How can digitalisation and Blockchain help Oil and Gas companies to monitor and manage their Climate Impact?

Nish Kotecha, Chairman and Co-Founder of Finboot, and Geoffrey Cann, Advisor to Finboot and author of “Bits, Bytes, and Barrels: The Digital Transformation of Oil and Gas”

More energy, less carbon: this is the dilemma facing governments, businesses and consumers as they determine how to respond to climate change. This is the defining issue of our day.

On the one hand, global energy demand continues to rise, fuelled by rising prosperity and population growth in developing regions such as Asia and the Middle East. On the other, concerns about global greenhouse gas (GHG) emissions - which reached an all-time high in 2018 of 34bn tons of CO2e compared to 13bn 50 years ago - are driving calls to rapidly decarbonise.

The upshot for energy companies is an opportunity to respond to an increasingly global diversity of demand, at lower carbon intensity.

One of the most important themes to have emerged in business over the past decade is environmental, social and governance standards (ESG). ESG signifies commitment to sustainable capitalism with accountability. Business groups such as the US Chamber of Commerce now promote ESG as a key business objective and it is a priority for boards and shareholders across the world, since an effective ESG program impacts valuation, reputation and societal standing.

The energy sector is understandably under global pressure to embed ESG in operations and practices as part of taking a more responsible role in responding to climate change.

Repsol (our hosts today) recently announced an industry-leading, net-zero carbon dioxide emissions target for 2050. Repsol believes it can achieve two-thirds of the 2050 goal through initiatives such as moving away from carbon intensive projects, using cleaner forms of energy to power refineries, adding more biofuels into diesel and petrol, cutting flaring and methane leaks, and increasing renewable power in its energy mix. Repsol intends to link at least 40 per cent of its top managers’ long-term pay to achieving the 2050 target.

Obviously, actions to achieve these targeted outcomes need to be measured and monitored, but the technology and tools to enable this are, relative to the scale of the problem, shallow. Data must be stored in a manner that leaves an evidence trail — it must be tamper-proof, auditable and transparent. That means that the global energy industry, still heavily analogue, must lead with digitalisation if we are to tackle the impact of climate change in a meaningful way.

Politicians globally are listening and acting. The European Commission is committed to an EU Green Deal designed to achieve the target of net-zero carbon emissions by 2050. The Commission can guide, but not force, member states to abandon established industries or change energy systems; however, the direction of change is clear.

The energy sector will need to change and fall in line with these political directions. Nowhere will the change be more fundamental than in the digitalisation of the energy supply chain. Many energy companies are advancing down this road, with some beginning to recognise the role of blockchain in creating a more transparent, trusted and sustainable reporting framework for the future.

Blockchain is the technology behind a distributed network of computers that can be used to store data securely but which, uniquely, has a single memory. That means data cannot be freely copied and edited to create an alternative version of the truth, which is why blockchain technologists refer to it as the “trust platform”. In the enterprise context, the blockchain would be used as a private permissioned framework for a group of stakeholders, such as suppliers, customers and regulators.

As energy companies seek to regain the trust of all their stakeholders, including, critically, “social trust” with consumers, they will have to demonstrate an even higher level of compliance with a green agenda because data-supported accountability will demand new and more onerous operational standards.

Let’s look into some of the potential blockchain applications in the industry:

Supply chain efficiency & transparency: Most trading organisations are active in two supply chains: financial and physical. The financial one has the distinct advantage of having been dramatically transformed through financial automation, while the physical one remains analogue and therefore significantly slower. Combining the two onto a blockchain structure will enable the creation of a digital twin of the two supply chains. Refining and petrochemical products are subject to multiple safety and quality certifications by regulators and this data can be stored in the digital twin to provide evidence of its provenance.

In 2019, Repsol implemented a supply chain track and trace solution called BlockLabs, developed by Finboot. This track and trace application improves the certification process of petrochemical goods, thereby driving efficiencies and introducing an auditable trail of provenance.

Track and trace has numerous applications for the energy industry. For example, knowing a product’s origin and its chemical composition are critical, as illustrated by a contaminated crude oil situation in Russia recently. The 1.5m barrels-a-day pipeline was suspended in late April 2019 after refiners in Poland and Belarus detected excess chlorine in the crude oil that could destroy refining equipment or, at high temperatures, create the poisonous chlorine gas.

Tomas Malango, experimentation and deep tech director at the Repsol Technology Lab, explains: “Currently, there is a lot of re-working involved in processes where we handle a large number of samples due to labelling errors, information losses or incorrect connections between information. Digitalisation allows Repsol to identify the samples correctly throughout their whole life cycle.”

As a customer of Finboot, Repsol was well placed to recognise the potential benefits of blockchain within its ecosystem; that led the company to invest in Finboot to further support its progress in delivering a circular economy.

BlockLabs is the white labelled version of MARCO, Finboot’s unique blockchain-agnostic, enterprise grade SaaS product. MARCO allows enterprises to easily access and use blockchain technologies within their value and supply chains.

Finboot, founded in 2016 with operations in London and Barcelona, has demonstrated how MARCO enables enterprises to rapidly experiment and validate their blockchain business cases and efficiently move them to production. From its ability to minimise complexities, to providing exceptional privacy and security to users, MARCO reduces cost and accelerates interactions to help businesses grow faster and more efficiently. Within corporate structures, there are many examples of how MARCO can be applied to significantly reduce frictions within physical and financial operations.

Trading & quality management: The complex oil and gas market, with customers and suppliers dealing at different junctions and products moving from upstream to downstream, creates ample opportunities for intermediaries such as traders, surveyors, and shipping agents to extract value. Blockchain removes intermediaries from the equation.

In this ecosystem, there is a huge amount of paperwork as permits, custody ownership and transfer documentation move along its chain via emails. The management and protection of this data remains analogue. Not only does this represent immense risk (loss of documents, fraud, counterfeiting, etc),but it is also inherently inefficient, which pushes up costs. Blockchain brings the required transparency and auditability to a fragmented supply chain, while driving higher operational standards throughout the chain.

Oil and energy project collaboration & management: Oil and gas installations involve multiple parties, including engineering, procurement and construction (EPC) companies, services companies and multiple subcontractors, as well as the energy companies themselves. This project complexity typically leads to lack of documentation linking each step, resulting in audit fragmentation. In the event of an insurance claim, the lack of sufficient data can be an impediment.

A possible use of blockchain is leveraging the distributed platform for the storage of all the details about a project, including design documentation, as-built documentation, project plans and project resourcing information. All the parties involved in a project - EPC, oil and gas companies, operations parties, insurers and regulators (should the need arise) - would be able to access the platform, which would act as the sole repository throughout the project life cycle. Furthermore, creating a digital twin of the data opens up greater possibilities to finance the asset and change its ownership as it moves between parties.

Conclusion

Oil and gas companies will progress towards a decarbonised future at different speeds. Digitalisation will not only accelerate the passage, but also provide proof of the quality of their transition. Tomorrow’s winners will be those that are transparent and accountable to an increasingly impatient, demanding and critical stakeholder audience. The template for transition is unquestionably digital and, within that universe, we believe blockchain plays a pivotal role. Only through its adoption will the safe energy industry leaders of today transition into sustainable energy providers of tomorrow.