Saturday, July 30, 2016
When energy innovations catch public attention, they generally involve alternatives to fossil fuels: a wind turbine blade that is 290 feet long, or a station that can recharge an electric car in 30 minutes.
While there are impressive advances being made in renewable energy, reflected in the plunging costs of solar and wind power, there is also impressive progress in some of the processes for the extraction and use of fossil fuels.
And even as US shale producers have struggled to stay financially afloat following the slump in oil prices, they have cut their costs by 30-40 per cent just in the past two years, according to Wood Mackenzie, the research company.The economic impact of refinements in the techniques of horizontal drilling and hydraulic fracturing, which made it possible to produce gas and then oil from shale reserves at commercially viable rates in the US and beyond, were arguably the most significant innovation of the past decade in any industry, not just energy.
Some of that cost reduction is likely to prove only temporary, because it comes from production companies driving down the rates they pay their contractors. The precipitous decline in oil and gas drilling activity in the US, with the number of active rigs dropping by 77 per cent since October 2014, has made it possible for operators to cut contractors’ margins to the bone, but that will not be true forever.
Some of the cost savings, however, have been the result of genuine improvements in efficiency rather than the short-term financial distress of suppliers, such as cutting the number of days needed to drill a well.
The first rigs that have been taken out of service were the older, less efficient ones, and the newer generations that are still running are typically faster and cheaper to run.
Schramm, a rig manufacturer based in Pennsylvania, says its latest rigs are “highly mobile”, reducing the time needed to set them up and take them down between jobs and offering new ways to run drilling operations.
“It’s a manufacturing approach,” says Mike Dynan, Schramm’s vice-president of strategy. “You want the most efficient tool for the job, and you don’t need to be using the most expensive rig to drill the whole well bore.”
Smaller and cheaper rigs can be used to drill the vertical part of a shale well, which is the easiest section, generally about 5,000-15,000 feet straight down. Then a more powerful and expensive rig can be brought in for the curve that takes the well round to the horizontal, and then out to the full lateral extent, which in the longest recent wells is almost 19,000 feet from the vertical section.
Another emerging trend in shale production is the use of data analytics to refine production techniques. The oil and gas industry has always exploited the latest applications in information technology; it was pioneering work with computers to analyse geological data at the end of the 1960s that enabled the oil discoveries in Alaska, for example.
Now cheap and robust sensors and wireless communications make it possible to collect a vast amount of data on everything from pressures, temperatures and vibration down a well to the condition of equipment.
“It’s not just a bunch of guys out in the field any more,” Mr Dynan says. “Now there’s real data, and it allows us to maximise returns, in terms of production and for investors.”
Bill Briggs, chief technology officer for Deloitte Consulting, says the oil and gas industry has “led the field for years and years”, in terms of its investment in data visualisation and analytics.
But there is still plenty of room for improvement. One example is logistics: operators need to manage the complex movements of rigs, pumps, trucks and other equipment, as well as the sand and water used for hydraulic fracturing, to make sure they are all available to be used on a well at the right time.
“The job isn’t fundamentally changing, but the way we do it is being reimagined,” Mr Briggs says.
There is a parallel in the development of technologies used to cull energy from fossil fuels. Manufacturers of turbines for power generation, including General Electric and Siemens, fit them with thousands of sensors that enable their performance to be monitored and analysed to improve efficiency.
GE recently launched new technologies for coal-fired power plants that include 10,000 sensors in each system. Ganesh Bell, chief digital officer at GE’s power equipment division, argues that making coal-fired plants more efficient is going to be an essential part of controlling greenhouse gas emissions.
“Coal is the main source of power in the world, and it will be for some time, so we have to optimise it,” he says. “We believe that by 2030, something like 30 per cent of the world’s power will still come from coal.”
Just using GE’s software to analyse a coal plant’s performance and run it better, he says, can cut greenhouse gas emissions by 3 per cent. Other technologies can raise the efficiency of a coal plant’s conversion of heat into electricity, which is typically about 33 per cent in the US today, to 49 per cent, reducing emissions by about 30 per cent.
