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Mainland welcomes unconventional miner

Energy

Few people would have had careers as vastly different as mining and aeronautical engineering and then fuse this expertise to set up a business. But with a geologist father and a pilot mother, it was probably destiny at work for Randeep Grewal.

The chairman of unconventional mainland natural gas developer Green Dragon Gas - a 45-year-old, African-born entrepreneur of Indian descent now living in Hong Kong - earned his mechanical engineering degree with an aeronautical focus from California's Northrop University. During his study years, he had stints at New Jersey-based no-frills airline People Express, which was sold to Continental Airlines in 1987.

'Genetically, I feel I'm essentially built on two fronts - minerals mining and aviation,' said Grewal, who grew up in Zambia, a land-locked nation in southern Africa with an economy reliant on copper mining and exports.

'I grew up in the middle of nowhere in Africa, in camp grounds and in Land Rovers. Many children grew up playing with all kinds of toys, I played with rocks.' As a primary school pupil, he spent time with his father, who was prospecting for copper for the Zambian government, studying geological data and graphs.

Between 12 and 18, he attended an Indian boarding school in the foothills of the Himalayas, cementing his cultural identity, before spending more than 20 years studying and working in the US. This included a three-year stint in the 1990s as corporate vice-president for defence technology firm Rada Group that deployed technology in commercial aviation for avionics maintenance.

But in 1991, he began investing in the oil and gas sector. One of the firms he put his money in was Evergreen Resources, a pioneer in drilling for natural gas trapped between coal seams, known as coal bed methane (CBM). It was acquired by New York-listed independent oil and gas firm Pioneer Natural Resources in 2004.

'Evergreen was an investment that I fell in love with, not only because it was a great commercial return, but also technically I was intrigued by it,' Grewal said. 'I was drawn by the hybrid nature of expertise - engineering and geology - that it required.'

It took the US CBM industry 10 years to improve its drilling technology to reach commercial production of the unconventional clean energy.

CBM has essentially the same chemical composition and energy value as conventional natural gas that exists independently or co-exists with crude oil.

The mainland, with its poor conventional gas resources but fast-growing demands for this form of clean energy, is seeking to tap foreign technology to help develop its vast, unconventional gas resources. It has the world's third-largest reserves of CBM, which remained largely unexploited because of technological challenges and lack of investment.

Since last year, all three Chinese state-owned oil and gas firms - PetroChina, China Petroleum and Chemical (Sinopec) and CNOOC - have been acquiring stakes in overseas companies or projects that have access to unconventional gas drilling technology in a bid to learn.

'They are acquiring unconventional gas assets in Australia and the US, but the basic theme of their investment is technology,' Grewal said.

He followed a similar acquisition strategy as the Chinese majors, but did it more than a decade earlier.

In 1997, he acquired Horizontal Ventures, a company that applied a horizontal drilling technology developed by Amoco Corp - now part of oil and gas major BP - to augment output of declining oil and gas fields.

Horizontal drilling, in contrast with traditional vertical drilling, is a newer technology that bores multiple wells laterally through oil and gas-bearing rocks at angles from a vertical well bore in order to reach more resource reservoirs.

Grewal subsequently injected his interests in Horizontal and oil and gas resources developer Saba Petroleum into a company called Greka Energy, a sister firm of Green Dragon, which develops CBM in Shanxi, Anhui, Jiangxi and Guizhou provinces.

Greka Energy deploys horizontal drilling technology to extract so-called heavy crude oil - a kind of dense and hard-to-produce oil - in California, and processes it into asphalt used to pave roads. This kind of oil resource was abandoned in the 1980s and 1990s by the oil majors after they extracted the lighter and more valuable oil in deeper formations.

While the business model was good, Greka Energy ran into troubles with Santa Barbara environmental regulators, which slapped the company with fines and imposed stop-work orders on its operations after multiple oil spills and improper disposal of wastewater in California between 1999 and 2008. The company blamed it on sabotage.

Grewal said the incidents caught some 'unfortunate attention' in Santa Barbara, which he said was the only county out of the four where Greka Energy operates that 'seemed to have an issue [with it on the environmental front]'. He said its management had dealt with 'the hiccups' well and the spills were all on land that was owned by Greka Energy.

Though Greka Energy's track record was marred by these environmental problems, Grewal said he was committed to developing the clean energy of CBM on the mainland, and this foray had nothing to do with tough environmental laws in California that made heavy oil drilling more difficult to operate there.

'I was lucky to get introduced in China and travelled the nation extensively in 1993 ... [my] interest was where globally can I go to replicate the success I was seeing on the ground in the US for CBM?' he said.

Grewal set up Green Dragon Gas in 1997 and the following year signed one of the mainland's first five co-operation contracts with foreign firms to develop its vast, but untapped, CBM resources. Other early-mover foreign firms that signed similar deals included America's Enron, Philips, Texaco and Arco.

However, replicating their US success on the mainland has proved more challenging than anticipated, and only a small number of foreign firms, including Green Dragon, persevered and reached the commercial production stage.

'In China we had to go through a grass-roots development from the beginning. It's been a very long road [to commercialisation]...it took a lot longer than anticipated,' he said.

The mainland's older and more complex geological structures, compared with the US, mean its coal seams are more brittle and have lower water content. Although they also contain more gas, the gas clings to the rocks tighter and is therefore more difficult to extract.

Not only that, its coal seams are also highly 'faulted', meaning they go up and down instead of going underground at a steady angle. So a gas well needs to be drilled such that it zig-zags to get around a fault.

'The brittle nature or lack of water saturation doesn't allow horizontal wells to stay open for long,' Grewal explained. This often results in a collapse of the coal seam that blocks the bore hole.

So he could monitor the application of horizontal drilling more closely, Grewal relocated his wife and 11-year old son to Hong Kong from New York in 2004, when Green Dragon drilled its first CBM well.

'I physically drilled the wells myself and applied the same drilling technology that I took control of in the 1990s,' he said.

It took almost five years of testing different technical approaches before commercial production started in 2008 at its first production well, called GSS008. Grewal called this 'an excellent fung-shui number'.

This well was drilled using the so-called 'surface-to-inseam' technology, first developed in Australia. Green Dragon accessed the know-how through its 50-50 joint venture with Australia's Mitchell Drilling.

The technology keeps the bore hole open by sliding in a hard plastic pipe with small holes that acts like a liner to allow water to flow through. As water is produced, the change in pressure releases the trapped gas.

'It's a simple solution to a very complicated problem,' Grewal said.

Green Dragon plans to raise gas output from 1 billion cubic feet last year to 18 billion in 2013. While it is seeking to float on the Hong Kong bourse this year, Grewal said it planned to keep its listing at the London Alternative Investment Market, where shares had traded since 2006.

He said Beijing's centralised regulatory regime and active policies to encourage CBM production and consumption were a sharp contrast to those in the US, where slow policy changes due to the influences of many groups with conflicting interests were hindering the growth of gas-powered cars.

On the mainland, CBM producers are allowed to charge free market prices which are higher than those of conventionally produced natural gas that are subject to state-set pricing.

In addition, taxis and buses are encouraged to use natural gas instead of petrol or diesel. As unconventional gas output has grown rapidly in the US while demand growth is stifled, the US gas price has sunk to multi-year lows, while petroleum fuel prices continue to surge.

'It's irrational to me as an engineer, why on earth would you import one commodity [oil] and export another [gas] when the utilisation of what you are importing is for transport, power and heat, which, the fuel you are exporting could easily take care of?' Grewal said.

That perhaps explains his conviction and determination in developing CBM projects on the mainland.

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