The Energy Sector Has Always Been Volatile — But The Drive to Innovate Has Not
Nearly every industry over the past decade has been transformed by technology — that includes the oil and gas industry.
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This shift was spurred by a decade-long decline in oil prices, leaving companies with no choice but to look for technologies that could reduce operating expenses.
Thanks to non-traditional business models and forward-thinking talent, energy sector startups have played a critical role in consistently helping usher in solutions that implement new technologies, like AI, data analytics, and machine learning, to solve inefficiencies and cut costs. Unlike today’s established oil companies, however, newcomers have less access to the funding and capital necessary to survive in the energy sector.
But more recently, in the wake of the COVID-19 pandemic, energy companies have been grappling with volatile oil prices as well as uncertain long-term demand, making the need for fresh thinking and cutting-edge technologies even greater. The industry is under pressure to usher in new, innovative ideas that make companies more agile and positioned for whatever the future holds.
Why Startups and Other Newcomers Struggle in Oil & Gas
For many years, the oil and gas industry has adopted technologies to help with some of its core operations. But compared to other industries like vehicle manufacturing and aerospace, the energy sector has been slow in its adoption of today’s newer, more innovative digital solutions.
“High market prices and a steady influx of capital allowed them to hide inefficiencies. The focus was growth and reserves exploration. If they are killing it in the market, why should they change? There is an old-guard that doesn’t necessarily understand how technologies can drive bigger business value.”
Startups also struggle to obtain the capital necessary to invest in developing and acquiring patents. As a result, they may be forced to either license processes and technology from established firms or tie up capital in an attempt to match established firms’ capabilities. The industry as a whole also tends to be risk-averse, making it harder for young companies to attract venture capital.
Take the O&G startup scene in Tulsa, Oklahoma, for example: In a city once known as the oil and gas capital of the world, funding for startups is severely lacking. Tulsa has made significant investments in bringing new talent and businesses to the area, but there were only five VC deals totaling $6 million in 2019.
Bringing More Innovation to the O&G Industry
More recently, there has been a noticeable shift in the industry’s integration of startups. Many oil majors are now engaging with industry newcomers through strategic partnerships. A recent report from Boston Consulting Group estimated that strategic supplier partnerships could deliver 30% to 50% in value to operators’ upstream operations — a number well above the 5% to 10% in savings that operators expect to achieve through traditional measures.
A 2020 report saw significant growth in the industry’s investments in and collaborations with startups focused on bringing AI and data analytics to the industry.
Parts of the energy sector do not leverage real-time insights and data — in fact, only 2% — 10% of the data being generated by oil and gas companies today is processed and analyzed to drive operational improvement.
Startups like Geolumina are helping find the most complete, highest quality data sources and use a combination of programming for efficiency and human quality control for integrity.
Some industry natives are ushering in new talent and companies by investing in their funding rounds or creating them in-house. Studio X, for example, is an open-innovation studio powered by Shell, working to bring new technologies and talent and help reimagine the future of work in energy exploration. In the Studio X portfolio is Sixlab, a no-strings-attached talent incubator for startups and entrepreneurs looking to apply their technology to the energy space and use it to improve the efficiency, reliability, and safety of energy exploration.
By building strategic partnerships and focusing on the oil and gas industry’s newcomers, the energy sector will not only save on costs and efficiency in the short-term, but it will armor itself with the agility and technological capabilities necessary to thrive through future market disruptions.