Over the last, what is it now… 35-years in the energy and commodity industry, I have rarely seen participants in the industry work together for their common good. On initiative that I was very familiar with and involved in was POSC (Petrotechnical Open Software Corporation), an industry-funded initiative to develop standard data models in E&P. It went on a long time, cost a lot of money and produced a data model that people played lip service to mostly so far as I could tell. I wasn’t involved in GISB (Gas Industry Standards Board) but my understanding is that this effort likewise produced industry standard pipeline data models that everyone adopted along with their specific and proprietary add-ons! From where I sit, industry initiatives have been few and far between and mostly ended with a whimper.
So, I must say that Vakt and Komgo, amongst other industry initiatives, have my attention. Of course, I talk about blockchain initiatives in the commodities arena that appear to be making progress – Vakt went live late last year and Komgo this month and appear to be making progress. Other blockchain initiatives driven by industry consortia appear to be also moving inexorably in that direction. Meanwhile, Enerchain, another blockchain effort albeit led by a vendor has completed its POC and is now assembling a legal entity from the industry consortium it established in order to move forward. So, the question to ask is what has changed that industry consortia are suddenly all of the rage? What is bringing these competitors together finally to work towards some actual standards in the industry?
VAKT also sees the way that it set up the consortium as being key to its success. “We have to get companies that perhaps don’t trust each other to agree to a governance structure.” In fact, this is often cited as a key issue in the deployment of blockchain as, being de-centralized, it does require governance, which can be notoriously difficult to achieve. “VAKT is building a platform for the industry to adopt – and it is absolutely committed to being inclusive of all players in the market as customers because the solution won’t work without them. We have come together as a consortium to provide an industry solution – not starting from the place of trying to sell a technology. We will have a Customer Advisory Board forming in January and that will be a forum for all customers and a channel for feedback from those who wish to be potential customers will also be provided.”
Global commodity trade is not just about moving commodities from one point to another but involves a web of intermediaries, each with distinct priorities and systems. Exporters, importers, banks, truckers, shippers, customs agents, insurers and regulators all require checks and verifications at various points along the chain, and each interlocking part depends on successful completion of the previous phase, and of course, on accurate and trusted information. Banks play a large role in these supply chains, via financing mechanisms and the treasury management of exporting and importing clients. The banks are also involved in many of these consortia driving industry blockchain initiatives.
As Beat Bannwart, head of strategic innovation and market development for UBS explained to CoinDesk in a recent article there,
“The driving factor wasn’t the need to find a blockchain use case, it was the clients’ needs – they want a leaner, faster process in place, how to secure international trade transactions, how to finance them in order to grow their business.”
“Blockchain is a network business – the value of the solution grows with its adoption. What we’ve seen throughout history is that if you have non-interoperable systems, on the one hand it’s good for competition because solutions are developed more quickly; but on the other hand, it could be like the old times when you had to carry a different phone for each region.”
What is happening with blockchain in the broader financial sector is mirrored in commodities as the early success seem to be guided by industry consortia. In the finance side, the consortium As We. Trade told Coindesk,
“Next to technical challenges, also collaboration is a challenge. We have created one company in which nine banks are shareholders. Notwithstanding the fact that we are independent, all the banks – in line with their internal governance and procedures – need to approve the services and the documentation. But we have shown that we can work together.”
This collaborative model is currently the model of choice. It starts with a wide and deep enough group of participants setting up the initiative and steering it through the POC and early go live and then seeks to expand by adding new consortia members as Vakt did just this week stating,
VAKT’s original investors and first users of the platform include energy majors BP, Equinor and Shell; independent traders Gunvor, Koch Supply & Trading, and Mercuria; and banks ABN Amro, ING and Société Générale. Launched initially in the North SEA BFOET market, VAKT’s ambition is to cover all physically traded energy markets with a roadmap that currently includes US crude oil pipelines and Northwest Europe refined product barges. The first public launch to non-consortium licensees is expected for early 2019.
So, in a way weirdly after 35 years of failed and half-hearted attempts at industry collaboration, I now watch several apparently successful attempts happen all at once. Outwith of what this could mean for blockchain in the industry over the next few years, more collaboration could revolutionize the entire industry especially when it comes to software.