Research revolutionMay 31, 2017
TOGY talks to Halim Hamid Redhwi, vice-president of Dhahran Techno Valley Company (DTVC), about the state of Saudi Arabia’s economy, current challenges with construction of research centres and the company’s future goals. The firm is a wholly-owned subsidiary of the King Fahd University of Petroleum and Minerals (KFUPM), set up in 2010 to attract investments for building R&D centres for local and international companies.
DTVC aims to promote technology and a knowledge-based economy in the region. KFUPM’s investments in technology started with the establishment of Prince Abdullah bin Abdulaziz Science Park in 2002. After Dhahran Techno Valley was launched as a subsidiary investment project in 2006, DTVC was established in 2010.
The firm’s science park is for companies to carry out technological and innovative activities. Companies that have established technology hubs in the park include Schlumberger, Baker Hughes, Honeywell and Sinopec.
• On OPEC‘s production cuts: “OPEC’s decision to set production limits will have limited impact at a certain level, but it is a necessary step. It is important to maintain balance between market share and supply, but several other factors such as oil grades and production costs are relatively independent.”
• On trends in research: “The oil industry in general has come under tremendous pressure to drive efficiency and reduce production costs to stay profitable. Research and innovation are no longer a requirement, but an absolute necessity.”
• On downstream players: “Downstream companies such as ExxonMobil or Chevron that are huge entities by all measures have very little business volume in Saudi Arabia. Anyone who does not have a significant business volume will not be keen on becoming our partner.”
Redhwi also discusses new initiatives set by the government to diversify the market and create a more enriched business environment for growth. Most TOGY interviews are published exclusively on our business intelligence platform TOGYiN, but you can find the full interview with Halim Hamid Redhwi below.
What is your assessment of the economy in Saudi Arabia going forward?
People love to write and talk about disastrous situations, but I am always very optimistic. The first thing I am sure about is that the oil price will go up – not to USD 120, but I think it will go up to USD 70, and then it will stabilise.
At a macro-economic level, these prices are sufficient to sustain essential projects due to our low production costs, and that’s good economics. The global demand of oil is around 100 million barrels per day, and that is not going to change overnight. We know the government has already embarked on rationalising and streamlining expenditure to minimise fiscal deficit and at the same time targeting diversification. Overall, we will see a strong, stable and resilient Saudi economy.
People love to tell you horror stories about oil and the economy. They have been telling these for the past five to 10 years, and they are always proven wrong. If you want to see the stability of a country’s economy, go to the lobby of five-star hotels; if they are vibrant, that means the business is going on.
How will OPEC’s production limits affect Saudi Arabia?
OPEC’s decision to set production limits will have limited impact at a certain level, but it is a necessary step. It is important to maintain balance between market share and supply, but several other factors such as oil grades and production costs are relatively independent.
The oil industry in general has come under tremendous pressure to drive efficiency and reduce production costs to stay profitable. Research and innovation are no longer a requirement, but an absolute necessity. Just looking at the global oil market, we can see several breakthroughs. For example, who knew fracking of shale oil and shale gas would become economically feasible 10 years ago? The overall market push towards innovation is a desired but unexpected outcome of the oil market volatility.
How has DTVC adapted its strategies in line with Vision 2030?
DTVC’s strategy has always been to remain focussed and true to our core strengths. KFUPM along with its rich heritage of research and innovation is the backbone of DTVC. In line with Vision 2030, our strategy has slightly changed. We are now focussed heavily on becoming the global hub of energy research and innovation. This includes upstream oil and gas, refining and petrochemicals, advanced materials, water technologies, renewables and ICT [information and communication technology]. Currently, 17 major national and international companies have joined DTVC, of which nine are operational and remaining eight are under the design and construction phase.
We want to diversify our partners in DTV Science Park from upstream oil and gas companies such as Schlumberger, Baker Hughes, Halliburton, Weatherford, Sinopec and ARGAS [Arabian Geophysical and Surveying Company], into more downstream. A few companies such as Sipchem [Saudi International Petrochemical Company], Amiantit [Saudi Arabian Amiantit Company] and SABIC [Saudi Basic Industries Corporation] have joined DTV, but we want to see more companies further downstream in chemicals and catalysts. We also host major process control and automation companies such as Yokogawa, General Electric, Honeywell, Emerson, and Schneider Electric. Renewables is also witnessing a major push globally, including Saudi Arabia under the national plan for renewables. We see ourselves playing a significant role in this sector too.
How have demands from oilfield services companies changed with the descending price of oil?
Saudi Arabia is still producing 10 million barrels [per day], so the services needed for that 10 million barrels of production are the same. When oilfield service companies cut down their manpower, they cut it in locations where the business was cut down. If Saudi Arabia cuts oil production to 5 million barrels, then the services needed to log and drill would be reduced. However, Saudi has not cut production significantly. In fact, they’re going with international prices, pertaining to the production, which is very interesting.
Only new companies have come to us to change construction plans due to the economic downturn. In terms of their operations, the challenge is coming up with new technologies that are more efficient because their customers demand it.
Aramco doesn’t have the luxury of oil prices being at USD 120 per barrel. Now, it’s less than USD 50. They want to produce, but at a more efficient rate. They are already pushing companies to come up with solutions and technologies that are more efficient and effective than what they have been doing. This has helped to drive more research and innovation, and they will require more people for that research and technology development.
What other entities are you trying to attract in building R&D centres?
We want to attract water, ICT and energy companies such as Veolia, ABB, Aker Solutions, Oracle [Corporation], SAP, Cisco [Systems] and Huawei. We are also very keen to attract companies operating in renewables sector, such as in wind and solar. Although it is still in its nascent stage, we have taken giant strides in the right direction. Saudi Aramco and GE put up a massive wind turbine next to the border of Iraq earlier this year.
Downstream companies such as ExxonMobil or Chevron that are huge entities by all measures have very little business volume in Saudi Arabia. Anyone who does not have a significant business volume will not be keen on becoming our partner.
It is very difficult for us to convince companies with smaller business volumes to invest and build R&D centres under our current business model.
What is the strategy to achieve the goals you have set yourself?
As part of our strategy we have evolved our business model to include multiple offerings, such as leasing land as well as renting space. To this end, we have earmarked portion of our second phase to multi-occupancy facilities that will cater to the needs of companies that require offices and laboratories for annual rentals.
We are also very pragmatic. We understand the basic driver for these multinational technology companies is the business volume. Who controls the business volume? Big companies. We like to call them national champions, such as Aramco, SABIC, Saudi Electricity Company and Ma’aden. We partner with them and we develop a comprehensive value proposition that offers a win-win situation to all the parties involved.
What new initiatives has Saudi Arabia established that will affect the market?
An important initiative going forward is Saudi Aramco’s IKTVA [In-Kingdom Total Value Add] programme. The mission is to create value in every aspect of business by maximising long-term economic growth and diversification. IKTVA focusses on driving domestic value creation to support a rapidly changing economic environment and foster future prosperity. The key objective is to achieve 70% local content by the year 2021 that will capture value that produces long-term benefits vis-à-vis quality jobs for the growing Saudi population, innovation and diversification of industry and increased global competitiveness.
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