Russia is actively developing the “Turkish Stream” and “Nord Stream 2” pipeline projects for the supply of natural gas to Europe. For now, Moscow is more focused on protecting these pipes from U.S. sanctions, as well as winning legal disputes with E.U. representatives. The primary challenge that arises in the global energy sector, however, is the timely implementation of distributed ledger technology, which will save on expenses and reduce the cost of production and the price of raw materials. This applies to both gas and oil, especially since the largest players in the world are engaged in the extraction and distribution of two types of such energy raw materials simultaneously.
Oil and Gas Is the Future
One may explain the profitability of introducing blockchain into the oil and gas industry by the fact that the demand for products will continue to grow. Despite its downward correction, in 2019, the demand for crude oil in the world, according to the OPEC forecast, will grow at a daily rate of 1.29 million barrels. The demand for natural gas, which is produced in the United States—the largest country in the world providing this raw material—grew by 11.4% in annual terms. In total, oil and gas in the world account for 53% of the energy consumed.
Oil and Gas in the North Sea Will Be 40% Cheaper
The situation with the demand for natural gas produced in Russia, the second-largest producer of this raw material in the world, is ambiguous. What is going on? For example, on November 28, 2018, BP, Shell, and the Equinor corporations launched a blockchain platform that will be supervised by the Vakt Consortium and save on costs associated with the paper workflow. All transactions and agreements in the industry will be transformed into smart contracts that are becoming the third digital means of confirming transactions after the traditional oral and written forms, and, as a result, replacing them. This also applies to financial transactions, as the platform was supported by such credit organizations as ABN Amro, Societe Generale, and IMG, as well as a number of energy traders.
This project is carried out in the North Sea, where a third of the total natural gas supplied to the E.U. is produced. The leading developer of the natural wealth of the shelf of this sea is Norway, which is considered the second-largest supplier of this raw material in Europe after Russia, which accounts for 44% of all deliveries. Thus, the Vakt platform is the tool that will radically reduce the cost of extracting raw materials from a competitor of Russia, Norway. The idea is that cost savings can be at least 40%, and this kind of cost reduction is a real technological change in terms of the oil and gas business.
Germany Will Use Blockchain to Reduce Gas Consumption from Russia to Zero
The main consumer of Russian gas in Europe is Germany. At the same time, only 12% of energy is produced at the expense of “blue fuel” in the key E.U. country, and Berlin plans to reduce this share to 4% by 2030. Traditionally, the high hopes of the political elite of Germany were pinned on alternative energy production. Indeed, now the energy of wind, sun, water, thermal sources, and biofuels accounts for two-thirds of the country’s energy balance. A more rapid decline in the share of natural gas, and hence Russian supplies, however, means the introduction of blockchain into the system for paying for housing services of German consumers.
The Lition project is being implemented in ten cities in Germany, including Berlin, Munich, and Hamburg, which allows electricity consumers to directly contract with its suppliers, thereby giving a chance to develop for small companies in the field of alternative energy and also reduce tariffs. The project, which is technologically arranged as an additional software level to the Ethereum blockchain, has already shown its effectiveness and has become, in fact, one of those projects that are able to reduce to zero the supply of Russian natural gas to Germany. The revenues of local companies engaged in alternative energy have increased by 30% even though consumers saw a decrease in the amount of payments by an average of 20%. The developers, however, do not intend to stop, as they partly agreed with the words of Vitalik Buterin, the founder of Ethereum, who stated that “incorrect use of blockchain leads to waste of time.” According to the developers, the problem is not the blockchain itself but Ethereum. In an attempt to improve the performance of the decentralized system, they focused on the development of a “hybrid blockchain” with the participation of the SAP technology company.
