenda.
Hend’s recipe for success is the combination of a long term vision plus business model innovation plus robust user adoption.
The Quickest Win Is In The Waste
By far the quickest path to value with ledger technology is by parking mini data centers on oil production well pads that have an associated waste gas flow.
Associated gas is a problem for the industry because the volumes of gas are often too small to justify the costly infrastructure of a gas gathering system. Capital has become far less available for this kind of investment. Flaring or venting the gas has historically been the acceptable solution to the problem, but no longer. New regulations that ban flaring (a flawed process that does not fully incinerate the methane and may spew toxins into the atmosphere) or make methane emissions very costly (in the US, fees upwards of two thousand dollars per tonne of methane emitted) are coming into force. Texas legislators alone introduced 19 state-level pieces of legislation in 2021 that impacted flaring.
Entrepreneurs have developed unmanned data centers built inside shipping containers that can be located on a well pad. To power the data centers, the associated gas is first filtered to remove any high value liquids, which are directed back to the well battery. The remaining methane gas thread is directed to high efficiency furnaces that burn the gas to generate heat that in turn powers a turbine to generate electricity. The electricity powers the datacenter.
The data center houses racks of specialised computers that maintain ledger databases (a process called mining). The recent collapse in the value of mining activity has pushed many surplus cheap mining computers onto the market, and the high cost of energy has reduced the overall level of mining, which also means the time to repay the data center costs and installation of the data center at the well site is now less than 12 months.
This design works well for sweet gas (sour gas requires a different answer, such as high efficiency incineration). The datacenters and the power generation gear are all mobile and can be sized to match the associated gas availability. Should the well circumstances change, the kit is simply hauled away to another site.
I can’t think of a better solution that treats an environmental issue, minimises or avoids a looming financial penalty, and pays for itself in less than 12 months.
On balance, the Blockchain for Oil and Gas conference continues to be the pacesetter in helping the world’s most critical industry embrace the world’s most intriguing technology. Now, if only we could get some traction on adoption…
Check out my latest book, ‘Carbon, Capital, and the Cloud: A Playbook for Digital Oil and Gas’, available on Amazon and other on-line bookshops.
You might also like my first book, Bits, Bytes, and Barrels: The Digital Transformation of Oil and Gas’, also available on Amazon.
Take Digital Oil and Gas, the one-day on-line digital oil and gas awareness course on Udemy.
Take the one-hour Digital for the Front Line Worker in Oil and Gas, on Udemy.