TheFutureEconomy.ca: The global energy transition presents significant challenges and opportunities for the industry. How do you assess Canadian oil and gas companies in terms of their transition and future readiness compared to companies in other countries?
Kevin Frankowski: In some ways, Canada is better prepared for the transitions that are coming because we have strong technical expertise, a highly educated workforce, and a stable political and economic environment. However, we have farther to go than companies in other countries. We have to reduce our costs much more than others, and we need to adopt innovation faster. If we do not do this, we will be left behind. I am hopeful that we will work from our strengths to overcome the challenges ahead of us.
“Today’s innovators need support in learning the approach to successful commercialization.”
What are the specific areas of technology that hold the most potential for the oil and gas industry at the moment?
There are a number of areas that are ripe for yielding good progress. Some of them are obvious, such as digitization, the internet of things, and automation. Others are less obvious and perhaps less glamorous, but they have greater potential. This includes areas such as modularization, the improved integration of supply chains, site coordination and project management, and also moving more towards the manufacturing approach as opposed to the constant one-off projects that we see. Some of these do not sound like technology areas at first, but technology plays a huge role in improving existing conditions, especially with regards to helping collect, coordinate, and distribute the necessary information to be able to change how we do things.
Kinetica works with the energy industry and technology developers to identify the industry’s main challenges and develop commercially viable solutions that address those issues. How does your collaboration model differ from other players’ efforts to bridge the gap between the industry and small companies that are engaged in R&D and innovation within the energy sector?
Kinetica Ventures is a uniquely industry-driven program, working closely with key partners in the energy sector to identify the most pressing challenges. Our key differentiator is our market pull approach. We first sit down and talk with industry to understand their key needs, and we then use this information and guide the technology providers as to how their offering should develop. If you are a technology developer, as soon as you have an idea you should go talk to your customers to understand what their real needs are. It sounds obvious – “go talk to your customers” – but it is astounding how many people miss that step – or do it too late. That information from customers is critical because without it, you will not be able to structure your value proposition in a way that matches how customers are able to connect with your offering. This information touches on your whole business model and can even change how you structure your company.
Some get worried about whether their good ideas will be stolen if they talk to people before they are ready to sell, and the best way to address this concern is to keep confidential information to yourself and only discuss the non-confidential information. You need a strong secret sauce or IP to create a competitive solution, and if your idea is that much at risk of getting copied then you likely do not have a strong competitive position to begin with.
“We need to get much better at funding only those early stage ideas that have truly demonstrated a very strong and broad market pull.”
At Kinetica Ventures, we are able to talk to customers in the industry and understand their needs despite the fact that we are not a technology developer ourselves. Even without a specific technology idea, we could still go gather information on industry challenges. Of course, our strong collaborative relationships with COSIA, PTAC, and most of the other key organizations, as well as the energy companies themselves, puts us in a strong position to access the right people to talk to.
How do you prioritize those companies’ challenges?
Kinetica Ventures works closely with energy industry partners to identify and prioritize innovation opportunities, after which we look for solutions to those opportunities. Our prioritization is driven by market signals. Obviously, economics plays a big role, and we will consider which challenges represent the highest value market opportunities. However, understanding industry trends and knowing where the puck is going is another key factor. Given the long timelines associated with technology commercialization, you want to invest in a particular application that is emerging and growing.
“The key challenge that renewables face is proving that they have solved the economic challenge.”
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Do you sometimes come up with potential solutions to develop that were not suggested by industry companies?
When we talk to companies, we differentiate very clearly between what I call problem-space versus solution-space discussions. We try to keep the initial conversation focused on the problem-space; looking at needs and challenges. Only after the problem is well understood do we then we look for potential solutions from technology developers. The reason why we do that is to avoid jumping prematurely to solutions and limiting the potential set of solutions that could be possible.
Where do you believe innovators and entrepreneurs require the most support?
The biggest challenge for innovators, whether they are entrepreneurs or intrapreneurs, is de-risking the innovation and getting it commercialized so it produces the necessary revenue. This needs to be done effectively both from a cost and time perspective. It requires a different way of thinking, that I call “new-school innovation”. Today’s innovators need support in learning the approach to successful commercialization. It begins with understanding the best practices that have been developed in other sectors and applying them here. It also includes things like taking a collaborative approach, not operating in silos, building off a previous work, and ensuring that strong market pull. All of this leads to a more effective use of capital.
In terms of accessing adequate financial resources, I am going to take a contrarian view. I do not see a shortage of financial resources available for entrepreneurs, at least initially. We have a very generous government granting ecosystem for early stage entrepreneurs. There is no shortage of initial money for good ideas. However, we do have a shortage of ideas that are proven to have strong market pull, and this leads to limited quality deal flow, which means that our downstream venture capital system can get a bit thin sometimes, which is a problem for later stage entrepreneurs. The best way to fix that is to fix the front-end of the system. We need to get much better at funding only those early stage ideas that have truly demonstrated a very strong and broad market pull. Other countries and innovation ecosystems do this very well, where access to early stage funding is intentionally very scarce and competition is high. This means that only the best ideas make it off the napkin sketch, and that results in a much higher success rate later on.
What are the challenges and barriers for renewable energy in terms of scaling up, compared to fossil fuel energy?
The key challenge that renewables face is proving that they have solved the economic challenge. We are largely past proving the technical feasibility of mainstream renewable technology. We know they work. However, a lot of them have not necessarily firmly established their economic feasibility. If you are developing a renewable energy technology, it is important that you demonstrate that the technology could provide compelling economic benefits without government subsidies. Government subsidies should be used if they are available, but your value proposition needs to be able to stand on its own if those benefits were to disappear. Also, now that we have clarity in carbon pricing, this can represent a very important part of the economic benefits in renewables. Therefore, if you are a renewable technology developer, you should do your homework and present detailed, defensible numbers on how it captures that value stream through, for example, offsetting or avoiding GHG emissions.
You scout and you assess technology companies globally, not just in Canada. How do Canadian innovators and entrepreneurs compare internationally in terms of competitiveness and disruptiveness, and how can the government contribute to foster competitiveness in Canada?
Kinetica Ventures searches the globe by using an in-depth technology scouting process to find companies with potential solutions to address industry challenges. Canadians are great at invention, but where we struggle is with the commercialization and adoption of invention. A lot of our ideas get de-risked and implemented elsewhere, and we end up needing to buy those commercial products and services from others.
Our technology development community, the industry, service providers such as ourselves, and the government really need to work together to get a better understanding of the commercialization pathway and to make sure that all the programs and initiatives that are out there are aligned and moving things along this pathway. We need a more aligned and consistent approach. Innovation de-risking and commercialization are no longer a guessing game, and tools and solid frameworks have been developed and proven in other parts of the world that now make this a concrete and replicable process. Our ecosystems need to take those best practices and make sure that they are available consistently to all the innovators, entrepreneurs, and intrapreneurs.