Oil and Gas With Crypto
The oil and gas industry has long been a cornerstone of the global economy. Meanwhile, the rise of cryptocurrencies and blockchain technologies promises to revolutionize various sectors, including finance and energy.
The oil and gas and cryptocurrency industries may seem unlikely partners at first glance. However, these two economic powerhouses have much to gain from joining forces. This alliance could lead to innovation, efficiency, and new revenue streams for both sectors. Thus, an alliance between these two giants could be a game-changer. But why should the oil and gas industry consider this partnership seriously? Let’s delve into it.
Real cases of oil and gas companies using blockchain
The adoption of blockchain technology in the oil and gas sector is not just a theoretical concept; it’s a reality that’s gaining traction. Trailblazers like Petroteq and BHP Billiton have already set the stage for blockchain’s transformative impact on the industry. Petroteq leverages blockchain for transparent and efficient crude oil transactions, while BHP Billiton utilizes it for supply chain enhancements.
Moreover, industry giants such as Chevron and Exxon have joined forces to form a blockchain consortium aimed at exploring the manifold benefits of this groundbreaking technology. Their focus ranges from automating complex procedures to enhancing transparency across the oil and gas supply chain. Another noteworthy initiative is the collaboration between Natixis, IBM, and Trafigura, who were the first to launch a blockchain solution specifically for U.S. crude oil deals. This venture has set a precedent for digitizing transactions, thereby ensuring higher security, increased transparency, and greater efficiency.
Blockchain’s versatility also extends to specialized use-cases like storing certificates required for operating safety-critical industrial equipment, and even tracking carbon emissions. As the technology matures, it’s clear that blockchain offers a plethora of opportunities for oil and gas companies to optimize operations, reduce costs, and improve stakeholder trust. With the global push for digital transformation, blockchain stands as a pivotal tool that can revolutionize the oil and gas industry, making it more sustainable, transparent, and efficient.
Massive Growth Potential
The cryptocurrency market has exploded in recent years, according to Bloomberg, reaching a valuation of over $2 trillion in 2021.
Meanwhile, the global oil and gas industry generates trillions in revenue annually.
Oil and Gas serve as the lifeblood of modern civilization. Oil and gas power our homes, fuel our cars, and are integral in countless products.
Revenue:
The industry generated more than $3.3 trillion in 2019.
- The Oil and Gas sector made $4 trillion in profits in 2022, according to the International Energy Agency (IEA) Chief.
- Oil companies such as ExxonMobil, Shell, Chevron, TotalEnergies, and BP pulled in record profits in 2022, with combined profits of over $199 billion.
10-Year Revenue Growth of Oil & Gas Industry
10-Year Market Cap Growth of Cryptocurrency Industry
Regulatory Hurdles
Types of Regulations:
The Oil & Gas sector finds itself in a maze of environmental regulations, ranging from emission controls to drilling permissions. These rules are not just complex but also attract considerable attention from the public, making the sector a focal point for both legal compliance and social accountability.
Cryptocurrency On the other hand, cryptocurrency faces a host of financial regulations. Money laundering and tax evasion are the most talked-about issues, leading to a push for Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations.
Comparative Regulatory Effects on Profitability:
Industry Regulatory Impact Effect on Profitability Oil & Gas Environmental Regulations Reduced Profit Margins Cryptocurrency AML & KYC Regulations Increased Operational Costs Public Trust: A Precious Commodity Both industries have had their share of scandals—Oil & Gas with oil spills and ethical concerns over fracking; Cryptocurrency with numerous high-profile hacks and Ponzi schemes. These incidents have eroded public trust, making regulatory approval even more challenging to secure.
Public Perception:
A scandal in one industry often leads to heightened regulatory measures in the other. Damage Control: Restoring public trust requires proactive measures, which often come at a substantial financial cost. Examples of Unfair Regulatory Treatment Here’s where both industries share uncanny similarities:
Uneven Enforcement:
States like California have stringent environmental regulations impacting Oil & Gas, while New York’s BitLicense makes it a tough market for crypto companies. Regulatory Uncertainty: Oil & Gas companies have faced challenges around the Keystone Pipeline permits. In crypto, the SEC’s unclear stance on ICOs has led to legal battles for companies like Ripple. Lack of Clear Guidelines: Both sectors have called for more straightforward regulations—Oil & Gas for emission standards and crypto for token classifications. Burden of Compliance: Meeting the EPA standards costs the Oil & Gas industry billions, similar to the crypto sector’s compliance costs for AML and KYC, estimated to be in millions annually. Benefits of Collaborative Lobbying Given that both sectors face similar regulatory challenges, there’s a strong case for collaborative lobbying.
