What's New in Production

 Did you feel that? It’s another paradigm shift.

Maybe. Or perhaps, “probably,” or, “almost certainly,” would be more accurate predictions. A recent survey across industries by consulting firm Deloitte reports that “…55% of respondents said they believed their companies would be at a competitive disadvantage without it, [and] 42% acknowledge its disruptive potential.”

It? Blockchain, of course. Those of you au courant with cryptocurrency know that blockchain is often conflated with Bitcoin—maybe it’s the alliteration—but that they aren’t the same thing. One enables the other. Anyway, the race is now on to identify ways to best apply this foundational technology. 

Is blockchain ready for prime time in the oil and gas industry? Is it hype—or a genuine agent of change? So the firm pondered in its survey. Some executives think the jury is out. They recognize its potential for reshaping their business, while others express concern about disruption, unsure if the future benefits will outweigh the risk and investment demands of being a first mover. More than a few have little or no knowledge of the possibilities.

An excursion to the back office confirms what the firm discovered: “The industry is no stranger to technological innovation on the operations side. Getting resources out of the ground through hydraulic fracturing, 3D seismic and other extraction processes is a hallmark of the industry’s growth. On technology that improves and refines the back-office function, it has been a different story. The industry generally hasn’t brought much new digital technology to the supply chain, procurement, or finance parts of the business.”

That story may change. Blockchain, or distributed ledger technology, may be a breakthrough that drives the industry in a new direction. But, it still has many hurdles to overcome. The firm considers four of them:

Transparency and compliance. Blockchain technology, by design, should translate to greater transparency and efficiency. The sharing of digital blockchain information as required in joint operating agreements could lessen, if not eliminate, the need for reconciliations between companies and for data hubs controlled by third parties.

Cyber threats and security. The flip side of the anti-corruption/transparency coin is data protection: how can new technology ensure that critical information remains safe?

Mid-volume trading/third-party impacts. Inefficiency isn’t unusual along the trade process. It occurs far too often. These points of resistance are spotlighted where IT systems must network with an outside system or systems. The complexity inherent in the system slows the exchange of critical data, which is the last thing an energy trader wants.

The smart contract. Years of volatility in commodity prices, growth stagnancy, and limited expansion have put exploration and production companies in a tough spot. They’ve been forced to drastically reduce drilling times and search for other means of reducing cost and expense to maintain (or come close to maintaining) acceptable margins.

As IBM points out, “Given the specialty nature of the chemicals and petroleum industry, there will always be multiple suppliers throughout the supply chain. Today, each supplier maintains their ledger in compliance with their policies and procedures. For that reason, most business transactions are inefficient, expensive, and vulnerable.”

“Processes in the energy and commodities trade business are ripe for improvement,” said James Wallis, IBM Vice President, Blockchain Markets and Engagements. “The approach we are taking, using a permissioned blockchain network built on the [Linux Foundation open source] Hyperledger Fabric, has the potential to transform the crude oil industry by creating consistency in trade finance and by digitizing transactions and information sharing. Creating this ecosystem for the commodities market working with two world leaders in this industry will help create an entirely new approach to managing the global commodities trade.”

Even so, there are skeptics. To illustrate, one recently said, “I’ll take paper with signatures and keep it in my company safe,” in response to a World Oil blog post on the topic. That’s a damn-the-torpedoes stand to be sure. Meanwhile, more open-minded skeptics think alternate solutions such as robotics and cognitive technology are better answers to current challenges. These days, robotics is mainstream—more how and where than whither. Cognitive technology was nicely defined at IBM’s recent Amplify conference, which described the technology as an emerging area that integrates data mining, pattern recognition and natural language processing to mimic the way the human brain works. 

This is vast topic. Examples of cognitive technologies include computer vision, machine learning, natural language processing, speech recognition, and robotics. 

Deloitte elegantly characterizes the ideal organization as a “symphonic enterprise” in which “…some forward-thinking organizations approach change more broadly. They are not returning to ‘sins of the past’ by launching separate, domain-specific initiatives. Instead, they are thinking about exploration, use cases, and deployment more holistically, focusing on how disruptive technologies can complement each other to drive greater value.”

It’s all CIOs can do to keep up with each new disruptive technology—blockchain, cognitive, digital reality—and incorporate them into specific organizational domains. But there’s a better way to understand and use today’s profound changes: to see these technological forces as complementary, working in harmony.