A consortium of the world’s energy giants is planning to build a blockchain platform to enable them to swap energy commodities.

Reuters reported that BP PLC and Royal Dutch Shell PLC announced plans Monday to make a blockchain-based tool for energy trading in 2018. Other members include Norwegian oil company Statoil, trading houses Gunvor, Koch Supply & Trading and Mercuria, and banks ABN Amro, ING and Societe Generale. Blockchain technology, which allows the trading of digital currencies such as bitcoin, operates by providing a cryptographically secured distributed ledger between parties that contains a tamperproof history of transactions.

Transactions on a blockchain can represent anything from exchanging numbers of digital assets to showing the acceptance of the trade of a single digital commodity that can be audited by a third party for authenticity without revealing sensitive information about trades or traders. This capability has made blockchain technology an interest in numerous industries that rely on trustworthy and auditable transaction logs such as financial technology, banking, shipping and enterprise management.

Pending regulatory clearance, the group said in a statement, the platform would be opened to the whole commodity industry after it has been tested by investors. “The intent is to move away from traditional and cumbersome paper contracts and operations documentation to secure, smart contracts and authenticated transfers of electronic documents,” the statement said.

The objective of the platform would be to reduce administrative costs and operational risks related to physical energy trading between partners. Using a blockchain, settlements for traded energy commodities need to wait for paperwork and acknowledgments to complete – since a transaction on the blockchain happens near-instantly, pending a small delay for the transaction to propagate across the network. Once completed, the transaction and any prior events written to the blockchain become permanent and can be audited by the involved companies to understand what happened or regulators to show compliance.

Other industries have done similar work with blockchains with the intent to help ease paperwork, increase efficiency and reduce risk by recording events and transactions to a blockchain in order to build transaction records or settlement accounts.

For example, Mastercard Inc. announced its own blockchain to speed up merchant payments with banks and other businesses, Digital Asset Holdings LLC raised $40 million to build blockchain platforms for securities trading and SETL Development Ltd. launched a blockchain platform for securely tracking fund record-keeping in September.

All of these industries depend on a trustworthy platform to record transactions, represent account quantities and show exchanges between accounts. At the same time, those transactions, accounts and historical logs must be available for regulatory audits to show compliance with local laws and industry policies.

Consortium members hope to use the blockchain platform tool to improve the organization of existing energy commodity trading. “Ideally, it would help to eliminate any confusion over ownership of a cargo and potentially help to make managing risk more exact if there are accurate timestamps to each part of the trade,” said Edward Bell, commodities analyst at Dubai-based lender Emirates NBD PJSC.

The blockchain platform is under development and the consortium expects it to become operational by the end of 2018.

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