Danger of Regulatory Arbitrage for U.S. based companies:
The SEC’s conservative and arguably heavy-handed approach toward crypto assets and Initial Coin Offerings (ICOs) has led many U.S.-based crypto companies to consider or even engage in regulatory arbitrage. Given the nascent stage of crypto regulations, the SEC’s stringent policies can be perceived as stifling innovation and pushing companies toward jurisdictions with more favorable regulatory climates.
For crypto enterprises, the motive to seek alternative jurisdictions isn’t merely to circumvent the rules but often arises from the necessity to continue innovation and operation without the fear of sudden legal repercussions. Jurisdictions like Malta, Switzerland, and Singapore offer more defined and accommodating regulatory frameworks for crypto businesses, making them attractive destinations for companies looking to escape the SEC’s rigorous oversight.
However, this forced path to regulatory arbitrage is not without its pitfalls. It can lead to fragmented market operations, increase legal and compliance costs, and add layers of complexity in company governance. Most importantly, it risks alienating a significant portion of the customer base that resides in or transacts through the U.S.
Inspirational Regulatory Triumphs in the Oil & Gas Sector:
- Hydraulic Fracturing (Fracking):
- Case: Halliburton Co. v. EPA (2012)
- Synopsis: The EPA wanted to regulate hydraulic fracturing under the Safe Drinking Water Act. Halliburton and other companies successfully argued that fracking was safe and well-regulated at the state level.
- Outcome: The U.S. Congress passed the “Halliburton loophole” which exempted hydraulic fracturing from the Safe Drinking Water Act.
- Relation to Crypto: This serves as an example where a united industry front can effectively challenge unfavorable regulatory conditions.
- Keystone XL Pipeline:
Keystone PipelineCase: TransCanada’s Keystone XL Pipeline- Synopsis: Despite several environmental objections and regulatory hurdles, TransCanada obtained approval for the Keystone XL Pipeline during the Trump administration.
- Outcome: Although it was later revoked, it shows the pendulum swing of regulatory decisions and the importance of timing and political climate.
- Relation to Crypto: Regulatory approvals can be temporary and subject to change, emphasizing the need for constant lobbying and public relations efforts.
- Offshore Drilling in Alaska:
- Case: Shell Oil’s Arctic OCS (Outer Continental Shelf) Exploration
- Synopsis: Shell navigated a complex regulatory process to receive drilling permits in Alaska’s Arctic OCS.
- Outcome: They successfully obtained the necessary permits, demonstrating that persistence in regulatory compliance can pay off.
- Relation to Crypto: Shows that even in high-scrutiny environments, comprehensive compliance can pave the way for operational freedom.
Shared Political Interests
Both oil and gas and crypto companies invest heavily in lobbying. In 2022, the crypto industry spent $25.6 million on lobbying, a 121% increase from the previous year, as reported by Blockworks. The oil and gas sector contributes tens of millions to campaigns as well. A unified front for political risks mitigation amplifies their influence.
Increased Lobbying Spending:
The Oil & Gas industry predominantly supports Republicans, who generally advocate for less stringent regulations. Cryptocurrency executives and investors have contributed more than $30 million toward federal candidates and campaigns since the start of the 2020 election cycle, according to Federal Election Commission records. The cryptocurrency industry has started trade associations to advocate for policies that benefit the industry. For example, the Blockchain Association spent $1.9 million on lobbying in 2022, up from $900,000 in 2021.
Public campaigns:
The cryptocurrency industry has launched public campaigns to lobby for favorable policies. For example, digital exchange platform Coinbase launched a public-facing campaign to lobby for cryptocurrency regulation. The campaign included rating policymakers based on the positivity or negativity of their statements, policies, and votes on the issue.
Joint Legal Task Force:
A collaboration could mean a formidable legal task force fighting for transparent yet innovation-friendly policies. Potential Collaborative Actions Expected Outcomes Joint Lobbying More Balanced Regulations Shared Best Practices Improved Compliance Measures Cross-Industry Dialogues Streamlined Regulatory Approvals. The cooperation could have a more significant influence in shaping balanced policies, given the history and deep pockets of the oil & gas industry combined with the innovative solutions provided by the crypto sector.
Energy Synergies
Crypto mining consumes huge amounts of energy. Oil and gas can provide the power needed, while also transitioning to cleaner natural gas and renewables.
Data sharing and joint pilot programs are key next steps.
The financial ecosystems of both sectors are robust yet face volatility. The Oil & Gas sector could invest in crypto startups focusing on energy-efficient solutions, while crypto companies could look into Oil & Gas ventures that aim to diversify energy sources.
Hedging against Volatility:
Both industries can serve as financial hedges for each other. Venture Capital: Crypto’s VC money can be a fresh infusion of capital for Oil & Gas initiatives.
Innovation Potential
Crypto mining consumes huge amounts of energy. Oil and gas can provide the power needed, while also transitioning to cleaner natural gas and renewables.
Data sharing and joint pilot programs are key next steps.
Both industries are highly innovative and could potentially collaborate on new technologies. Cross-pollination of ideas, technology, and capital can accelerate innovation.
