Improving Nigeria’s Oil and Gas Industry with Blockchain

Improving Nigeria’s Oil and Gas Industry with Blockchain

Nigeria’s oil and gas industry which is her major source of export revenues has an integrity problem. Previous scandals include petroleum products subsidy fraud in which product importers collected billions of naira as payment with a good number of them not bringing in any cargo. Other scandals include award of crude oil lifting contracts and oil blocks to cronies of government as compensation, crude oil swap agreements with some major refiners abroad, non remittance of accurate revenues from Joint Venture agreements, and Production Sharing Contracts from the NNPC to the Federation account.

The new czar in town, Mallam Mele Kolo Kyari, has stated that it won’t be business as usual. In his agenda, he has stated some commitments which will help to clean the NNPC’s corruption stables which include publishing the full list of those possessing Nigeria’s crude oil contracts and organizations who won crude oil deals for products swap deals, publish audited accounts of the corporations books, and automate of the sale of crude oil so that marketers can purchase products online.

Blockchain will help in creating transparency in how the NNPC, Department Of Petroleum Resources and indigenous oil and gas companies conduct their daily operations. As a secured transaction ledger database which is shared by all parties in a distributed network which records, and stores every transaction that occurs in the network, the NNPC should utilize blockchain to store information and record daily transactions of all those it awards crude oil swap agreements and lifting contract.

Also the renegotiation of its Production Sharing Contracts as well as automation of the sale of crude oil and gas will be transparent with the adoption of Smart Contracts which is an automated contract that will be issued by the corporation to buyers that will execute various terms and based on reaching agreed upon conditions. This will eliminate fraud since no middleman will be involved in the transaction. In the event of a force majeure which is prevalent in the industry due to shut downs as a result of crude oil bunkering and other hazards, the system will autonomously inform the buyer that the terms of contract cannot be delivered at that time due to reasons beyond the seller’s control.

The Department Of Petroleum Resources should adopt blockchain to ensure transparency in the issuance of licenses to players in the upstream and downstream sectors of the oil and gas industry, monitor their daily operations which will avail them to know those who are sabotaging the industry with underhand dealings and sanction them in the process.

Seplat, Oando, Aiteo, Sahara Group, NNPC, and other indigenous upstream and downstream players can learn from Exxon Mobil and Chevron who recently established a blockchain consortium to digitize their crude oil and gas transactions to ensure enhanced security, transparency and optimized efficiency as well as improved data storage.

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