The Oil Industry Drills to the Blockchain
The historic and paper-intensive ways of the oil industry are due for an update, particularly amid increased demand for the commodity. Some of the biggest names in petroleum transport are leading the charge for the integration of blockchain within an industry that's ripe for distributed ledger technology given its dependence on contracts because of its mere existence.
Oil transport involves ships called tankers, which could extend as far as 500 yards, daily embarking on trips, collectively carrying crude oil barrels numbering in the millions, as described by Bloomberg. It all hinges on a single paper record that sea captains are tasked with keeping. The paper process is called the bill of lading, and if some industry participants have their way, it might soon be replaced by a blockchain-fueled strategy.
From Bill of Lading to Blockchain
Having a bill of lading, transactions indicating ownership of multiple millions of dollars' worth of crude oil on one tanker are listed every day. The boats are responsible for nearly 50 percent of oil demand around the world or $2.7 billion every day.
Demand for these ships is on the rise amid record crude oil consumption, and that's where the blockchain steps in. However, for blockchain to work, all the parties involved in crude oil transport must adopt it.
The bill-of-laden strategy has many flaws, not the least of which is the propensity for fraud, which is a top worry among traders. It is not surprising, then, that traders, who use a digital-based system for proprietary data, are front-in-center from the talks about a potential industry move to blockchain.
In fact, oil-industry participants have moved beyond just spoke. A group representing major oil players have teamed up to establish a blockchain-fueled platform for «physical oil transactions,» according to Bloomberg.
The mere fact that discussions underway represent a sea change for the industry, as large oil hasn't updated its paperwork-fueled system for centuries, based on Alistair Cross, global head of operations Mercuria Energy Group, cited in the Bloomberg article.
An upgrade to a dispersed ledger technology would introduce a host of advantages, including encryption-based safety, greater accuracy, lower costs and time savings. By way of instance, the piloted version slashed the transaction verification process from several hours to minutes.
But there would also be some fallout. People who performed the manual tasks of data entry would likely be out of a job with the adoption of blockchain engineering in the petroleum industry.