The falls in renewable energy costs have been so steep that, in many parts of the world, wind and solar power are now more cost-effective for countries adding electricity generation capacity than new coal or gas-fired plants.
The continuing improvements in fossil fuel technologies, however, are a reminder that for renewables to keep on gaining market share, they will have to continue cutting costs to keep up.
The now-ailing media mogul Sumner Redstone is widely credited with popularising the phrase “content is king”. The intuitive appeal of this aphorism has separated investors from their money across a wide range of media businesses.
The basic fallacy inherent in the sentiment, however, has ensured that these stories have ended unhappily from a financial point of view, and not just in movie making. In particular, pursuit of the content dream has been behind many disastrous forays into the business of education by some of the world’s most sophisticated investors.
But the business of investing in the hope of generating a hit is not a very good one. The source of the unattractiveness of this business is basic: there are few barriers to entry in content creation.Why isn’t content king? Surely what underlies the success of all media — whether a landmark film, a breakout TV series, a standard textbook or popular educational software — is compelling content. “Hits” are indeed valuable.
Take a look at the more than $1bn Rupert Murdoch spent between 2010 and 2015 to try to revolutionise primary and secondary education through a business called Amplify, the digital education division of News Corp.
The single biggest money drain, before the business was sold for scrap value to a group of investors led by Laurene Powell Jobs, the philanthropist, came from investing hundreds of millions of dollars to develop an entirely new digital curriculum.
Losses from Amplify Learning, the curriculum division, were more than from the other two divisions combined, yet had been projected to account for only 20 per cent of the combined revenues well into the future.
Amplify created good content. Its middle-school reading curriculum was adopted in California, one of the most important states for the market. But California’s Instructional Quality Commission recommended adoption of 25 of the 29 English language arts programmes submitted. These included not just established programmes from all the major textbook publishers, but also from a wide range of newer digital players. Amplify will be one of many competing on a district-by-district basis for sales.
The recent wave of exciting new educational products and services has caused unprecedented confusion and disappointment among teachers, parents and students
Content would be a great business if one produced only hits, but it never seems to work that way. The lack of barriers to anyone spending prodigious amounts of capital to create the next smash is what ensures a pedestrian return on that capital.
The market and universities’ current infatuation with Moocs (massive online open courses) reflects a misguided belief that the internet will make educational content creation a bigger and better business. The two largest venture-backed Mooc providers, Udacity and Coursera (which compete with university-backed non-profit EdX), have now attained a unicorn valuation status of more than $1bn, despite generating modest revenues and less modest losses.
The education content businesses that have done well over time, such as textbook publishers who long dominated the for-profit education landscape and are still highly profitable, benefited from economies of scale. These advantages are primarily due to the fixed marketing and distribution costs that industry leaders can spread across their larger customer bases.
The ubiquitous availability of digital distribution has reduced the fixed cost requirements. This has facilitated the introduction of innovative new competitors but also undermined financial returns across the board.
What’s so bad about multiple new entrants, even if the long-term viability of many of the businesses is questionable? The education industry has always represented a mix of public, non-profit and for-profit enterprises.
For-profit enterprises with sustainable business models provide a level of continuity that government and non-profits — subject as they are to the fickle preferences of politicians and funders — cannot. The recent wave of exciting new educational products and services, most of which fail to live up to their hype and can disappear quickly, has caused unprecedented confusion and disappointment among teachers, parents and students.
Misunderstanding the structure of educational markets can result not just in unexpected financial outcomes but also undesirable policies. Universities across the country have felt pressure to introduce hundreds of Moocs, often generating significant losses. The inspiration behind the Mooc movement is to improve access to education — particularly among poor students. It turns out, however, that students from less-advantaged economic backgrounds are less likely to enrol in Moocs at Harvard and MIT than their wealthier peers.
Understanding the structure of educational markets is essential for building strong and sustainable businesses. It is equally important for successful non-profit planning, and developing effective government regulations in the sector. Our collective interest in ensuring a better appreciation of the true drivers of resilient education business models is not just as shareholders and managers but as citizens and taxpayers.The perverse result is that by subsidising the development of Moocs, which in turn puts further pressure on tuition costs and financial aid, less well-off students are effectively funding the educational aspirations of their wealthier counterparts.
