Biofuels producer Sapphire Energy Inc. and distributor Pearson Fuels are gaining traction as alternative sources of fuels catch on at the pump and with investors.
Sapphire Energy, a local algae-based green crude oil producer, said it recently secured the final tranche of a $144 million Series C investment funding backed by Arrowpoint Partners, Monsanto and other undisclosed investors. With this investment round, the company’s total funding from private and public sources substantially exceeds $300 million, according to the company. Other investors include Arch Venture Partners, Wellcome Family Trust, Cascade Investment LLC, and Venrock, the venture capital arm of the Rockefeller Family.
“The ongoing support from the private investment community speaks to how strongly they believe in the development of green crude as an alternative fuel resource, especially Sapphire Energy’s ability to commercialize it,” said Cynthia J. Warner, president and chairman of Sapphire Energy. “It is increasingly important to find domestically produced crude oil alternatives to improve the country’s energy security, meet global energy demands and provide jobs. Continued private investment is a critical step in achieving these goals.”
Crude Methods
The recent round of funding is being used to directly support Sapphire Energy’s green crude farm, also known as an Integrated Algal BioRefinery, in Columbus, N.M. The company says it is the world’s first commercial demonstration scale algae-to-energy facility that involves cultivating algae and then producing and extracting ready-to-refine green crude. Sapphire’s Vice President of Corporate Affairs Tim Zenk said processing can be done in existing refineries to produce jet fuel, diesel and gasoline.
“The oils produced from algae look almost identical to the crude oils used today in refineries,” Zenk said.
Sapphire Energy, comprised of 150 employees, says its products and processes differ significantly from other forms of biofuel because they are made solely from photosynthetic microorganisms (algae and cyanobacteria), using sunlight and CO2 as their feedstock; are not dependent on food crops or farmland; do not use potable water.
Although still in the commercial demonstration phase, Zenk says prospects look good for signing on airlines and the Department of Defense as customers of its green crude starting as early as next year. Both have been moving aggressively toward using these types of technologies, he said, and the biofuel has already been used in test flights by Boeing and Continental Airlines as well as by JAL Airlines.
Once Sapphire reaches scale beyond the demonstration phase, Zenk said the company is confident it can hit the $85 a barrel target, which is the average price of crude oil.
“We don’t have the luxury of charging a premium, we have to meet or exceed global targets for crude oil prices,” he said.
On the other end of the biofuels spectrum is City Heights-based Pearson Fuels, which primarily distributes E-85 Ethanol, a mixture of gasoline and ethanol made mostly from corn grown in the Midwest. Pearson Fuels also distributes biodiesel, which is made from used cooking oil obtained from San Diego-based New Leaf Biofuel. Pearson’s distribution channels are 40 locations in California, an even mix of retail outlets and government and military base stations.
Founded in 2002, the two-employee Pearson Fuels achieved $2 million to $3 million in revenue in 2010, when it was operating jointly with a gas station, said the company’s general manager and co-owner Mike Lewis. That portion of the business has since been spun off and the company last year achieved between $3 million and $5 million in revenue, said Lewis, adding that 2012 is on track to be better than 2011.
Expanding Capacity
Pearson has room to expand and is working on building two large biodiesel blending terminals from which fuel trucks could supply outlets, one in the San Diego area and the other near Sacramento.
Lewis sees no shortage of demand for biofuels as vehicle compatibility increases and as gasoline prices rise. The E-85 Ethanol is priced at $3.59 a gallon and biodiesels are competitively priced with diesel.
“As the price of gas and diesels go up, the demand for biofuels has gone up and will continue to go up,” Lewis said. “It’s just a matter of how quickly.”
Lewis is anticipating the possibility of further expansion if funding from the California Energy Commission is approved for 24 new E-85 stations and four hydrogen stations. He’s expecting to find out about the approvals in the next two months, estimated at $1.7 million for the E-85 stations and $6 million for the hydrogen stations.
In the meantime, he sees the industry trending toward producing ethanol out of materials other than corn, such as sugar cane/energy cane, sweet sorghum and wheat straw.
“We’ll see a lot of concentration on that over the next five to 10 years,” said Lewis, explaining that it’s been occurring already outside the U.S. “The challenge is always going to be the price on that and how it compares to corn ethanol, but more importantly gasoline. In the meantime, I believe corn ethanol is really the only substantial alternative to gas.”