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Seven years ago, two friends set up a software company in Paris. Their aim was to develop a system that could track oil and gas cargos around the world. Today, Kpler has four offices globally and employs 50 people. Its clients represent 95% of the global LNG industry, and 60% of the LPG market. The company is currently expanding into crude oil and fuels, and is planning to cover all seaborne commodities in the future. Just another success story from the digital age? It’s more than that.
We’ve all been hearing a lot about deep machine learning, algorithms, and artificial intelligence in the past few years. The general impression seems to be that algorithms are the answer to everything whether we are talking about commodity futures trading or tracking LNG cargoes. In fact, Kpler’s chief executive François Cazor says, this is not the case.
Algorithms can estimate, that’s true, and they can create patterns based on these estimations, using satellite data that offers, service providers say, real-time insight into the movement of, say, oil tankers. Yet this is far from the whole picture.
The whole picture includes data on how much oil this tanker is carrying, where it loaded, where it is bound, who is selling its contents and who is buying. This is information that is publicly available but, until recently, was not accessible.
What Kpler is doing is using its software to collect data from satellites, port authorities, ship agents and brokers, and commodity traders, to construct the full picture of an LNG—or crude oil—cargo. They do not track vessels. They track cargoes and they put them in context, which, as Margaret Atwood says, is king. No one can make decisions without context, after all. In short, Cazor says, Kpler gives its clients “the whole story behind the physical movement” of a vessel. Now, they have also added a direct option for users to advertise their cargos on the LNG platform, effectively closing a virtuous circle from loading to transportation, to sale.
Simple as this sounds, the whole-story approach is changing the game in LNG trading because the information is made available to every client that signs up to the company’s services. In short, any LNG trader who can now see what their competitors are doing can in turn be seen by these same competitors. The same goes for oil producers and traders. Transparency is the new name of the game.
Transparency is certainly not a welcome concept in any industry sector outside some reasonable limits usually imposed by regulation such as financial reporting standards for public companies. Yet now, this relatively small company has managed to make transparency sound like something everyone can benefit from. And it’s not just the sound of it.
The reason Kpler has cornered the LNG and LPG markets and boasts a growing client base in crude oil—and the reason we are seeing more startups popping up in the energy data services space—is that producers and traders are seeing very real benefits. If you can see what your competition is doing, you can make better decisions, additionally motivated by the fact that the competition can also see what you are doing. Any player in the field can identify patterns in the competition’s behavior and adjust to these patterns. Also, they can—and do—find new business partners.
This data-driven transparency is now spreading out.
Kayrros, another data services provider, just a year old, promises its clients “faster and better informed decisions” based on the processing and analysis of unstructured data from satellites and news outlets combined with financial and technical data. The company’s founders and management team feature accomplished IT experts, former senior managers from Big Oil, and financiers. What it offers its clients is “unseen transparency” and “market-moving insights.”
TechCrunch author Romain Dillet says the company is “like a weather forecast, but for oil and gas consumption.” Its focus is on predictive data analytics – collecting as much relevant information as possible and then predicting consumption based on this information. Prediction is not too trustworthy a word when it comes to an industry as huge as oil, so the focus is on data – the more data you can collect and process, the more accurate the prediction. Again, whoever is willing to pay for this information gets to see what the competition is, at least as per data-based predictions, doing. The data used includes road traffic information, customs data, oil tanker movements and loadings, and pipeline flows, along with satellite imagery and online news – a veritable wealth of data.
The energy data service market is a new one but holds a substantial growth potential as the oil and gas industry gradually comes to terms with the importance of what we all like to call big data. Other industries are far ahead. E-commerce immediately springs to mind as an industry where most decisions are driven almost entirely by analysis of huge amounts of customer and market data, for example. In oil and gas the adoption of digital technology—which, among other things, enables the collection and analysis of data—is bound to unfold more slowly. There is quite a lot of information oil companies would not like to even hypothetically share with anyone else. Yet, this too may be starting to change.
Using energy data and predictive information providers is a step along the way to fully embracing all the advantages that digital tech can offer. It is also a step towards collaboration, strange as this may seem. After all, one client of Kpler asked the company if they could make the data available only to that client but withhold it from its competitors. That’s not the way things work in the data-driven world, however, and oil and gas players may have another challenge to face – not just transparency but collaboration.
Why collaboration? Because wherever IT goes, hackers follow. Cybersecurity expert Alexander Polyakov, the CTO of ERPScan, outlined the most common threats for the oil and gas industry in a Forbes article earlier this year, citing ABI Research as expecting the oil and gas industry to be splashing $ 1.87 billion on cybersecurity by next year.
Callum Sinclair, head of technology at Scottish law firm Burness Paull, says the growing cyberthreat will also push oil and gas companies into sharing more information – the new reality is that, when it comes to cybersecurity, what’s good for one company is good for every company. If an oil company finds itself the victim of a data breach, for example, it can either tell its peers about it or keep the information to itself. In the first case, others will be warned and will at some point return the favor. Naïve as this may sound at first, let’s not forget the “Everything that can be hacked will be hacked” adage – digital technology is transforming every industry and cyberthreats are part of this transformation, an important part that needs serious addressing. Collaboration, in this context, is closer to self-preservation than anything else.
Five years from now, oil and gas companies may well be pumping oil from fully automated, unmanned platforms, they will be making investment and trading decisions based on data received from external suppliers like Kpler and Kayross, and they will probably be sharing information previously seen as critically sensitive with their peers as a way of improving their own security.