Blockchains in the chemicals industry: A potent mixture
The chemicals industry faces declining margins and expanding competition. Blockchain could be just the formula the sector needs. It’s an industry crying out for technology solutions that can breathe new life into embattled business models. Can decentralized ledgers help?
That nascent competition is using the blockchain to pull itself up by its bootstraps. When scientists discovered how to use waste material to make synthetic versions of Zirconium Dioxide, which is used in ceramics manufacturing, they took an innovative approach to funding production of a manufacturing facility.
They created a cryptocurrency called ZrCoin, each of which represents 1kg of the chemical. They raised $7m in an ICO, which was double their projected target. The plan is to redeem the coins for the appropriate amount of the chemical after production kicks in.
Fundraising new production is one application of blockchain technology, but others believe decentralized ledgers can play an operational part in everything from sourcing energy to chemical production for incumbent chemical manufacturers.
One proposal explores the blockchain as a mechanism for machine-to-machine communication between chemical companies and others in industrial parks. Researchers ran simulated trials in which a chemical company communicated with local energy producers using IoT-based sensors linked to their production facilities.
The researchers could determine how much energy they needed on a frequently-updated basis and then buy it from others that post their current prices on a decentralized exchange. The idea is to tokenize electricity, enabling it to be exchanged seamlessly and instantly to fuel chemical production processes.
Better supply chain visibility
The Gulf Petrochemicals and Chemicals Association sees a role for blockchain technology beyond lowering the cost of energy. It points to the complex nature of chemicals production, which involves an intricate supply chain weaving together many stakeholders.
The manual, paper-based processes still used in many chemical supply chains today can create inaccuracies, it warns, adding that replacing these with decentralized smart contracts can weed out errors and speed up transactions to make the whole process run more smoothly.
Decentralized ledgers could also reduce unethical business practices in the supply chain, says the GPCA, singling this out as one of the biggest threats to sustainability. We have already seen blockchains used in other industries to keep all participants in a supply chain honest by storing information such as a product’s origin and properties immutably throughout its lifecycle.
As with so many smart contract use cases, real-world examples of blockchain deployments in the chemicals sector are still thin on the ground in 2018. Nevertheless, there are one or two success stories in related sectors that feed directly into the chemical supply chain.
In February, S&P Global Platts, which provides information, benchmark prices and analytics for the energy and commodities markets, announced the deployment of a blockchain solution in partnership with the Fujairah Oil Industry Zone (FOIZ). This allows traders to submit weekly oil inventory data to the regulator in the United Arab Emirates storage and refining hub. The solution digitizes an arcane system based on paper contracts and bills of lading exchanged in remote ports.
Recovering from disasters
When disaster strikes, getting production back online takes priority. In the coming years, disaster recovery is likely to pose an increasing threat to chemicals companies and their stakeholders. Hurricane Harvey, which hammered Texas in 2017, shuttered 37% of US chlorine output and 40% of its ethylene, according to Bloomberg Intelligence.
That has a knock-on effect for the industries that those chemicals serve, including plastics that go into everything from PVC pipe to trash bags and food packaging.
The chemicals sector relies heavily on supervisory control and data acquisition (SCADA) systems to keep its plants running, and they integrate with the enterprise resource planning (ERP) systems that maintain material supplies and keep processes operating smoothly. Getting this well-oiled machine started again after a major disaster – especially one that takes out a company’s operation across multiple sites – is a daunting task for chemicals companies, Accenture says.
A decentralized database won’t turn back a flood surge or physically protect processing plants, but it could help to reduce single points of failure and distribute critical data for quick recovery after the worst is over, the advisory firm added.
Blockchain ledger of raw materials, production, finance and logistics
“A chemical company could devise a permissioned blockchain that allows critical information and data related to plant operations and supply chains to be recorded in almost real time,” mused Bhudeep Hathi, an associate director for Accenture’s Advanced Technology Centers in Mumbai. “This would make the information available to all required stakeholders within the ecosystem of a chemical company.”
A blockchain could hold records of raw materials, chemicals in production and their status, along with financial and logistics data, he adds. This would be a go-to source of information not just for a recovering chemical company but for the service providers that helped it on its way, such as insurance firms.
While these use cases all help chemicals companies in one way or another, there’s a final one that could help others who may be affected by what happens at the end of the chemical supply chain.
Walmart is considering the use of blockchain technology to help track the presence of chemicals across its products and packaging, while food company Zego is now using blockchain technology to track levels of the herbicide glyphosate in its products. This follows a $289m verdict against glyphosate manufacturer Monsanto linking the chemical to the plaintiff’s cancer.
The opportunities are there for chemical CEOS to exploit blockchain technology and make a difference to the way they do business, but the impetus needs to come from the top.
PWC’s 2018 CEO survey found that only 9% of chemical company executives wanted to strengthen digital and technological capabilities in order to capitalize on new opportunities. However, cost cutting was a big priority, with 75% of respondents identifying this as a goal in an industry facing many challenges.
Accenture has faith that chemical companies will move to capitalize on decentralized technology. Its Technology Vision 2018 report said that 77% of respondents from the chemical industry will integrate blockchain technology into their operations between one and three years from now.
If so, the data structures underpinning chemical production and supply could look very different in a few years’ time.