Cutting costs. Among the biggest draws of the blockchain bandwagon.
The chief executive of Swiss-based Mercuria, one of the world’s largest commodity traders, sees blockchain adoption among the oil and gas industry within 2017.
The head of Swiss-based Mercuria was speaking at the recent Reuters Commodities Summit, where he revealed just how big the commodities industry is on blockchain, a Reuters report revealed.
The industry sees nearly all of its core processes still work on paper and takes several days for transfer of value – presided by a settlement agency – in every step along a trade transaction. Among blockchain technology’s use-cases besides remittance and post-trade in the global finance industry, trade finance in the commodities industry is an obvious use case, with the entire industry in need of an efficient upgrade.
Marco Dunand, chief executive of Mercuria, stated:
I’ve seen sufficient bank presentations to believe the technology is there and it’s solid. And I believe we’re going to see a digital transformation of the oil and gas industry.
As a leading commodity trader Mercuria routinely synchronizes between the physical market of actual oil barrels traded and the paper markets where oil is traded as a commodity in futures, derivatives or options.
Dunand pointed to the Brent crude market (which fundamentally sets the global benchmark oil price) using blockchain technology regularly in the near future.
“BFOE [Brent, Forties, Ekofisk and Oseberg, four physical crude oils] for instance, is a market that has a limited amount of participants that requires a reasonably solid balance sheet,” Dunand said. “You could see this type fo market going to blockchain payments within the next 12 months.”
We think this could reduce costs, certainly on payments, by 30 percent.
However, Dunand added that a technological revolution will require participants to come together to enforce the transformation, pointing to the physical energy markets slowing down adoption while choosing to stick to traditional methods of operation.
“For blockchain to work, you need sufficient amount of participants to go for it”, Dunand stated, adding, “That is the only element that is slowing down the development of blockchain.”
Blockchain has already seen use cases in commodities trade finance. A recent real-world proof-of-concept endeavor demonstrated a trade finance transaction which saw cheese and butter exported from an Irish agriculture co-operative to a Seychelles-based recipient. In November 2015, Kynetix, a post-trade technology company announced a consortium of 15 commodities industry participants that will seek to develop blockchain solutions for the industry.
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