Decentralization and Digitalization Are the Main Energy Trends
The decentralized solution presented is not the only one in the world. In South Korea, blockchain was introduced into the work of KEPCO, which made it possible to achieve significant savings in energy consumption. As the head of the organization, Kim Jong-kap, notes, “there are three main trends in the energy industry, namely, the reduction of the burden on the environment, decentralization, and digitalization.” Indeed, the last two trends are intertwined since blockchain enhances its effect if at the same time Artificial Intelligence (AI) and the Internet of Things (IoT) technologies are used. Digitalization allows to increase production at existing oil and gas fields by 30% and reduce operating costs by 20%. In China, in collaboration with the VeChain Foundation, the introduction of blockchain in the production of liquefied natural gas is actively developing.
Siemens, which had claims to Russia about the deliveries of gas turbines produced by the organization for the Crimea, is also actively engaged in introducing blockchain into its activities, and in this regard, continued active participation of the corporation in the Russian economy would be important from the point of view of technology exchange for the latter. Siemens introduced distributed ledger technology into two of its divisions: energy management and energy production services. The company emphasizes that “blockchain-based applications and business development models can improve the overall efficiency of future energy networks and pave the way for new types of financing for assets and projects.” To implement its plans, Siemens works in partnership with the Energy Web Foundation, which resulted in the localization of the Ethereum blockchain, which is approximately 30 times more efficient than the native blockchain.
Blockchain in All Business Processes of the Energy Industry
The introduction of blockchain applies to all business processes in the oil and gas industry from geological exploration to the receipt by the consumer of energy resources of a bill for payment. Examples of using the DLT are only increasing. For example, BBVA has transferred a credit facility of €325 million ($375 million) using its blockchain network to the Spanish energy company Repsol. The largest commodity company in the world, BHP Billiton, started using blockchain in 2016 for organizing workflows. As a result, this year it is already introducing this technology into supply chains and logistics as a whole. According to the consulting company Deloitte, shortly, all energy trading will shift to the blockchain on which robots will work, looking for optimal conditions on the market, both from the buyer’s and the seller’s perspectives. Thus, Adam Smith’s idea of the “invisible hand of the market,” which directs prices, ultimately transforms into the “visible hand of the blockchain,” which creates markets that are as close as possible to the concept of perfect competition. Blockchain will lead to the fact that the accumulated surplus of electricity due to its savings will lead to the emergence of new players in the oil and gas industry—virtual power plants. In addition, there is a process of tokenization in this area, which allows you to motivate market participants to comply with the principles of perfect competition.
The Energy and Blockchain Industries Are the Most Interesting Places of Work for Applicants
The energy sector and blockchain also coincide in how the representatives of the Millennial generation look at them. According to a study by PricewaterhouseCoopers, if we do not take into account the cryptocurrency industry, in which interest is growing noticeably, the oil and gas industry is the most attractive for job seekers. The resulting increased efficiency in the work of these two sectors of the economy allows companies to send additional funds to attract talent.
State, Blockchain, and Energy
Blockchain also helps the authorities monitor the situation in the energy sector, which is shown by a joint project of the municipality of Vienna and the company Ernst & Young. In Canada, the government introduced blockchain to organize the tracking of payments to the original inhabitants of oil-bearing lands. In addition, the concept of the “smart city” has gained great popularity in Europe, which, with the cooperation of a number of municipalities in Norway, Ireland, Bulgaria, Romania, Spain, the Czech Republic, and Estonia with the IOTA team, is now increasingly focused on the development of economical consumption of energy resources thanks to clear accounting on the blockchain, as well as the development of motivation for such behavior on the part of economic entities through rewards in tokens.
Russia: The Question of Implementation in the Oil and Gas Industry Is a Question of Survival
How are things in Russia? First of all, it is worth noting that the country does not have a legal framework that would regulate blockchain and cryptocurrencies. Work with blockchain thus bears an “amateur character,” although the participants of various blockchain projects include eminent Russian companies, such as Gazprom Marketing & Trading Limited. Meanwhile, Russia needs an emergency transfer of its vital industry of oil and gas to blockchain since this is not just a matter of reducing costs, increasing the transparency of doing business, and ensuring a high level of confidence of all participants, but also the elementary survival of the industry in the face of new technologies, which are radically changing the way the world economy functions.