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Engineering energy's next big breakthrough

There are lots of young people like Derya Yinanc in Silicon Valley, running little teams in “skunk-works” experimental-engineering labs that occupy low-rent industrial space. The difference is that Mr. Yinanc is in Calgary, not Palo Alto, Calif., and his hope for a technology breakthrough lies in natural or “primary” resources, not information technology. Whether or not this 32-year-old Turkish-born engineer unleashes disruptive innovation – his Quantum Ingenuity Inc. has yet to earn a speck of revenue – this startup presages a new era in oil and gas, as energy extraction becomes a technology-intensive industry and not just a matter of sticking a drill in the ground.

What is your life story?

I was born in Istanbul, and I have been in North America for about 11 years. My alma mater is Rutgers University in New Jersey. I was in finance in the United States and worked on several technology startups. I came to Canada for the international MBA at Schulich School of Business at York University in Toronto.

How did you end up in Calgary?

In the last year of my MBA, while working for Canadian Imperial Bank of Commerce, I got interested in sustainable technology commercialization. I came to understand there is a great niche for technology development in primary resources – oil and gas, water, food, commodities. It took little time to discover there was scope for creating a business. I asked around the bank and they said the best place was Calgary, in terms of commodity markets.

How did the company take shape?

I had decided to do a PhD in innovation management. I actually started it, but then I met Prof. Bob Schulz at University of Calgary. He said, ‘You want to do innovation yourself. It is best to go for something in engineering [training].’ I said ‘If I start a company, would you join me?’, and he said yes. [Prof. Schulz is now a director with a mandate to make commercial connections.] So I worked on a master’s of engineering as I was developing my company.

As you founded Quantum Ingenuity 18 months ago, you called it a ‘lean startup.’ What’s that?

It is a startup that is extremely focused with an extremely low-cost development cycle. Generally it is two to five people focused on a single project for two months. You see it in information technology, but it is rare to see this being done with primary resources.

We have a very small team, seven employees as of now. We develop prototypes from scratch. There are no external orders, as such. We build our prototype, test it ourselves, develop the physics, develop the engineering. It is a close-knit group with multidisciplinary skills that comes together for this one occasion.

But your press release describes seven prototypes in different areas. Don’t you lack focus?

We have heard this so many times when people look at our work for the first time from the outside. But when they try to understand it, within 10 minutes, that conversation changes to: How do you get to be first to the finishing line?

It looks like we are working on a number of things but it’s all connected to primary resources. We develop these inventions, we develop the prototypes, and then we time their commercialization according to those that are closest to the marketplace.

How lean are you?

We have invested $50,000 so far and it is all in the founders-and-families stage. We will go public. We do not have a target date; it is too early. And we are talking to venture capitalists. We rejected a venture capital deal for $2-million a couple of months back because of dilution [of ownership]. Unfortunately in Canada, venture capital requires 40 per cent [equity] to get talking, 60 per cent to get serious.

What will separate you from the pack?

People usually have one idea at a time and try to commercialize that. We found that an extremely focused approach has absolutely no chance of success in this industry. So we take a portfolio approach, and that differentiates us. I have adapted it from my investment banking days. So we have prototypes in next-generation upgrading, oil sands mining, methane hydrate extraction, biodiesel and other technologies.

So you feel you are an alternative to the slowness of innovation implementation in the energy industry.

To give an example, it has taken steam-assisted gravity drainage (SAGD) technology 15 years to get to this point. It was 1995-96 when it was being tested by the industry. The time frames are not quick.

Contrast this with Bell Labs which, in developing consumer goods, has a time frame of one year to market. In oil and gas it is 20 years, and it is not just the small guys. It took Exxon 20 years to commercialize 3-D seismic technology.

Why has that happened?

We have an exploration industry that is very risk-taking, but the production side is risk averse. There are two fundamentally incompatible cultures having to co-exist. That is the story of oil and gas. And production drives the process because the money comes from the production process.

But don’t you have to find investors now?

We are in negotiation. Finding the right partners is more difficult than finding the money.

In 10 years, what will you be doing?

I would like to be called the Steve Jobs of primary resources. In the disruptive innovation model, the Steve Jobs model is the right one in terms of the ability to develop and prepare a marketplace. He didn’t just develop the technology. He developed lifestyle experiences and that is our kind of approach: We develop the broader context, not just the technology.

Of all your technologies, what are you most focused on?

Methane hydrates extraction, without a doubt. By producing methane at a fraction of today’s cost, it would change the world as we know it – energy, transportation, everything would be different. Up to this point, it has been called the crude oil epoch. The next age will be the age of natural gas. Everything we will be using will be based on that. Methane hydrates contain more natural gas than anything else on the planet.

Are we going from the extraction age to the technology age in energy?

We might be very close to it. The easy oil is depleted already. Right now, the cost of oil sands output from a new project is $75 (U.S.) a barrel. That is not sustainable with the world economy as it is. If the United States ends up in debt default, and oil goes below $60, a large number of companies in Alberta that started new projects will shutter them right away. They can’t afford it.

