Introduction

Concerns with blockchain technology are high profile and often discussed: scalability, privacy, and security — among others. When imagining the integration of the technology into legacy enterprises, however, those typical concerns do not stand out as the largest barriers to entry. Rather, it is the shift in corporate behavior required by blockchain technology that creates the most significant deterrent to enterprise adoption. Specifically, the behavior of sharing.

Across all enterprises, this tepid attitude towards sharing is common. Capitalism is built off competition. Success often hinges on having something your competitor does not. In the blockchain space, we often talk about how today’s world operates in a “scarcity mindset.” We have been trained to believe there is “not enough” to go around; that we must hoard and protect in order to ensure our (or our businesses’) success in a competitive market.

Blockchain technology — specifically, the creation of consortia that operate on a single, multi-stakeholder platform — requires entities to share with one another. Share standards, data, tech protocols, governance models, and more. Breaking down the walls of siloed “proprietary” information in order to share that information with competitors is known as coopetition. It is a behavior more than a technique, and one that enterprises remain hesitant to adopt.

The enterprise space is beginning to acknowledge the hurdle of behavioral changes that integrating blockchain technology would require. At the Accounting Blockchain Coalition in June 2018, Oris Valiente of Accenture admitted that the issue was less a technological one and more a business one. She noted that solving business problems through blockchain technology requires a fundamental shift in the way companies and competitors operate and interoperate. A recent Mckinsey article argued that the benefits of enterprise blockchain would not be realized for another 3–5 years specifically because of the challenges behind on-boarding companies to coopetition.

The hope is that new, collaborative actions will be made possible by blockchain technology. People and enterprises alike will move away from their scarcity mindsets and towards an abundance mindset, where we learn the benefits of shared information over protected information.

Sharing in Oil and Gas

Despite the hesitancy to share being prevalent among all legacy enterprises, the oil and gas industry stands as a particularly challenging use case. Though the industry at large is quick to embrace technological change, behavior has never been embraced as a quality worth evolving. The reality of a highly capital intensive and very risky industry has created a history of joint venture projects, especially in offshore E&P. Having global markets where everyone competes equally creates the opposite pressure on sharing. Specifically, three unique qualities of the oil and gas industry pose challenges to sharing: scarcity, privacy, and standardization.

Scarce Resource = Scarce Mindset

Oil and gas companies remain profit-driven above all else. They insist on proprietary trade secrets. Drill locations, geological data, and well success are highly guarded secrets. This is a logical set of behaviors. Fierce competition and secrecy has been baked into the ethos of oil and gas since the industrial revolution. This mindset is born from the knowledge that, at the end of the day, the resource itself is nonrenewable. It is scarce in nature. Though more reserves are continuously found and technological advances improve extraction quantity, the knowledge still exists that there is not enough.

Oil and gas companies have a greater reason than any others to operate daily in a scarcity mindset. They must, at all costs, protect their business where they can. In the past, protection comes from secrecy and from proprietary information. Occasionally, however, this secrecy can bleed into paranoia. Companies will obfuscate all information without a clear understanding of what actually gives them an upper hand on competition. Much information, in fact, can be shared with other companies without compromising trade secrets. Moreover, sharing of selective information between oil and gas companies can actually augment optimization, efficiency, and profitability by decreasing the time and money needed for a company to gather its own information. Examples of regulatory filings, posted prices at racks, environmental reports, and customs data — which are required to be publicly declared — can be the starting points for sharing. Great efforts have been made by groups such as PiDX (http://www.pidx.org) and LEAP (http://www.energyleap.org) in moving from a “scarcity mindset” and towards sharing.

Nuances of Privacy

Privacy is not binary in the enterprise world — i.e. there is not simply “private” and “not private.” For oil and gas the concept can be an especially nuanced issue. Specifically, “public,” “private,” “confidential,” and “secret” all carry different meanings when it comes to certain information in oil and gas. Let’s take a theoretical transaction between Company X & Company Y:

Public information would be that X and Y are doing a deal; i.e. that they are working with one another in some capacity. This information is open and available to anyone.

Private information would be that X and Y are doing this deal; i.e. the parameters around the particular deal. This information is usually restricted to stakeholders including X, Y, contractors, and government bodies.

Confidential information are the specific details of the deal between X and Y. This could include the location, the contractors involved, the parameters of the deal, the time frame, etc. This information would be available to an even smaller subset of stakeholders.