Oil and gas companies, according to Forbes, are already exploring blockchain solutions for supply chain management, logistics, and innovations like smart contracts may optimize gas pipeline operations.
The two industries could work together to develop new technologies that could be used to improve the efficiency of oil and gas operations, or they could work together to create new financial products that could be used to invest in oil and gas exploration projects.
The first Bitcoin miners in West Texas taking advantage of flare gases include Crusoe Energy and Giga. Crusoe Energy captures flare gas from oil patches and uses it to mine for Bitcoin by diverting the gas away from flares and into generators. They claim to reduce CO2-equivalent emissions from gas flaring by up to 63% and the equivalent effect of taking around 1,700 cars off the road. Giga, founded by Brent Whitehead and Matt Lohstroh, places a shipping container full of thousands of Bitcoin miners on an oil well and diverts the natural gas into generators to power the miners, reducing CO2-equivalent emissions by about 63% compared to continued flaring.
Innovation such as this has led others involved with Oil & Gas to think differently such as Hayden Griffin Haby III, an oilman turned Bitcoiner,
“When I heard that you could make this much money per MCF (a metric used to measure natural gas), instead of just burning it up into the atmosphere, thanks to the whole ‘bitcoin mining thing,’ I couldn’t look away,” said Haby.
New Markets
Alliances provide access to new pools of capital and customers.
- Crypto trading desks allow oil and gas companies to stake cryptocurrencies.
- Investing in Crypto Startups: Oil and gas companies can provide funding and support to cryptocurrency and blockchain startups working on energy-related projects. This collaboration can drive innovation in areas such as supply chain tracking, energy trading, renewables integration, and carbon offset markets.
- Utilizing Cryptocurrencies for Payments: Oil and gas companies can accept major cryptocurrencies like Bitcoin and Ethereum as payment for their products and services. This allows them to tap into new pools of capital and customers who are actively engaged in the cryptocurrency ecosystem.
- Leveraging Blockchain for Supply Chain Management: Blockchain technology can be utilized by the oil and gas industry to enhance supply chain transparency and efficiency. By implementing blockchain-based solutions, companies can track the movement of goods and ensure compliance with regulations, ultimately reducing costs and improving operational efficiency.
- Collaborating on Energy Efficiency and Renewable Energy Projects: The oil and gas industry can partner with the cryptocurrency sector to develop and implement energy-efficient mining techniques. Additionally, both industries can work together to explore opportunities for renewable energy integration, such as using excess energy from oil and gas operations to power crypto-mining operations.
- Advocating for Constructive Crypto Regulation: The oil and gas industry can join forces with the cryptocurrency industry to advocate for balanced and thoughtful regulation. This collaboration can help shape policies that foster innovation, protect consumers, and address concerns related to security, investor protection, and money laundering.
- Joint Research and Development: Collaboration on research and development initiatives can drive technological advancements in both industries. This can include developing new energy-efficient consensus algorithms for cryptocurrencies or exploring the application of blockchain technology in oil and gas operations.
- Tokenized securities offer a new fundraising avenue.
The opportunities are endless. With aligned interests and complementary strengths, now is the time for oil, gas, and crypto leaders to come together. The future will be defined by those brave enough to forge bold partnerships.
The World Economic Forum Calculations
The World Economic Forum has conducted an analysis that highlights the potential benefits of tokenizing the oil industry. According to their calculations, tokenization has the capability to significantly impact the market in terms of liquidity and volume. It is estimated that the tokenization of the oil industry could increase market liquidity by $1.6 trillion and market volume by $2.5 trillion. This would not only benefit the companies operating within the industry but also society as a whole, as it could bring an additional $1 trillion to companies and another $640 billion to society.
The concept of tokenization involves representing real-world assets, such as oil, as digital tokens on a blockchain. This allows for the fractional ownership, trading, and transfer of these assets in a more efficient and transparent manner. By tokenizing the oil industry, companies can unlock new opportunities for investment and increase market participation. It provides a way to attract a broader range of investors and democratize access to the industry.
The potential increase in market liquidity and volume resulting from tokenization can have far-reaching effects. It can stimulate economic growth, create new revenue streams, and enhance market efficiency. Moreover, it can promote financial inclusion by allowing individuals and organizations of all sizes to participate in the oil industry, which has traditionally been dominated by large players.
Conclusion
The alliance between oil & gas and cryptocurrency may seem unlikely at first glance, yet the potential benefits are too substantial to ignore. With aligned interests in innovation, new markets, and balanced regulations, these giants can accomplish more together than apart. The path forward requires openness to new partnerships along with the vision to recognize the vast possibilities. If executed strategically, this alliance could unlock immense value for both industries, stimulating economic growth and redefining the energy landscape. The worlds of oil and crypto are ready to collide; the leaders bold enough to guide this convergence will shape the economy of the future.
