Conventional Oil and Gas, Meet Cleantech

Some commentators hint that the new trend of cleantech venture capitalists investing in products for the oil and gas industries is hypocritical. Others interpret it as a battle lost; rather than unseating giant fossil fuel incumbents, many cleantech companies hope to win such corporations as clients.

What if neither storyline is true? What if increased adoption of sustainable technology by companies most responsible for global climate change is an indicator of growth and strength in cleantech industries, not capitulation?

“Cleantech has become very successful. At the same time it’s become invisible,” Wal van Lierop, president and CEO of Chrysalix Energy Venture Capital, said at Cleantech Group’s recent Cleantech Forum. Chrysalix has staked claims in the trend, participating in a $1.47-million round of funding in September 2012 for Axine Water Technologies, which treats fracking wastewater. There’s also the Chrysalix investment in Liquid Light, which turns carbon dioxide into chemicals or industrial use.

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“It’s not any longer a niche industry where a few early adopters are willing to pay a premium for green,” said van Lierop. “It is something that really begins to contribute to their core business.”

For oil and gas companies, these collaborations are driven by the increased technological sophistication of modern drilling techniques, as well as pressure from investors to become less environmentally hazardous, said Greg Niechen, executive vice president of the Cleantech Group.

“There certainly is a genuine uptick in the number of deals,” in matching clean technologies to oil and gas and a concurrent growth in investor interest, Niechen said in a phone interview. The Cleantech Group’s first Oil & Gas Technology Summit on May 9 had space for only 30 people “and we certainly had more interest than that from big corporates and strategic venture firms,” he said.

Two of the more obvious collaborations are GlassPoint and BrightSource Energy, which use solar power to create steam and produce electricity for oil drilling facilities. Chrysalix led the $3.5-million investing round in GlassPoint in 2010. BP has worked with BrightSource since participating in the company’s $115-million round of investment in 2008.

Most other marriages between greentech and fossil fuels are less obvious, Niechin said. BP wants to reduce its water use in the drilling process, said Issam Dairanieh, head of BP Ventures. It’s also looking for cleantech companies to improve its core crude refining business.

“If you have any tech that takes it from C1 to C2, come talk to me about it,” Dairanieh said. “C1 to C4 is even more attractive.”

Another natural crossover is big data. Oil and gas companies need new visualization systems to measure potential resources and efficiency opportunities, said Cory Steffek, general manager of North American operations for Aramco Energy Ventures. Niechin pointed to GHGSat, a company that raised $2 million from investors in February for technology that uses satellites to visualize the carbon footprint of installations like refineries.

“That cannot be overstated,” Steffek said. “Big data in the smart meter world is infinitesimal compared to the big data coming out of seismic imaging.”

Speed is essential to the process.

“You can create all sorts of imaging, but in what timeframe?” said van Lierop. “Something that takes tens of hours, can you do that in tens of minutes?”

New tools will be needed to collect all that data, which means another big play lies in sensors along with more efficient communication systems.

“There are lots of opportunities we would pursue in understanding what is the temperature, pressure, velocity, viscosity,” said Dairanieh. “All of these would help run more efficient operations.”

More efficiency means more product to sell, which has prompted investment in new materials. Chrysalix recently invested $17 million in The NanoSteel Company, which makes steel three times stronger than titanium at the price of traditional steel, van Lierop said.

“Any technology that helps to identify, extract, transport or refine hydrocarbons is core to the business and is of keen interest,” Steffek said.

That also means large opportunities for companies developing advanced acids and gellants to enhance permeability and lubrication, plus better pumps and motors to increase efficiency from well to refinery. One example is OsComp Systems, which builds efficient pipeline compressors, said Niechen.

“Frankly, fracking is an inefficient process” Steffek said. “I think there’s a whole suite of technologiess that are really opening up from a materials aspect.”

Finally, natural gas may finally become a mainstream transportation fuel. Van Lierop pointed to Shell’s effort to build natural gas service stations across the U.S. for semi trucks, and increased sales of natural gas-powered trucks by companies including Westport Innovations.

Such a broad range of technology means oil and gas companies can no longer afford to do all their own R&D.

“Maybe in some aspects close to our core business we do things secretly, in-house,” van Lierop said. “But many oil and gas companies I’m working with are increasingly saying we have to share knowledge. We have to do external innovation.”

Where are investors finding such partners? San Francisco and Boston have emerged as cleantech hubs, Dairanieh said, while Houston, Aberdeen, and Cadbury in England lead in oil and gas innovation.  Canada’s City of Calgary is another oil and gas innovation hot spot mentioned during the panel.

Finally, the last barrier to the marriage of sustainable companies with the oil and gas industry may be the need for corporate venture capitalists to convince their own company’s operational staff that this transition makes sense.

“You’re working in a very traditional industry with many people in your operations saying ‘This is not how we’ve done this in the past,’” said van Lierop. “So how do you put a warm hand on the shoulder of your operations guys and say, ‘It’s okay. It will work.’  From the energy corporate VC perspective, Aramco Energy Ventures’ Steffek’s response was to first ensure there’s a budget in place to invest in a new device or technology, and then make sure to give the operations folks all the credit if the project is successful.

 

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