Oil Startups, Key to Petroleum Industry Changes
The new Iranian calendar year has seen events on startups, and signature of memorandums and adoption of bylaws that support startup ecosystem. This issue has now become a major cause of concern for senior Iranian managers, particularly the Iranian president. It would not be strange if we call the current year the year of foundation of modern wave of Iranian startups.
This development is likely to emerge in one of the most significant ministries. Minister of Petroleum Bijan Zangeneh established the "Council to Support Knowledge-Based Companies in Petroleum Industry" and is now drawing up bylaws for the development of knowledge-based companies and oil startups in partnership with the private sector. But the point is that in case of misunderstanding the necessity of development of startups for the oil and gas industry among oil and energy experts and actors, the envisaged plan is likely to decline to the level of a propaganda show and would cause many problems. Therefore, I will try to explain some reasons for the necessity of development of startup ecosystem in the petroleum industry.
Oil and gas industry is among the most complicated industries and is technologically very challenging. That along with growing pressure for reducing costs, developing oil fields and reducing environmental impacts has led to the development of technology to cut spending, bring about distinction and finally create competition among leading oil companies in the world.
Technology and innovation have always been the main game-changers in the upstream oil and gas industry, particularly when global oil prices change. For instance, in early 2010, ExxonMobil introduced a sophisticated technology that could reduce costs while raising production capacity to 5.8 mb/d and prolong the life of oil fields. The new technologies in the petroleum industry in coming years are expected to increase the volume of recoverable crude oil to 10.2 trillion barrels, not to mention raise the recovery rate for a longer time. For instance, internet and mobile technology would create over $100 billion a year in revenue for mining, metal and oil industry by 2025.
The significance of using technology and innovation for the upstream oil and gas industry is undeniable in the world; however, their increased use has given rise to some challenges due to being time-consuming, high costs and startup risks, tests and assessments.
Until the 1980s, development of technology and innovation in the upstream petroleum industry was under monopoly ofmajor oil companies, but after one year and following oil shocks, new actors including oil service companies, universities and independent research centers have been engaged. Oil service companies are now the main source of innovation and technology in the upstream oil industry. However, development of technology and innovation are faced with new challenges and problem of adaptability.
Moving towards formation and development of oil startups is a global campaign. Leading companies in the world are now trying to address such challenges. Between 2008 and 2017, over 80% of venture capitals belonged to oil giants like BP, Shell and Total.
Oil startups are emerging teams or companies capable of presenting new technological solutions to help overcome challenges of big oil companies. These startups would introduce new business models and develop new technologies. Their business models would be very similar to customer business models and help customers use technologies at much lower costs and much more easily.
The oil and gas industry is not often welcomed by private capitalists due to its heavy dependence on economic conditions, long sale cycle and slow procedures.
The startups currently operating in the development of technology in the oil and gas industry are facing major problems in attracting capital and credit due to the absence of capital venture funds specializing in this sector and also the lack of communications between startups and oil and gas companies. Establishment of specialized oil and gas accelerators like BBL LAB in Houston are instances of the oil and gas industry solution for filling this void in the oil and gas startup ecosystem, which became operational in 2019.
In Iran, the first oil well was drilled in 1908. The country's oil and gas industry has since been improving, but access to technology has always constituted a challenging issue. This issue has taken up added significance with the re-imposition of unilateral and unlawful US sanctions over recent years.
Undoubtedly,oil and gas industry is an artery of Iran's development. Now that Iran is under tough sanctions, we need to think about endogenous development of technology and domestic capabilities.
The issue of domestic potential and development of technology is nothing new. It has long been on the cards in the oil and gas industry and the result has been nothing but further dependence on foreign technology. One reason may be lack of paying attention to the changes in the ecosystem of global innovation in the oil and gas industry.
Currently, most oil fields in Iran are nearing the second phase of their recovery, and most equipment used in the upstream and downstream oil and gas sector are decrepit. In the meantime, the impossibility of purchase of technologies from other countries and the presence of talented university graduates in the oil and gas industry, as well as formation of knowledge-based and technology-based companies in the oil and gas industry as well as the beginning of formation of other elements of startup ecosystem in the oil and gas industry, including accelerators and venture capital companies, have provided this vital industry with new opportunities. A series of factors has now facilitated interaction between startups and creative minds with big exploration and production companies, as well as other influential players.
The persistence of this trend, like every other measure, would need policymaking and government support. Of course, in light of lessons learned by Iran with regard to knowledge-based companies, the government had better offer its support for the formation of oil and gas industry startup ecosystem, including support for energy innovation centers development, accelerators, common work space, parks of technology, zones of innovation and specialized venture capital funds with the private sector playing the central role.