At the height of every summer, Europe’s manufacturers slow down, their workers go on holiday, and some of their factories even close. But, this year more than any other, the continent’s steelmakers are hoping the annual seasonal lull is the only reason for a dip in the metal’s price.
This 4 per cent fall since June has cut short a rally in recent months and raised questions about the strength of a recovery in the sector that is still grappling with the collapse in the commodity’s value last year.
A combination of global oversupply, low raw material prices and a flood of cheap Chinese exports created some of the toughest market conditions for steelmakers since the financial crisis.
Recently, though, there have been signs of improvement: since touching a low of €313 a tonne in February, average EU monthly prices for hot rolled coil shot to €444 a tonne by June, according to the consultancy Meps. This month, however, this benchmark sheet steel product slipped in price to €426 a tonne.
Nevertheless, market fundamentals have “shifted dramatically” in favour of steelmakers, according to Mike Shillaker, analyst at Credit Suisse. He says the run-up in prices is partly down to buyers of steel refilling their warehouses after running supplies down.
“We were in a major destocking period for a good year and a half, triggered by the collapse of oil and iron ore [prices] in the middle of 2014,” he explains. “Inventory was depleted.”
Investors will be looking for further signs of encouragement when ArcelorMittal, the world’s biggest steelmaker, reports half-year results on Friday.
There is already some cause for optimism. Last week, SSAB of Sweden exceeded analyst expectations when it posted second-quarter earnings of SKr1.58bn ($183m) before interest, tax, depreciation and amortisation.
However, much will depend on the behaviour of China, which makes almost half the world’s 1.6bn annual tonnes of steel and is accused of dumping excess material at lowball prices as its domestic consumption cools.
Chinese shipments into the EU jumped by more than 50 per cent last year and remain “elevated”, according to Eurofer, a trade association.
But China’s domestic and export steel prices are now at more stable and “acceptable” levels, says Seth Rosenfeld, an analyst at Jefferies. As these imports lose their price advantage, the impact on European producers should be less harmful than seen in late 2015.
Even so, companies in the EU have continued to cede market share in their home region to players from countries such as Japan, South Korea, Iran and Russia. Total imports by EU countries increased nearly a quarter in the first three months of 2016, according to Eurofer, while apparent steel consumption grew just 3.1 per cent.
One hope for protection against these flows is the EU’s newly found combative attitude towards unfairly traded steel.
Steelmakers have long criticised Brussels for its slower and less robust regulatory approach compared with the US. But EU authorities have expanded an investigation into Chinese hot rolled coil shipments to a further five countries, covering about 80 per cent of all European imports of the product.
“Anti-dumping is kicking in quite strongly,” says Alessandro Abate of Berenberg. “If there’s further implementation of anti-dumping [measures], this can boost prices”.
However, any benefit may be offset by the potential economic fallout from the UK’s vote to leave the EU: it has already led Jefferies to halve its estimates for steel demand growth in the second half of this year and 2017.
A degree of self-help could yet be on the way from a possible wave of merger and acquisitions in Europe. ThyssenKrupp and Tata are in talks over a joint venture that would create the continent’s second-largest steelmaker, ArcelorMittal and Marcegaglia are competing with other bidders for control of the Italy’s large Ilva plant.
Fewer but bigger players in Europe could lead to supply restraint and less aggressive pricing. “In the US, proactive supply discipline in times of weaker demand has supported much higher prices. The EU has never seen that in the past, so it’s compelling,” says Mr Rosenfeld of Jefferies.
In addition, Beijing has pledged to shut down unneeded plants.
Whether these factors combined will be enough to prevent another precipitous drop in European prices is likely to become more evident in late September, say analysts, once the wheels of the economy pick up speed again.
Tuesday, July 26, 2016
India will have the most advanced digital payment ecosystem over the next five years, backed by Unified Payments Interface (UPI) and Aadhaar as well as growing internet user base, rising smartphone penetration and positive regulatory changes, according to Rajan Anandan, vice-president (southeast Asia and India) at Google.
