This summary was written in collaboration with the Israeli Institute for Economic Planning.
As oil ends its nine month high on supply worries (MarketWatch), the session examined lessons and opportunities in the Oil Alternatives Industry. How can Israeli players, with greatly varying technologies and resources penetrate these vast, growing and emerging global value chains?
The workshop was framed by the taxonomy of the IEP Database of OACs (“OACs”- Oil Alternative Companies. www.iep.org.il/oacs). The Database maps around 90 OACs to various taxonomy layers, including production value chains (i.e. fuel feedstock, fuel platforms, and vehicles).
It was pointed out that the Oil Alternatives (OA) industry presents a vast opportunity; globally, approximately one billion vehicles dependent on volatile and expensive oil. However, not all potential players are aware of this fundamental market opportunity, nor of the technical barriers to which they may contribute solutions. In addition, anyone who wishes to enter this market faces three particular issues:
- Value chains are complex, evolving and numerous;
- Standards are constantly evolving;
- Different markets require radically different solutions.
A greatly heterogeneous group raised a correspondingly varied set of observations and suggestions:
- “Glocalization” (think global, act local) is needed, rather than a convenient one-size-fits all solution.
- There is a strong need to incentivize links between OAC startups and large Israeli companies, as well as multinationals.
- Israel’s existing technology resources in Chemicals, Metals and Industrial Equipment, Defense, Electronics, Engineering and Automobile Parts are recognized as potential leverage points. Participants suggested copying the army-R&D-academia model in defense to be developed for Oil Alternatives.
- Penetrating emerging markets can be more attractive than entering into more established ones, since there tends to be less subsidy-led distortion and less saturation. But this often requires more government resources to both learn the market and support it geographically. This resource constraint can sometimes be overcome by utilizing specific local opportunities such as China’s multi-year strategic plans to develop industries and sub-industries (such as Electric Vehicle components, lightweight materials and so on).
- The most globally active OACs in the discussion dedicate time and resources to participate in standardization committees in their target markets. Likewise, collaboration, dialogue and engagement with foreign governments’ scientific agencies are recommended.
- Israel’s oil dependence is a local problem, but global oil dependence is the focus. Different markets need different solutions. Collaboration on a global scale is required.
Setting, participants and general observations
Approximately 30 Oil Alternatives Industry participants were split into six heterogeneous groups according to; role (start-up, industry leader, investor, government, service provider, academic); geographic focus (Israel, multi-national, Asia/Europe/US specific); and position in the taxonomy of the IEP Database Of OACs (production value chain -fuel feedstock/ fuel/vehicle/infrastructure).
Participants’ wide variety of feedback was most usefully analyzed according to the participants’ segmented positioning in the taxonomy of the IEP Database Of OACs as summarized above.
Relating to Oil Alternative Industry focus:
- There was enthusiasm for the Oil Alternatives Industry to evolve by following global cues from “market pulls” (near and far).
- At the same time, practical and local expediency offered by local clusters (such one related to natural gas) was valued.
- Relating to spheres of influence and business intelligence: participants reported that engagement in Standardization Forums (domestic and international) are an important means to both gain information and positively promote Oil Alternatives in their relevant target market.
- Relating to the correct cues for global market pulls; government and business consulting participants tended to favor subsidies, since they are perceived as drivers for shifting behavior. In contrast, some prominent business people had an opposite perspective and were deterred by technologies enabled by subsidy-driven demand. (See “Finance & Funding”).
Breakdown of the challenges and suggested solutions
Market
Introducing OACs to different types of Geographic Markets
Mature and established markets (such as the United States) are of vital importance to the strategic success of the Oil Alternatives Program and present particular infrastructure and regulation related challenges. Active OACs noted the importance of tools such as visitor centers (to educate the general public about technologies and related infrastructure).
Emerging Markets were viewed by some participants, particularly investors, as more commercially attractive. This strategic view was backed by the observation that Emerging Markets are characteristically unsaturated and unlikely to be distorted by subsidies; this may enable OACs to capitalize on their price disruptiveness and enjoy potentially easier market penetration. In addition, the value building advantage Emerging Markets was perceived as greater.
Specific points of Market cooperation to be leveraged
Emerging markets which are growing rapidly need more government resources to both learn the market and support it geographically. No one-fit solution was offered to this identified problem.
China probably has room for more extensive activities – it represents a vast market with many and varying geographic regions and industrial opportunities. When targeting China, contacts are very important, with emphasis on finding common ground, key contacts and working toward identified relevant points in China’s multi-year strategic plans in its key industries.
Pilots
All participants recognized that an OAC’s positioning on the value chain is the key driver of whether it prefers or is obligated to favor a foreign pilot or local pilot.
For example, the technology of Waste To Fuel OACs is specialized according to the type of waste inputted; and different countries have different types of waste. In general, fuel production companies often need to situate wherever their feedstock is ultimately found, often abroad. Hence geographic target market influences technology and sometimes a local pilot irrelevant.
