Oil storage terminals serve a critical role in the oil and gas value chains, it serves as repository for inventory in the chains. Terminal owners do not own the product being stored and are not directly exposed to commodity-price volatility. However, the demand of oil products will affect the utilization rates and storage fees for short-term contracts as well as renewal of long-term lease.
Oil storage terminals are also capital-intensive and asset-heavy industries, they bear a great responsibility situated at the intersection of operational excellence, safety, environmental concerns, risk management and profitability. Due to business complexity, data sensitive and ownership, most oil terminal operators are still using paper contracts or outdated computer software platforms to keep track their contracts with vendors and customers. This article discusses the key justifications in implementing smart contracts for Oil Storage Terminals.
Concept of Smart Contracts
Smart contracts are digital contracts, which paperless can be accessed by any technology devices like desktops, laptops, smartphones at anytime and anywhere. Smart contract was first invented in 1994, by a cryptographer named Nick Szabo, who came up with the idea of being able to record contracts in the form of computer codes and they would activate automatically when certain conditions are met. This idea might eventually remove the need for trusted middlemen like lawyers, brokers, bankers, because the smart contracts are self-executed on a trusted network that is completely controlled by computers.
It works when two parties make an agreement/contract in the form of computer code following a simple “if/when…. then…” logic codes statements that run on the blockchain. Blockchain will process and executes the contract when predetermined conditions have been met and verified, and updated when the contract is completed. Contract cannot be changed, and only parties who been granted permission can see the results. In smart contract, many regulations can be included as needed to enable contract parties to complete tasks satisfactorily. While establishing “terms and conditions”, contract parties must determine how agreements and their data are represented on the blockchain, to agree on the “if/when… then…” rules governing these agreements. They also explore all possible exceptions, and define the framework of the solution to resolve disputes.
Blockchain is essentially a digital ledger, equipped with both decentralized and distributed technologies, and these two elements lead to great security platform for smart contracts. Blockchain technology can integrate with other technologies like IoT, Artificial Intelligence (AI) to make smart contract “smarter”, transparent, with high level of security.