According to a new report by Google Inc and Boston Consulting Group, India's digital payments sector will be worth $500 billion by 2020. This means the country will see $500 billion flowing through digital payments, which will contribute to 15 per cent of the country’s GDP.
The report is based on a consumer survey, which entails 3,500 respondents including 1,156 digital consumers, 917 remittance users, and 917 merchants across nine geographies - Delhi, Mumbai, Bengaluru, Ludhiana, Lucknow, Indore, Surat, Vishakapatnam, and Coimbatore.
It also includes 14 group discussions as well as 26 in-depth interviews for users and merchants in three cities - Mumbai, Lucknow and Delhi.
“Spurred by smartphone penetration, and supported by progressive regulatory policy, the digital payments industry is at an inflection point and is set to grow 10 times by 2020,” said Anandan, adding: “We expect that half of India’s internet users will use digital payments and the top 100 million users will drive 70 per cent of the gross merchandise value by 2020.”
UPI is an integrated open architecture setup that brings together all service from Immediate Payment Service, Automated Clearing House to Rupay into one platform, allowing it to provide services to all payment services providers such as banks, fintechs, and payments banks, and facilitating peer-to-peer payments, person-to-merchant payments, and business-to-business payments.
India is expected to have 650 million internet users and 520 million smartphone users by 2020. Out of whom, according to the report, around 300 million consumers will be using digital payments. About 60 per cent of digital payments value will be contributed by offline points of sale such as unorganised retail, eateries, transport, etc. The report also noted that micro-transactions will form a substantial portion of the industry, with 50 per cent of person-to-merchant transactions expected to be under Rs 100.
Overall, in consumer payments segment, non-cash payment instruments including cheques, demand drafts, net banking, credit/debit cards, mobile wallets and UPI will double its contribution to 40 per cent by 2020, and will reach 50 per cent by 2023, the report said.
“Global digital payments industry is undergoing rapid transformation and is set to grow four times in value terms by 2020. India is on an even more exponential growth trajectory. The smartphone explosion will usher in a new era in digital payments in India over the next few years that will see digital payments exceed $500 billion by 2020 and non-cash transactions exceed cash transactions by 2023,” said Alpesh Shah, senior partner and managing director, The Boston Consulting Group, India.
"Going forward, next-gen technologies like voice-based payments, biometrics and iris authentication through mobiles, QR codes, wearable devices and internet of things will play a significant role in driving the adoption of digital payments."
Lack of reach and complexity of using digital payments systems were found to be the key barriers, among others.
The report found 50 per cent of those who do not use digital payments not willing to use because they found the product too complicated to understand, while 61 per cent of non-user merchants find it complex to use.
Additionally, universality of acceptance of digital payment methods and merchant concerns around speed of transactions during peak hours have emerged as other inhibitors to usage.
Monday, July 25, 2016
Google has launched a project to use artificial intelligence to create compelling art and music, offering a reminder of how technology is rapidly changing what it means to be a musician, and what makes us distinctly human.
Google's Project Magenta, announced this month, aims to push the state of the art in machine intelligence that's used to generate music and art.
"We don't know what artists and musicians will do with these new tools, but we're excited to find out," said Douglas Eck, the project's leader in a blog post. "Daguerre and later Eastman didn't imagine what Annie Liebovitz or Richard Avalon would accomplish in photography. Surely Rickenbacker and Gibson didn't have Jimi Hendrix or St. Vincent in mind."
Google has already released a song demonstrating the technology. The song was created with a neural network -- a computer system loosely modeled on the human brain -- which was fed recordings of a lot of songs. With exposure to tons of examples, the neural network soon begins to realize which note should come next in a sequence. Eventually the neural network learns enough to generate entire songs of its own.
The project has just begun so the only available tools now are for musicians with machine learning expertise. Google hopes to produce -- along with contributors from outside Google -- more tools that will be useful to a broad group, including artists with minimal technical expertise.
