Per a Reuters report just crossing the wires, big oil is set to employ a blockchain platform to enhance its trading capabilities associated with all financial products associated with their core business operations.
Oil, crude and refined, are traded via futures to hedge the fluctuations in pricing within the industry. At times, trading operations inside petroleum firms can significantly enhance the quarterly results of the firms and flatten out potential hazardous events that could derail the financial performance of any given quarter.
A consortium including energy companies BP and Royal Dutch Shell will develop a blockchain-based digital platform for energy commodities trading expected to start by end-2018, the group said on Monday.
Other members of the consortium include Norwegian oil firm Statoil, trading houses Gunvor, Koch Supply & Trading, and Mercuria, and banks ABN Amro, ING and Societe Generale.
Blockchain technology, which first emerged as the architecture underpinning cryptocurrency bitcoin, uses a shared database that updates itself in real-time and can process and settle transactions in minutes using computer algorithms, with no need for third-party verification.
Oddly enough in discussions with an oil executive just yesterday evening we became aware of several internal projects at a regional, privately-held petroleum firm that may include the integration of Bitcoin as a payment method at its retail/gas filling locations. The project was in its infancy and ‘discussion only’ – but still illuminating that it was in the minds of those able to implement such an initiative.
The report from Reuters illuminates where blockchain and crypto is headed as ‘next-generation’ technology that carries the implied ability to enhance results and drive speed and, ultimately, corporate results.
It cannot be understated how important energy trading/hedging is to the petroleum industry. Any firm of scale employs serious and experienced traders to leverage millions, if not billions of daily futures trades to maximize reserves and product on hand and to be delivered. The practice, at a minimum, mitigates the specter of natural disasters that spike or deflate pricing; and at a maximum offer trading profit that enhances the firm’s bottom line (should disaster not strike, thus leaving those profits to remain in the corporate coffers).
This is a remarkable story and an ‘adoption’ case that needs to be read and highlighted. An industry such as the petroleum industry is steeped in ‘old school’ culture and leadership. Embracing blockchain in a space like this is of significant interest.