Blockchain can be more important than the Web, says 4IR chief

Murat Sonmez
Updated 24 November 2017
0

Blockchain can be more important than the Web, says 4IR chief

DUBAI: Anybody who has attended one of the global gatherings of the World Economic Forum (WEF) in the past couple of years will have heard of the Fourth Industrial Revolution.
It is the WEF’s next “big idea,” and personally endorsed by its chairman and founder Klaus Schwab, who published the definitive book on what WEF calls “4IR” last year. He called it the “fusion of technologies that is blurring the lines between the physical, digital and biological spheres,” which is set to “fundamentally alter the way we live, work and relate to each other.” It all amounts to a “transformation unlike anything mankind has experienced before,” he said.
The concept has won buy-in across the world, but especially in the Arabian Gulf. Dubai was an early adopter, where the notion of 4IR coincided with its own “smart city” aspirations; Saudi Arabia has endorsed the principle with the announcement of the $500 billion mega-city of Neom, where artificial intelligence (AI) will rule and where robots will outnumber humans; Bahrain has also been increasingly involved with the WEF in giving another Gulf aspect to the idea.
But the WEF has chosen San Francisco in California as the global headquarters of its 4IR project, and appointed Murat Sonmez as the man in charge of it. A native of Istanbul, Turkey, but with a deep background in Silicon Valley — where many of the technologies behind 4IR are being developed — Sonmez leads a team of 31 people in partnership with 18 blue-chip corporate backers to study, assess and chart the progress of the 4IR.
“The 4IR hub in San Francisco is an accelerator and an accentuator, because now we have to focus more on how to accomplish it in a positive way. Because of the complexity of the issues involved, and the fact that things are moving so fast, no single country can figure it (out) all on its own,” he said recently when I caught up with him at a gathering of the WEF Global Futures Councils in Dubai, UAE.
In an attempt to explain the complexity and interconnectivity of the various elements of 4IR, Sonmez pulled out a piece of WEF notepaper and began to draw. In a series of vertical and horizontal boxes, he wrote items like “drones, autonomous vehicles, environment and robots,” then cross-referenced them to “cross-border data flows, AI, Internet of Things,” and — underlying the whole construct — blockchain.

