The Blockchain Cleans Up The Oil Industry
The oil industry’s inner workings and practices have been slow to adopt new innovations, and its moving parts haven’t changed much in modern history, but the logistics still remain a cumbersome process. The procedure of shipping oil and gas remains slow, unwieldy, and erratic. Documents have to go through a number of agents and departments, and carriers have to issue letters of coverage in case any error should occur. Utilizing the blockchain could streamline these processes and reduce errors.
Swiss-based global energy group, Mercuria just announced that they are testing the potential of the blockchain in a transfer of African Crude oil to China. Global finance leader, ING, and French investment bank, Societe Generale, are helping to execute the sale of the oil to state-owned Chinese chemical company, ChemChina. Marco Dunand, CEO of Mercuria, has been an outspoken advocate of blockchain technology:
"The energy industry will have to digitalize more and more in oil production, refining, shipping. So traders will also have to participate. It is a pre-archaic process. So introducing blockchain will allow to pass title from buyer to shipper to seller without going through massive paperwork of bills of lading,"
By replacing the complicated clearing and settlement processes that rely on multiple databases with one cohesive ledger, such as the blockchain, the whole process of oil trading would become safer and reduce the cost. In reference to the blockchain, in October 2016, Dunand stated, "We think this could reduce costs, certainly on payments, by 30 percent."
The blockchain can also improve operations in this industry by reducing the need for governance. Smart contracts could be used instead of third-party supervision and paper-based contracting. The blockchain’s immutable record of transactions could aid in traceability and asset tracking, allowing permission to only specific parties, and could record the origin of raw materials which would minimize the chance of dealing in conflict minerals.
Potential integration with Internet-of-Things (IoT) sensors in the near future could be used to track and record the unique history of specific devices that are used in the gas and oil industry. This could assist in smoother audits of the system. An accuracy of material transactions would improve due to the harmonization of tariff schedules, the quick processing of bills of lading, and the ability to receive real-time notifications that assist regulatory compliance operations and reduce manual processes. Use of blockchain technology in the oil and gas logistic process could also reduce black market oil sales. The blockchain allows for certifications and accreditations that measure authenticity to be utilized. As a result, mezzanine governments and terrorist organizations would no longer be able to profit from “bad oil” or aid illicit operations. A digitized oil and gas supply chain could lower the suspicion of Turkey and Syria receiving oil purchases from terrorists. The adoption of a universal standard and regulations relating to blockchain technology and smart contracts by the Organization of the Petroleum Exporting Countries (OPEC), could enable a smarter, more accountable worldwide initiative.
According to Forbes, the energy materials industry tops out as one of the most lucrative industries in the world. A revamping of the blockchain could potentially open doors to off-site projects that assist with alternative energy options. Greener initiatives that combat global warming and bolster the growth of alternative energies have become compelling research investments for companies who are looking to “clean-up” their image. Oil giants like Shell, Total, Statoil, and even Exxon are actively participating in “green” investments with the hope to potentially reduce the overall carbon footprint. From 2010 - 2015 the average revenue for companies in the oil and gas industry, operating in the United States, totaled $174,589.22 million dollars. The blockchain enables companies to save more and subsequently assist with alternative energy programs and startups that could potentially use Ethereum-based applications for alternative energy solutions worldwide.