North Sea oil will be traded on blockchain

Blockchain’s ability to ensure trust, increase efficiency and chop down costs has seen it become a panacea for the trading of commodities, such as minerals, food products, and even diamonds, which rely on multiple counterparties.

Now, in a move that could “revolutionize” the market, according to Reuters, oil can now be traded on the blockchain for the first time, presenting oil companies and trading firms with the possibility of widening “razor-thin” profit margins.

Backed by key shareholder Gunvor Group, the platform comes courtesy of London-based Vakt— a “digital ecosystem for physical post-trade processing” created by a consortium including Royal Dutch Shell, Equinor, and global energy trading firms Mercuria Energy Group and Koch Supply and Trading, as well as Gunvor.

Launched yesterday (November 28), these firms will be the first users, but there are already plans to open up access early in 2019, providing all members in the oil supply-chain a centralized and digitized view of the deal, which can be updated in real-time. The Vakt platform is based on the Ethereum blockchain, and the company joined the Enterprise Ethereum Alliance (EEA), the world’s largest open source blockchain initiative, in July this year.

An integration with Austrian payment platform komgo— itself a consortium of 10 global banks and the majority of Vakt’s shareholders— will meanwhile provide the financing function, including digital letters of credit.

“Vakt is the logistical arm…Once a deal is executed through our book of records, it gets pushed through Vakt. The next leg is the financing, and the link-up with komgo gives access to several banks,” Eren Zekioglu, Chief Operations and IT Officer at Gunvor Group told Reuters.

From launch, Vakt will focus on contracts for the five grades of crude oil in the North Sea which are used to set Brent, the measure which is used to price crude oil around the world. However, early 2019 could see the platform rolled out further to the US for use on crude pipelines and in Northern Europe, for the trading of refined products such as gasoline.

“It’s an exciting time,” said Andrew Smith, Shell’s head of trading. “Collaboration with our peers and some of the industry’s key players is the best way to combine market expertise and achieve the scale necessary to launch a digital transaction platform that could transform the way we all do business.”

The use of blockchain in commodities trading and logistics is now well beyond the test stage. This year, global shipping giant Maersk teamed up with computing firm IBM to launch TradeLens, a technology for building digital supply chains catering for more efficient cooperation between multiple parties, creating a database of cargo-related transactions while ensuring privacy and confidentiality.