Globe And Mail Engineering Energys Next Big Breakthrough

1. Globe and Mail: Engineering energy's next big breakthrough http://license.icopyright.net/user/viewFreeUse.act?fuid=MTM1MzE1NTM=
July 17, 2011
Engineering energy's next big breakthrough
By GORDON PITTS
From Monday's Globe and Mail
Founder of 'lean startup' Quantum Ingenuity is developing prototypes in next-generation
upgrading, oil sands mining, methane hydrate extraction and other technologies
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
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2. Globe and Mail: Engineering energy's next big breakthrough http://license.icopyright.net/user/viewFreeUse.act?fuid=MTM1MzE1NTM=
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.
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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.
---
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.
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