How the oil and gas sector can benefit from tokenization
According to the World Economic Forum, oil and gas tokenization can increase the liquidity of the markets by $1.6 trillion and the total market size by $2.5 trillion. Companies from the oil sector can receive an additional $1 trillion. In addition, transferring operations to the blockchain is a positive factor for the environment. In particular, such a move can help reduce CO2 emissions by 13,000 million tons and reduce oil spills by 230,000 barrels.
Asset tokenization and blockchain, in general, are developing rapidly. Blockchain has opened up fundraising opportunities for companies across different sectors. Over the years of development, it has reached a level that can significantly impact the oil and gas industry. The use of a distributed ledger will help solve a number of problems in this area. In this article, we will explore what benefits a natural resources tokenization platform can bring to the economy’s energy sector.
Simplification of business processes
The specificity of the industry lies in a very long chain, from production companies to the end consumer. This leads to a situation where there is a large gap between supply and demand.
The needs of countries for oil and gas differ significantly. Moreover, they also depend on additional factors, such as the time of year and climate in a given country. Today, energy supply companies are solving this problem by building storage facilities that contain a reserve of oil and gas. However, this is not the most efficient way. The maintenance of such storage facilities is quite expensive. Therefore, in the oil and gas industry, the option of storing reserves in-ground (until they become in demand) is being actively discussed.
Even ten years ago, such an idea was unrealizable. This is partly due to the complex chain from production to the consumer. On the other hand, countries are forced to maintain a large supply, as oil and gas companies can tolerate delays. Often these delays are due to bureaucratic procedures. The disruption of the supply chain can lead to brutal consequences, including significant price increases in the domestic market. Oil and gas cryptocurrencies can solve this problem.
Using a natural resources tokenization platform, countries and companies will be able to streamline or remove many bureaucratic procedures. The supply chain control that blockchain provides will help you quickly determine which link has a problem. Thanks to this, you can find a solution to the issue shortly.
The transfer of transactions to the blockchain will simplify natural gas monetization because units of assets can be represented in the form of tokens. The technology of smart contracts guarantees the fulfillment of obligations by both parties.
Additionally, the introduction of blockchain gives a new impetus to the industry’s technological development. The use of a distributed registry makes it possible to use artificial intelligence and obtain advanced analytical data. This allows you to more effectively identify recurring problems and create a strategy to deal with them.
Investments from new sources
The industry needs new sources of investment. Previously, it was possible to raise funds from institutional investors, but investors have been paying more attention to green energy in recent years. In addition, there are traditional bureaucratic complexities with natural gas monetization. Over the past ten years, there has been a gradual outflow of investments from the natural resources sector, so new solutions are needed. Oil and gas tokenization is one such solution.
Tokenization helps reduce the cost of attracting investments. First of all, it allows the elimination of the back office and a significant reduction of the influence of brokers in the natural gas monetization process. Broker fees are one of the factors that complicate investment in the oil and gas industry, and tokenization helps solve this problem. Now there is no need to make significant investments in the back office and use the services of intermediaries for natural gas monetization. Tokenization provides automation of many processes, many of which have greatly reduced the costs of attracting investments. A business operating in the oil and gas industry can receive investments from any interested person or organization from anywhere in the world.
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Solving problems at the legislative level
The oil and gas industry often faces problems with regulators. There is an active discussion within the ranks of regulatory organizations on whether more active participation is needed. There is a widespread opinion that the energy production and processing industry is non-transparent. This is due to two main reasons:
- The oil and gas industry mainly develops projects with a very complex structure, including cooperation with many companies from different fields of activity located in different parts of the world.
- The industry has been developing for more than 100 years, and during this time, there have been practically no global reforms in industry processes. Therefore, outdated rules still apply in many areas of the oil and gas industry.
Due to its peculiarities, the oil and gas industry has often gone without global audits for long periods of time. However, Bitcoin energy platforms can fundamentally change this area, making it more transparent. Thanks to the transfer of data to the blockchain, it is possible to form a global pool of information. Access to this pool may be free for regulators who need to check companies’ reporting from the crypto oil and gas sector. This is important not only for regulators but also for investors who want to ensure that all the information from the reporting documents is accurate. Data in the blockchain cannot be changed or deleted, so all crypto oil and gas data will be stored for exactly as long as the blockchain is running.
New opportunities for investors
In the world of investment, there is the concept of diversification. It means that funds must be invested in different assets to prevent a large loss of funds from anyone project that is unproductive for any reason. In the oil and gas industry, the risks of losing funds are quite high. The oil and gas sector is also distinguished by a high financial entry threshold. Therefore, investments in this area were simply unavailable for many investors until recently.
Oil and gas tokenization gives investors a tool that can significantly reduce the entry threshold. Tokenization allows dividing an asset into several parts. Thus, instead of buying a company share for $10,000, you can buy a crypto oil and gas token for $1,000 to represent 1/10 of an asset.
Blockchain and asset tokenization open up new opportunities for the crypto oil and gas industry. At the same time, oil and gas tokenization benefits all market participants. Companies get a chance to attract new investments. It becomes easier for investors to invest in projects of interest since shares and other assets can be tokenized and divided into fractions. Liquidity increases, and investors can exit at any time.
The introduction of blockchain and tokenization to the energy sector can completely reform the sphere. This will improve all areas, from oil production to natural gas monetization. If you have a business in the oil and gas industry and are looking for ways to attract new investments and expand your business through tokenization, sign up for a free consultation with our experts.