Trafigura, Natixis and IBM are working on a blockchain solution to manage crude oil transactions in the US market.
The distributed ledger platform was built on the Linux Foundation open source Hyperledger Fabric, is hosted on IBM’s cloud platform Bluemix and delivered by IBM France.
It allows the major steps of a crude oil transaction to be digitised and visible simultaneously by buyer, seller and their respective banks. Trade documents, shipment updates, delivery and payment status can be shared across a single shared ledger, reducing transaction time, duplication risk and authentication processes.
This improves transparency, security and efficiency from the time a new trade is confirmed and validated to when the crude oil is inspected, to final delivery and the cancellation of the letter of credit.
Trafigura tells GTR that this is a proof-of-concept (POC) trial, but for Arnaud Stevens, Natixis’ New York head of global energy and commodities, it is “much more ambitious” than that, though he explains that more testing and improvements are needed before the platform becomes fully operational.
“We have run blockchain simulations using Trafigura’s existing crude oil transactions and documents in the US,” he says. “This platform has been built with IBM in a robust technology environment providing security, confidentiality, auditability, reliability and scalability.”
The solution is not designed to be proprietary to Trafigura, Natixis or IBM, and Stevens adds that discussions are ongoing with Trafigura’s peers in the US, as well as other commodity banks.
“Blockchain is a team sport, it’s about operating a business network, and we would like to invite the key players in the commodity trading space in the US and our banking partners to join this initiative to create an industry-specific platform and to get as soon as possible into production mode. We recognise that we can’t build everything ourselves and that’s why we are open to collaborating with like-minded partners,” he tells GTR in an email exchange.
Furthermore, the platform is set to be expanded to allow all parties – including the shipping company, pipeline operator, inspector or warehouse – to in the transaction to enter data or updates directly onto the blockchain, lowering the risk of fraud.
Rodney Malcolm, Trafigura’s North American chief financial officer, says: “Together with Natixis and IBM, we have analysed the workflow of crude oil transactions in the US, detailing the different steps of a transaction, our interactions with the financial institutions and the documents exchanged among the various parties.
“The goal is to replace paper-heavy manual processes with blockchain-based workflows to improve transparency and data sharing. With the distributed ledger technology, all transaction participants in the network are updated simultaneously with a record that cannot be altered or tampered with. Each change or new transaction immediately creates a new record in the shared ledger,” he adds
James Wallis,vice-president, blockchain markets and engagements at IBM, says: “Processes in the energy and commodities trade business are ripe for improvement. The approach we are taking, using a permissioned blockchain network built on the Hyperledger Fabric, has the potential to transform the crude oil industry by creating consistency in trade finance and by digitising transactions and information sharing.
“Creating this ecosystem for the commodities market working with two world leaders in this industry will help create an entirely new approach to managing the global commodities trade.”