Building Blockchains Place in Lubricants


Building Blockchains Place in Lubricants

In a world where so-called disruptive technologies have a direct impact on lubricants, one in particular is grabbing headlines. Trevor Gauntlettasks whether blockchain will either catch on in the lubes business or be the BETAMAX of tomorrow.

Barely a lubricants industry newsletter or magazine is published these days without reference to some kind of disruptor changing the paradigm of the business forever. Depending on the market for your company, it could be physical, such as vehicle electrification or 3D printing. Or it could be legislative, like the International Maritime Organizations 2020 marine sulfur cap or the European Unions biocides directive for metalworking fluids. In the longer term, it could even be societal, and we are already seeing a trend toward vehicle sharing, as well as other factors that are projected to reduce car ownership, such as fewer young people learning to drive in the West.

It is easy to see how these developments will affect the lubes industry. EVs, ride sharing and 3D printing will impact demand for products. Meanwhile, IMO 2020 and the biocides directive will drive formulators to look for new materials, potentially at greater cost. But it can be argued that these disruptors also have upsides for the environment and human health.

There is one disruptor that is somewhat more controversial, and its effects on the lubes industry, positive or negative, are not altogether obvious, and that is blockchain.

Industry Interest

Blockchain is piquing interest both upstream and downstream of the lubricants industry, even though 10 years after it was created, we are yet to see a mainstream application outside of cryptocurrencies. Blockchain is the technology that underpins Bitcoin, a shady electronic cryptocurrency with mysterious origins that is not always used for wholesome transactions.

Companies from several sectors have formed organizations to explore its potential. In 2018, a number of automotive industry players formed the Mobility Open Blockchain Initiative, or Mobi, to promote blockchain within the context of safer, greener mobility. In early 2019, the Offshore Operators Committee, a group of major United States offshore upstream players, formed the Oil & Gas Blockchain Consortium, which, according to its website, aims to use blockchain to maximize opportunities to reduce costs, increase timeliness and eliminate disputes in any given process. Chevron and ExxonMobil were founding members, with Shell joining later. And in 2017, a group of nine financial and energy companies, including BP, Shell and Koch Industries, also joined forces to develop Vakt, a blockchain-based energy post-trade supply chain tracking platform.

Many integrated oil companies also have lubricants marketing businesses, supply raw materials for both additives manufacturing and components blending and even own two of the Big Four additive companies (Infineum and Chevron Oronite). It follows that there is a reasonable expectation that blockchain will be a part of their lubricants businesses sooner or later.

Mental Blockchain

What is blockchain? For those still in the dark, it is a decentralized electronic ledger that uses smart contracts to record a sequence of trackable and irreversible transactions, known as blocks. According to the Blockgeeks website, a smart contract is a computer protocol intended to digitally facilitate, verify or enforce the negotiation or performance of a contract. Smart contracts allow the performance of credible transactions without third parties.

These ledgers are a type of tamper-proof database distributed across multiple computers in several countries or institutions and are typically public. As the records are held by all parties that have access, they are auditable and verifiable by all stakeholders. Hence the interest of financial services organizations, which can use them to securely track a huge number of transactions, helping to combat fraud, for example.

The comparison with a database is an advantage and a disadvantage. It makes it easy for management who are moderately IT literate to conceive of what blockchain is. But once they realize that most businesses would want to use a private blockchain, with a restricted group of readers and writers, companies see little advantage in moving from current shared or centrally maintained databases.

While many applications being considered are not pertinent to lubricants, there are several that may have an impact. Nish Kotecha, chairman and co-founder of Barcelona-based blockchain startup Finboot, explained in Power Engineering International: According to IBM and shipping giant Maersk, 25 percent of shipping containers carrying about 80 percent of goods used by consumers each day are late by one to three days on average. Many of those containers could be carrying finished lubricants, additives or base oil in ISO tanks, which have the same dimensions as shipping containers.

Both customers and suppliers have a vested interest in locating their containers or contents and doing something about it if they are in the wrong place. As well as holding location data, blockchain can store the contractual information identifying which party is responsible for moving the delivery closer to the customer.

In a January 2019 press release, Ford Motor Co. announced it was using a blockchain for tracking cobalt for use in its electric vehicles. Fords intention meets the requirements of the United States Dodd-Frank Act, which impels companies for whom conflict minerals are necessary to the functionality or production of a product to confirm annually that their products are not made from minerals sourced from the Democratic Republic of Congo, a nation mired in a decades-old bloody conflict for control of the countrys resource wealth. This includes lubricants or additives based on tungsten, plus tin and gold, which can be used as catalysts to manufacture chemicals in the lubricants supply chain.

Once one original equipment manufacturer has established proof of concept for a single chemical for reputational purposes, then it is a small extrapolation to apply a distributed ledger to every delivery of fluid for factory fill. A blockchain would demonstrate that the additives and base oils in the delivered fluid are consistent with the formulation that was approved by glassware, bench and engine testing.

This is an example of a blockchain replacing existing practice. There is at least one tier-one automotive supplier that demands such information for the fluids that go into its top-tier products. This is gathered through manual records and audits from its lube suppliers and their additive company partners. A blockchain could also be used to demonstrate the legitimacy of goods and protect end users against counterfeiting.

If chemicals can be effectively tracked through their supply chains, then why not have a blockchain for formulations that gain specific approvals? Then disputes between companies regarding the validity of performance testing could be resolved – not by giving away formulation information, but by having a blockchain through which a trusted third party could validate that the fluids on sale are the same (within allowable variation) as the fluids that gained the approval.

Tech Bubble or Tech Enabler?

For every enthusiastic article about new applications for blockchain, there is another claiming that it could be the next tech bubble. Geoffrey Cann, a former Deloitte partner who is now a consultant on digitalization in the oil and gas industry, is in the latter camp, despite sitting on the executive board of a blockchain startup.

Blockchain is frequently an example of a solution looking for a problem to solve, Cann told LubesnGreases. No one [cares] that your solution is based on blockchain. They care what problem youre solving and the value youre creating.

If blockchain enters the lube business, it will likely come from the downstream side. A request from members of Mobi to factory fill lubricant suppliers to begin working on blockchain is a reasonable extrapolation of current practice. The upstream or internal corporate push among the integrated oil companies will probably come later.

Raquel Clement, a board member at the OOC Oil & Gas Blockchain Consortium, told LubesnGreases by email that, In the consortium, so far we have focused on the upstream side of the oil and gas … use-cases and options for downstream are for future evaluation.

Cann agrees that implementation in the lubes arena will not be immediate.

The industry needs an outside jolt before it will act, he said, making reference to Ford and the cobalt blockchain. I dont see any jolts on the horizon. I see jolts from carbon emission concerns, crude quality [or] water resource worries.

As with other industries – from Uber to Amazon and even auto industry robots – what may really be at stake are jobs. Automating tasks usually means someone is out of work, and that could be the downside to blockchain for the lubricant industry.

Blockchain could become integral to the way in which lubricant companies do business, but perhaps in the same way that photocopiers, fax machines, email and cloud computing have increased collaboration between lubes companies, suppliers and customers. So, if you do not supply factory fill lubricants and you are not working for an oil major, it is probably a good idea to focus on some of the other disruptors.

Related Topics

Incidents    Plants & Equipment    Plants & Facilities