Currently, operations in the wholesale gas industry are in siloed environments, with different data and communication standards being used. An agreed upon industry-wide movement to digital contract will increase the efficiency, speed and security across the industry. NAESB standard request 18.007 made by Adjoint Inc, American Electric Power Service Corp., Big Data Energy Services, JKM Energy & Environmental Consulting, Pariveda and Tennessee Valley Authority proposes the standardization of a modeling language for natural gas smart contracts for the NAESB WGQ Standard No. 6.3.1 – NAESB Base Contract for Sale and Purchase of Natural Gas.
NAESB Base Contract introduced great efficiency in trading and legal domains, but still needs a cumbersome process for settlement that involves emailing PDF invoices each month. The invoices must be reconciled and paid in a short period of time. In some cases, a preliminary invoice is sent for reconciliation before the final invoice is sent. The invoices are also large monetary amounts that can be very costly if errors are not caught or if payment is late. The settlement process is thus a good candidate for blockchain technology.
Smart contracts are protocols embedded into blockchain platforms to facilitate the automatic self-execution of a transaction if agreed upon terms are met. A blockchain is a distributed ledger used for recording transactions and tracking assets in blocks. This distributed ledger is maintained by a group of peers, or several computers, instead of a centralized authority that may be vulnerable to attacks. Through the peer-to-peer network, each transaction, or block, is verified by consensus on the performance of a computer algorithm before it is added to the blockchain. Having numerous copies of the historical record on the ledger across the group of peers increases the security of the market and veracity of data, as false or fraudulent information is identified and removed by a failure to reach consensus on the algorithm that is calculated by the peer group. The transparency of blockchains is demonstrated by the record of activity that is available to those who have been granted access to the blockchain platform.