INSIGHTS FROM AMPHORA
Unblock the pipeline to oil trade finance
A period of historic change may not, at first glance, seem to be the right time to be innovating with technology. Blockchain is bucking that trend. The World Health Organisation is tapping into blockchain-based MiPasa, to help integrate and clean trusted data sources to support the development of solutions to address the pandemic. And blockchain is being put to use for medical supply chain management, product tracking, vaccine verification and insurance.
In the hydrocarbons sector, at the height of the coronavirus crisis – exacerbated by the US-Russia oil war – the instinct is to dig in, cut costs and ride out the storm. Saudi Aramco is reported to have cut around $30bn from its capital expenditure, while BP is to reduce capital expenditure by 25%, down to $12bn and cut $2.5bn from operating costs. Trade finance is seeing unprecedented pressure and technology innovation is not top of mind.
Pre-pandemic, banks and other Western trade finance suppliers were already shying away from the oil and gas sector. Banks were feeling the heat from governments not wanting to be seen to be investing in fossil fuels.
The instinct is to dig in, cut costs and ride out the storm
In the post-pandemic world, oil sector survivors will be those who squeeze every efficiency out of trade processes. Blockchain, based on distributed ledger technology (DLT), lets oil players track transactions along complex supply chains and exchange assets in near real time, using peer-to-peer validation. Reducing risk and improving efficiency and profitability – all music to the ears of trade finance providers.
There has been a rush to blockchain – many of the major oil players are backing VAKT, which helps reduce unit transaction costs by digitising the back-office and operations chain with DLT. This period of early enthusiasm for technology innovation is commonly followed by a trough of disillusionment, as identified by Gartner’s hype cycle model. Blockchain is a complex technology and we should expect to hear anecdotal evidence that it does not always go to plan.
It is not an out-of-the-box, point solution – and that is one of its great benefits. Oil and gas companies can start work now on identifying finance transaction siloes, cleaning up data and picking off low hanging fruit, such as improving the security and efficiency of commodity post-trade processing with blockchain. That way they will be in the best possible position to access and use trade finance to support the business.
At Amphora we recently interviewed a number of global leaders in the hydrocarbon industry, asking for their views on the current state of the market and what needs to be done to secure ongoing revenues and optimise trade finance processes.
Our eBook ‘Agenda 2030: driving continued revenues in global hydrocarbons’ presents these findings.
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