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Hyperledger used to track US oil on a blockchain

IBM, commodities trading house Trafigura, and the French investment bank Natixis are pioneering a blockchain solution for US crude oil transactions. Using a distributed ledger to host this market “allows major steps in a crude oil transaction to be digitized on the blockchain, ensuring improved transparency, enhanced security, and optimized efficiency,” according to IBM.

IBM, commodities trading house Trafigura, and the French investment bank Natixis are pioneering a blockchain solution for US crude oil transactions. Using a distributed ledger to host this market “allows major steps in a crude oil transaction to be digitized on the blockchain, ensuring improved transparency, enhanced security, and optimized efficiency,” according to IBM.

By having the buyer, seller and their respective banks all on the same ledger, all parties can simultaneously view and share data on the status of a transaction, from the time a new trade is confirmed and validated, to when the crude oil is inspected, to its final delivery and cancellation of the letter of credit.

“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.”
— – Rodney Malcolm, Trafigura Trading’s North American CFO

The is part of a broader effort to modernize trading in the global crude oil industry, which today is predominantly driven by manual, non-digital processes. “Natixis wants to use blockchain to enhance client service by optimizing the antiquated arena of commodity trade finance,” said Arnaud Stevens, Natixis’ New York Head of Global Energy & Commodities. “The current process is paper and labor intensive, we have multiple friction points with high processing costs and limited automation. Distributed ledger technology brings some much-needed innovation into our industry.”

The new trading platform allows trade documents, shipment updates, delivery and payment status to be shared across a single shared ledger, helping to reduce transaction time, duplication of documents and authentication processes among all trading partners. Traditionally these transactions require complex workflows and paper-based processes in which documentation is shared through courier, fax and email exchange.

The distributed ledger platform is built on the Linux Foundation open source Hyperledger Fabric, a “network of networks” for open source blockchains developed by the Linux foundation and IBM. The solution, which is hosted on IBM’s cloud platform, Bluemix, was led and delivered by IBM France. According to James Wallis, VP of blockchain markets at IBM, the “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 digitizing 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."
— – James Wallis, IBM VP of blockchain markets and engagements

Trafigura is a Geneva-based independent commodity trading and logistics business, and one of the largest physical commodities trading groups around the world. The company sources, stores, and delivers material commodities, including oil, refined products, metals, and minerals to clients across the globe. Founded in 1993, the employee-owned enterprise has 61 offices spread throughout 36 countries with 4,100 employees. Revenue for the company is reported at US$98.1 billion in 2016, up strongly from $12 billion in 2003.

Natixis is the international corporate, investment, insurance, and finance an arm of the second-largest banking group in France, Groupe BPCE. Concentrating on commodity and commercial investment products, Natixis’ base of companies includes financial institutions, institutional investors, and even individuals, including professionals and SME businesses. The company has 31.2 million clients and over 16,000 employees divided between two European banking networks.

“Natixis wants to use blockchain to enhance client service by optimizing the antiquated arena of commodity trade finance,” explained Arnaud Stevens, Natixis’ New York Head of Global Energy & Commodities in the announcement. “The current process is paper and labor intensive, we have multiple friction points with high processing costs and limited automation. Distributed ledger technology brings some much-needed innovation into our industry.”

“This partnership with IBM and Trafigura represents great momentum for Natixis and supports our aim to move distributed ledger technology from vision to execution.”
— – Frederic Dalibard, CIB Head of Digital at Natixis

Although this appears to be Trafigura’s first time taking part in a blockchain project, Both IBM and Natixis have been a part of similar efforts before,although not in markets as large and specific as Oil commodities.

In January, IBM supplied their Hyperledger technology and expertise to a group of European banks including Natixis, Deutsche Bank, HSBC, KBC, Rabobank, Société Générale and UniCredit when they jointly announced the creation of a shared ledger called the Digital Trade Chain. The project was strictly for import and export documents, such as Letters of Credit and Bills of Lading. Setting out to “change the way businesses around the world trade with each other,” the project had a successful proof of concept last summer.

However, the first blockchain in the oil industry was deployed in January by Swiss trading house Mercuria. Along with banking partners ING and Societe Generale, the company uses their distributed ledger as a way to track crude oil shipments from Africa to China.

"Going forward the challenges will be on the legal side as the blockchain technology is still not recognized by many governments," Mercuria’s CEO and co-founder Marco Dunand told Reuters at the time. “So banks are now working with various jurisdictions to make sure it can work worldwide.”


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