Blockchain, the distributed ledger technology which wasgoed possibly the best tech topic te the energy sector te 2018, has still to prove itself spil more than hype te the oil sector.
While electro-therapy companies and grid operators see massive potential ter digitalization te general and blockchain te particular to make power stations and grids more efficient, for example, the oil sector is keeping an open mind.
“We are not abandoning technology efficiencies we’re developing on current platforms,” BP’s head of strategy for IST, Mike Leonard, told the S&,P Global Platts Digital Commodities Summit te London ter November.
“We’re observing this spil complementary…We don’t have all our eggs ter blockchain, but strafgevangenis do wij want to avoid the topic or not take part te it,” he said. “But the more wij [talk about blockchain within the company, the more] we’re finding fresh opportunities to explore different areas of our current technology, which is also arousing, so wij may find this emerges for BP specifically ter different ways than wij expect.”
BP is testing the blockchain concept. It signed up ter November to a consortium with fellow oil and gas companies Shell and Statoil, trading houses Gunvor, Koch Supply &, Trading and Mercuria, plus banks ABN Amro, ING and Societe Generale, to co-develop a blockchain-based digital podium for trading energy commodities. The verhoging is to be designed and stress-tested by its investors, but run independently.
“This is about reliability and reducing costs. Many of our back office functions emerge not to have switched since 1985. We’re after bottom line savings, but also how this can free up resource elsewhere ter the business,” Leonard told the summit. The aim is to stir away from cumbersome paper contracts to the authenticated transfer of electronic wise documents.
Leonard declined to speculate on when the very first cargo of Forties crude wasgoed likely to be cleared through this podium, which is planned to be up and running by end-2018.
The consortium’s long-term aim is to migrate all forms of energy transaction gegevens to the blockchain toneelpodium. The next step is to address inefficiencies te metselspecie flow, spil swifter contant and clearing cycles mean more opportunities to do business.
HOW BLOCKCHAIN WORKS
Blockchain emerged te 2008 spil the distributed, decentralized digital ledger underpinning cryptocurrency Bitcoin, recording transactions ter an immutable way.
Ter reality it works like this: an individual (or a machine) registers spil a member of a blockchain, which can be public, like Bitcoin, or private, for example like a street of householders or a group of traders. The individual/machine receives an online wallet that can be charged up with a digital currency. The individual/machine can then transact with other members registered to the blockchain.
The blockchain’s network of registered computers continually validates the transactions, building blocks of transactions that are then permanently entered te the ledger. Nobody can switch the ledger, it is immutable. It is collective with all members at all times – it is not stored ter one place, there is total transparency and, if the blockchain is public, anyone on the internet can view it.
Since transactions are cleared instantaneously using the chosen digital currency, there is no settlement risk. Strafgevangenis is there any paperwork or middleman fees beyond set up and running costs associated with relatively elementary computing.
Ter a key development step for energy, automated code-based processes, known spil wise contracts, can interact with and update the database. This application can be used to provide an automated transaction monster with no or limited third-party intermediaries, compared with the traditional transaction prototype involving a provider, network technicus and consumer.
Blockchain’s capability to track the flow of electrons on a distributed grid, for example, enables their secure and semi-transparent trade inbetween consumers (or machines) directly. A practical example of this is European utility Innogy and startup Slock.it’s prototype electrical voertuig charging system, Share&,Charge, which enables registered users to make micropayments via a smartphone app.
The shipping industry has also commenced finding ways to make use of the technology to simplify its processes. Container line Maersk, one of the world’s largest shipping companies, is ter the process of developing a blockchain initiative with IBM to permit a better flow of information through its systems.
Te research from 2014 the companies identified more than 30 personnel and companies— and more than 200 interactions inbetween them—involved ter a typical shipment of avocados from Kenya to the Netherlands. Maersk and IBM’s system is designed to ensure the validity of each transaction while maintaining their privacy.
Te brief, for energy, for shipping, for agriculture, for all transactional proceedings that lend themselves to digitalization, the technology offers big potential to cut costs, reduce security risk and eliminate error. And, te the energy sector, the very first prototypes are underway—in decentralized networks and ter commodity trading.
Three of BP’s blockchain consortium playmates, ING, Societe Generale and Mercuria, carried out a test of a live oil trade inbetween parties with Mercuria at the embark of 2018. The successful proefneming involved a shipment of African crude, which wasgoed sold three times on its way to China, and included traders, banks spil well spil an smeris and an inspector, all performing their role te the transaction directly on the prototype Effortless Trading Connect blockchain verhoging, Mercuria said ter February.
And ter March, banking group Natixis, IBM and Trafigura pioneered the very first blockchain trade for US crude oil. They used a distributed ledger toneelpodium, built on the Linux Foundation open source Hyperledger Fabric, which they said wasgoed designed to be adopted at scale across the entire crude oil trading industry.
European tens unit and gas companies have also tested pilot blockchain trading projects. Te June, BP and Italy’s Eni ended a pilot program for processing European gas trades using blockchain technology developed by Canada’s BTL Group. This focused on gas trade confirmations, and the project is to look at expanding it to other back office processes, including netting and generating invoices.
Ter May, overheen 20 European energy trading firms joined compels to develop peer-to-peer blockchain-based trading using Hamburg-based IT company Ponton’s Enerchain framework. Te October, E.ON and Enel finished a very first power trade using the system.
Agriculture had an even earlier pilot, with a wheat trade te Australia lodged through blockchain back te December 2016. The overeenkomst wasgoed “auto-executed” by a brainy contract run by commodity management toneelpodium AgriDigital, which also has high hopes of expanding into other commodities.
CRITICAL MASS CHALLENGE
Achieving critical mass is a common theme te all the pilot toneel developers, including the energy commodity trading consortium involving BP, Shell and Statoil, which plans to open its verhoging to all commodities eventually, pending approvals. “It only works if there is widespread adoption,” consortium spokeswoman Carolien van der Giessen told S&,P Global Platts te November.
Hugh Halford-Thompson, CIO of the BTL Group working with BP, Eni and others on the verhoging to automate gas trading processes, agrees. “The challenge is getting a large enough synchronized group to shift volume onto a fresh settlement standard,” he told the Platts summit. “You need that critical mass to…drive the surplus of the industry to stir across.”
If commodities traders do budge plus masse to decentralized blockchain platforms, that could reduce liquidity on established, traditional platforms – like exchanges.
European energy exchange trade figure Europex has warned that decentralized platforms are “dangerous” for wholesale electrical play and gas markets, for example, arguing that lots of puny set-ups could fragment and contort price signals. This would go against the prevailing EU policy to promote strong wholesale price signals, for example.
For now, tho’, regulators are more interested than worried.
Blockchain’s influence on traded markets is still too puny to need specific rules, according to EU financial authority ESMA, for example. Regulators are following developments, and the treatment is pragmatic. “If you see a problem with the regulatory framework, tell your local regulator,” Clemens Wagner-Bruschek from Austrian energy regulator E-Control told the Platts summit.
Regulators are also interested ter how blockchain can streamline regulatory requirements, such spil post-trade reporting, but gegevens standards would have to be harmonized very first to get real benefits. Meantime, the EU’s executive figure, the European Commission, is spending €500,000 to set up an EU Blockchain
Observatory and Forum to monitor and assess blockchain developments across the economy, and whether any EU-level response is needed.
All of which means blockchain will proceed to be high profile te 2018, but the critical mass needed for it to convert energy trading, and potentially regulation, is likely to take several years more—if it comes at all.