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Oil, Technology and What Makes the World Go Round

By : Ziad K. Abdelnour| 29 January 2014
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Being both an oil trader and financier and tech investor, I am frequently asked about my general views on the oil and tech sectors at large given the ever changing financial and political disturbances out there.

Well for a start, you might think that tech is today in a bubble as a company whose sole product is a photo sharing app in which the pictures get deleted after they are shared just turned down $3 billion.

Maybe…. But the reality is that even if there is a bubble in the making there are really no consequences. Unlike the late 90s, technology is now established. If one company blows up, other entrepreneurs will start a new one or join someone else. So If you really think about it, the cost of failure has never been so low, ever.

By the same token, and for the sake of argument, I don’t think that the tech and software sector is even close to eating the world.

Take a look at the Fortune 500 2013 – Fortune on CNNMoney.com. There are hardly any software companies on there. Google is #55 with a $52.2B in annual revenue. Facebook is barely hanging on at #482 with $5.1B in revenue. The largest electronics company is Apple at #6 with $156.5B in revenue. The second largest is Hewlett-Packard at #15 with $120.4B.

Who’s at the top of the list? Wal-Mart and Exxon Mobil with a gargantuan $469.2B and $449.9B respectively. They’re almost doubling 3rd place Chevron with $233.9B. The list is largely dominated by Oil first then finance, and consumer goods.

Software may be enabling profits for these companies. But on its own it’s still nowhere near to taking over the world. As it stands, tech has made a big dent in Silicon Valley and upper middle class America, but most of the world has hardly noticed it yet. Software is still a baby and there’s tons of room for growth.

The oil industry on the other hand is by itself more entrenched than ever… both politically and business wise.

One of the hottest topics, of course, surrounds concerns of hydraulic fracturing practices or “fracking.” Many companies are facing the challenge of developing technologies that reduce water usage and earthquake risks. “Fracking is under a microscope more so than ever in the past. That continuing trend is probably a good thing. The industry is taking those concerns seriously, so it can react to them. Even with the low prices of natural gas, the industry remains bullish. Reserves found in shale formations in areas that weren’t traditionally big oil and gas producing areas (particularly in the Northeast), are now oversupplied with extractable gas near major population centers. The industry as a whole still feels the pains from BP’s Deepwater Horizon oil spill two years ago, combating public concern both on land and in the ocean. But I believe many oil and gas companies have learned from the incident and have worked through new regulations successfully.

What’s most important is that Big Oil is here to stay for a very long time. As to its global dominance over every other sector of the global economy, I believe its impact will be more noticeable than ever; especially when it comes to conducting foreign policy. A good recent example of its clout? Why didn’t the Obama administration push BP (British Petroleum) into bankruptcy and take away their oil assets in Alaska to pay for the Gulf of Mexico clean up? Turns out that BP stock is heavily owned by UK pension funds, and the killing of BP would produce large shortfalls in many UK pensions, and another massive political crisis for the UK. Since the UK and the US are supposed to be best of friends (“special relationship” – we help in each other’s wars), the Obama administration allowed BP to live.

Bottom Line: I believe both sectors have and will have the highest potential for dominance over at least my lifetime.

For the sake of brainstorming, you may want to consider vertical integration in the oil and gas industry.

Take for example the sorry state of refineries……Why is that oil being shipped away from the US instead of being refined into e.g. gasoline, a value-adding process? Could you disrupt the refinery market with new domestic alternatives? Could an oil company do it if they bought your startup? And how can you do vertical integration if there’s no concise seamless model of oil production from reservoir to pump? How do you connect all the data from upstream and downstream industries to reap benefits from vertical integration? Why not build the semantic web for the oil and gas industry?. “Integrated operations” and “intelligent energy” are other keywords that help uncover the connection between what Silicon Valley type startups offers and some of the more exciting developments in oil and gas today.

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