Blockchain Tech in the Oil Industry
Dozens of oil tankers move across the globe each day. Some of these ships are over 1,500 feet long, and carry millions of barrels of crude. Each shipment relies on one piece of paper called the bill of lading, verifying ownership of the commodity on board, which can be worth more than $122 million per load. Without the bill, buyers and sellers would be unable to business in the ocean-going tanker market which supplies close to half of oil consumed around the world.
Some of the biggest players in the market want to do away with the antiquated bill system, to trim cost and time. The industry is eyeing ways to track and verify shipments similar to Bitcoin, using a shared online ledger know as a blockchain. The selling point of using blockchain is to ensure the security and encryption of each transaction, along with the capability of all parties involved to be able to track the progress of each shipment & the history of the entire network. Currently, most big oil companies use their own technology to store their own data. Using blockchain would force buyers and sellers to work from the same record book, creating more transparency and eliminating the need for lengthy documentation between buyers & sellers.
A consortium of big oil producers have been testing and applying blockchain technology for physical oil trades, in which they cut transaction times between parties down from three hours to 25 minutes.
The controversial part of using blockchain in this market is the implications it has on back-office employment. These workers can spend hours chasing down documents from counterparties needed to settle each contract, where just one error can cause inaccurate pricing, quantities, or location of delivery. Blockchain eliminates much of the need for these workers. It will be interesting to see where this goes – the fact that using this technology lowers costs & speeds up transaction times likely means that it’s here to stay in the oil market.