The bill of lading is the document that verifies ownership of a commodity that can be worth more than $122 million per ship. Without it, buyers and sellers who trade $2.7 billion of crude daily are unable to do business in an ocean-going tanker market that supplies almost half of the oil consumed globally.

But some of the biggest producers, traders and banks want to do away with the bill-of-lading system, along with other forms of time-consuming record keeping required for every transaction. To trim costs and cope with tighter profit margins, the industry is eyeing the methods used to track and verify cryptocurrencies like Bitcoin using a shared online ledger known as Blockchain.

“The way we do our title transfers and post trade execution is very heavy on paperwork,” said Alistair Cross, global head of operations Mercuria Energy Group Ltd. “And the paperwork hasn’t really evolved over the last couple of hundred years.” The appeal of online ledgers is that transactions are recorded using encryption to ensure security and allowing each deal history to be viewed by the network of users.

While most oil traders use digital technology to store their own data, Blockchains force buyers and sellers to work from the same record book. That creates more transparency and eliminates the need for much of the documentation going back and forth, as well as the people who handle it.

A consortium — including oil producers BP Plc, Royal Dutch Shell Plc and Statoil ASA, commodity traders Gunvor Group Ltd., Mercuria and Koch Supply & Trading, and lenders ING Groep NV, ABN Amro Bank NV and Societe Generale SA — has been developing a Blockchain-based platform for physical oil trades. They’ve already tested the system with a tanker of crude that was sold three times before the physical shipment reached the final owner, China National Chemical Corp. Verifying the transactions took 25 min., down from what is normally three hours, Mercuria said. Read more from…

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