I felt a little more enlightened, but wondered whether blockchain technology — the digital transactions recording system that seems to figure in most conversations about business and finance these days — was really up to the job of supporting the whole 4IR edifice.
“Blockchain is still to be proven, but I have witnessed the creation of the World Wide Web, and blockchain has the potential to be more important than the World Wide Web. Of course, it can also be used by people with bad intentions, but it is the potential foundation for the whole of the 4IR,” he said.
Before he began working for the WEF some three years ago, Sonmez was a classic Silicon Valley entrepreneur. After education in industrial engineering in Turkey and in Virginia in the US, he ran global field operations for a company based at technology’s “ground zero” in Palo Alto, California, home to many tech pioneers.
“My company was one of the first to implement many of the protocols that now govern the World Wide Web,” he said. Pointing again to his hand-drawn illustration of the 4IR, he added, “Governments and corporations have realized they do not fully understand those vertical implications.”
Data has been called “the new oil” for its potential to change the way we live and do business, but the full impact of the data revolution and universal access to information is still unclear, he said. “Data can reduce energy consumption, cure cancer and make cities more liveable. So far governments have been focused on ‘people data’ but soon the full implications of the Internet of Things will become clear. There are 7 billion people on the planet communicating with each other in different ways and with different efficiency, but when there are 55 billion things talking to each other, the consequences are enormous.”
But misuse of data, and the propagation of false data, have become such red-hot topics lately that I wondered whether the downside risk was more than the upside potential.
“There are issues, of course. Fake data is a big problem. Brexit and the US election made people think again about the effects of uncontrolled data. So we need to authenticate the source of all data, and this will become even more complicated in the age of the Internet of Things,” Sonmez said.
“The aim of the 4IR hub is to look at critical technology and what it means for citizens and societies. Blockchain is the underlying enabling architecture, the foundation of everything else. AI and robotics are all based on underlying blockchain technology.”
Having definitively explained the importance of blockchain to the 4IR, Sonmez went on to talk about the work of the San Francisco hub and its potential global reach. Announced in summer 2016 and opened last March, “it has certainly caught people’s imagination. It’s trying to give the first comprehensive view of what 4IR means for all aspects of different industrial sectors,” he said.
Although the 4IR hub will remain in California, WEF is planning a series of global “satellite” centers. Japan and Rwanda are already involved in the San Francisco hub, so you might expect satellites to open in those countries too.
The Middle East, with its youthful demographic and high levels of technology penetration, is a natural home for such a satellite. Bahrain has also been taking an active interest in the San Francisco project, and is probably favorite to host a 4IR center in the region.
“There has been lots of interest to partner with 4IR, and there will be other centers, in different parts of the world. We expect others to be announced in Davos next January,” he said, referring to the annual meeting of the WEF in Switzerland.
But the competition to become a 4IR center in the region is hotting up. Already Dubai is well down the road to “smart city” status, and enjoys a close relationship with the WEF. Saudi Arabia too is increasingly featuring in the WEF plans for international expansion.
The mega-city of Neom, announced at the recent Future Investment Initiative by Crown Prince Mohammed bin Salman, would seem to be a perfect case-study for a 4IR-related project. Billed as one of the “new generation of cities,” the trans-national development will cover 10,000 square miles, and high technology will be at its center. Sonmez likes the idea.
“I think it’s an excellent plan to create a ‘sandbox’ where you design new governance models for 4IR. Having a new city as pilot for the whole project is a great idea, and I see building such a city from scratch as a possible option, for a place where you can test the ideas of 4IR in practice,” he said.
He saw it in the broader context of closer liaison between the WEF and Saudi Arabia, as the Kingdom seeks to modernize its economy and move away from oil dependency under the Vision 2030 strategy.
“We’ve had discussions regarding greater WEF involvement with the Saudi government and we’re following the progress of Vision 2030 with great interest. We’d welcome more active participation. We already have good relationships with Saudi corporations at WEF, like Saudi Aramco, the Public Investment Fund and SABIC, and would like further engagement with Saudi Arabia in systemic issues involved with 4IR.
“We’ve been working closely with the Saudi government on a co-design of governance protocols for 4IR, and we’d be happy to extend that cooperation further,” Sonmez added. Vast sums of money are being invested by governments and private corporations in the fields of AI, robotics and biotechnology, but he also believes that the 4IR can, to a certain degree, become self-financing. “A lot of money is being spent on critical areas, such as banking, health care and education. But the new technology can enhance efficiency in these areas. Technology can deliver health care and education to the millions, and we can cut down expenditure on building hospitals and schools,” he said.
But Sonmez warns that attempts by national governments to restrict access to data could rebound and prove counterproductive to the potential positive benefits of 4IR.
“I feel there has to be a new openness about the 4IR. If you look at what is happening in some parts of the world, including the West, you will see attempts to try to limit access to data in one country, or exclude it from others.
“But if you try to do this, you miss out on the global benefits that you can get from aggregating data, for example in agriculture, health care or energy. You have to be able to combine different data sets from around the world,” he adds.
The international nature of the challenge from 4IR is key to the whole initiative from San Francisco outwards. “Our strategy has been identified and is in the execution phase, but now there is a need to energize the global effort to fully exploit local possibilities,” Sonmez said.


Russian oil industry now self-reliant enough to weather US ‘bill from hell’

Updated 18 August 2018
0

Russian oil industry now self-reliant enough to weather US ‘bill from hell’

  • Western sanctions imposed in 2014 over Russia’s annexation of Crimea have already made it extremely hard for many state oil firms such as Rosneft to borrow abroad
  • Russian gas exporting monopoly Gazprom has maintained its output since 2014 and actually increased exports to Europe to an all-time high in 2017

MOSCOW: Stiff new US sanctions against Russia would only have a limited impact on its oil industry because it has drastically reduced its reliance on Western funding and foreign partnerships and is lessening its dependence on imported technology.
Western sanctions imposed in 2014 over Russia’s annexation of Crimea have already made it extremely hard for many state oil firms such as Rosneft to borrow abroad or use Western technology to develop shale, offshore and Arctic deposits.
While those measures have slowed down a number of challenging oil projects, they have done little to halt the Russian industry’s growth with production near a record high of 11.2 million barrels per day in July — and set to climb further.
Since 2014, the Russian oil industry has effectively halted borrowing from Western institutions, instead relying on its own cash flow and lending from state-owned banks while developing technology to replace services once supplied by Western firms.
Analysts say this is partly why Russian oil stocks have been relatively unscathed since US senators introduced legislation to impose new sanctions on Russia over its interference in US elections and its activities in Syria and Ukraine.
The measures introduced on Aug. 2, dubbed by the senators as the “bill from hell,” include potential curbs on the operations of state-owned Russian banks, restrictions on holding Russian sovereign debt as well as measures against Western involvement in Russian oil and gas projects.
While the rouble has fallen more than 10 percent and Russian banking stocks have slumped 20 percent since the legislation was introduced, shares in Russian oil firms have climbed 2 percent, leaving them 27 percent higher so far in 2018.
“The main driver of the Russian oil industry’s profitability is the oil price denominated in roubles and it is currently posting new records as the rouble is getting weaker. Hence the sanction noise often even has a positive impact on Russian oil stocks,” said Dmitry Marinchenko at Fitch Ratings.

