INDUSTRY INSIGHT

Blockchain: Reinventing the chemicals and petroleum industry

Blockchain has the capability to turnaround the complete value chain of the industry. It can help enhance profitability and secure future growth by improving productivity, reducing cost, securing intellectual property and increasing pan company visibility.

Digitization has emerged as a key buzzword in recent years and has created a great deal of hype across multiple industries. This holds true for the chemical and petroleum industry as well where digitization will have a significant impact on various domains – transform value chains, increase productivity, nurture innovation, and open new go-to-market channels etc.

In Q4 2017, CAMELOT Management Consultants carried out a survey with top managers from the chemical industry in Germany to understand their views on digitization. Around 76% of the survey respondents answered that digitization will be a major catalyst for sustainable growth and competitiveness for not only their own companies but the whole industry.

In total 80% of respondents believed that digitization is a critical success factor for the industry’s success over the next three years. In the area of “supply chain and logistics”, “sales” and “production” the managers saw the highest benefits for leading the organization to success.

Blockchain as an enabler for digitization

Today, there is a wide array of technologies that are setting the stage for digitization and Blockchain is one of the most critical ones. Blockchain is characterized by architectural features that can act as a crucial foundation to the digital landscape where there is a need to define greater levels of autonomy and attribution.

Furthermore, it can be explained as an effective database that is validated by a wider community instead of just a central authority. Each “block” illustrates several transactional records, and the “chain” component links them all together with a hash function. As records are established, they are verified by a distributed network of computers and are connected with the previous chain entry, thereby creating a chain of blocks, or a Blockchain.

The Blockchain technology was originally formulated for use within the context of cryptocurrency, where it has been used to guarantee a safe peer-to-peer money transfer without the involvement of a third party.  It ensures data security, control, and transparency, and its usage thus extends to various other industries, functions, and domains, chemical and petroleum being one of them.

Impact of Blockchain technology on the chemical and petroleum industry

Blockchain has capabilities to turnaround the complete value chain of the industry, hence, one should look at it as an opportunity rather than disruption. It can help companies to enhance their current profitability and secure future growth by improving productivity, reducing cost, securing intellectual property and increasing pan company visibility. Some of the key benefits for the chemical and petroleum industry are detailed out below:

  • Improved process security: Complex processes and substantial number of stakeholders in the industry lead to a greater number of inaccuracies which in turn creates the need for better governance. Third-party supervision and paper based contracting can be reduced through Blockchain based smart contracts where the amenability of parties can be increased through follow-on transactions.

 

  • Compliance management: Unethical business practices of suppliers is one of the biggest threat to chemicals and petroleum companies’ sustainability. Blockchain’s distributed ledger can register product’s origin, properties and various processes during lifecycle it goes through, eventually allowing specific stakeholders to have complete control and proper risk management.

 

  • Enhanced value chain visibility and facilitation: For decades the chemical and petroleum industry has strived for better efficiency and higher visibility. Blockchain’s implementation takes these efforts to the next level by enabling distinct functions to engage with each other on real time basis and live tracking of different parts and processes. For example, Blockchain can enable procurement, ensure fast delivery and replacement of spare parts, reducing downtime during production.

 

The figure below shows an extract of use cases from Camelot’s database which addresses the major challenges faced in the areas of R&D, sourcing and procurement, and inventory management and distribution.

“Blockchain has capabilities to turnaround the complete value chain of the industry, hence, one should look at it as an opportunity rather than disruption.”

There is an increasing interest and market for Blockchain solutions within the chemical and petroleum industry, with many organizations already actively being at the implementation phase. One such roll-out of Blockchain solution for the oil and gas industry is currently underway in the GCC region. The Fujairah Oil Industry Zone (FOIZ) established a partnership with S&P Global Platts to deploy the Blockchain distributed ledger technology to support FOIZ in its strategy to become a global trading hub.[1]

The solution will enable terminal operators in Fujairah to communicate the inventory levels of refined products at local storage facilities in real time to an online platform. FOIZ is hoping to increase their levels of transparency and credibility which in turn will lead to increasing confidence from their investors and other key stakeholders.[2]

Despite the marked interest in Blockchain solutions, most organizations within the petroleum and chemical industry are still at the infancy stage with regards to developing a coherent strategic roadmap for its implementation.

Bringing Blockchain to life

While many companies understand the potential of executing Blockchain solutions, they face challenges when envisioning exact applications within the companies’ context and making a viable business case out of it. This is mostly because the technology is still at nascent stages and has not been implemented on a large scale in commercial global operations yet. To address such challenges, Camelot has developed a five-step framework for successful identification and implementation of Blockchain solutions.

The five-step framework acts as an opportunity funnel and Blockchain incubation tool. It also allows the identification of use cases in line with company’s existing operational challenges and current strategy (phase 1 & 2).

After potential use cases are identified, the prototypes (proof of concept) are developed and improved as a next step (phase 3). Prototypes, once matured, gives a good indication about the commercial viability of Blockchain implementation (phase 4).

Based on viability and strategic interest, portfolio of proof of concepts are ranked and the best is chosen for commercial implementation (phase 5). The biggest advantage of using such a framework is mitigation of risk of failure and efficient utilization of investments.  Additionally, it makes the complete process more structured and streamlined.

Conclusions

There is no doubt about the fact that Blockchain will be a key enabler for digitization for chemical and petroleum businesses. The technology will help organizations go an extra mile in reducing costs, improving processes, advancing data tracking and security, and increasing product safety. Even though companies have not yet been able to implement Blockchain technology on a commercial scale, a sizeable number of “proof of concept” is coming into life across industry, that are paving the way for large scale implementation.

Once scaled up across different stakeholders in the value chain, the transformation and value brought by Blockchain will be drastic. Nevertheless, small players should act as smart followers. As always, partnerships will be crucial to navigating this rewarding but challenging landscape.

“Most organizations within the petroleum and chemical industry are still at the infancy stage with regards to developing a coherent strategic roadmap for Blockchain implementation.”
“Once scaled up across different stakeholders in the value chain, the transformation and value brought by Blockchain will be drastic.”