Oil trading is perhaps one of the most conservative businesses out there. Established participants of this market are wary of new instruments, technologies, young companies and even of the potential employees for available positions, as incomes are high and excess risk is rarely justified.
The reason for this is that most of the oil volume is not sold on the exchange, but rather under term contracts and agreements between companies or even governments. This leads to the emergence of additional conditions, obligations, commercial secrets, which don’t need any publicity. Therefore, traders are not interested in disclosing information, as both the success of the deal and their personal income (trader margin) depend on this.
Nevertheless, the blockchain trends were so all-encompassing in 2017 that even in this industry several large companies announced that they were preparing to introduce blockchain into their business. There were also those who already started to implement the new technology: as of the time of writing this, several oil cargos have already been sold using blockchain. However, all these precedents resemble either some kind of PR strategy or the very first and therefore rare steps towards the new technology.
As of now, blockchain project are not that popular in energy resource trading since not many players are interested in their development. At the start of 2017, Easy Trading Connect project came to light. A platform supported by organizations such as the ING and Societe Generale. Through it on three separate occasions a shipment of crude oil was sold, heading from Africa to China. Mercuria trading company was part of the deal.
Both banks alongside the Mercuria became founding members of the new VAKT platform. Hence, the attention of the press to the VAKT platform project, which is also supported by oil giants BP, Shell and Statoil, is by no means accidental. Blockchain is used by this platform to speed up operational and technical processes. To put it in simpler terms, this means the reduction of paperwork that accompanies all transactions.
At the moment VAKT seems to be the only high-level project of its kind, one that regularly reports on conclusion of partnership agreements; both on companies from the oil industry, and from the world of blockchain and cryptocurrencies. For instance, in late July, VAKT joined the Enterprise Ethereum Alliance.
What else is known about the project? It’s based on a mechanism of cooperation between the companies based on smart contracts. Moreover, the document exchange between partners will become even more automated, which is likely to minimize the costs and maybe even the number of staff.
The platform is set to be launched towards the end of 2018. The first markets where the system will be tested are set to become the North Sea crude oil, US crude oil pipelines and Northern Europe refined product barges. From next year onwards, other market participants will start using the platform, according to the company web page.
Apart from the three oil giants, the multinational trading companies also possess a share in the project alongside three influential banks. Chief Operations and IT Officer at Gunvor (one of three trading companies), Eren Zekioglu said:
"When setting up a company with the involvement of such major firms (oil majors, banks, traders, etc), you'd assume every step would be a challenge. But to the full credit of everyone involved, we haven't experienced any standard bureaucratic issues."
There is no more detailed information regarding the project as of now, and the VAKT platform has not responded to Insider.pro for clarification. Therefore, it’s difficult to judge the potential of the project. The only obvious thing is the support of leading players in the world of oil trading.
I’ve asked around - mostly traders and operators from other large international trading companies, but no one heard of the project. According to them, the core idea of of optimising the costs and reducing the paperwork routine is highly positive, but most companies have already progressed well in that field already - by developing their own software and downsizing on staff.
A trader from one of the firms has proposed that VAKT could speed up the process of formalising a bill of lading - a multi-page and obligatory printed document on which the transfer of ownership of the cargo is recorded. He also noted that such a system already exists but at a natural gas market.
Obviously, in the perspective of the next 5 to 10 years, the usage of a blockchain platform and smart contracts in the sphere of oil and gas trading would only lead to a simplification of the technical side of the business, but would not change it’s essence, and it’s likely to make it more transparent.