The world economy runs on oil and natural gas and these two resources are also sometimes called the lifeblood of the world economy. Oil and natural gas are very high-value resources, and they exchange hands multiple times and even cross several international borders before they finally reach their destination. For example, gas from Russia’s far east is transported to Western Europe through a network of oil pipes. Similarly, oil tankers transport oil from the Middle East to Europe and Asia.
Whenever the oil or gas exchange from one company to another or a company to the final customer custody transfer occurs, this transfer must be done efficiently and accurately so that this valuable resource is optimally used.
In this article, we will share with you some important focus areas of custody transfer of oil and gas.
- Optimizing accuracy of the transfer
The deal focus of custody transfer is accuracy. As this is a valuable resource, if there is a mistake in providing the right quantity of oil or gas to the other party, they may feel short-changed and can harm your reputation. A small error can be very costly when transferring high-value commodities like natural gas or WTI. For example, a typical LNG shipment can, on average, exceed £ 30 million. Therefore, even if there is a 1% error in the transfer of the fuel to the container, the loss of value the other party face is quite significant.
- Protecting the profit margin
As crude oil and gas prices are likely to go up even further due to the adverse geopolitical scenario, companies want to protect their profit margin by ensuring that there is no loss of oil or gas during custody transfer.
- Meeting the standard laid down by the government and industry
The oil and gas industry is one of the most regulated sectors of our economy. The excess of regulation in the oil and natural gas sector protects the interests of both the sellers and buyers. In many countries, the local laws are further imposed in addition to the rules and regulations published by international bodies like the International Group of Liquefied Natural Gas Importers and the International organization for standardization.
The earlier points illustrate the importance of custody transfer in the oil and gas industry.
