London — Energy majors BP, Shell and Statoil are to co-develop a blockchain-based digital platform for energy trading.
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The investor group, which includes trading houses Gunvor, Koch Supply & Trading, and Mercuria, plus banks ABN Amro, ING and Societe Generale, aims to "modernize and transform post-transaction management of physical energy commodities trading," the companies said in a joint statement Monday.
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The platform is to be managed and operated as an independent entity. It is expected to be operational by the end of 2018.
The goal is to create a secure, real-time blockchain-based digital platform to manage physical energy transactions from trade entry to final settlement.
Pending regulatory clearance, the platform will be open to the whole commodity industry after it has been tested by the investors. "The intent is to move away from traditional and cumbersome paper contracts and operations documentation to secure, smart contracts and authenticated transfers of electronic documents," the group said.
The platform should reduce administrative operational risks and costs of physical energy trading.
It should also improve reliability and efficiency of back-end trading operations for all supply chain users, "while also opening the door to innovative funding and financing solutions," the group said.
Over time, the venture intends to lead the migration of all forms of energy transaction data to the blockchain, the companies said.
In June, BP and Italy's Eni completed a pilot program for European natural gas trading using blockchain technology developed by Canada's BTL Group.
In May, over 20 European energy trading firms joined forces to develop peer-to-peer blockchain-based trading using Hamburg-based IT company Ponton's Enerchain framework. In October, E.ON and Enel completed a first power trade using the system.
Blockchain is a digital ledger initially designed to record transactions using the Bitcoin crypto-currency.
Transactions on blockchain are done peer-to-peer without a central marketplace operated by an exchange or a broker.
The individual participant receives an online wallet that can be charged up with a digital currency. The individual can then transact with other members registered to the blockchain.
The blockchain's network of registered computers continually validates transactions, building blocks of transactions that are then permanently entered in the ledger.
Nobody can change the ledger, it is immutable. It is shared with all members at all times. It is not stored in one central place, reducing the risk of cybercrime.
Since transactions are cleared instantaneously using the chosen digital currency, there is no settlement risk. Neither is there any paperwork or middle-man fees beyond set-up and running costs associated with relatively simple computing.