September 15, 2012

Crain's Chicago Business

A Chicago company brings power to the Peoples Republic

 

Andrew Perlman would seem an unlikely candidate to construct an energy project in China so massive it would supply half the natural gas that the world's most populous country now imports from Russia.

But the 37-year-old founder of GreatPoint Energy Inc. can credit seven years of resolve, patient investors and a little dumb luck for the $20 billion-plus project to turn coal in the Gobi Desert into pipeline-quality gas to fire power plants thousands of miles away in Beijing and other cities.

In the process, GreatPoint, which has yet to generate any appreciable revenue, is on track to become one of Chicago's few alternative-energy success stories. Mr. Perlman expects to take the firm, which has its engineering and research staff in Chicago and will soon move its corporate headquarters here from Cambridge, Mass., public within the next few years.

“This is by far the most exciting thing I've ever done,” he says.

Mr. Perlman launched five successful startups before he turned 30. But his initial plans for GreatPoint—building coal-to-gas plants in the U.S.—foundered on the collapse in natural gas prices after the recession and a sharp increase in supply due to the rise of hydraulic fracturing drilling techniques.

Mr. Perlman's fortunes improved after a cold call in the spring of 2011 from executives at China Wanxiang Holdings Corp., one of China's largest private companies. They wanted a technology to turn coal into gas in China and were referred to GreatPoint by private-equity firm Warburg Pincus LLC, which had considered investing in GreatPoint.

Soon the Chinese company agreed to become GreatPoint's biggest investor, joining U.S. corporate heavyweights including Dow Chemical Co., AES Corp., Peabody Energy Corp. and Citigroup Inc. Wanxiang was instrumental in getting the deal done in China.

Construction of the first of what will be 34 reactors, a $1.25 billion facility producing 30 billion cubic feet of natural gas a year, should begin next spring and be complete in 2015. China Petroleum & Chemical Corp. (Sinopec) has agreed to purchase the gas and will pipe it to China's population centers.

The potential scope of the deal is vast. GreatPoint's plants will produce 1 trillion cubic feet of synthetic gas annually, Mr. Perlman says. The project will cost $20 billion to $25 billion, with roughly $6 billion of that equity.

Chicago wasn't a predictable landing spot for Mr. Perlman. A devoted New Englander who names his ventures after beaches on Nantucket Island, he moved here nearly six years ago, largely to get access to testing facilities at the Gas Technology Institute in northwest suburban Des Plaines.

That, combined with laboratories at GreatPoint's offices in the Illinois Medical District in Chicago, was where the firm updated a long-shelved coal gasification technology developed in the late 1970s by Exxon Corp. It turned out to be ideal for an arid environment because it uses relatively little water compared with other gasification methods.

“When you're in the middle of the Gobi Desert, that's very important,” Mr. Perlman says.

Key to GreatPoint's deal: Unlike in the U.S., where natural gas prices are at historic lows, natural gas costs in China are on a par with sky-high oil prices. (Hence, the irony of a Chicago company building synthetic gas plants across the globe when a plan to do the same in Chicago was vetoed recently by Gov. Pat Quinn.)

The main risk to GreatPoint is that energy markets can change dramatically. If a fracking boom takes off in China as it has in the U.S., the price could plummet.

“The potential is there” for success, says David Carroll, president and CEO of the Gas Technology Institute. “China needs a lot of energy, and they need to be able to see each other across the street through the smog.”

Pin Ni, president of Wanxiang's U.S. arm, based in Elgin, says he's confident in both the technology and Mr. Perlman's management team. But he allows that all bets will be off if China replicates the U.S. fracking boom.

Mr. Perlman argues that even with the development of fracking in China, the country's energy demand is so large that prices still will reflect its status as a net importer.

COLLEGE DROPOUT

Mr. Perlman first came to the Midwest as a student at Washington University in St. Louis. He had an interest in science and latched onto a technology the university had developed to prevent credit card fraud. When he asked as a sophomore for a license to commercialize it, the university declined because he was still a student.

“So I said, 'OK, I'll drop out,' “ Mr. Perlman recalls.

He did, but the university rejected him again, this time because it didn't want to encourage others to drop out. Mr. Perlman, who'd discovered his entrepreneurial itch, left anyway.

“My parents cut me off,” he says. Needing to support himself, he worked briefly as a telemarketer for long-distance telephone company Sprint before seizing on the budding technology of transmitting voices over Internet data lines. The firm he and a friend launched in 1995, Cignal Global Communications, was sold in 2000 for $200 million.

“To this day, my mom says, 'That's good, but he hasn't finished college yet,' “ Mr. Perlman says, laughing.

Another startup, a company making memory chips for cellphones, was sold to Sunnyvale, Calif.-based Advanced Micro Devices Inc. for an undisclosed sum.

Not surprisingly for the capital-intensive energy industry, GreatPoint's birthing process has been much longer. The company has spent $150 million without seeing any revenue and won't until 2015.

“It takes so damn long,” Mr. Perlman says. “It takes years just building a pilot plant.”

Now that a signature deal is in place, Mr. Perlman expects to take GreatPoint public by 2015. He envisions a staff of 60 to 100 in Chicago, with thousands employed at projects all over the world.

Will Mr. Perlman, the serial entrepreneur, remain CEO of a publicly traded GreatPoint Energy?

“We'll see,” he says.