Allana's Avatar
published in Blogs
Dec 21, 2018

Blockchain Platform for Finalizing Crude Oil Deals Goes Live

Another industry has officially adopted blockchain to improve their operations. Reuters reported that “oil majors and trading firms can start finalizing crude oil deals on a live blockchain-based platform for the first time,” using its technology to mitigate longstanding issues.

Blockchain is adept at improving efficiency and transparency across use cases – its immutable ledger makes fraud almost impossible, and it has the capacity to take labor-intensive, paper-based processes and move them into the digital world. Those characteristics were enticing to several large energy companies, who saw potential in its ability to “drastically cut costs in an environment of razor-thin profit margins.”

With those goals in mind, nine of the world’s most prominent energy companies and banks – BP, Royal Dutch Shell, Equinor, Mercuria Energy Group, Koch Supply and Trading, Gunvor Group, ABN AMRO, ING, and Societe General – banded together to create VAKT, a platform functioning as “a digital ecosystem for physical post-trade processing.”

VAKT uses JPMorgan’s Quorum ledger to create “a single source of the truth for the trade lifecycle…[that] will eliminate reconciliation and paper-based processes, enhance efficiency and create new trade finance opportunities.” It runs side-by-side with its users’ internal systems – a feature that should increase its chances of achieving the “widespread adoption” so critical to success, says John Jimenez, VAKT’s interim CEO.

Reuters reports that VAKT will eventually link to Komgo, a new platform backed by many of VAKT’s founders “which will provide financing including digital letters of credit.” “VAKT is the logistical arm...once a deal is executed through our book of records, it gets pushed through VAKT. The next leg is the financing, and the link-up with Komgo gives access to several banks,” explained Eren Zekioglu, Chief Operations and IT Officer at Gunvor Group, who believes VAKT offers a “big step [forward] for the physical energy trading markets.”

BP, Equinor, Shell, Gunvor, and Mercuria are the platform’s initial users; it will launch on a larger scale in January 2019. VAKT eventually hopes “to extend the platform to all physically traded energy commodities” as it expands.

Industry figures are bullish on its prospects. Andrew Smith, Shell International’s EVP of Trading & Supply, called it “an exciting time” for companies as technology improves processes and operations. “Collaboration with our peers and some of the industry’s key players is the best way to combine market expertise and achieve the scale necessary to launch a digital transaction platform that could transform the way we all do business,” said Smith. Blockchain’s value and transformative powers are becoming harder for businesses to ignore.

 

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