The Digital [Oil] Field
The Internet of Things is already here — it’s just not very evenly distributed.
Network-connected devices have taken root and become indispensable for some business uses, such as fleet management, but the promise of the IoT remains unfulfilled in many of its potential usages. As a result, few business-focused IoT startups outside of the telematics space have been able to reach scale, hindered by high hardware and connectivity costs.
Though strong candidates for connectivity, the Agriculture and Energy industries remain fallow fields for IoT applications. In oil & gas production, the cost savings from preventing a pump breakdown that could halt a well’s production are measured in millions, but to date only a few producers, mostly the largest, have prioritized IoT implementation. In crop farming, the ability to measure weather and soil conditions on a micro-level and in real time has game-changing effects on yields, but this benefit has yet to take root at scale on farms. In both industries, the ability to remotely check equipment (irrigation systems or gas pipelines) functionality can save the need to send technicians to geographically dispersed assets and prevent downtime between visits.
There are a number of reasons to believe the next few years will be an inflection point in the deployment of connected sensors in the Oil & Gas and Agriculture industries:
- Declining cellular network costs: Carriers’ upgrades to 3G and 4G leaves more bandwidth for IoT applications on the lower-capacity 2G network, and carriers have reduced prices as they compete for M2M services.
- Development of M2M-dedicated networks: Low-power local networks connect devices for as low as ~10% of the cost of a cellular network using unlicensed spectrum.
- Lower network hardware costs: 3G radio modules cost two-thirds less than the 2011 price.
- Reduced sensor costs: A typical accelerometer now costs less than a quarter what it did in 2006.
Beyond the falling input prices, a strong impetus for implementation has arisen as the cost of inaction has peaked. Tanked commodity prices, most importantly oil at $49/barrel, has left producers digging for costs to cut. Last year a poll by IDC found that while 60% percent of Oil & Gas CIOs faced budget cuts, a majority plan to invest in automation, Big Data analytics and the cloud to maintain profitability in the low-price environment.
The benefits of the IoT are heightened in rural, rugged environments where the cost to send a technician for an equipment check is high. As the IoT allows oil producers to keep wells and pipelines in operation, it can also help farmers operate and optimize automated irrigation, fertilizer, and feeding systems.
Catalyst’s latest research report, M2M Applications: Agriculture and Oil & Gas, explores the role new IoT-enabled software applications are playing in the agriculture and energy industries, and our latest M2M Market Map highlights key stakeholders in the ecosystem.
Catalyst Investors employs a proactive, research-based approach to investing. We target sectors that are experiencing above-average growth. If you are a growth-stage IoT company seeking investment, our team would like to hear from you. Please send inquiries and business plans to [email protected].