Energy Fintech Beyond the Dollar Chris Cook Moscow 18th April 2018 1

Oil & the Dollar Problem Energy Dominance – Two Tier oil market is controlled by US with Saudi capital - OPEC is purely cosmetic Dollar payments have been weaponised Solution Energy as a Service - new natural gas global market design & benchmark price Payments- gas credits (GasCoin) & clearing (GasClear) Instead of oil priced in $ and gas priced against oil: $, € & oil will be priced in gas 2

Dollarisation of Oil July 1st 2017 Energy Dominance Oil as Commodity Oil as Asset Oil as Funding

Between mid 2007/2009 oil went $80>$140>$35>$80/bbl...... …...while physical supply & demand varied by <3%

Oil Market financialisation began in earnest in 2004...... ….from early 2009 oil market was completely manipulated

Oil market is (financialised) 'Producer's Market'...... …while gas market is over-supplied 'Buyer's Market

US Energy Dominance: Dollar now directly oil-backed Energy Dominance Announced

China launches Shanghai contract: 'Buyer of Last Resort' Shanghai Oil Contract opens 26th March 2018

Early Fintech - Promises and Proofs Tally-as-Proof - receipt for past utility (eg energy) but no future utility Tally-as-Promise - Prepay credit for future utility requires trust in promissor Single Entry – the instrument IS the accounting record Authentication – the grain of the wood is nature's encryption!

Promises (Prepay Credits) Prepaid Taxation Prepaid Energy Prepaid Talk Time

Fintech 1.0 - Blockchain & Coins Blockchain as Agreement - collective machine protocol for encrypted transaction database - authenticates electronic instruments – no 'double spend' - But....entire database is encrypted for every new transaction Coins as Instruments - Proof of past value creation (eg Proof of Work/Stake) - Transaction token has subjective value in exchange but no objective use value over time (utility)

Venezuela and El Petro Petro is based on Oil - many different types & qualities of oil - acceptability of currency is based on use value & trust - But consumers use gas, oil products, energy services NOT oil Petro is a Proof not a Promise - Petro is evidenced by oil reserves & is a receipt for payment - But - Venezuela has no obligation to deliver either oil or money - Petro holder has no right to use Petro instead of Dollar to pay for Venezuelan oil

Energy Fintech – Swaps & Credits Instruments Energy Swap - neutral, collaborative framework for allocation of energy flows Energy Credit - prepayment for energy production or use Institutions Capital Partnership – production/cost sharing Guarantee Society – risk sharing/mutual assurance

Energy Credit (Supplier Promise) What it is - Promise issued by energy producer in exchange for value received - Returnable in payment for supply What it is not - Debt - no right to demand money - Derivative – no right to demand delivery - Equity – no ownership right in respect of energy assets Requires trust framework for promissors & investors

Energy Credit (Supplier Promise) What it is - Promise issued by energy producer in exchange for value received - Returnable in payment for supply What it is not - Debt - no right to demand money - Derivative – no right to demand delivery - Equity – no ownership right in respect of energy assets Requires trust framework for promissors & investors

Fintech 2.0: Clearing Union Value Supplier A Member Buyer B Member Credit Authenticated A->B Bilateral Data Shared Database Authenticated A->B Bilateral Data Authenticated A->B Bilateral Data Platform Service Provider 16 16

Mutually Assured Performance – P&I Club For 150 years, Protection & Indemnity (P&I) Clubs have mutually guaranteed shipping risk Lloyds won't cover For 130 years P&I Clubs have been managed by Thomas Miller as platform service provider

Energy Swaps Regional Swaps - Energy delivered to one location exchanged for energy delivered from another eg Caspian Oil Swap Category Swaps - Flows of one type of energy exchanged for flows of another Hybrid - Regional Category Swaps

Oil for Product Swap Service Investors Providers National Oil Company (NOC) Consumers Oil Products Refinery Prepaid Products % Investors Service Providers

CNG for Transport Swap Service Investors Providers Transport Gas Supplier Transport Users Natural Gas Transport as a Service % Pay Vehicle Companies (eg taxis & buses) Prepay % % Investors Service Providers

Pumping as a Service 1778 - first Smart Swap Newcomen Atmospheric Engine James Watt Steam Engine

Smart Subsidy – Levy & Dividend Carbon Fuel Levy creates Investment Pool In Roubles Energy dividend made in energy credits not Roubles - incentive to save energy - not inflationary - Pool invests in energy savings through energy loans - credits returned in payment for energy as a service

Transition through Gas New global market design: Energy-as-a-Service New energy-based credits – GasCoin (Mmbtu equivalent) & EnergyCoin (KwH equivalent) Oil no longer be priced in $ and gas priced vs oil Oil, $, €, EnergyCoin will be priced in gas 23

GasCoin – energy denominated Carbon Credits “If you wish to keep a cow healthy you don't regulate what comes out of the cow, you regulate what goes in” The Kyoto Carbon Market Cow

Oil & the Dollar Problem Energy Dominance – Two Tier oil market is controlled by US with Saudi capital - OPEC is purely cosmetic Dollar payments have been weaponised Solution Energy as a Service - new natural gas global market design & benchmark price Payments- gas credits (GasCoin) & clearing (GasClear) Instead of oil priced in $ and gas priced against oil: $, € & oil will be priced in gas 25