By combining Blockchain with smart metering and IoT, the platform would have the potential to eliminate ambiguity and drive real-time reconciliations. Transfer values at each transaction point (see Figure 2) would be read by the sensors and directly written into the Blockchain network. Finally, values from both parties would be noted, governed by business rules/ smart contracts, and matched. Based on the results, automated payment settlements could take place between the parties. Faster payments, made on the basis of immutable data, at each custody point would spell a major advance in operational efficiency.
Blockchain platform model
What would be the model for a Blockchain platform to manage oil custody transfer? There are two ways to look at the model. The first is a near-term model where a blockchain pilot is set up between two (or more) trading entities or subsidiaries. The pilot is explored by the entities involved. The value of the pilot is proven and the platform is thrown open to other interested operators. The second model is to set up a consortium that owns and operates the platform with each organization having a node on the platform network. In both cases, it is possible to take the platform from concept to implementation in four months, with a further six months required to take it to production.
Follow examples to lower cost and improve user experience
Organizations in a variety of industries are already using Blockchain’s autonomous and distributed ledger capabilities effectively. FedEx uses it to track high value cargo and plans to use it as a single source of truth for all shipments, for customers, customs officials, sellers and delivery servicesi. Louis Vuitton and Christian Dior are using it to track and trace high-value luxury goods, from the history and provenance of the product’s raw materials to environmental and ethical information, point of sales, care services and down to second-hand marketsii. They, along with others, are demonstrating how blockchain can address issues around value transfer, such as measurements, location, product and service status, authenticity, cross-border challenges, reconciliation and settlements with zero duplication of effort, lowered costs, improved trust levels and superior user experience.
For the oil industry, the benefits of Blockchain would include:
- Improved visibility, transparency and streamlined transactions across stakeholders
- System driven verification and automation of payments on the basis of commodity volume exchange
- Faster payments
- Minimized mismatch in information leading to fewer disputes
- Availability of entire exchange history, in the event there is a dispute, for faster resolution
Given the challenges around transparency, trust and security, adoption of blockchain solutions by the industry is inevitable. It will happen sooner rather than later.