 

The prospects for the latest US sanctions bill are not immediately clear. It would have to pass both the Senate and House of Representatives and then be signed into law by President Donald Trump.
To be sure, Washington could really hurt the Russian oil industry if it introduced Iran-like measures forbidding oil purchases from the country. But given Russia produces more than 11 percent of global crude, such a measure would lead to a major spike in oil prices and hit the US itself hard as it is the world’s largest oil consumer.
Russian gas exporting monopoly Gazprom, for example, has maintained its output since 2014 and actually increased exports to Europe to an all-time high in 2017, securing a 34 percent share of EU markets amid rising demand.
But of all Russian oil and gas companies, it is the only one to have borrowed significant sums from the West — about $5 billion in 2017 and $3 billion in 2018 so far — using Eurobonds and syndicated loans.
What’s more, those amounts are only equivalent to a small proportion of Gazprom’s annual capital spending of $22 billion. The rest of the Russian oil industry invests a similar amount each year as well, mostly without Western funding.
That represents a major departure from the years prior to the sanctions when the lion’s share of Russian oil industry’s borrowing came from Western banks or export-backed facilities with trading houses and major oil companies.
In 2013, for example, a year before the first Western sanctions, Rosneft alone borrowed more than $35 billion from Western institutions to buy smaller rival TNK-BP and to fund its capital spending.
There has been a similar shift in joint ventures between Russian and Western companies.
A decade ago, dozens of projects were planned but the number has shrunk to just a few ventures, which are important but not critical to help Russia maintain its output growth.
US oil giant Exxon Mobil and Italy’s Eni, for example, have dropped plans to help Russia develop offshore fields and US company ConocoPhillips sold out from Russia’s biggest private oil firm Lukoil.
The key remaining ventures involving Western companies are three projects between BP and Rosneft in East and West Siberia and a gas venture between Rosneft and Exxon Mobil on Sakhalin island.
Also on the gas front, Royal Dutch Shell and France’s Total have been considering new liquefied natural gas projects with Gazprom and Novatek, as well as a new pipeline to Europe under the Baltic Sea.
But to put the projects in perspective, the combined cost of all of them is about $50 billion — less than a 10th of the Russian oil industry’s investment program for the next decade.
And if Western institutions are wary of lending to Russia, other countries such as China have been prepared to step in. Novatek and Total, for example, launched the $27 billion Yamal LNG plant this year with Beijing’s financial support.
WEAKEST LINK
The weakest link in the Russian oil industry in the face of sanctions has traditionally been high-end Western technology such as complex drilling, hydraulic fracturing or IT, said Denis Borisov, director of EY’s oil and gas center in Moscow.
Russia’s drilling and oil servicing market is worth about $20 billion a year and the share of the market held by Western service companies has remained fairly steady over the last few years and at about a fifth.
“But the process of replacing foreign equipment with local production has gathered pace,” said Borisov.
Rosneft, which produces 40 percent of Russian oil, has recently tested its own simulated hydraulic fracturing technology — the extraction technique that spurred the boom in US shale oil production.
The technology first came to Russia mainly via major Western oil services firms such as Schlumberger and Halliburton .
Companies such as Schlumberger are still doing a lot of complex drilling work in the Caspian Sea and West Siberia for Lukoil, as well as working on the world’s longest extended reach well for Exxon and Rosneft off the Sakhalin island.
But Fitch’s Marinchenko said the reliance of Russian oil firms on Western technology has declined since 2014 thanks to imports from China and local production of drilling equipment.
Since 2014, Rosneft’s own drilling subsidiary has doubled its market share to 25 percent, meaning the company has become almost self sufficient.
“It is clear that new wide-scale sanctions on technology will not become the start of an end for the Russian oil industry, especially if Europe doesn’t join them,” said Marinchenko. “But it will complicate the development of hard to extract or depleted deposits.”

FACTOID

Ratings agencies, consultants see limited impact from bill / Russian oil firms have reduced borrowing from West / Spending funded by own cash flow, state banks and China / Technology seen as weakest link as dependence significant