New Frontiers: Now it’s crude oil from algae that is being tested

Turning algae into a distillate-type fuel has long been one prospective area of renewable liquid fuels; it’s even the renewable project where ExxonMobil has been the most aggressive in its investments. Turning algae into a crude-like substance is the target of another company, as Herman Wang discusses in this week’s Oilgram News column, New Frontiers.

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It’s hard to get excited over a producer making a scant 2 barrels/day of crude.

But in the case of Sapphire Energy, those barrels represent the beginnings of a potential revolution that it says could upend how the US produces oil.

San Diego-based Sapphire is making what it bills as the world’s first “renewable crude,” cultivating algae at its New Mexico farm and converting it into light, sweet crude that — just like the crude extracted from underground — can be refined into gasoline, diesel and other products.

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In addition, unlike most other biofuels, products made from the company’s algae-derived crude are truly drop-in fuels that can fit within existing infrastructure: pipelines, refining equipment and the retail supply chain.

If all goes well, Sapphire expects to produce 100 b/d by 2015 and achieve commercial-scale production by 2018, though the company has not said what volume that would be.

“We have demonstration quantities right now,” said Tim Zenk, Sapphire’s vice president for corporate affairs. “It’s small, but it’s the first renewable crude oil in the history of the world.”

To be sure, the company is still a long way from commercial viability. And the algae-to-biofuels idea is not new, with several other companies in the game — their fortunes waxing and waning with the state of the economy and their successes and failures in the lab.

For example, ExxonMobil in 2009 announced a much-ballyhooed partnership with another San Diego-based firm, Synthetic Genomics, on a $600 million effort to study various strains of algae.

ExxonMobil had predicted that it would begin producing algae biofuel within a decade. But the company has since backed off on those rosy projections, with CEO Rex Tillerson saying in a March interview on PBS television’s “Charlie Rose” program that such fuels are “probably further” than 25 years away, as the technology has proven more difficult than first imagined.

Other companies are in various stages of development. So far, Sapphire appears one of the furthest along the path to commercialization.

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The privately held company, backed by investors including Bill Gates and the Rockefeller family, earlier this year signed an off-take agreement with major independent refiner Tesoro, which will purchase the crude made by Sapphire.

Sapphire did not disclose how much Tesoro is paying for the crude, but called the agreement “the first step of a commercial relationship” to process the company’s future commercial production.

Zenk said Tesoro is helping Sapphire through the Environmental Protection Agency’s certification process that approves transportation fuels for on-road use. In addition, Sapphire said its crude will be eligible to generate renewable credits, known as RINs.

RINs are tradable credits representing gallons of biofuels, and refiners who are unable or unwilling to blend enough biofuels in their gasoline supplies under the Renewable Fuel Standard can purchase RINs to meet their obligation.

“We have to make sure it passes all the engine testing,” Zenk said. “We don’t expect any barriers there. This is crude oil just like you get from the ground.”

Sapphire’s $135 million “Green Crude Farm” in Columbus, New Mexico, consists of a series of ponds, where specially engineered algae is grown in brackish water. Through a patented process, the company harvests the algae and extracts the oils that are “highly branched and undecorated, molecularly similar to light sweet crude.”

Sapphire said it takes an average of 14 days to go from seed to oil extraction, and with New Mexico’s climate, algae can be grown year-round.

The farm was completed last year with the help of a $54.5 million loan guarantee from the US Department of Agriculture’s Biorefinery Assistance Program and a $50 million grant from the US Department of Energy.

The company announced last month that it had paid off the balance of the loan backed by the USDA guarantee, after raising additional equity from its investors. USDA praised Sapphire for its progress.

“The investments being made in low-carbon biofuel production are paying off and moving technologies forward, which will produce savings at the pump for consumers, and spur sustainable, new-wealth creation here in the United States,” said Doug O’Brien, USDA’s acting under secretary for rural development.

In addition to the federal aid, Sapphire, like all advanced biofuels manufacturers, considers the RFS vital to its future. Amid attacks by the oil industry, some lawmakers in Congress are seeking to reform the ethanol blending mandate.

Zenk said any reforms should still incentivize advanced biofuels manufacturers, to ensure that budding technologies, such as Sapphire’s, continue to be developed in the US.

“The RFS is an essential component for scaling up these new technologies,” Zenk said.

–Herman Wang in Washington


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