If you want
online information about Telamonn Energy Services
Inc., you’re mostly out of luck. The company is so new the data available is
sketchy. That’s too bad, because the company could be a ground-breaking model
for Canadians wanting to export expertise to booming China.
Chief scientist and technical services VP for this venture is Victoria-based
Mike Dawson, who was president of the Calgary-based Canadian Society for
Unconventional Resources (CSUR) until last October. CSUR originated two
decades ago as an association of corporations interested in coalbed methane. Today it’s one of the world’s ranking
sources of technical information on such unconventional resources as shale
gas and shale oil.
Today China needs these technologies so the country can use less coal.
“The pollution in many large Chinese cities is staggering,” says Dawson.
“China knows that that’s not sustainable. They know they can’t continue to
grow their economy at the expense of the environment and the people. So they
are quite keen on energy substitution.”
Also important is that Northern China, which contains most of the country’s
coal and coal-fired power plants, has barely one fifth of the country’s
water. Increasingly, that region is thirsty for water. By contrast, shale gas
prospects occur in less arid parts of China. Although shale gas production
does consume a great deal of water, many of the country’s shale gas prospects
can secure abundant supplies from local lakes, rivers and groundwater.
According to the International Energy Agency, China’s shale gas potential is
greater than its potential for conventional gas. In 2010, China targetted 30 billion cubic metres
of shale gas reserves. Several foreign firms, including Shell, soon applied
for shale gas production-sharing contracts. In March of this year, Shell
received official approval for its first project.
To heat up the temperature, last year America’s White House announced a
“US-China shale gas initiative.” In effect, the Americans would provide
knowledge in exchange for investment opportunities. Canada was now on the
wrong foot. To be a success, Dawson’s plan needs to steal a march on the
Yankees.
Pollution Problems
o put that plan in context, some background:
Traditionally, China’s central government has allocated petroleum rights to
three major national oil companies – PetroChina,
CNOOC and Sinopec, each of which trades on major global stock markets. While
the central government regulates natural gas prices in China, municipalities
also play a role. In a recent commentary, The People’s Daily worried about
price increases for the product, for which residential consumers in some
districts now pay the equivalent of $0.40 per cubic metre.
Issued at year-end 2010, China’s 12th Five-Year Plan focused on energy
conservation and environmental remediation – notably, through large
reductions in CO2 pollutants. A future planet suffering from GHG-induced
global warming is not a top-of-mind concern for many Chinese. What does
matter is the existence of cities and communities in which people are choking
in pollution created by burning coal. Another worry is that most of the
country’s coal-fired power plants exist in the coal-rich north, where water
is scarce.
“To achieve their energy substitution goals, they are going to have to swap
out coal-fired electrical generation plants with facilities based on natural
gas,” says Dawson. “They also need to be more compliant with international concerns
on the environment. To do this they are making efforts to find other sources
of energy.”
The big gas-import deals China has signed “are steps to help clean up the
environmental pollution. They know that Beijing has some of the dirtiest air
quality in the world.”
Dawson believes the recently signed Gazprom deal between Russia and China – a
30-year deal that will export 38 billion to 60 billion cubic metres of natural gas from Siberian fields via China
National Petroleum Company – was “quite a big one, but it’s really just a
drop in the bucket compared to what the Chinese need to meet their energy
needs.”
Shale gas development represents another step in the environmental clean-up.
To make that happen, China needed a novel approach to issuing permits for
shale resources. Accordingly, the central government made 20 shale gas blocks
(roughly 400 km2 each), available to “smaller entities” within the country.
To buy these blocks, companies had to be of a certain size and had to have
expertise in dealing with this kind of asset.
This was easier said than done: the permit holders include power generators,
heavy industry manufacturers and big industrial gas users, for example, and
they have little or no shale gas expertise. “They have to meet certain government
edicts about power generation and air pollution, and this is how they have
chosen to do that.”
Indeed, many of these “entities” can’t even assess their new properties, much
less develop them. “It’s still a question,” says Dawson, “whether they have acquired
really good green-fields prospects or just moose pasture.”
Ever the experts in moose pasture, this is where Canadians enter the picture.
A key factor in Dawson’s business model is to mobilize Canadian shale gas
expertise. Because of worries about fracking in
eastern Canada, for example, and the glut of gas across the continent, the
market for Canada’s shale gas expertise is unfairly in a funk, according to
Dawson.
“Canadian expertise in this area is undervalued,” he says. “Yet much of the
innovation that is so critical for unconventional resource development had
its origin right here. The entrepreneurial attitude of Canadians is very
strong, there is a lot of expertise here, yet we have an economic
disadvantage for producing shale natural gas for the North American market.”