In contrast, OACs positioned in the vehicle supply chain are more likely to place production or joint venture with foreign technology companies as a higher priority. For example, the global automobile parts supply chain is characterized by being geographically fragmented; whereas, automobile assembly tends to be more geographically focused.
Therefore, pilots outside of Israel – as well as inside Israel – must be prioritized. Pilots outside of Israel, besides meeting basic needs of a subset of OACs, can provide key market advantages as they may also more rapid scale-up to the foreign market leading, building greater value if they enable more rapid market penetration.
Standardization
Global or regional standardization may serve as an important driver for market education of new technological solutions. The more standardized a solution is, the more likely the customer is to accept it. Standardization may represent a market barrier or opportunity to OACs. Therefore a strategy of engagement to positively influence international standards is an important activity chose to engage in.
Summary Solutions
Market related clusters focus on the Geographic Market, Production Value Chain and End-Product should be investigated and potentially promoted.
Pilots outside of Israel – as well as pilots in Israel- are of vital importance.
Standardization- engagement in positively influencing domestic and international standards is key.
R&D and Technology
Israel clearly has proven production capabilities (for example, the metals and chemicals industry). Overall, participants viewed Israel having stronger leverage in R&D (Research and Development) and it was to this that most focus recommended, as the government program currently supports.
More than one participant noted the dynamic between the army R&D, the market and scientific community as a successful mechanism to replicate. A key for developing such industrial clusters is the insight that intelligence is “information in context”; and that not all potential technology resources are aware of the Oil Alternatives industries context. (It is well-known for example that many technologies from NASA found applications in other areas). Thus some very experienced workshop participants intuited that opportunities are probably being missed.
Though government is already forming technology clusters, one investor thought the government should be more agile and have already enabled a more nature natural gas cluster. Israel’s Chemical industry has several advantages, for traditional companies and smaller start-ups.
Some ideas and insights include:
Biomass to fuel – importing biodiesel, blending it in Israel to produce a greener fuel, and then exporting it abroad.
Using this industry as a point from which to penetrate the global OA value chain.
Finance & Funding
An opinion heard: “good” investors run away from subsidies and go only for price disruptive technologies!
More market clusters should be funded.
Defining new finance mechanisms. All participants agreed that funding foreign pilots is important; this may call for increased usage of existing finance mechanisms or by establishing new finance mechanisms to enable foreign pilots. A participant noted that an investor perspective always ultimately looks to scale-up in foreign markets.
Israel’s Regulatory / Government Environment
Established Israeli companies with technology resources should have more incentives available which will further encourage them to develop projects with smaller start-ups.
Environmental barriers may limit the ability of large Israeli corporations in the field to buy foreign start-ups (e.g. “Bazan”). By contrast, it may be easier for a local Israeli start up to be bought by a big foreign company. It would help Israeli OAC’s to have the secure governmental loans for Israeli companies wishing to invest in Israeli technologies for out-of-Israel activity in the field regardless of the type of OA field or technology.
Considerations in favor of securing such financing:
- Regional and geopolitical stability (e.g. not Venezuela)
- Economic growth
- The countries’/regions’ financial history
- That countries such as BRICM (Brazil, Russia, India, China and Mexico) are stable and safe to secure
It was suggested to look for ways to use regulation within Israel to support financing and securities of private investments.
International
Collaboration, dialogue and engagement with foreign governments’ scientific agencies were recommended.
Natural Resources in Israel
It was suggested that the vast natural gas resources now available in Israel should be utilized. The following strengths might be leveraged:
Producing and Exporting GTL to Cyprus
Use of natural gas based fuels for transportation in Israel
Summary
There was very strong support for Israel as a global test bed; the workshop also emphasized, with a broad spectrum of views, the importance of foreign pilots. Additional tools and finance mechanisms may be developed to support this useful insight.
Participants’ views could generally be most usefully analyzed according to their positioning in the taxonomy of the IEP Database of OACs (production value chain, end-product and the technology pathway).
This positioning appears to be the key driver of this and other priorities highlighted in the workshop.
For the holy mantra of “Glocalization” (thinking globally and acting locally) to be achieved for Israel’s Oil Alternatives Industry, analysis and discussion must be segment specific (production value chain, end-product and technology pathway).
Without this distinction, focus and clear directions are lost.
Content Leader: Michel Hivert and Ariella Berger
SIT Facilitators: Amnon Levav and Boaz Capsouto
List of participants: Alon Kuperman, Ariel University Center of Samaria // Arie Meitav, ETV Energy // Beni Keren – Rafael // David Meiron – Matimop // Doron Livan – Shikun & Binui // Dudi Klein // Eran Yarkony, Capital Nature // Gil Shaki, Office of the Chief Scientist // Gina Cohen // Hillel Milo // Inbal Belman // Inbal Fried – Better place // Itay Zetelny – E&Y // Maor Chester, Office of the Chief Scientist // Moshe Tzur // Nissim Chen, CBD // Omer Zimmer // Richard Hardiman, HUJI (Truman) // Sharon Perl // Stanley Hirsh, CBD // Tzvika Weiss, Capital Nature // Varda Mor // Volker Timmermann, German embassy