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A new frontier for energy companies: selling software

April 18, 2019

They want to share their know-how with the rest of the world.

Saudi Aramco is one of the most successful energy companies in the world and their success, in part, results from their ability to create and exploit new technologies.

Now, they want to share some of that know-how with the rest of the world.

The company plans to create an independent subsidiary that will  license software applications and other technology developed through its iMOM (integrated manufacturing operations management) program to third parties, according to Eyad Buhulaiga, Aramco’s manufacturing operations management project-management specialist and solutions architect. Buhulaiga shared this insight at the ARC Industry Forum in Orlando.

Aramco will license judiciously—you won’t be able to build exact replicas of their plants or processes through the software and service they will make available. Instead, the subsidiary will license solutions for predictive maintenance, pump optimization, i.e. the problems everyone faces, he said. The new subsidiary will possibly even license technology to other heavy industries.

Expect to see a version of this story played out over the next several years. Heavy industry has embraced digital transformation and IoT technologies to date largely to reduce costs (process energy, maintenance) or increase productivity out of existing capital. DCP Midstream, for instance, has publicly discussed how it invested $20-$25 million in transformation and recovered $20-$25 million in the same year through lower downtime and other factors.  Accenture estimates that the IIoT could contribute $14.2 trillion to the world output by 2030.

OSIsoft's Michael Kanellos

But along the way, these companies are discovering that their technology is, well, pretty dynamic. There’s no reason to confine it to an audience of one. Tokyo Electric Power and Kansai Electric Power, two of Japan’s largest utilities, have launched initiatives to provide services, consulting and technology to other utilities in other jurisdictions. Grid operator PJM is mulling commercialization for DIMA, an in-house software application that gives remote maintenance technicians a control room view on their cell phones and laptops.

In chemicals, Air Liquide has already spun off Alizent, a technology-services unit that provides plant management and optimization services to Air Liquide as well third parties.

Want more? Find a collection of software-focused features here. 

A successful digital initiative would also give these companies a new revenue stream (albeit a tiny one at the beginning) that often moves in the opposite direction of their core business. When commodity prices dip, software investments often climb.

These companies have another asset, too: a wealth of operational data to train their algorithms. One of the reasons IBM bought the Weather Company was to get their hands on data to fine-tune their agricultural offerings, according to Scott Lundstrom, group vice president of IDC, who (among others) predicts that anonymized data will become a saleable product. Oil companies, of course, have no shortage of data. One facility can easily generate a terabyte or more of data a day. Shell tracks more than 7.5 million live data streams.

Uniper, a utility, and Petronas, an oil-exploration company, have developed in-house applications for predicting rotating-equipment failures. Uniper has even noted that they have a green light to explore commercialization.

Success, of course, can’t be foreordained. As software and technology-services companies, these new independent subsidiaries will find themselves competing with traditional partners like Schlumberger as well as behemoths like Google, Amazon and Microsoft. The new entrants will have to identify specific market niches they can occupy as well as get comfortable with “coopetition.” (Competition + cooperation)

Buhulaiga in fact showed in his ARC presentation how third-party software could be integrated into iMOM offerings.

These efforts will also require steady and persistent investment in recruiting. Data scientists can be more difficult to land than process engineers. Additionally, companies will have to get comfortable with business-model innovation. Will technology licensing be enough, or will it have to be linked to consulting services? Subscription or perpetual license?

Software is a very different culture.

And most importantly, energy companies will have to be patient and take a hands-off approach. Often, new initiatives like this can flounder. During the 1990s and 2000s, Intel spent billions trying to move into hot markets like data-center management, consumer electronics and communications technologies. They failed almost every single time. After a while, the mothership would simply lose interest. 

Still, energy companies should (at a minimum) examine ways they can monetize their technologies. They invariably will have to increase their investments in digital over the next decade to improve existing operations anyway. Trying to productize these same breakthroughs will represent a low-risk way to explore a new, potentially high-return, opportunity.

Michael Kanellos is the IoT analyst at OSIsoft.