Big oil and gas giants BP, Royal Dutch Shell and Statoil formed a consortium, together with some financial institutions, in order to develop a blockchain solution for energy trading.
The announcement was made today and, although BP had already run previous trials with blockchain technology, gave confirmation to the rumors and speculation around the oil industry adopting decentralized ledger technology.
The consortium is led by the big oil companies BP and Shell as well as some banking institutions (ABN Amro, ING, Societe Generale) and trading houses (Gunvor, Koch Supply & Trading, Mercuria).
“Marquee brands and competitors in the energy, trade and banking industry sharing one vision gives us a great opportunity to transform processing in the energy trade commodity sector.” – Anthony van Vliet, ING’s global head of trade and commodity finance.
The goal is to create a digital platform, based on blockchain technology, that will manage physical energy transactions from trade entry to final settlement. This new platform is expected to be up and running by the end of 2018 and the consortium has also expressed their intention to have this new way of trading energy replace the current model:
“Over time, the new venture intends to lead the migration of all forms of energy transaction data to the blockchain, improving data quality, further strengthening security and increasing the speed of settlements industry-wide, while reducing the cost for industry participants.”
Advantages Of Adopting Blockchain
Adopting a decentralized ledger would increase transparency, eliminating any confusions over ownership of a cargo and giving a more exact management of risk, as there are accurate timestamps to each part of the trade
A decentralized platform could also be useful in saving time and costs, by reducing bureaucracy and bringing automation to the trading. The adoption of smart contracts would reduce paperwork and middle-man fees. There are also no settlement risks since transactions are cleared instantaneously. The group further stated: “The intent is to move away from traditional and cumbersome paper contracts and operations documentation to secure, smart contracts and authenticated transfers of electronic documents”.
Finally, a decentralized database is more secure and less prone to cybercrime. This is because the database is not stored in one central place, it is immutable and shared with all members at all times.
If you are interested you can check out this extensive report from Deloitte, shows the potential applications of blockchain in the oil and gas market.
Big Oil and Blockchain
Given the advantages above, it’s a no-brainer that companies like BP were already testing the technology. In May there was also another consortium with a similar plan, this time between 23 European energy trading firms. Their peer-to-peer network, an enhanced version of Enerchain, was designed by German IT company PONTON and allowed the first electricity trade via blockchain. The trade happened last month between energy companies E.ON and Enel live in front of the public at EMART Energy in Amsterdam, an annual event that gathers energy traders.