EU and Russian regulators seem happy to support blockchain, smart contracts and other digital technologies that can make existing energy sector processes cheaper and more efficient, but are more cautious about true innovations like peer-to- peer trading. S&P Global Platts editors Siobhan Hall, Rosemary Griffin and Henry Edwardes-Evans look at some of the pilot energy blockchain projects popping up in Europe and Russia, including for oil production logistics and wholesale gas and power trading, and how regulators are reacting. Platts also has its own blockchain project, which is helping to make oil stocks in the UAE’s Fujairah Oil Industry Zone more transparent.
Related feature -- Russia gearing up for wider use of blockchain in energy sector
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SIOBHAN HALL: Hello, and welcome to this Brussels to Beijing policy podcast from S&P Global Platts. I’m Siobhan Hall, Platts’ expert on European Union energy policy based in Brussels, and I’m joined from London by Power in Europe editor Henry Edwardes-Evans and from Moscow by oil news editor Rosemary Griffin.
Today we’re talking about blockchain, the digital ledger technology developed for crypto-currencies like Bitcoin that is now attracting major interest for a wide variety of applications, including in the European energy sector. Pilot projects in trading, post-trade reconciliation, electric vehicle charging and logistics are popping up in Europe and Russia, with potentially huge efficiency savings possible. And regulators are starting to look at what new rules might be needed to ensure system security and consumer protection in this brave new digital world.
So Rosemary, how is regulation impacting the take-up of blockchain in Russia?
ROSEMARY GRIFFIN: Well Siobhan, analysts are saying that actually it is a lack of legislation that is the biggest barrier to wide-scale take-up of blockchain in Russia. Energy projects here have a “national importance” status which means they have extra security requirements, and blockchain is currently seen as a data security risk.
HENRY EDWARDES-EVANS: It’s interesting you say that Rosemary, because in Europe blockchain is seen as potentially more trustworthy than existing systems. Smart contracts, for example, are seen as potentially much more transparent, reliable and generally more efficient than the traditional paper-based business processes and trading systems.
SIOBHAN HALL: And it’s interesting you say that Henry, because the European Commission has already identified smart contracts as an area which could benefit from some EU-level harmonization, for example looking at whether they need to be binding across borders, and compliant with EU data protection rules.
ROSEMARY GRIFFIN: So is the commission planning new European legislation on smart contracts?
SIOBHAN HALL: Well, it’s certainly looking into the possibilities, but formal proposals are probably still quite far off. It’s just published a FinTech action plan which is focused on the financial sector, but the elements looking at developing common standards for blockchain technology and removing requirements to keep paper records, for example, would also be relevant for blockchain projects in the energy sector.
HENRY EDWARDES-EVANS: And are you expecting new legislation in Russia, Rosemary?
ROSEMARY GRIFFIN: Yes, actually it sound quite similar – the finance ministry is planning a blockchain law which is mainly focused on the financial sector and crypto-currencies, while the energy ministry is working on new legislation covering digitalization of the energy sector, including blockchain.
SIOBHAN HALL: And do you expect any pilot energy trading projects to be set up in Russia itself?
ROSEMARY GRIFFIN: No, not for two or three years at least, because the legislation needed to make people feel comfortable doing that is not in place yet. But we know that Gazprom Marketing and Trading is taking part in a European pilot project to use blockchain in post-trade back office processes.
HENRY EDWARDES-EVANS: Yes, that’s a project being run by Canadian company BTL for wholesale gas trades, and also involves oil and gas majors Eni and Total, among others. All these companies are hoping that blockchain will bring significant efficiencies to their back office processes, saving them time and money.
ROSEMARY GRIFFIN: My impression is that regulators are far more relaxed about companies using blockchain to make existing processes more efficient than for anything completely new.
SIOBHAN HALL: Yes, that’s what I’m hearing too. National energy regulators I’ve talked to are quite happy about projects to increase efficiency, but there are more concerns about innovations like peer-to-peer trading, which could disrupt and/or fragment the wider trading market. Henry, what’s the latest on pilot energy trading projects in Europe?
HENRY EDWARDES-EVANS: Well there have been some key developments here, with German company Ponton testing live peer-to-peer trades in wholesale gas and power on its Enerchain platform in February.
SIOBHAN HALL: Ooh, interesting, and how many companies are involved in that pilot now?
HENRY EDWARDES-EVANS: It’s almost all the major European gas and power companies, and also several smaller ones, so about 40 in total so far, covering much of the market. The large companies are there to keep tabs on blockchain, while the small companies are serious about using it. There is some way to go, however – nobody has stepped up to take ownership of the platform yet.
ROSEMARY GRIFFIN: It will be really interesting to see how that project develops, and whether Gazprom ends up joining it. And we know that oil majors BP, Shell and Statoil are working together on a joint blockchain platform to manage physical energy trades from entry to final settlement, and they hope to have that up and running by the end of this year, subject to any regulatory approvals.
HENRY EDWARDES-EVANS: Yes, and they plan for it to be managed as an independent company, and to open it to the whole commodity industry after testing it.
SIOBHAN HALL: So we could see several energy blockchain projects really taking off by end of this year in Europe?
ROSEMARY GRIFFIN: Yes, andthere is also an interesting energy blockchain project going on in Russia. It’s being run by Gazprom Neft, the oil company, and it’s using blockchain and smart contracts to create more efficient equipment supply chains. So all parts of the process are being sent to a smart contract and updated in realtime.
SIOBHAN HALL: And could that ultimately reduce oil production costs?
ROSEMARY GRIFFIN: Yes, potentially, if it reaches a large enough scale. When you consider how huge Russia is, you can save big money by making your delivery systems more efficient.
HENRY EDWARDES-EVANS: Yes, and blockchain can also help bring more transparency to global oil markets. For example, Platts is using a blockchain platform to enable oil terminal operators to send their weekly oil stocks data to the Fujairah Oil Industry Zone in the United Arab Emirates, so that it can be published easily. This zone hosts the Middle East’s largest commercial storage capacity for refined oil products, making this data increasingly critical in the region.
SIOBHAN HALL: Right, and there are lots of other interesting blockchain applications as well, for example in managing power grids and electric vehicles, but unfortunately that’s all we have time for today. Thank you, Henry and Rosemary for all your insights. We’ll continue to follow all these developments closely here at S&P Global Platts. Thank you for listening, and join us again for more Platts’ perspectives on policy.