The traditionally old-fashioned oil and gas industry could start adopting the technology behind the bitcoin electronic currency within the next year, according to one of the world's largest commodity traders. The commodities world is generally perceived to be one where many basic processes, such as the paperwork needed to load oil onto a tanker, for example, are still fairly archaic.
"I don't know if it is 17th or 18th century, but it's not that sophisticated and ... with today's technology it seems to be easy to improve the efficiency of the system," Marco Dunand, chief executive of Swiss-based Mercuria, said. "I've seen sufficient bank presentations to believe the technology is there and it's solid. And I belive we're going to see a digital transformation of the oil and gas industry," he told the Reuters Commodities Summit.
He believes a key part of the Brent market that helps to set the global benchmark price for oil could be making regular use of blockchain payment technology, provided enough participants agree to employ it. The Brent crude derivative, or paper, market, is underpinned by four physical crude oils - Brent itself, Forties, Ekofisk and Oseberg (BFOE) - and could be an ideal early adopter of blockchain, he said.
"BFOE for instance is a market that has a limited amount of participants, that requires a reasonably solid balance sheet. You could see this type of market going to blockchain payments within the next 12 months," Dunand said. "We think this could reduce costs, certainly on payments, by 30 percent."
The blockchain technology works by creating permanent, public "ledgers" of all transactions that could potentially replace complicated clearing and settlement systems with one simple ledger. Dunand's company often helps to bridge the gap between the so-called physical markets, where real barrels of oil change hands, and the paper markets, where futures, options and other derivatives trade.
It is not often that a commodities market leapfrogs ahead of some of the bigger financial markets that tend to be more likely to embrace new technology. While almost every major bank has said it is looking into the technology, widespread financial adoption has been thought to be at least five to 10 years away. Consultancy Oliver Wyman said in a report in February it would take at least a decade for blockchain to overhaul core parts of the financial industry.
Mercuria's Dunand said some parts of the physical energy markets would remain stuck in their ways for some time to come. "We could adapt it fast, but you need a certain amount of participants in the industry to get it going," he said. "For blockchain to work, you need sufficient amount of participants to go for it ... That is the only element that is slowing the development of blockchain."