Efforts to use computers to make music stretch back decades. But experts say what's unique here is the extent of Google's computing power and its decision to share its tools with everyone, which may accelerate innovation.
"It's a potential game-changer because so many academics and developers in companies can get their hands on this library and can start to create songs and see what they can do," said Gil Weinberg, the director of Georgia Tech's center for music technology.
David Cope, a retired professor at the University of California-Santa Cruz and pioneer in computer generated music, believes it's inevitable that one day the best composers will use artificial intelligence to aid their work.
"It's going to rampage through the film music industry," Cope said. "It's going to happen just as cars happened and we didn't have the horse and buggy anymore." He's confident in this given the exponential growth of computing power, which for decades has doubled about every two years.
With digital tools improving so quickly, it's become difficult for musicians to stay on the cutting edge while also mastering their instrument of choice.
"The violinist uses the same instrument for a whole career potentially, and they develop the kind of virtuosity on that instrument because they have that intimate relationship with it day after day for years and years," said Peter Swendsen, an Oberlin professor of computer music and digital arts. "Software comes and goes in weeks sometimes."
Amper Music is a new start-up that like Google is interested in harnessing the latest software to create music. Amper uses artificial intelligence to create original songs that match the emotions a video producer wants to convey in their work. Creating the music takes only seconds.
"If you take the sum of everything that has affected music historically and add them together, in 20 or 30 years I think you'd look back and say wow, music AI rivals all of that," said its co-founder, Drew Silverstein.
For now, the potential of music made with artificial intelligence is still largely unrealized. Silverstein is only beginning to tap the entertainment market in Los Angeles. The song Google's Magenta project released this week demonstrates what it's currently capable of, but also how much work lies ahead.
"It is indeed very basic," said Swendsen, the Oberlin professor, after listening to the song. "That's not to say that the system they are using doesn't hold lots of promise or isn't working on a much deeper level than a simple random generator."
The emerging power of this technology is also a wake-up call for what makes us really human.
"A lot of the uniqueness that we like to ascribe to ourselves becomes threatened, " said George Lewis, a professor of American music at Columbia University. "People have to get the idea out of their head that music comes from great individuals. It doesn't; it comes from communities, it comes from societies. It develops over many years, and computers become a part of societies."
As machines have become more a part of our lives, we can count on them to share in the artistic process. For the 75-year-old Cope, this is a great thing, and nothing to be afraid of.
"The computer is just a really, really high-class shovel," Cope said. "I love this new stuff and want it to come fast enough so I'm not dead when it happens."
Thursday, July 21, 2016
Subdued volume, smaller presence in the fast-growingscooter segment, and rural slowdown woes have marked the recent performance of the country’s largest two-wheeler maker Hero MotoCorp. Its ace motorcycle, Splendor, is no longer the largest selling two-wheeler brand, overtaken by rival Honda’s scooter, Activa. The investors still bet on the company, driving the company’s stock price to a new high early this week. It has gained 46 per cent from its 52-week low in September last year.
Hero ended FY16 with a share of 39 per cent in the domestic two-wheeler market against 40 per cent in FY15. In the April-June quarter this year, its share softened to 37.6 per cent against 40.3 per cent in same quarter last year. Rival and former partnerHonda has improved share from 25.5 per cent in the first quarter of FY16 to 27.2 per cent this year, riding on the sustained high double-digit growth in scooter sales. Hero, on the other hand, has had two years of setback in motorcycles (87 per cent of domestic volumes) due to weak rural sentiment. The gains in stock, therefore, seem puzzling.
One obvious trigger in store for the company is the revival of rural market as the country is set to receive good rainfall after two consequent deficit years. Hero sells every second two-wheeler in the rural market. The rural market benefits Hero and other two-wheeler and small car makers as well. So, it is a common trigger across consumption-driven companies.
Hero has other triggers, too. Last week, it launched its first in-house developed motorcycle,Splendor iSmart 110, five years after the split with Japanese partner Honda. Early this year, the company inaugurated its Rs 850-crore research and development (R&D) centre in Jaipur. All along its journey, the company had been dependent on Honda for technology, but that support ended with the split. Hero has been selling four products, developed by Honda, and still pays royalty for the same.
