Oil giants BP, Shell, Norwegian-owned Equinox (then Statoil), set the digital ecosystem abuzz when they announced plans to develop a blockchain-based digital platform for energy commodities trading in 2017. But now Shell is taking it a notch higher with another investment in the technology first made popular by bitcoin.
The world’s fifth largest oil and gas company valued at $262 billion, is investing an undisclosed amount in LO3, a New York startup, using a modified version of the ethereum blockchain to make it easier for individuals to buy and sell locally produced energy using the existing network of power cables.
While the bitcoin blockchain allows users track the flow of value without using banks to audit the system, analysts say LO3’s platform, called Exergy, is designed to track the flow of energy as it is added to a shared, local energy network, giving users absolute certainty on its source and operation.
If the project succeeds, this start-up could disrupt traditional electricity transmission and distribution utilities. In Nigeria, this would be the equivalent of a sub-franchised DisCo alerting you on the power source, available output and units produced and sent out, when and where the grid is challenged, all in real-time.
Such information will let industries plan heavy production around peak hours, settle bills with ease and let households better manage their energy use and remove the pain of visiting the local utility to resolve technical issues.
In oil trading, blockchain can be used as a shared database that updates itself in real-time and can process and settle transactions in minutes using computer algorithms, with no need for third-party verification. Experts say the benefits are enormous including cutting the cost of oil trading.
“Ideally, it would help to eliminate any confusion over ownership of a cargo and potentially help to make managing risk more exact if there are accurate timestamps to each part of the trade,” Edward Bell, commodities analyst at Dubai-based lender Emirates NBD PJSC had told Reuters.
This may not be a passing fad. In February this year, American oil giants such as ExxonMobil and Chevron, agreed to form the first industry blockchain consortium to explore the potential benefits that blockchain technology can deliver to the space.
Reports from international media organisations say ExxonMobil is exploring the potential of blockchain by partnering with startups such as Vakt, which is a digital ecosystem for physical post-trade processing.
Analysts say the benefits of blockchain in the oil and gas sector are enormous. Through blockchain, crude oil transactions can be digitized, ensuring enhanced security, improved transparency, and optimized efficiency. It can also offer improved data storage.
It can foster the development of a cryptocurrency pegged to oil which could be a viable replacement for traditional financial transactions. This cryptocurrency could enable direct transfer of value between various parties in the industry without the need for a trusted intermediary like a bank.
Governments could better regulate the industry because all the transactional data is stored on a blockchain network, which can be accessed in real time for taxation, hydrocarbon tracking and environmental impacts.
However, in Nigeria blockchain technology for the oil sector has not been developed. “The blockchain technology is still in its infancy in Nigeria,” says Michael Glaros, principal program manager, Microsoft during the launch of the Interswitch Blockchain earlier this year.
Blockchain technology in Nigeria finds application in cryptocurrencies and tracking goods by the Nigerian Customs Service. It seems only a matter of time before it becomes mainstream and tech companies that take positions now may emerge winners.