In Saudi Arabia, the cost is $4 a barrel and we are developing $75 oil up here. That cannot exist for long. The costs have to go down and it is through new technology. There is no optimization of engineering skill that will take costs from $75 to $4. New disruptive technologies are required.

Does the industry agree?

There is a great amount of agreement on the need for [revolutionary technology], but most oil sands operators do not have their own R&D [research and development]. They know the problem but they are not equipped to handle it.

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Derya Yinanc

Title: Chairman and CEO, Quantum Ingenuity Inc., Calgary.

Personal: Born in Istanbul; 32 years old.

Education:

Bachelor of science (physics) from Rutgers University.

International MBA, Schulich School of Business, York University.

Master’s of engineering, University of Alberta.

Career highlights:

Immigrated to the United States in his early twenties; studied at Rutgers.

Worked in technology finance in the U.S.

Employed by CIBC while studying for MBA in Toronto.

Became president of Gaia Shakti Group, which established ethanol feedstock trial in collaboration with first nations.

2009: Founded Quantum Ingenuity.

CALGARY — A Calgary-based research and development company says it has developed a number of “breakthrough” technologies that would reduce costs in the oilpatch while at the same time being environmentally-friendly.

Derya Yinanc, chief executive and chairman of Quantum Ingenuity Inc., said the company is in negotiations with “multiple major energy firms.”

“Developing breakthrough innovations for primary resource technologies, such as oil and gas, such as energy production, this is our purpose,” said Yinanc.

Quantum Ingenuity Inc. was founded in 2009 to provide improved primary resource production technologies. Its executive team includes Paul Harris, chief innovation officer and director of advanced concept research; oilpatch veterans Garry Mihaichuk, co-president for commercialization, and David Devenny, co-president for research and development; and director Bob Schulz, who is a professor in Petroleum Land Management at the University of Calgary’s Haskayne School of Business.

Yinanc said the company has achieved breakthroughs in clean coal technology, sustainable hydrogen production, and sustainable ethylene and acetylene production.

Quantum Ingenuity has done research work in the areas of heavy oil upgrading and refining, biodiesel production, heavy oil transportation, methanol fuel cells and heavy oil extraction.

“Right now, refining, extraction of crude oil, call it bitumen, call it any kind of crude oil, is extremely hazardous to the environment. The environmental damage that it causes, and the costs associated with cleaning up, is one of the major factors,” said Yinanc. “What we have is the elimination of that cost altogether.

“Room temperature, room pressure upgrading has the potential to revolutionize the industry. The industry itself is operating through 1930s and 1940s chemistry which is very bulky, very large. Huge units can do what we can do on a very small scale. Modularity is the key here.”

Yinanc said that within one to two years a pilot unit should be in place based on 50 barrels per day in production. Once in place, it would take a few years for approvals. He said in three to four years these technologies could be in the marketplace and available for industrial use.

“The upgrading technology is pretty old technology and it’s brute force technology. We bring in reactors for the upgrading reactions to take place in,” said Devenny. “They have stainless steel walls that are two feet thick. You need that sort of pressure vessel in order to operate large equipment at high temperature, high pressures. And the high temperatures are several hundred degrees. This is pretty expensive to bring something in that big and to operate at that high temperature.

“Our technology is operating at room temperature and pressure. So we eliminate that. We’ve replaced this expensive equipment with something at room temperature and pressure.”

Devenny said the company is developing breakthrough technologies.

“In oilsands, we kind of joke that if you invent something new it takes about 20 years before it gets introduced and put into commercial use,” he said. “This is a real challenge because with the plants operating today you don’t want to introduce some new technology that would cause them to not operate so well. So they’re deathly afraid of trying something new. They want anything new tried offstream independent of existing production. They go to great lengths to turn technology away or to really prove beyond a doubt that it can fit into their technology. That’s a challenge we’re going to face here because this doesn’t need much of their technology.”

Schulz said the industry has been operating with 40-year-old technologies. He said Quantum Ingenuity is a technology maverick which has already succeeded with environmentally-friendly, inexpensive room-temperature conditions and rapid-fire experiments which combine to dramatically shorten the innovation cycle time.

The next stage for the company is to seek partnerships with energy companies or countries interested in the breakthroughs.

“Although Derya has been successful in the lab, part of the reason it’s not taken off as quickly as possible is because the companies don’t always have the science people to evaluate what he’s doing or they have their own guys that have their own ideas,” said Schulz.

Greg Stringham, vice-president of oilsands and markets for the Canadian Association of Petroleum Producers, said technology has always been the key for the oil and gas industry, particularly in Western Canada because the region has some of the tougher resources to extract.

“Between 10 and 15 years ago, I think you’ve seen not only a lot of incremental improvements on things, lower environmental impacts and also better recovery technologies, but we’ve seen some huge breakthroughs as well,” he said.

“Innovation cannot be funnelled through just one channel. So it’s important to get that going in a variety of forums.”

mtoneguzzi@calgaryherald.com