As it widens its in-house R&D, it will be phasing out the products on which it is incurring royalty burden. The first such product to get phased out was Maestro when the company launched its own Maestro Edge in September last year. “We will be phasing out the other three products on which we pay royalty by 2017,” Pawan Munjal, chairman, managing director and chief executive officer, said last week. The three products are Impulse, Ignitor and Passion XPro. Royalty payment is down from Rs 120 crore in FY15 to Rs 80 crore in FY16. The company expects this to come down steeply this year.
The firm has also benefited from the low commodity prices last year, which reflect in the near 16 per cent margins and an all-time high profit of Rs 3,132 crore in FY16. In spite of anticipation of an upward movement in commodity prices, the company said it would make efforts to sustain margins in the range of 14-15 per cent.
Analysts have a positive outlook. “Logically, the company should see a recovery this year and an improving market share in second half of the year, owing to a normal monsoon,” said Jinesh Gandhi, senior vice-president (research), at Motilal Oswal.
Rival Honda has moved up its two-wheeler share as it has maintained its market share of 58 per cent in the scooter market.
Overall scooter sales in the country grew 27 per cent in the first quarter. Hero has marginally expanded share from 13 in Q1 last year to 15 per cent this year after it launched two new scooters in 2015. The company said the two scooters were available nationally from this March and the share could move up further.
“There is a huge amount of work going on at the Centre and the results will be seen over the next several months,” Munjal had said last week, hinting at a roll-out of several new products. But, Hero is far from challenging Honda’s dominance in scooters and will need to ride on its motorcycles for growth.
Overseas business has not been in line with expectations. Hero is in the process of reviewing its strategy for the global business. It had, after its split with Honda, set a target of selling 10 million units a year by 2016, with exports bringing a tenth of volumes.
Later, the target date was advanced to 2020. Last year, export was about three per cent of the 6.63 million units sold.
“The past two-three years did not go according to plans in the export market. A lot of markets are oil-based and a decline in oil prices, currency depreciation and high inflation has impacted demand. We have not changed the 2020 targets. But, it makes sense to sit down and review these numbers,” said Munjal. The company is entering new markets such as Nigeria, Argentina and Mexico for exports.
In September last year, Hero’s first overseas manufacturing facility became operational in Colombia.
The manufacturing facility in Bangladesh will commence operations later this year. With a capacity of 150,000 units, this facility is likely to be used as an export base to other neighbouring countries.
Macquarie, Brookfield and Cube Highways are among a clutch of investors that have taken up equity in 10 nationalhighway projects worth Rs 4,150 crore from which private promoters have exited.
|ON THE ROAD TO RECOVERY|
To provide a thrust to the highway sector and to bring the private sector back on board, the Cabinet in May 2015 approved an exit policy that permitted concessionaires to divest 100 per cent equity two years after completion of construction.
According to Raghav Chandra, chairman, NHAI, all the 10 projects are cases of full exit. “We want promoters who have built roads to come in. They are more focused,” he said.
This Cabinet decision was taken in the backdrop of public-private partnership projects not attracting bidders because of lack of equity in the market. The move is also aimed at unlocking equity from completed projects.
Chandra said investment through sovereign funds was being discussed with the department of economic affairs in the ministry of finance. “These could go directly or through the National Investment and Infrastructure Fund (NIIF),” he added.
The government has conceived the NIIF as an institution to invest directly in infrastructure projects, sub-funds, or in the equity of infrastructure finance companies like the Indian Railway Finance Corporation and the National Housing Bank.
The NIIF will not borrow on its own but sub-funds in which the NIIF invests can leverage by borrowing funds and also attract additional equity investments from other investors, thereby increasing the total funds available.
“The NIIF has the potential to be a game changer for the Indian infrastructure sector. However, the model will take some time to establish. To begin with, investments are likely to be towards operational projects due to their lower risk profile. Nevertheless, this will help in releasing the capital of developers,” an ICRA report said.