The historic and paper-intensive ways of the oil industry are due for an upgrade, especially amid heightened demand for the commodity. Some of the biggest names in oil transport are leading the charge for the integration of blockchain in an industry that is ripe for distributed ledger technology given its dependence on contracts for its mere existence.
Oil transport involves ships known as tankers, which could extend as far as 500 yards, daily embarking on trips, together carrying crude oil barrels numbering in the millions, as described by Bloomberg . It all hinges on a single paper document that sea captains are tasked with maintaining. The paper system is known as the bill of lading, and if some industry participants have their way, it could soon be replaced by a blockchain-fueled approach.
With bill of lading, transactions indicating ownership of multiple millions of dollars’ worth of crude oil on a single tanker are recorded every day. The ships are responsible for nearly 50% of oil demand around the world, or $2.7 billion every day.
Demand for these ships is on the rise amid record crude oil consumption, and that’s where the blockchain steps in. But for blockchain to work, all the parties involved in crude oil transport must adopt it.
The bill-of-laden approach has many flaws, not the least of which is the propensity for fraud, which is a top worry among traders. It’s not surprising, then, that traders, who use a digital-based system for proprietary data, are front-in-center in the discussions about a possible industry move to blockchain.
In fact, oil-industry participants have moved beyond just talked. A group representing major oil players have teamed up to launch a blockchain-fueled platform for “physical oil trades,” as per Bloomberg. The market participants include BP, Royal Dutch Shell, Statoil, several commodity-trader groups and banks including ABN Amro and Soc Gen.
The mere fact that discussions underway represent a sea change for the industry, as big oil hasn’t updated its paperwork-fueled system for centuries, according to Alistair Cross, global head of operations Mercuria Energy Group, cited in the Bloomberg article.
An upgrade to a distributed ledger technology would introduce a host of benefits, including encryption-based security, greater accuracy, lower costs and time savings. For example, the piloted version slashed the transaction verification process from several hours to minutes.
But there would also be some fallout. Individuals who performed the manual tasks of data entry would likely be out of a job with the adoption of blockchain technology in the oil industry.
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