Swat Team
To deal with those economic issues, Dawson created a notion which one
commentator described as a “shale gas swat team.” In effect an alternative to
the American shale gas initiative, the Telamonn
scheme comprises a freelance group of earth scientists, engineers and other
technical specialists that Dawson assemble into teams as needed as he
develops Chinese contracts.
“We are an amalgamation of smaller consultancies that probably wouldn’t be
able to compete on a global scale by ourselves,” he says.
“Ours is an alliance of consultancies with special skills in the shale gas
industry. Together, we can provide a service package that is suitable for
global competition,” according to Dawson. “This alliance can provide fully integrated
services for shale gas exploration – specifically for China but potentially
for global exploration as well. [Telamonn] is quite
small; there are just a few major shareholders, like myself. The technical
alliance team consists of 10 or 12 individuals who are all individual
consultants in their own right.”
Because all of the technical teams in his alliance are functioning consulting
firms, Telamonn’s business model is the key to
success, in Dawson’s view. “We bring in the appropriate people when and where
necessary to provide the technical expertise required on a specific project.
We could provide fully integrated exploration services, for example, from
conception through completion and development.” Of course, “you may not need
that.”
He gets animated when he talks about the possibilities. “I’ve been to China
many times. I just got back two weeks ago and will probably be going back in
May and June, too. I’m mainly going there to participate in business
development meetings.” With a grimace, he says the meetings can be
exhausting. “The Chinese want to absorb as much western knowledge as
possible. Getting hammered with technical questions during a lengthy meeting
is an experience unto itself – especially when there’s a translator in the
middle of it.”
Then he gets back on message. “With our business model we can help them bring
in the right equipment or make sure the equipment they are using is
applicable for this kind of development. The reality is that in the early
stages, there are key technologies they don’t yet have. We specify the tools
they would need to acquire for the project.”
Enhanced Infrastructure
As Dawson explains it, shale gas production is supported by a three-legged
stool, the legs of which are horizontal drilling, multistage fracking and micro-seismic.
“The foundation of unconventional development is to increase your contact
with hydrocarbon-bearing rocks,” he says, and “the best way to do that is
with horizontal drilling. The second component is hydraulic fracturing to
stimulate the entire horizontal leg of the wellbore. The third part is
micro-seismic, which lets you know what you’ve done. Micro-seismic gives you
constant feedback on how you’ve done underground. Being able to observe what
you’re doing underground in real time allows you to be very effective in
stimulating the wellbore.” These three legs are highly transportable.
Three-legged stools generally require flat surfaces if they are to be
comfortable. Shale gas requires pipeline infrastructure, and many of China’s
shale gas prospects don’t yet have pipeline connections to industrial users.
“[That’s] one of the challenges you face in some of these shale blocks. There
isn’t any infrastructure you can actually tie into if you are successful with
one of these plays. We know where the cities and the major shale gas
prospects are. Clearly in some cases there is going to have to be enhanced
infrastructure in order to provide those pathways for the transmission of
natural gas.”
Dawson has no doubt the country can resolve its infrastructure issues.
“China’s going to be an importer of petroleum for a long while. The economy
is still really strong: we talk about a slowdown there, yet they are still
growing by anywhere from 5% to 8% per year.”
Much has been made of China’s new status as the world’s second largest
economy. But let’s put that in context. According to the World Bank, “China
remains a developing country and its market reforms are incomplete.” In 2011,
per capita income stood at $4,940 – 114th in the world. More than 170 million
people still live below the international poverty line, officially defined as
$1.25 per person per day; only India has a larger number of poor.
Dawson seems unconcerned. “Capitalism is doing quite well in China, thank you
very much. In the next 10 years we are going to see 350 million people moving
from urban areas into the cities. The amount of infrastructure development
going on right now to support that urbanization process is huge.”
Ready to wrap up the interview, he stresses again that his team have all
worked in the industry for long periods of time. “We all understand that
shale gas development is capital intensive. You need a well-thought-out
policy if you’re going to people and asking for hundreds of millions of
dollars. Our approach of having an alliance of professionals ranging from
geoscience to petro-physics to logistics can help us build a strategy for
success. We can provide an integrated approach where geoscience and
engineering all come together. We can add to our unconventional resources
expertise a well-developed exploration strategy that will enable us to marry
all this together.”
On reflection, at this stage in its life Telamonn
seems like a vision rather than a business. This is not meant to damn with
faint praise. Great businesses begin with great ideas.
