Digitizing oil and gas transactions with blockchain and tokenization.
In recent years, blockchain has come a long way from a niche solution to a technology used everywhere, including by major players in the market. The distributed ledger is seen as a way to change and enhance even the most traditional industries.
In recent years, blockchain has come a long way from a niche solution to a technology used everywhere, including by major players in the market. The distributed ledger is seen as a way to change and enhance even the most traditional industries. In particular, thanks to the blockchain and oil and gas tokenization, it is possible to increase data security, automate operations, make any transactions cheaper, and attract investments more easily.
In 2019, the industry witnessed one of the milestone blockchain oil and gas use cases when such giants as Chevron, Exxon, and other companies came together to create a blockchain consortium. Their experience has proven that the new technology has all chances to improve efficiency in natural resources production, management, and trading. There are also multiple examples of how tokenization allows companies to attract investments, develop, and discover new markets. This article will look at options for applying DLT and oil and gas tokenization to enhance the industry.
DLT in crude oil transactions
Distributed ledger technology has three key benefits for the oil industry:
The prospects for blockchain in crude oil transactions were first assessed in 2017. Then Natixis, IBM, and Trafigura developed the first-ever blockchain service for this sphere.
DLT has provided an opportunity for three-way information exchange between sellers, buyers, and intermediaries (banks and other organizations). All parties receive information from the same registry, which is reliable and transparent.
Increase trust between counterparties
An essential advantage of the blockchain in the oil and gas industry is secure data storage. In particular, one of its use cases is to store documents and certificates. All data entered into the blockchain cannot be changed or deleted. This ensures that all technical documentation is securely protected.
Blockchain can also be used for certificates of employees or contractors – for example, documents confirming H2S training. At the same time, all participants in the production process can check all the necessary documents whenever they need to, 24/7. Thus, confidence in all participants in the oil and gas industry increases.
Oil crypto and gas tokenization as an opportunity for companies
Another significant benefit of blockchain is making investing in natural resources easier. This can be achieved through tokenized commodities. Tokenization is the issuance of tokens backed by specific resources, company shares, etc. For example, a company can issue tokens backed by the oil of a certain brand. Thanks to this, one of the critical problems of digital assets – increased volatility – is solved.
Oil and gas tokenization allows you to attract investors of any scale worldwide. At the same time, it eliminates the need for intermediary services, unlike traditional IPOs. A company that conducts tokenization and issues tokens can quickly attract investments worldwide and use the funds received to improve the technology of extracting or processing natural resources, open new factories, minimize the impact on the environment, etc.
Investors can also buy cryptocurrency oil and gas on the open market. At the same time, tokenized commodities are protected from high volatility. Gas and oil crypto can be used as investment assets, but the advantage here is that investors can exit quickly. Oil crypto is a liquid asset that can be sold to another retail investor, unlike the real barrel of oil.
Related: Tokenization of natural resources: oil & gas, gold, copper, and more
Supply chains without intermediaries
Energy supply chains are challenging to control because they involve many parties. At the same time, the chain is formed in a short time, and each of its participants needs information. It may be required, but the information is scattered across different sources. A long and complicated reconciliation was required to obtain complete information, which created the need to involve intermediaries.
Blockchain is a decentralized technology. It is a single system capable of storing information that any interested person can access. All transactions are carried out quickly, and there is no need for the services of intermediaries during their implementation. Accordingly, savings on commissions are achieved.
Transparency in oilfield assets
The oil and gas sector directly depends on the population on the planet. Its number will only grow, which means that the needs in the energy sector will also increase.
At the moment, there are two critical problems in the oil and gas sector: the growing need to discover new oil fields to meet the demand for oil and gas products and the lack of transparency in the oil and gas industry as a whole. Companies in the oil and gas sector are forced to spend large amounts of money on maintaining oilfield assets, so it is essential to have up-to-date information.
Blockchain makes records about all assets transparent and accessible. If any problem arises, all the parties will know about it and find a way to resolve the issue faster. DLT is easily integrated with other technologies and makes working with natural resources more convenient.
Blockchain opens up tremendous opportunities for the industry. Thanks to distributed ledger technology, several processes can be greatly simplified: storing documents, transferring data, and providing fast and straightforward sharing of information, which makes the industry less opaque.
Assets tokenization also plays a key role in the future of blockchain in oil and gas. It allows companies to quickly and easily attract investments and discover new markets. The collected funds can be directed to the needs of the company and further development, and investors receive tokens tied to the value of the company's assets or shares. They can quickly sell them at any time. This significantly democratizes the previously available industry only to large investors ready for multi-million dollar deals.
If you want to attract investments, reach new markets innovatively, or issue your oil crypto, our experts will be happy to advise you on asset tokenization. Sign up for the first free consultation now!