Secret information would be the average price of deals between X and Y, and how the deal discussed above influenced the average price. This information is closely guarded by as few people within X and Y as possible. Particularly tricky about “secret” information is not that the information needs to be highly protected, but that the existence of that information itself could need to be protected.

The nuances between privacy can cause hesitation when confronted with the adoption on a public blockchain such as Ethereum. On Ethereum, even if access to information can be managed, the public existence of that information (i.e. its “watermark” on the public record) is hard to get around. That causes particular issues when it comes to “secret” information. IT organizations inside enterprises are struggling to define the risks associated with using blockchain technology when copies of data exist on multiple nodes outside the ownership of the parties in a transaction. The reverse could also be true, where someone else’s data to which a company has no visibility, but which is on a node controlled by them, is compromised, leading to new liabilities. Finally, in current pattern recognition/AI capabilities where advertisements can be customized to each user on the web or on a phone, there is a real chance of competitive intelligence being gained just by watching patterns of secret, confidential, or private data flows. How does a company protect against traffic and timing analysis that can be used to predict competitive behaviors on shared platforms?

At Distributed SF in July 2018, John Wolpert of ConsenSys talked about these privacy nuances and their impact on enterprise adoption. He noted the solution would likely come from Plasma, an Ethereum scaling solution relying on “child chains” to alleviate the “mainchain” from processing all transactions sequentially. Each Plasma child chain can be built to better handle different types of transactions. Child chains, therefore, could be programmed with specific qualities such as privacy nuances to more appropriately address enterprise needs.

Standardization, Consensus, and Governance

For a theoretical consortium of oil and gas companies all operating off a single blockchain platform to exist, that platform must be built with a set of standards and a form of governance. Those standards must be agreed upon by all parties on the platform, and a governance mechanism must be agreed upon in order to mediate any future changes to those standards. Standardization and governance require a tremendous amount of consensus among stakeholders.

The formation of standards relies on competitive entities sharing information with each other to arrive at a wholesome, equitable set of technical specifications. Consortium building asks companies to broadcast the strengths and advantages they want to keep and the weaknesses they want to protect against. Such public sharing of information is antithetical to a capitalist mindset that promotes keeping both strengths and weaknesses confidential.

Early consortiums in the blockchain ecosystem, however, have demonstrated that standards and governance are possible to achieve across competitors and stakeholders. The recent announcement of komgo, a commodities trade financing platform, suggests that the route to enterprise adoption of blockchain standards may be a bit more “old school” than originally thought. As Toon Leijtens, CTO of komgo, states, “To be able to standardize something, you must reach a tipping point where you have included enough muscle in the market so the rest will follow.” Consensus on specifications, therefore, may have to come from a smaller, diverse group of dedicated, powerful stakeholders than from immediate collaboration across the entire industry.

Starting with small groups of companies within each of the upstream, downstream and midstream sectors of the O&G industry, efforts have begun to establish basic sets of standards and governance mechanisms within smaller circles with greater initial control. Participating companies are gaining the maturity of how to scale up and then grow the circles into full consortia and later merge consortia into even larger platforms to embrace large chunks of related activities within the industry Launching projects internally or between small groups of trading partners has been the way for hundreds of proof-of-concept experiments to help companies better strategize on how to share information with confidence and control.

Ondiflo is one player in this early stage attempt to guide legacy oil and gas companies into blockchain technology. A joint venture between Amalto and ConsenSys, Ondiflo has established a blockchain-based ticketing platform to ease reconciliation issues across the oil and gas ecosystem. With a larger goal in mind, however, Ondiflo is spearheading the formation of consortia among traditional energy companies seeking ways to better organize data, reconcile their books, and adhere to regulation. Chief among Ondiflo’s strategy is to understand companies’ reservations and to find ways to instill confidence and sharing behavior among stakeholders. Ondiflo will be discussed in more detail in future posts.

Conclusion

We must be realistic about the future of enterprise Ethereum and blockchain technology. There are many tangible roadblocks standing in the way of widespread oil and gas adoption of blockchain technology. Those technical roadblocks, however, will be addressed and resolved by the incredible community of global developers. We may see, however, that the question of enterprise adoption will still be a challenging task. Blockchain technology is not just a change in the way we store data or send money. It is a fundamental paradigm shift in the way we interact with one another — human to human, human to corporation, corporation to corporation.