In such a globally connected economy, the reach of blockchain tech will be wide and promising, possibly disrupting any industry. Part of the oil industry has already integrated blockchain into the sector that is mature for distributed ledger technology given its dependence on contracts for its mere existence. It’s the perfect time for the paper-intensive ways of the oil industry to be upgraded, especially amid growing demand for the commodity, as well as for efficient and transparent processes.
Oil executives are gradually elevating their investments in blockchain on an industry-wide scale, since awareness of the new tech becomes pervasive in the industry and companies start to apply “deeper thinking” to its latent real-world use, as per David L. Shrier, a lecturer and futurist at the Massachusetts Institute of Technology (MIT). He said. “Blockchain is a transformational technology on par with artificial intelligence in its potential scope and impact, and we expect to see the adoption trend to continue and accelerate in the next three to five years.”
The oil industry possesses an extremely appealing opportunity to leverage blockchain due to the high transactional values (and therefore risks) and economic pressures to reduce costs. But how exactly does blockchain benefit the oil industry?
- Supply Chain Management
At present, oil is traded at huge volumes through producers, suppliers, contractors, subcontractors, refiners, and retailers, thus any attempt to keep up with the real-time movement of crude oil is usually in vain. The complex web of this network also requires considerable administration expenses and breeds propensity for fraud, which is a top worry among traders.
Applying blockchain technology to record and manage the movement of the commodity and related invoices will significantly mitigate the risk of errors and the possibility to alter invoice values. Ownership will be tracked as assets change hands multiple times before settlement, and goods will be tracked from provenience to end customer, cutting down time and costs. Invoices will be created immutably in the blockchain, and its movement can be addressed using public and private keys. It vastly prevents unapproved parties from accessing the invoices and change the content.
- Smart Contracts
Smart contracts are originally computer code stored on blockchain that can perform actions under prescribed circumstances. According to Mark Koeppen, principal, Deloitte Consulting, smart contracts allows counter-parties to automate transactions that used to be executed manually and that require the involvement of third-party intermediaries. Once the provisions of the contract are fulfilled, ownership or payment, for instance, will be automatically transferred. A smart contract could be modified if involved parties agree, and would maintain all versions and amendments to the contract. This technology enables faster, more accurate and cost-effective processes, and make all the parties comply with the agreed criteria and the determination of the underlying code, which to a large extent leads to fewer contract disputes. Meanwhile, it reduces the ambiguity of terms and eliminates the need for lawyers to draft and interpret contracts.
- Record Management
Property transactions in the oil sector provide an excellent opportunity for blockchain to step in, as oil companies need to acquire rights to access land to prospect for, evaluate, and then produce petroleum. It is not unusual for hundreds of records of conflicting ownership and value to exist within independent sets of data, and a host of land transactions are still completed by paperwork. Such environment is highly susceptible to fraud, especially in countries with high levels of corruption.
Utilizing blockchain here by recording sales and transfers of land is going to produce an immutable audit trail of land movement, value, and ownership, decreasing unexpected incidents, such as lost or mismatching titles, ownership disputes, etc.
In reality, some of the biggest names in oil transport are leading the charge for employing blockchain in the industry that are dragged by paper contracts and outdated trading platforms. Marco Dunand, CEO of Swiss trading giant Mercuria noted:
“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.”