What is it?
In its ongoing journey to power the world, the energy industry has faced many structural challenges that have been addressed through the effective deployment of innovative and groundbreaking technologies. The resulting industry landscape is technology-rich and highly streamlined yet is faced with a complex and costly transactional ecosystem that may prove itself as fertile ground for the introduction of distributed ledger technology.
With many emerging digital innovations such as the Internet of Things (IoT), automation, artificial intelligence, cloud platforms, big data, and advanced analytics, executives must decide how to adopt these digital capabilities—with blockchain likely serving as the underlying backbone of the industry’s transactional infrastructure.
Digital technologies and ubiquitous data are increasing visibility, transparency, coordination, and information sharing across company boundaries—enabling smarter, more informed decisions and greatly improved operating efficiency. But to capitalize on those digital innovations, the industry needs to address the fundamental issues of security and trust, which are basic requirements for doing business.
Although it seems to be generating the most buzz in financial services, the networked infrastructure of the energy industry makes it particularly suited for blockchain technology applications. And with the rise of IoT, the entire E&R industry may soon find its operations transformed into a vast global network of connected devices all feeding digital data into a platform that can capture and share information in real time.
Here is a closer look at specific use cases that illustrate the potential for blockchain in E&R.
One of the most obvious and powerful uses for a digital ledger technology is to provide a reliable and efficient platform for executing and recording transactions (and for tracking ownership as assets change hands multiple times before settlement). With blockchain, transactions such as energy trading can be recorded and settled almost instantly, with no need for an intermediary and with little or no need for reconciliation since all parties are using the same platform. In fact, there is essentially nothing to reconcile since there is only one system and one entry for the transaction, which is shared by all parties.
What is more, an entry can include executable computer code that reflects the terms of the contract—creating a “smart contract” that automatically validates transactions without the need for human intervention. Its suitability as an efficient and reliable shared trading platform could be applied to both physical and financial trading across the full spectrum of energy commodities.
Regulatory reporting and compliance
Regulators are increasingly requiring E&R companies to provide vast amounts of data that can be analyzed to detect noncompliance and other regulatory issues. With current technologies and methods, gathering and cleaning up the required data is a huge burden. There’s also significant risk that the data could fall into the wrong hands and be misused, exposing sensitive corporate information, and putting a company at a competitive disadvantage.
Blockchain could potentially eliminate most of these issues, enabling transparency by allowing regulators to securely access clean, tamper-proof data at the source, while at the same time allowing companies to retain strict control over what information is available and who can access it. An important fringe benefit of using such a platform to share information with regulators is that it would create a standard data format for the industry, which is something that is simply unavailable now.
Global supply network
The end-to-end process of getting hydrocarbons out of the ground, converting it into a usable form, and then delivering it to customers involves numerous steps and many different players, from major energy companies to government inspectors to individual service providers and everything in between. Now, the systems and information to support all of these steps is highly disjointed and siloed, making it nearly impossible to get a comprehensive view of what’s happening and preventing companies from enhancing the process.
Deloitte has prototyped a platform that could be used to support the entire end-to-end process. However, such a platform is only possible with a digital ledger technology, which provides the real-time speed and efficiency, tamper-proof reliability, and transparency to allow companies to share information on a common platform without fear of having their sensitive, business-critical information compromised.
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